When you ask CEOs, team leaders, and employees about OKRs, you will get a variety of answers.
There are some people who completely hate OKRs, saying that they are a disaster of a performance system. They believe that OKRs create a negative employee experience and hurt business productivity.
While some leaders and consulting firms see OKRs as the best goal-setting framework, not everyone believes this is the case. Some people might say that OKRs are essential for getting more productivity out of employees by setting ambitious goals.
There is no common understanding of the role of OKRs within an organization.
OKRs should drive sharp focus and strategy execution
Forget what you think you know about OKRs. To-do lists should not be unending and cause you to compete in a box-ticking contest instead of having strategy hopes. Setting goals should not be done on the executive level and then have teams that are responsible for executing them. They should not be a control mechanism that discourages your best talent and drives them away.
The three things that these things should do are: helping teams collaborate on shared goals, help them focus on strategic priorities, and drive business growth.
Common Mistakes That Undermine Collaboration
Key performance indicators aren’t focused on customer satisfaction.
This was a crucial omission at TechCo. The sales representatives for the company were so focused on getting deals signed so they would reach their individual revenue targets that they didn’t accurately or completely document the needs of their clients. The reps would often simplify the more complex requirements and ignore the capability gaps in order to close the deal. The engineers at TechCo began working on more specific plans for implementation, however the sales process was not clear and caused customers to be unsure about what work would be completed and what would be functional. Furthermore, the engineers’ performances were evaluated based on the amount of time it took to install the products, which encouraged them to take shortcuts. After the installation went live, the client service teams from TechCo were left to fix the issues.
Individual targets that are well designed help each person understand how their specific actions contribute to success at a higher level.
That isn’t unusual. In most companies, broad goals are set that depend on collaboration, like increasing revenue or speeding up innovation. Then, many targets are created for different divisions and units based on the belief that people should only be accountable for results they directly influence. But these goals that are only focused on one thing cause employees to only care about their own results and not think about how their actions might impact other parts of the business. Systems that incentivize competition can have negative consequences such as pitting groups against one another, motivating people to hoard resources or knowledge, creating a culture of blame, weakening employee engagement, and leaving customers unsatisfied and angry.
Rewards are tied to input rather than output.
If a brand manager at a global consumer-products company successfully adds information about one of their marketing campaigns to a knowledge management database, they are rewarded with a bonus. After the results of the marketing campaign were not good, the Senior Vice President of marketing asked for our help. “We got a lot of posts,” she told us, “but not many of them had enough detail, analysis, or insights to help others replicate the success.” We see this kind of thing all the time. Input-driven metrics, rather than motivating people to achieve a strategic goal, encourage them to game the system. People are trying to get the bonus as quickly as possible and are not taking the time to collaborate.
Rewards for visionary goals are lumped together with those for short-term objectives.
Although organizations may have difficulty getting their employees to take action on goals that will take a long time to achieve, these goals are still important. They are making a mistake by not having different rewards for goals that are more tangible, short-term, and easily quantifiable.
Psychologists who study delayed gratification have found that people tend to trade large future rewards for smaller, immediate gains. People enjoy the regular dopamine boosts they get from small successes. Moreover, managers tend to take a more tangible approach when giving out bonuses and raises. After analyzing compensation practices at several professional service firms over a period of years, we found that they all incentivized activities with more long-term payoffs, such as developing new areas of thought-leadership. While the firms collected data on the initiatives, our analyses showed that they had zero effect on the partners’ compensation. The firms assigned no importance to long-term outcomes, so leaders could only base bonus decisions on immediate wins with short-term impact.
Cross-selling is confused with collaboration.
Many companies give bonuses to employees who get existing customers to buy additional products or services. This way of thinking encourages employees to view customers as an opportunity to make a sale rather than trying to understand their needs and working with others to provide a solution.
There are five flawed approaches that companies can avoid by adopting a four-part performance scorecard. This scorecard establishes shared goals to encourage collaboration on strategic targets while still holding employees accountable for delivering individual results. We recommend that each component be weighted according to how important it is in helping the company reach its strategic aims, but collective goals should be given more weight than individual goals to counteract people’s natural tendency to pay more attention to their individual metrics. To keep employees focused, the organization should have only a few goals.
Component One: Ambitious Cross-Silo Goals
Collaboration among teams is essential to achieving common goals, especially when those goals are ambitious and affect multiple aspects of the organization. Having a timeline for these goals helps to ensure that everyone is working together towards a common goal. Some examples of challenges that a company might face are reducing the amount of time it takes to bring new products to market or increasing revenue from certain customers. It is often easiest to start with the customer when trying to identify them. This can be done by asking the customer what their overall experience and result from the interaction with your business. An alternative method is to focus on a strategic result that will augment your organization- for example, by expanding its supply chain. After determining which groups can influence the desired outcome, you should include the goal in the scorecards for all of them.
