OKRs: A good tool for aligning the troops?
Let’s agree that your whole team “rowing in the same direction” is going to get you to a goal faster than if there isn’t alignment. Given that, we typically have Key Performance Indicators (KPIs) set by a goal-setting process for the organization. We need our team to be aligned around these metrics and move towards the common goal.
So in this case, we’re focusing on a business belief: “If you can’t measure it, you can’t change it.” We want to measure customer satisfaction, profitability, and customer hold times for call centers. We have set KPIs as the language around all these measurements. And we have goals for our KPIs based on outcomes we tie between them: short call center waits with high “resolved first time” outcomes should drive higher customer satisfaction, customer loyalty, and overall profitability. Move the first two; the others should all go in the right direction too. This demonstrates department-specific measurements and assumptions that roll up to the next level.
The other thing we tend to believe in business is that we need new language for an old idea every decade or so. The old language was KPIs, and there is a process to identify and set KPIs for every part of a business. If you’re unfamiliar with KPIs, how to set them, and how they apply to organizations, there is a great write-up here on the topic. What you need to understand is that a large organization can have hundreds of KPIs that measure everything from cyber security penetration to overall profitability to customer satisfaction scores. In large organizations, it’s common for KPIs to be utilized in most departments and functions. However, whether KPIs apply to a particular function or department can depend on several factors, including the nature of the work, the strategic importance of the function, and the ability to measure meaningful performance metrics.
Here’s a general overview:
- Sales and Marketing: KPIs are commonly used in sales and marketing departments to track revenue, market share, customer acquisition, conversion rates, and other key metrics.
- Finance: Financial departments often rely on KPIs such as revenue growth, profitability ratios, cash flow, and budget adherence.
- Operations and Supply Chain: KPIs can be critical for monitoring production efficiency, inventory turnover, delivery times, and quality control.
- Customer Service: Customer service departments typically use KPIs like customer satisfaction scores (CSAT), Net Promoter Score (NPS), response times, and resolution rates.
- Research and Development (R&D): While R&D may not have as many traditional KPIs, they might track metrics related to innovation, product development timelines, and research milestones.
- Human Resources: HR can use KPIs to assess employee performance, retention rates, training effectiveness, and diversity and inclusion metrics.
- IT and Technology: IT departments can track uptime, system performance, security incidents, and project delivery timelines.
- Legal and Compliance: Legal and compliance departments may have KPIs related to regulatory compliance, legal case resolution times, and risk management.
- Corporate Social Responsibility (CSR): CSR functions may track sustainability metrics, community impact, and environmental goals.
- Executive and Strategy: At the executive level, KPIs often revolve around high-level strategic goals such as overall company performance, market leadership, and long-term financial targets.
The new language today is Objectives and Key Results (or OKRs). So, what are OKRs, and why have we decided to implement a new vernacular? OKRs are used to set and communicate ambitious and outcome-focused objectives for a specific period. They are designed to align teams and individuals around key priorities and drive measurable results. It sounds kind of like setting goals and measuring the outcomes, right? That’s exactly what it is. The major difference between OKRs and our old language around KPIs is OKRs are typically more focused on high-level, strategic objectives, whereas KPIs are the measurements of components of the business. OKRs are meant to be limited in number to ensure a clear and concentrated effort on achieving specific goals.
To dive a little deeper, OKRs are typically applied to most departments and functions within an organization, just like KPIs. However, there are some differences in how OKRs are structured and the number of OKRs set compared to KPIs:
- Application of OKRs in Every Department or Function: Similar to KPIs, OKRs can be applied to most departments and functions within an organization. The goal is to align teams and individuals around common objectives that contribute to the organization’s overall goals and strategy.
- Number of OKRs: OKRs are generally more limited in number compared to KPIs. The traditional guideline is to set a small number of high-impact OKRs to maintain focus. Common practice is to set around 3-5 objectives per team or individual, and each objective is associated with 2–5 key results. In contrast, KPIs can be more numerous and cover a broader range of metrics, depending on the complexity and size of the organization.
- Nature of OKRs: OKRs are outcome-focused, aspirational, and often time-bound. They are designed to challenge teams and individuals to achieve significant results. Each objective should represent a clear, measurable outcome that aligns with the organization’s strategic goals.KPIs can include a mix of leading and lagging indicators, with some focusing on maintaining ongoing performance (e.g., monthly sales revenue) rather than setting ambitious, time-bound objectives.
- Frequency of OKR Setting: OKRs are typically set for shorter time frames, such as quarterly or annually, to create a sense of urgency and adaptability in achieving objectives. Teams and individuals may reassess and update their OKRs regularly.KPIs can be set for both short-term and long-term periods, and they may not change as frequently as OKRs.
- Alignment and Cascading: OKRs are often cascaded down from top-level organizational objectives to lower levels of the organization. This ensures alignment with the overall strategy.KPIs may not follow the same cascading structure and can be more department-specific.
While both KPIs and OKRs can be applied to most departments and functions within an organization, OKRs are typically more limited in number, highly focused on outcomes, and set for shorter time frames. The goal of OKRs is to encourage ambitious goal-setting and alignment with the organization’s strategic priorities. However, the specific implementation of OKRs and KPIs can vary from one organization to another based on its unique goals, culture, and management approach.
So should you jump on the OKR bandwagon? Absolutely! Why wouldn’t you want to rally your team around unifying goals with specific time frames? What’s powerful about the OKR approach is that while OKRs do emphasize measurable results, the key results are designed to be aspirational and may not always be as directly measurable as KPIs. They can include qualitative outcomes and milestones. They allow for more conceptual outcomes and “moon shot” goals. You can drive your team to dream, and the results are allowed to be equally ethereal.
Ultimately, what you need is a clear goal and alignment of the team to reach that goal. OKRs can be the tool to do just that, or you can do both KPIs and OKRs, but the OKRs can be your “moon shots”. We all know, when you shoot for the moon, even when you miss, you’ll land among the stars. (Thank you, Norman Vincent Peale, for the reminder to dream big.).