A Brief History of Goal Management: From MBO to SMART, KPI, and OKR

Posted by Rick Yvanovich on

Goals, can't live with them, can't live without them. Goals are necessary to motivate and to keep us moving forward. As human beings, we all feel a sense of achievement when a goal is met. For companies, goals provide much needed direction and clarity. But goal management has always been a confusing subject. 

In today's article, we will briefly go through the history of the four most popular goal management methods and benefits of each type. 

Read more: Add values to business objectives with business process 

4 commonly used goal-setting methods today  

The importance of goal management

Goal setting is the process of developing an action plan complete with individual or team targets to measure performance. 

In short, goals help you to: 

  • Stay focused as it can be confusing to operate without knowing the purpose. 
  • Measure and track your progress. 
  • Motivate you to push forward. 
  • Determine where you want to be in the future. 

Read more: Performance review – Which method is right for your enterprise? 

4 commonly used goal management approaches

There are more than a handful of goal-setting approaches available; each has its own pros and cons and is suitable for a specific company culture. Today, we will only look at four of the most common techniques: MBO, SMART, KPI, and OKR. 

4 commonly used goal-setting methods today  

Management by Objectives (MBO) 

Management by Objectives (MBO), or management by results, was invented fairly early. Peter Drucker popularised the model in his 1954 book "The Practice of Management."  

The method continued to be developed by Drucker's students in the mid-1960. Many companies, particularly Hewlett-Packard, favoured this goal management system. 

MBO requires the management and employees to define and agree on specific company's objectives and then decide what actions to take to achieve each goal in sequence. 

MBO allows managers and employees to work with a calm demeanour by taking actions one step at a time. Measuring the employee's actual performance against the set objectives is an essential part of MBO. 

MBO sets a common ground for managers and their subordinates, allows them to define each individual's areas of responsibilities and track their performance along the way. All with the purpose to achieve a mutual goal. 

On the flip side, MBO can become counterproductive if not appropriately managed. For example, employees bypass the quality aspect to achieve the set objectives. 

SMART 

SMART is an acronym for five elements: Specific, Measurable, Achievable (or Attainable), Realistic, and Timeliness. The term "SMART goals" was first popularised by George Doran in a Management Review issue in 1981. 

The SMART goal setting method aims at defining goals by the details to achieve better results and minimise confusion. 

Over the years, each element of SMART would get a different variation depends on the author. Some would use Assignable or Agreed Upon for the letter A; Results-focused for the letter R; Trackable for the letter T. 

Some sources argued that the original inventor of SMART goals was Paul Myer; the concept was used in his work "Personal Success Planner" back in 1965.

Despite the controversies, SMART continues to be a popular goal setting technique among marketers and project managers. 

Those who do not favour this method perceive that it is too rigid and refraining users from innovating and achieving higher mountains. 

Read more: Development – This is not an event. It’s a journey 

Those who use SMART believe by attaching values to the elements ensures you have the basic definition for goal-setting right.  

  • To be specific, the goal needs to target one area for improvement. 
  • To be measurable, teams and individuals need to suggest some indicators to measure the progress. 
  • To be achievable, the goal should not be entirely out of this world, but it also should not be too easy. 
  • To be realistic, the goal should take into account the current resources companies on hand. 
  • And finally, the goal should be restricted by time, which creates a sense of urgency. 

Key Performance Indicators (KPIs)  

Key Performance Indicators (KPI) is undeniably one of the most commonly used goal management systems in the world. Any professional is well aware of what KPI is and how to apply it into the daily operations. 

The exact date when KPI was invented or its original author was unknown, but the practice of evaluating performance date back as far as the third century. 

In short, KPI shows how successful a business is, or how productive an employee is, through a set of quantifiable values, which is then compared against strategic goals. For KPI to be useful, having an understanding of what is important to the business is crucial. 

Too often, businesses blindly apply industry metrics without considering their situation, which results in very little to no apparent improvements. 

Many often forget that KPI is a form of communication. As such, KPI needs to be concise, clear, and transparent. One of the biggest cons of implementing KPI in organisations is that employees can postpone (or even avoid) doing tasks that are not measured by a KPI. 

Read more: How to build a KPI template 

Objectives and Key Results (OKR) 

Objectives and Key Results (OKR) is the new kid on the block. Though recently developed, OKR quickly rises to fame thanks to the endorsement from Google. 

Originally, OKR was developed by Andy Gove, who introduced the concept to Intel during his time at the company. OKR then got carried over to Google by John Doerr in 1999. The company continues to use the method today. 

Besides Google, Spotify, Twitter, LinkedIn, Airbnb and even Target and ING Bank are businesses that adopt the OKR goal-setting technique. 

By default, there are two components to an OKR: 

  • Objective - a detailed description of what companies want to achieve. 
  • Key Results - quantifiable values to measure progress. 

While MBO, KPI and SMART methods focus on being realistic and taking into account the currently available resources, OKR, on the other hand, can be over-the-top

It is common to see unmet objectives when using OKR. The method aims at pushing teams and individuals to think outside the box and be ambitious. 

OKR is also more agile as the timeline set using this approach tends to be shorter, which allows team members to adapt according to specific situations. OKR is driven from the bottom up, and each department objectives must align with the company's overall objectives. Everyone is well aware of how their contributions can impact the overall business performance — as such, implementing OKR can increase transparency. 

What's worth noting is that OKR is not a checklist for every task you need to do. Instead, OKR helps companies to determine top priorities that need immediate attention today. 

One common mistake businesses often make when defining OKR for the first time is set too many objectives and key results at once. Others treat OKRs as a "new year resolution" where they set objectives and key results but fail to follow them through. 

Overall, four goal-setting methods mentioned above agree on setting clear goals, implementing measurable metrics and promoting transparency across all company levels. What differs is how each company defines its goals and objectives. 

While there is no clear winner of which method is the most superior, nothing beats a well-structured goal definition. Some find it helpful to combine several goal statements into a broader outcome area when their goals become too task-oriented and numerous. 

Thus, to reach the highest mountains, TRG suggests you do define your goals (the clearer, the better), align your goals with others as well as with the company's goals, and request everyone in your team to regularly update you on the progress.

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Topics: Enterprise Performance Management (EPM)

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Rick Yvanovich

 Rick Yvanovich
 /Founder & CEO/

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