In the Wizard of Oz, Dorothy expresses her fear of lions and tigers and bears. Some of us who head to work each morning have a fear of performance-management-buzzword animals like Balanced Scorecard, KPIs - Key Performance Indicators, and OKRs - Objectives and Key Results.
Most everyone has heard about the BSC and KPIs, but what about the recent explosion of interest in OKRs? In 2013, Google Ventures partner Rick Klau gave a presentation on OKRs that now has over 150,000 views(1). Some of today’s most successful companies including Google, LinkedIn and Twitter are currently using OKRs. Is an OKR just another buzzword to fear? How do OKRs fit into existing performance management frameworks?
In this blog, we share a conversation between two performance management consultants that brings BSCs, KPIs, and OKRs into one room that just might make these performance management animals a little less scary.
Key takeaway: Organizations that have deployed the BSC or other performance management frameworks may benefit by using OKRs to extend their framework deeper into their organizations.
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The Consultants:
Wayne Eckerson is a recognized leader in the field of performance measurement, dashboards, and the balanced scorecard.
Ben Lamorte is an expert in driver-based planning and founder of OKRs.com where he helps business leaders measure the right things.
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The Conversation:
Eckerson: Just watched the Google OKRs video. Excellent! I had a few questions: Rick Klau never defines what an objective is or how to create one and how it differs from a key result. Maybe it’s too obvious: An objective is an aspiration that isn’t measurable. A Key Result is a way to measure various dimensions of the objective. Agree?
Lamorte: YES. I am working on some definitions for these terms since I’ve not seen a definitive set of definitions.
Objective: statement of a broad goal that is generally not measurable.
Key Result: statement of a measurable goal that defines achievement of a given objective.
Eckerson: In my Balanced Scorecard workshop, I define objectives as statements of purpose or long-term goals/aspirations that begin with an action verb.
Eckerson: Klau mentions that OKRs are not used in performance reviews. I appreciate the philosophy: like BSC, measures aren’t meant to punish or reward, but to provide guidance. Basing bonuses on them would foster gaming and sandbagging and make it institutional instead of personal. But how would you prevent them from being used in performance reviews? And if not, what would you use?
Lamorte: Excellent question. I’ve struggled with this quite a bit. I recently consulted Peter Drucker’s son, Vincent, on this topic. While OKRs is not a performance review mechanism, your performance on OKRs should be positively correlated with a bonus. The extent to which performance on OKRs will be used for compensation varies across department and company. Examples:
KR tied to bonus: Sales rep will have a key result in the form “achieve $500k in new sales this quarter.” Bonus is likely 100% connected to that key result.
KR not tied to bonus: HR manager might have “Document 80 Phone Screens for VP candidates by end of month”. HR manager should probably not get a bonus simply because they phone screen a certain number of candidates.
Eckerson: Makes sense. I read your blog, and had a few questions: How can a KR not be a metric if it has to be measurable? Maybe this is why they are called Key Results not metrics. A KR could simply be completing a task – (But that can be a metric too.)
Lamorte: Great question – it’s a bit of a terminology issue, so I’m inserting a small table classifying some KRs as metrics and milestones. I envision several types of “metrics” and am still thinking about how best to classify milestones.
Eckerson: You should see our BSC KPIs – all kinds of crazy things. In the end, everything can be counted though. Even your milestones – we would count up how many achieved them. Or percentage achieved.
Eckerson: You say OKRs cannot exist without KPIs. Not sure I follow.
Lamorte: While it’s possible to roll out KPIs without OKRs, it’s nearly impossible to rollout OKRs without KPIs. For a more detailed explanation, see Quora.
Eckerson: Yes. It might be better to say that OKRs cascade (just like good scorecard and dashboard metrics). It seems to me that OKRs are the equivalent of a personal scorecard in the BSC terminology. A very nice, lightweight one that is easy to implement and sustain. So for one of my clients, this would be an AWESOME change management tool, a way to drive performance based measurement and the BSC into the culture of the company. With the BSC, the company has long-term goals and objectives. Those should inform the the OKRs of top managers on down. Basically, top executives write their OKRs in the context of the BSC and then everyone’s OKR’s cascade from there and/or directly from the BSC.
By Ben Lamorte, from: www.OKRs.com
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Notes:
1 Klau’s tweet reflects his surprise with the exploding interest: “My OKRs video just passed 150,000 views. That’s about 149k more than I thought it’d get” [email protected] tweet