Setting goals with goals, KPIs and OKRs: the big overview

This post is also available in: Deutsch

An overview of the different targeting methods, frameworks and systems. For digital transformation, Objectives and Key Results (OKRs) are a management system, a framework for objectives and measurement of key results. However, there are many other methods for goal-setting, performance management or strategy implementation.

Objectives Key Results (OKR) and team development are the buzzwords from Silicon Valley. The successful software companies swear by this leadership method. Teamwork is the key to success, the result is more than the sum of individual achievements. But there are many ways to Rome, which Goal Setting Framework is suitable for my company and how do I implement it successfully?

Formulate and achieve corporate goals

As I said, there are many roads leading to Rome. To ensure that your journey from Zurich does not lead via Moscow, we take a closer look at the different methods for finding the company’s goals, team building and achieving the goals. Over the years, numerous opportunities have evolved, all of which ultimately pursue the same goal – to drive the success of your business. Let’s take a closer look at the popular practices that top companies around the world use in their corporate management.

SMART goals

SMART stands for Specific, Measurable, Achievable, Reasonable and Time Bound. These smart methods are used for target formulation in management and personnel development. The Heidelberg time management pope Prof. Dr. Lothar Seiwert developed this formula, with the help of which resolutions can be described promisingly. The initial letters of the acronym fit in both German and English translation.

  • S = specific | Specific
  • M = measurable | Measurable
  • A = achievable | Executable
  • R = realistic | Realistic
  • T = time-bound | terminable

HubSpot, an American software and marketing development company, relies on SMART goals. When formulating the objectives, firms should be guided by these five criteria. For projects, it is advisable to record them in writing at the beginning in order to get a better overview of the resources. This also makes it easier to define the criteria and makes progress easier to measure.

Objectives and Key Results (OKRs)

Objectives & Key Results stands for goals and key results. This method is currently regarded by modern executives as the panacea, and the Silicon Valley giants are exercising success. Google, IBM, Jell, Twitter, LinkedIn or Oracle swear by the management tool. Google founder Larry Page is convinced that OKR has made a significant contribution to their success. Google investor John Doerr introduced this method to Google 20 years ago.
OKR breaks down the abstract visions of the Group Executive Board. The big bite will become small, manageable bites, which are easier to digest at team or employee level.
Objectives and key results are inextricably linked. The smallest independent unit in the company assigns two to five key results (key results) to each goal to be achieved (Objectiv), which are measurable activities and measures that lead to the goal. However, not to be confused with the Key Performance Indicators (KPI). OKR are not a substitute for KPI metrics, but a supplement. According to John Doerr, OKR can consist of one sentence: We will [Objective] as measured by [set of Key Results].
Today’s Google CEO Sundar Pichai formulated the phrase as his goal to knock the microsoft Internet Explorer deer off the throne:

“We will build the best browser as measured by 20 m users by the end of 2008.”

Google CEO Sundar Pichai

To create the best Internet browser, occupied by 20 million users by the end of 2008. Google has undoubtedly achieved this goal with Chrome.

Balanced Scorecard (BSC)

The OKR and well-known Balanced Scorecard (BSC) methods have many similarities. There is a difference in the period under consideration. BSC goals are usually applied to a fiscal year, the OKR method evaluates and adjusts the targets every three months.
BSC divides the goals into different perspectives – finances, customers, internal processes and employees. Since the focus of both goals is different, both frameworks can be partially combined.

Management by Objectives (MbO)

OKR is similar to Management by Objectives (MbO). No wonder, because OKR originated from MbO. However, there are differences in the focus of the methodology, at MbO quantitative targets, documented by Key Performance Indicators (KPI),at OKR qualitative goals (objectives) for achieving goals are in the foreground.

BHAG – big hairy audacious goals

Klotzen instead of clattering is the motto when it comes to long-term corporate goals. This is the opinion of the American author and management expert James C. Collins. He sees visionary thinking and action of companies as a success factor in meeting the challenges of the future. Boeing 747 and Sony prefer such “big hairy audacious goals” (BHAG), i.e. big, difficult, ambitious goals, to small steps. However, there is a danger that confidence will be lost along the way.

Backward Goals

Defining a target can be very time consuming and time consuming. One way to quickly find a destination is to look back. Start with a big, far away goal and the success you want to achieve.
Then work backwards to identify the small goals and tasks needed to achieve the big goal. This is a backward target with a realistic view to see what it takes to be successful.

