OKRs vs. KPIs: Determining the Right Team Goal Setting Framework
Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” Nothing is more true when it comes to an organization’s road map for its future. Many goal-setting frameworks exist, and rightly so. They provide structure to a company’s vision by creating clarity between a manager and their team. They foster team alignment so that everyone is working for the same things.
Perhaps one of the best things about these frameworks is that they offer clear and transparent expectations. While different departments of an organization may play varying roles, the end game is evident. However, it’s essential to have a measurable means of gauging performance. A goal-setting framework makes it possible.
These methods provide opportunities for employees to have an input in the direction and growth of an organization. It’s unfortunate that less than 30 percent of staff feel they have a say even in their positions. It’s worth noting that having everyone on board with like-minded goals is one of the best ways to improve employee engagement.
The Difference Between OKRs and KPIs
The Objectives and Key Results (OKR) methodology help an organization prioritize its goals. It forces leaders to consider the most important objectives while providing every team member with a purpose to this end. The process optimizes the workflow to make the best use of its resources, namely, its people. OKRs embrace the theory of SMART goals.
The ideal OKR examples include specific objectives that eliminate any confusion about the mission. They are measurable to provide both employers and employees with a transparent review process. The goals are achievable and not lofty wish lists. The OKRs are relevant to an organization’s culture and ultimate purpose. Finally, the plans have a timeline to ensure that everyone is on the same page.
Key performance indicators (KPIs) represent the measurable results of the efforts to meet the goals of an organization. The difference between KPI and OKR is that the latter is the road map, whereas the former is the result. KPIs make the OKRs specific and achievable as relevant metrics used to evaluate performance. The two concepts exist in tandem.
Felipe Castro uses a simple analogy of a road trip that makes the use of OKRs and KPIs clear. An organization’s mission and culture decide its objectives and where it wants to go in the near and distant future. Its goal-setting framework or OKR acts as the navigator who keeps a company on track. The monitoring KPIs provide input on an organization’s progress.
It’s essential to understand that while the company may have high-level goals, other departments may contribute with supporting objectives but with a different set of KPIs. For example, an organization may have an annual revenue goal for its OKR. The sales department may focus on its part by measuring leads and calls made. The HR staff may center on employee performance or recruitment of additional salespeople.
Everyone in the organization has the same ultimate goal with an understanding of their role in its success. According to Felipe Castro, the key to making it happen is by fostering team alignment. Optimizing its implementation involves transparency of the goals, shared OKRs where necessary, and 360-degree use of resources.
Using OKRs to Create Team Alignment
Knowing how to write OKRs is a daunting task on its own. Employers can learn from the principles of servant leadership to create meaningful and purposeful OKRs. Retired AT&T executive Robert K. Greenleaf developed this theory to empower leaders to motivate their staff more effectively, starting with improved communication.
The first step involves information gathering. It requires awareness and understanding of where an organization sits in the present. Reviewing existing documentation on a company’s mission and a review of its website are excellent places to begin.
It’s imperative to ensure that the internal and public messages are the same. That helps to create transparency in both spheres. Now more than ever, employees are questioning an organization’s social responsibility and sustainability values. Therefore, it’s essential that these facets are part of the conversation when setting goals.
One of the tailwinds facing employers is the fallout of the so-called Great Resignation. According to Fortune.com, 65 percent of workers are actively searching for new employment opportunities. The pandemic was a wake-up call for many individuals and businesses. Employees have begun questioning their job satisfaction, resulting in higher-than-normal turnover rates.
Therefore, if an organization wants to stay on point with its OKRs, it must address these concerns for creating and maintaining team alignment. Transparency about its objectives is a crucial part of the mix. It also gives the employees a sense of purpose which can help a company reach its goals.
While some departments may have specific OKRs, more often than not, there are some that overlap. For example, HR staff with a KPI to improve the attrition rate may develop a shared OKR with the sales department to arrange training and skill development with their team. Individuals want to achieve their goals. Giving them the tools to do it can increase job satisfaction and employee retention.
According to the Gallup State of the Workplace report, 84 percent of employees are matrixed or working on various teams. It only makes sense to develop shared OKRs to keep team members focused on the same high-level objectives. Each department may have different roles. However, they are all working toward the same outcomes. Shared OKRs also support transparency between various groups.
Too often, an organization follows a vertical path or silo toward its objectives without employee input. This narrow-focused mindset encourages an us-versus-them mentality. It can put managers out of touch with the underpinnings of their organization. The result is a disengaged workforce. According to Gallup, only 20 percent consider themselves actively engaged in their jobs.
Creating 360-degree alignment accomplishes several valuable things for an organization. It cultivates a culture where everyone has a stake in the OKRs and KPIs. It eliminates the silos that hamper communication while encouraging employee feedback. Perhaps one of the greatest benefits of 360-degree alignment is nurturing a team attitude that recognizes the interdependencies that exist in a company.
