How modern performance management fosters agility

Traditional performance management provides the wrong incentives and makes us blind to the overall organizational benefit. As a result, organizations cannot react to new requirements or are far too slowly. This insight is far from new, but it is acted upon more and more in practice. In the sidecar of agility, the OKR Framework receives increasing attention, which is why I would like to present the concept in more detail.

Why OKR is a promising approach to foster agility.

OKR stands for „Objectives and Key Results“, which at first glance does not sound much different from the typical MbO („Management by Objectives“). The difference is that OKR tries to eliminate obvious shortcomings of traditional performance management. Among other things:

  • Annual targets become obsolete too quickly: The annual cycle with agreed targets is too rigid for the increasing dynamics. Targets set at the beginning of the year often become obsolete, impossible to achieve or unimportant during the year.
  • No incentive to do great things: Linking (annual) targets with the variable salary tries to motivate employees to do the right thing. In addition to the above-mentioned fact that these goals become obsolete in the course of the year, there is a second major problem with this linking: it reduces the courage and ambition of the employees. Targets are set so that they can be achieved. This attitude rarely leads to major innovations.
  • Feedback is neglected: Traditional performance management focuses on the annual target review. Feedback already comes too briefly in this annual discussion. In addition, feedback as an essential development tool should be given regularly and especially when observing the specific behaviour. Thereby, once a year is too little anyway.
  • Promotion of silo thinking at the lowest level: In traditional performance management goals are mostly set on an individual level. This promotes an egocentric view. It would be better to focus on the team goal. Even better, the overall organizational benefit.

 

The framework below by Lobacher et al. (2017, p. 84) shows how OKR intends to remedy these shortcomings of traditional performance management:

OKR_EN.png

 

  1. Purpose

The starting point in the OKR is the company’s mission statement. Or in modern terms: purpose. The purpose serves as orientation for all organizational activities and is more stable than the strategy. It is a self-image, as „what“ the organization sees itself and/or „why“ the organization exists. It is therefore the „existential question“ that every company must answer.

  1. Moals

Moals stands for „midterm goals“, and translates the „existential question“ into somewhat more tangible goals. The moals represent the few topics on which the company would like to focus in one year in order to achieve its purpose. The number of moals should not exceed five in order to ensure proper focus.

  1. OKR cycle

The core of the OKR is then the so-called OKR cycle. One cycle takes about 3-4 months and is therefore carried out several times a year. Since OKR aims to be a flexible performance management, it is not surprising that the four elements in the cycle are very similar to the agile project method Scrum. In more details, the OKR are planned every 3-4 months (OKR planning), there are (bi-)weekly evaluations of the status (Weekly OKR) and at the end of the cycle the goals are reflected on achievement (OKR Review). Additionally, the cooperation and the process are discussed at the end of one cycle (OKR Retrospective).

With traditional MbO, several annual targets are usually defined according to SMART. Goals that are specific, measurable, accepted, realistic and timed. These goals often refer to individual targets. This then leads to goals that are not very inspiring. OKR on the other hand first defines a higher level of qualitative goals and then derives specific and measurable criteria.

In the case of objectives, the one-hand rule applies: to maintain focus, no team has more than five targets. Another important characteristic of OKR is the focus on teams instead of individuals. This means that the objectives are formulated for the whole team and can only be achieved by all team members together. Instead of SMART, objectives in OKR are QIBD: qualitative, implementable, balanced (inspiration vs. attainability), derived from purpose.

Similar to targets in the traditional MbO, the „key results“ are SMAADRT, meaning that they are specific, measurable, accepted, ambitious, derived from the objective, realistic, timed

An OKR objective for an HR organization could be, for example: „We promote the agility of our organization“. The criteria to be measured („key results“) are then selected in such a way that they give an indication as to whether this goal has been achieved or not. For example „In three months we will get five teams to work with Scrum“.

The difference between KPI and OKR is that KPIs are mostly indicators of past performance that are measured annually. Key results, on the other hand, are only valid for the duration of an OKR cycle, during which they are intended to help achieve a certain goal. They do not refer to day-to-day operations either, but are rather strategic, innovation-oriented indicators to what extent the objective is fulfilled.

  1. OKR list

OKR should not only be much more dynamic than traditional performance management in terms of the fundamental process. Rather, the application should focus more on the impact than the documentation. The OKR list is therefore the only artifact created in the OKR cycle. The OKR are recorded and regularly adjusted throughout the organization. This should help agile organizations, which are basically self-organized and networked (Krapf, 2018), to configure the target alignment.

 

  1. OKR Master

The OKR is much more lean and much less bureaucratic that traditional performance management. Subsequently, it needs the role of the OKR Master in the teams, who supports the regular „OKR sprints“ respective „OKR cycles“. The OKR Master has a facilitator role similar to the Scrum Master and must not be confused with a team leader in the “old world”, who sets individual goals for the team members.

 

Agile principle Application in OKR
customer-oriented solutions Objectives are set and continuously adjusted for short cycles only. This allows the relevance of the targets to be evaluated and adapted to changing marker requirements.
Promote innovation All objectives are transparent throughout the company. Increased communication across units and a common focus on the same goals promote (interdisciplinary) exchange and the development of new approaches to solutions across the organization
Self-organization Interdisciplinary teams are committed to achieve the objectives they have set themselves. They then can decide how to achieve them. This promotes self-responsibility and strengthens intrinsic motivation.
Iterative procedure In short periods of time, the team focuses on the most important success drivers. In this way, fast delivery results can be promoted, coordinated with each other and new requirements can be integrated interactively.
Promoting learning and feedback culture Short cycles, an iterative approach and reviews allow the continuous learning. Furthermore feedback is at the core of OKR.

 

Literature

Krapf, J. (2018). A reference model for organizational agility. https://joel-krapf.com/2018/07/31/ein-referenzmodell-zur-organisationsweiten-agilitaet/

Lobacher, P.; Jacob, Ch.; Haag, J.; Schuber, M. (2017). OKR – The ultimate compendium. Agile target management and modern leadership with objectives and key results. http://leanpub.com/okr

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