One Word Goal Setting

A different approach is the method of focusing on a single word in order to then achieve the overall goal. This method gained some popularity because it makes it easy to hide processes, organizations, and discussions that initially only distract from the most important goal. The idea for this comes from the book “One Word 365” and can be used for private as well as for an entrepreneurial goal.

Locke and Latham’s 5 principles

The five principles are the clarity, challenge, use, feedback and complexity of the tasks. The goal must be clearly defined, but it must not be boring, as this is demotivated. However, it must not be too demanding, because it must be accessible to employees and they must be behind it. Regular feedback helps not to lose sight of the goals. Realistic schedules and smaller goals in the process are easier to review than too complex tasks.
Edwin A. Locke recognized as early as 1968 that clear, well-defined goals, feedback and challenge motivate employees and contribute to success.

Tiered Goals Framework

The objective is made within a predetermined timeframe. The targets can be set annually, quarterly and monthly. At the monthly default, the targets look more like a to-do list. In a subsequent evaluation period, the objectives can be adjusted or removed as required.

Golden Circle

The three circles of the Golden Circle describe this from the outside to the inside: Why, How and What. “Why” – what goals are needed for successful corporate governance, “how” – can they be achieved and “what” – must be done to actually achieve them.
In the book“Start with Why“, Simon Sinek explains why successful companies should start with the “why” before answering the “how” and tackling the “what”.

BSQ

BSQ (Big, Small, Quick) goals. The approach is based on the planning of large objectives, which can be achieved by small actions and lead quickly to the goal if the plan is followed step by step.
David VanRoovy created the BSQ Goal Setting Framework with the three key elements: Thinking, Acting and Moving. Think in big goals, act purposefully in small steps and fulfill this within the set time frame.

OGSM

OGSM stands for Objectives, Goals, Strategies and Measures. Many leading companies take advantage of the strategic planning process, as the clear objectives, strategies and measures ensure that all areas pull together.
The visual planning approach at Procter & Gamble probably originated, but came to the USA from the Japanese car industry in the 1950s. The concept can be displayed on a sheet and glued to the wall above the desk.

Goal Pyramid

In the target pyramid, the top and most important goal appears at the top, followed by the large, medium and smaller milestones. The pyramid shows the priority of each target and breaks down the top target into intermediate and sub-targets. A sub-goal can be a short-term team goal, in the medium term the strategies and measures can be determined and as a top step the corporate philosophy or vision can be determined.

OKRs are more effective at digitizing than other goals

As we have seen, many routes lead to Rome, i.e. a whole range of goal setting frameworks is available. Especially in the age of digitalization, modern methods such as the OKR are needed to implement the strategies. Many companies do not fail because of the wrong strategy, but because of the poor implementation.
In contrast to other target systems, SMART Goals may be smart, but this is just a target definition, there is no support for implementation, as the necessary steps or intermediate goals are missing.
Compared to the widely used Balanced Scorecard (BSC) method, OKR and BSC differ not only in the duration of one year from one year at BSC and three months at OKR, but also in their target and performance management. Balanced scorecards are assigned to the Lag Measures, while OKRs are among the guiding measures, the lead measures.

Lag measures are based on key metrics, the Key Performance Indicators (KPI),while lead measures relate to actions to achieve really important goals.
In order to measure success and failure, these metrics are needed, be it sales, gross profit, margin, employee turnover or customer growth. They are valuable control instruments of lag measures, but KPIs are measuring instruments and not a method of achieving targets.
Who sets the goals in an organization at all? In classic hierarchies, as they still exist in many companies, the boss determines. This is very serious in the case of Management by Objectives (MbO). Here, the management sets out the goals for the organization itself as well as for the departments and employees.
Very different with the OKR. In this concept, the management level determines only 40 percent, while the remaining 60 percent comes from the groups and employees. Teamwork seems to be the key to success.

Key Performance Indicators (KPIs)

The Power of Goals and Key Results (OKRs)

But why are OKRs more effective than other approaches to setting corporate goals? Why do the goals and key results have such power?
OkR, they focus on what’s most important to your business—the results.
A key factor in this is the involvement of teams and staff. This goal of bottom-up – aligned with the given top-down corporate goals – is one of the success pillars of OKR in addition to the agile rhythm of three months.
Management sets out the grand visions and objectives, while the teams formulate their own manageable and accessible OKRs. This means that the responsibility for the implementation lies with the organisation, i.e. with the employees themselves.
So far, I have pointed out the different methods of the objective and pointed out the shortcomings of individual concepts compared to OKR. But the crucial question is, why should OKR be more effective in terms of digitization? Perhaps you will first take a look at what digital transformation means and how we can master it.