That’s because this approach looks at an organization as a whole. It’s an effective way to identify and get rid of the so-called curse of knowledge that can lead to misunderstandings between management and staff. Instead of a vertical alignment toward OKRs, this model empowers employees by helping them recognize their vital role in a company’s success.
Examples of Good OKRs
Several businesses, such as Amazon and Google, have implemented the OKR methodology successfully in their organizations. The elements of good OKR examples incorporate some of the same strategies as SMART goals. They are quantifiable to make it possible to gauge their achievement. A company may have several defined goals or objectives. Measuring their progress uses the health metrics that KPIs provide.
Strategical versus Tactical OKRs
OKRs should have a top-down approach. Likewise, the goals of each department exist on the path to reaching these objectives. Therein lies the difference between strategic and tactical OKRs and their cadence.
Strategic OKRs look at the long-term. They begin with an organization’s mission. They may seem simplistic at their highest level. These OKRs are fluid because flexibility is a vital part of the equation. The pandemic provides a perfect example of its importance. According to the Wall Street Journal, about 200,000 closed because of the far-reaching effects of COVID-19.
Strategic OKRs offer ways for a company to pivot because of a changing economy. The surge of the online marketplace took many businesses by surprise. According to UN News, global e-commerce generated an extra $26.7 trillion in 2020, causing a cosmic shift in business. That makes regular reviews of existing OKRs an essential part of this framework.
Tactical OKRs use a different cadence. Instead of annual assessments, they operate on a quarterly, monthly, or even weekly basis. They may have a lower bar of achievement because of the shorter intervals. The cadence that an organization uses is a factor of its stability and the organization’s business model. The key is that it supports team alignment.
Reviews are a vital part of goal-setting frameworks. Nothing is set in stone. After all, organizations are not corporations. They are people. The Environmental Management System (EMS) of the US Environmental Protection Agency (EPA) provides a good model. Monitoring and corrective action of a business's environmental impact are baked into this methodology.
An EMS uses a plan-do-act approach, which keeps the strategy relevant and timely. It also allows for it to evolve with the changing work environment, fluctuating economy, and marketplace. Likewise, an OKR framework is a living document that adapts with the organization and its people.
Individual versus Team OKRs
We can take tactical OKRs one step further by considering the efficacy of an individual versus team approach. The former focuses on the employee and their performance. For example, a manager may set a monthly sales quota for a worker to meet. While it’s measurable, it must also be achievable without setting unrealistic expectations or micromanaging.
However, it’s not always feasible to drill down OKRs to that level. It’s essential to avoid causing a me-versus-them mentality. It can undermine the morale of an organization by encouraging unnecessary competition and social support stress. Team OKRs are an effective way to meet goals and improve collaboration. Individuals work together and build stronger relationships.
Types of Key Results
The foundation of OKRs lies in the measure of their success or key results. There are two ways to evaluate them. Activity-based key results look at the completion of specific tasks. Examples include a completed product release or update of an application. As the name suggests, they have active verbs showing a concrete outcome. Something was completed.
Value-based key results are harder to define. They involve the end result of specific actions. For example, a reduction of a website’s bounce rate from A to B after revamping it shows discernible worth to an organization. Increased sales may be the ultimate goal, but the improvement in analytics is an excellent start.
Activity-based and value-based key results work because they involve the principles of SMART goals. Both have specific targets that one can check off their list. They incorporate quantitive measures of their success. They are also relevant. If the high-level strategic OKR is to increase sales, either one will take a step in that direction.
This approach is the navigation referenced earlier. The KPIs will measure the progress toward meeting them. Achievable outcomes are part of the equation. Instead of merely focusing on the end of the year revenue, measures of these key results will make these ambitions realistic. The essential factor is that the interpretation is concrete.
The key results point to a goal everyone in the organization can understand. That makes the employee review process a positive one, which is another benefit of using a goal-setting framework. It brings clarity to it. Every employee knows what’s expected of them.
Clarity also comes into play when setting key results. It’s tempting to rattle off several things that an organization wants to accomplish. However, prioritizing these goals is imperative. An endless list of metrics is an obstacle to understanding. Organizations should aim for three to five objectives with their accompanying key results, focusing on the most important ones.
OKRs are an excellent way to give staff a purpose with a well-defined goal. Team members understand the objectives and know what it will take to meet them. KPIs provide a means to ensure everyone is on the right track. Together, the two parts offer an effective goal-setting network for the short-term and long-term.
The best thing about this approach is that it creates a healthier work environment. All employees have a stake in the outcomes. It can give individuals a sense of accomplishment and appreciation. The result is a more engaged staff with a better retention rate. Surely, that is the aim of any organization’s strategy.
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