Why bother with performance evaluation at all? Why use the OKR methodology? And what is the difference between OKRs and KPIs?
What you will find in the article:
📖 You can also download our free e-books OKR Navigator: How to Exceed the Limits of the Organization and its second part OKR Navigator: A Practical Guide to Implementing and Using OKRs in a graphical and full-featured form.
Both e-books have been written by the leading experts in OKRs, so you get a veritable load of the most qualified information in your hands.
Evaluating the performance of people in the team and the organization is more complex than it might seem at first glance. That is, if it is to actually serve to move the company forward more extensively,
If you believe that performance management only involves annual employee KPI reviews, you are probably missing out on effective methods to align employee and company goals. Replacing sporadic reviews with a plan and implementing ongoing communication about performance will go a long way in giving yourself a clear path to success. And that includes defining goals, expectations and tools for organizational feedback.
Performance management is a comprehensive strategy that affects the corporate culture, operating principles and results of the entire organization. It informs employees and associates whether they are on the right track, explains the importance of their work, and shows how they contribute to the development of the team and the company as a whole. Performance management also provides answers to questions such as, "Am I successful at work?", "Am I of value to the company?" and "Can I be easily replaced?" so that people in the company do not feel insecure and think about looking for other opportunities.
And that's something OKRs can help with.
In this article, we've tailored the OKR view specifically for remote or hybrid teams, with an emphasis on promoting ease of implementation.
What is OKRs and why how do they help with performance evaluation?
OKR stands for Objectives and Key Results, a widely accepted approach to goal setting with roots dating back to the 1970s when Andy Grove at Intel introduced it. Later, in 1999, John Doerr brought the method to Google, contributing significantly to its widespread popularity. Today, OKRs are not limited to large enterprises; small teams also use this methodology to emphasize the importance of achieving results over simply focusing on outputs.
OKRs are a goal-setting and performance management framework that helps organizations, teams, and individuals define, track, and achieve their goals. The approach consists of two main components:
- Objectives: qualitative, inspirational objectives that reflect the desired outcomes or direction for the organization, team or individual. Goals should be clear, concise and easy to understand.
- Key results: quantitative, measurable and time-bound indicators that show progress towards achieving the objectives. Key results should be specific, actionable and draw a clear path to success. They include activities to lead to the achievement of the results.
This allows everyone from top management to junior staff to focus on the collective and successful achievement of a limited number of important goals. Once top-level goals are identified by management, 3-5 key results (sub-goals) are needed per goal. A larger breakdown dilutes the goal itself to the point where progress is difficult to measure.
How can OKR help us?
It is in the environment of hybrid or "full-remote" companies that it can maximally support clarity of communication, clarification of expectations, increased responsiveness to change and increased engagement. Everything you can't do without in remotely managed teams.
📍Focus on goals: OKRs help you focus on the most important goals and prioritize tasks that actually bring value to the business.
📍Transparency and clear expectations: OKRs increase transparency among teams and individuals because everyone has access to each other's goals and key deliverables. This leads to better understanding and collaboration across the business.
📍Measurability: key results in OKRs are quantitative and measurable, making it easy to assess progress and success.
📍Short-term and long-term planning: OKRs can be set for different time horizons, allowing for planning for both short-term and long-term goals.
📍Flexibility and responsiveness to change: the OKR system is flexible enough to adapt to changes in the business environment. Companies can adjust their objectives and key results over time to better respond to new challenges and opportunities.
📍Improving engagement and motivation: the OKR system increases employee engagement and motivation because each individual sees how his or her work contributes to the company's overall goals and strategy.
📍Continuous improvement: OKRs enable companies to continuously evaluate and improve their processes and results. Regular reviews and feedback help to identify areas for improvement and take action to achieve better results.
In practice, we also see a combination of OKRs, KPIs and SMART methodologies. While the SMART methodology is often understood primarily as a general framework for setting relevant and meaningful objectives, OKRs and KPIs are often confused or used inappropriately.
The difference between OKRs and KPIs
Although both methods focus on achieving objectives and measuring results, they have several differences:
Focus:
- OKRs focus on setting clear and measurable Objectives and Key Results that allow teams to track their progress towards these goals. OKRs are often used at a strategic level to drive innovation and growth.
- KPIs focus on tracking key performance indicators that show how effectively and successfully an organization is achieving its goals. KPIs are often used to measure operational efficiency and track results at the process level.
Timeframe:
- OKRs typically have a shorter timeframe, often involving quarterly or annual targets. This allows organisations to react quickly to changes and adjust their targets as needed.
- KPIs can have a longer timeframe because they focus on long-term performance and stable measurement.
Flexibility:
- OKRs are a flexible and adaptable system that allows organizations to respond quickly to change and adjust their goals as needed.
- KPIs may be perceived as less flexible because they focus on tracking specific performance indicators that may not change quickly.
Cooperation and transparency:
- OKRs promote collaboration between teams and transparency because all goals and KPIs are shared across the organization.