Mastering digital transformation properly

The new digital technologies are changing the economy, politics, education, public authorities and social media in a sustainable way, i.e. our entire society. The networking of people and devices via the Internet is advancing. The digital transformation wants to be mastered, but not on devil come out. Digitisation is not an end in itself, because no company becomes more successful if it digitizes a process that only means waste. Digitization has to fit the company and the market and many things in the company are already digitized. As a result, many entrepreneurs cannot classify this run after digital transformation. First of all, it is necessary to determine the actual state of operation in order to identify and initiate further necessary steps.
Implementing digitalization only because it is fashion makes no sense, the workforce will not support this and it certainly does not contribute to the success of the company. Therefore, target determination is paramount and digitalization can only be a measure to be more successful on the market.
When implementing your digital transformation, the introduction of the OKR model can be a good time. Because cross-divisional teamwork is especially important when it comes to the transition into the digital age, otherwise every department optimizes without focusing on the entire company. There is no transformation, no agile fairy-tale prince turns out to be an agile fairy-tale prince, but only a fat, cumbersome frog.
Agility and complexity characterize digitization. Therefore, a tool is needed that can withstand rapid changes and make complexity manageable. OKR is such a modern framework that can be ideally adapted to all needs.

OKRs are agile, to whom do the small steps fit?

Agility and agility, like digitalization, are now part of modern language use in companies. But what does it mean to act agile, agile? Steven L. Goldman (ed.) defines agility in his book “Agile in Competition” as follows:

“For a company, agility means the ability to operate profitably in a competitive environment characterized by constantly but unpredictably changing customer desires.”

The adaptation to the constantly changing customer wishes must be done quickly. Classical organizational structures, which often react cumbersomely due to their rigid hierarchy, are not always helpful. The situation is different when using the Objectives & Key Results model. The agreed objectives are transparent, as the sub-steps are much smaller, shorter in time and therefore more manageable. The small steps are iterative, so employees can test new things, whether it works or delete if necessary.
The size of the company does not matter. In particular, it helps start-ups with rapid growth to focus accordingly and keep an eye on the most important things. The short cycles and clearly defined measures make the use of OKR particularly attractive, especially in agile organizations.

OKRs – Transparency and dedicated employees

In the OKR concept, the management level determines only 40 percent of the targets, while the remaining 60 percent comes from the teams and employees. In this way, the executive level sets its own objectives and key results. The involvement of committed employees fits into today’s corporate culture. It creates transparency and the teams are behind the guidelines. It promotes employee autonomy and cross-sectoral cooperation.

OKRs – Achieving Ambitious Goals

In order to meet the demands of digital changes, adapted tools are needed. Objectives and key results are an appropriate management method to achieve the goals and performance performance set.
“We will build the best browser as measured by 20 m users by the end of 2008.” Today’s Google CEO Sundar Pichai’s sentence was certainly more than ambitious. The market share of Internet Explorer was almost 70 in 2008, and today it has practically fallen into oblivion.
The successes of Google and other Silicon Valley giants prove that OKR works. The empirical observations of the last 30 years show which tools can best be transferred to one’s own company and which adequate answers can be found to the challenges in one’s own hrs and management areas.

The focus is on the result

How can objectives and key results be formulated to focus on the result? The objectives serve similarly to a mission statement, only for a shorter period of time. Ideal is an inspiring qualitative description of the next stage, i.e. a step towards achieving the vision. It should spur the team, but be possible in the quarter. And the team should be able to achieve it on their own.
In contrast to the objectives, the key results must contain concrete measurable key figures. These can be absolute values or percentages or even milestones. This clearly and unambiguously determines the success or failure from the outset. Two to a maximum of five key results should be defined per objective. An example could be:

Objective: We are the market leader for the EU.

  • Key Result 1: We each have 2 strategic partners for Germany, Italy, France and Spain.
  • Key Result 2: Business opportunities for Austria, Benelux, Poland and the Czech Republic have been increased to 50.
  • Key Result 3: Market entry in Portugal and Slovenia.

The OKR method is to be understood as a continuous process that requires high discipline and transparency.

OKRs Conclusion

OKR is a powerful instrument. However, like many other Goal Setting Frameworks, it requires regular review and constant quality assurance.
Implementation does not take place overnight. The experience with change management in particular teaches that big changes should take place in small steps. With an enterprise-wide rollout, there is a risk that too few resources will be available for change management for overly generously formulated objectives and then fail. It is better if you bake small buns in your company first, otherwise the frustration and rejection is pre-programmed by the staff.