Component Two: Team Goals
Organizations need to break down barriers to collaboration not only between different departments but also within each department. It is important for team members to communicate with each other, share helpful information and work together to reach common goals. Firms should promote teamwork by evaluating team results and holding team members accountable for contributing to their team’s success, whether the team is in a functional department, working on a key account, or developing a product.
Component Three: Individual Goals
Designing specific goals for individuals not only holds them accountable, but also helps to connect their work to the objectives of the team and organization. The role of a manager is to help each person understand how his or her specific actions contribute to the success of the company as a whole.
Component Four: Long-Range Programs
The first three parts of the scorecard list goals that can be accomplished during a single year. An additional element is required to encourage employees to concentrate on more long-term, collaborative projects. The goals of the company might include developing white papers that showcase the company’s cutting-edge ideas; completing sizable pro bono projects that draw on an array of capabilities and allow employees to stretch their skills; and increasing diversity at all levels of the company. Companies can factor in work on long-term goals when making decisions about compensation and promotion. There is a greater chance of future collaboration if the people involved develop trusting interpersonal relationships.
The purpose of this study was to test the effect that different performance-management systems have on collaboration. To do this, a Big Four accounting firm ran two pilots. In one region, it added the region’s collective goals to the key performance indicators of its partners. The firm’s sales increased by 8% due to cross-selling work to clients that had only bought one type of service previously. In a different area, the goals for the group were changed to match up with changes in processes, like going from yearly to monthly performance talks and teaching leaders how to train their subordinates. In the second region, revenue increased by 30%, employee engagement scores were the highest they’ve ever been, and client satisfaction increased a lot.
How To Create Strategic OKRs That Drive Business Growth
OKRs can help you to get business results faster. But only if understood and used strategically.
#1: Train your teams so they can understand the power of strategic OKRs
If you want your OKRs to be effective, it is essential that everyone understands what they are responsible for and what they are not responsible for. Companies who only run a one-time internal workshop are not ready to launch OKRs.
If you want OKRs to be effective, you need to invest in ongoing training. The people in your organization must be educated on OKRs so that they can maximize the value they get from the system.
Here’s what you can do:
- Provide access to online courses and educational resources, so everyone understands the purpose of OKRs, how to write them, track them, and align them with strategy.
- Create internal OKR champions by enlisting support from key stakeholders who will promote company-wide buy-in and coach employees on how to use OKRs effectively.
- Use the right OKR tools or OKR software that will help you link OKRs with strategy and ease the transition to Strategic OKRs.
#2: Give clarity on where the organization is going
” Paul Barker of the OKR Group explains the importance of having a clear strategy. Without a clear strategy, it is difficult to define success, measure progress, and understand the impact of your actions. There is too much ambiguity to hold anyone accountable.
Make sure that your team leaders and managers are regularly communicating the company’s overall strategy to their teams, and explain how each team can contribute to it. Like this, team OKRs can be easily changed to match the company’s goals.
#3: Run a pilot project before going all in
Although implementing an OKR system can be a huge undertaking, you can start with a small pilot project to see how it would work for your company.
Here’s how you can approach a pilot project in your organization:
- Test the OKR framework with a small team—for example, your finance or marketing departments for a couple of quarters.
- Gather feedback from everyone involved about the positives and negatives, bottlenecks, and possible improvements.
- Assess the results and learn from your mistakes to plan a better approach before scaling the framework to the entire organization.
#4: Run two-way feedback and prioritize collaboration
OKRs will only work if teams are not isolated from strategy. The top-down approach to setting OKRs (where the leadership team sets them and trickles them down to smaller and more individual OKRs) is not effective and should be forgotten. In this framework, there is no room for feedback from lower levels or for communication between teams whose goals overlap or are interdependent.
OKRs should be co-created with those closest to execution. If the team is involved in the process of determining the OKRs, they will be more likely to support the goals. The goals that the team creates together will give the team a sense of purpose and help them to stay focused on their work. A mix of top-down and bottom-up organization will help your business stay nimble, drive creativity, and achieve exceptional outcomes.
#5: Apply the 3M rule
If you want to make sure OKRs are moving your organization and teams in the right direction, you need to:
- Make adjustments
This means that you cannot simply set your OKRs and then forget about them – you must continue to monitor and adjust them as needed. They can’t be static. There are too many changes happening in the world to stick to set metrics. You need to review OKRs regularly. In order to make sound and quick decisions, you need data.
You should assess OKR success by looking at factors beyond just the OKR score. The scale for OKR scoring goes from 0, meaning no progress, to 1, meaning the task is fully completed. It tells you whether OKRs were accomplished or not.
OKRs + strategy = the perfect couple
OKRs are a powerful strategy execution tool that can help improve your business, but they are not a cure-all. They cannot make up for a company’s lack of strategy and will not automatically create strategic alignment where there is none.
Relying on a strategy execution platform that is successful lets your teams create, follow, and improve OKRs while still staying in sync with the company’s strategy.
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