- KPIs can be perceived as more focused on individual teams or departments, which can lead to less transparency and collaboration.
Although OKRs and KPIs have different focuses and approaches, many organizations use them together to better track and measure their goals and performance.
Setting up OKRs (tested in practice)
OKRs and the KPIs linked to them are usually set for a shorter period, typically a quarter. It is certainly not a mistake to choose longer periods of time (six months/year). But take into account the undeniable benefits you may lose:
👉 Faster response to change: setting OKRs quarterly allows organizations to react faster to changes in market conditions, competitors or internal resources. This way, goals can be updated more frequently, allowing for faster adaptation and innovation.
👉 Increased focus and motivation: This increases motivation and engagement as achievements and progress are visible and celebrated on a regular basis.
👉 Less uncertainty: Long-term goals can be more difficult to predict and plan for, while quarterly OKRs provide greater flexibility and allow organisations to better manage risks and uncertainties.
👉 Regular evaluation and improvement: quarterly OKRs allow you to regularly evaluate the performance of teams and individuals. This allows organizations to quickly identify areas that need improvement and implement the necessary changes.
👉 Reinforcing company culture: regular quarterly reviews and OKR updates can reinforce a company culture focused on results, collaboration and continuous learning.
While OKRs are often set on a quarterly basis, many organizations also use annual OKRs or a combination of quarterly and annual OKRs. The important thing is to find the right balance between short-term and long-term goals that best suits your organization, its strategy, and the pace of change in your industry.
What must not be missing in a well-set OKR?
Yes, they are SMART…
- They are Specific: they must be clearly and specifically stated so that there is no ambiguity about what is to be achieved. They are understandable across the company and across departments. They are free of acronyms, language and expressions that only a limited number of people understand.
- They are Measurable: key results (sub-objectives) must be quantifiable, measurable and easy to monitor throughout the period for which they are set. This makes it possible to clearly assess whether the objectives have been met or not.
- They are Ambitious: they are realistic and achievable to avoid frustration and demotivation, but at the same time they are sufficiently challenging. They inspire teams to excel.
- They are Relevant: they are linked to corporate and team strategies. This involves being relevant to the roles and responsibilities of the people involved in specific OKRs. During the process of monitoring and evaluating OKRs, it is important to be flexible and ready to make adjustments if it becomes clear that some objectives or key results are no longer relevant or achievable.
- They are clearly time-bound: each key result (sub-objective) has a set timeframe for achievement. This helps to focus efforts and sets clear deadlines and expectations for implementers.
And they are also 👇
- Results-oriented: they are focused on achieving specific results, not just completing tasks or processes. Unlike KPIs, they are not directly linked to specific rewards (impact on remuneration).
- There are a limited number of them: to avoid distraction and loss of focus, the number of OKRs should be limited (usually 3-5 Main Objectives and 2-5 Key Results (sub-objectives) per Main Objective). A smaller number reflects achievability.
And finally, they are
- Regularly monitored and evaluated in order to monitor progress and adapt as needed or as conditions change. This includes regular team meetings to discuss progress and possible adjustments.
What to watch out for when building OKRs:
- Too many OKRs can lead to loss of focus and deterioration in efficiency. It is recommended to have 3-5 objectives and 3-5 key results for each objective.
- It is important to set OKRs so that they are challenging but still achievable. Don't try to achieve unrealistic goals that could lead to demotivation and disappointment.
- Involve all team members in the OKR setting process and take their views and needs into account. This will ensure that the OKRs are relevant and meaningful to all involved. This will clearly increase the team's commitment and sense of accountability for achieving the goals.
- During the process of monitoring and evaluating OKRs, it is important to be flexible and ready to make adjustments if it becomes clear that some objectives or key results are no longer relevant or achievable.
- Create a culture of continuous learning and improvement that supports regular evaluation and updating of the OKRs. This will ensure that your organization is constantly looking for ways to achieve better results and grow.
Well-set OKRs promote teamwork and shared responsibility for achieving goals. Each team member should know how they contribute to the success of the overall OKRs. And therefore to the delivery of the strategy. This is the key to keeping motivation and loyalty high.
Before you start...
People success precedes business success. Without people success, there is no business success. And at least until technology can do EVERYTHING we humans do (and that will most likely never happen), without setting people up for success at work, businesses will achieve a fraction of what they could potentially achieve if they harnessed the potential and talent of people.
What is people success at work? People who feel and know they are genuinely cared for, people who feel they belong, people who are treated with respect and dignity, people who grow professionally, people who benefit as much from the success of the business as the business benefits from them.
If you're content with getting only "something" out of the full talent and potential of people, then ignore this post. That's what you're getting, and that's what you'll continue to get.
If you believe in the limitless possibilities of business and people, then make sure your "KPIs" are not just financial metrics, but also how well you engage, inspire, inform and interest people.
And that's why we work with OKRs at Sloneek too:)