By Malay Krishna and Nikhil Parva
It has been more than three decades since the balanced scorecard became widely known as a tool for implementing organizational strategy. Along with the earlier idea of management by objectives, the balanced scorecard remains a popular tool for ensuring high-level goals cascade through the organization, to front-line teams as well as the back-office. Results of these tools have been impressive; most managers (84%) report that they have access to tangible goals, and can rely on their line managers and direct reports to deliver on annual commitments. And yet, the same research revealed that a majority of managers (>70%) believe that their organizations are unable to effectively adapt to changing market conditions. Other surveys suggest similar trends: 90% of large company executives admit that their organizations failed to achieve all organization goals, and more than half believed that lapses in execution resulted in competitive risks. So, why is execution still a challenge, despite decades of using popular frameworks and tools?
The answer lies in the increasing complexity and speed of change faced by companies today. The balanced scorecard does a fine job of improving alignment within functional domains in an organization. But it does not do as good a job of managing coordination across functions, or with external partners such as suppliers, and customers. So, the question arises: what are businesses doing in today’s dynamic market environment – execute rapidly changing business strategy, and to close the planning-to-execution (P2E) gap?
ENTER O-K-R
Objectives and Key Results (OKR) is an approach that many high-tech firms (e.g., Intel, Google and LinkedIn) embraced as a way of addressing the P2E challenge. High-tech firms are more exposed to volatile market conditions, and many of them found that OKR, when implemented right, empowers the organization to respond dynamically. So, what is OKR? At its heart, OKR espouses a familiar set of principles: strategic business goals should be aligned with the active involvement of all employees, as doing so would promote intrinsic motivation, transparency, and commitment. At first glance, this seems like old wine in a new bottle. However, what sets apart OKR apart, is how it is wired for agility and transparency.
Agile organizations are designed for a combination of dynamism and stability, according to McKinsey & Co., a global consultancy. Agile organizations are unlike “traditional” organizations that are geared primarily for stability, and have more static, hierarchical structures, with more powerful governance at the top. In contrast, agile organizations follow a more network-oriented, and distributed decision-making approach. To meet this need for agility, OKR allows for a quarterly or even more frequent review of performance. At LinkedIn, the CEO’s executive team reviews OKRs weekly. These rapid reviews in turn allow for iterative decision making, at multiple levels in the organization.
Transparency is not just a feelgood buzzword – but critical for regulating the rapid organizational change that accompanies agility. At Google, all OKRs, starting with the CEO’s, are visible to all other employees. And likewise, the goals of each team are visible to all others, enabling rapid and interlinked adjustments. For instance, if monthly sales of a product in a region did not meet preset goals, the OKR process enables the relevant team to communicate the fact, adjustments to objectives and key result plans, which then cascade company wide. As these “preset” goals are set bottom-up at the beginning of the quarter, commitment tends to be stronger than when someone else sets the goals for you. One study by McKinsey found that such bottom-up goal setting increased sales performance by 20% in a B2B setting.
OKR IN PRACTICE AND ITS LIMITS
OKR’s have been embraced not only by US high-tech behemoths, but diverse types of organizations around the world, including LG (Korean appliance maker), the Bill & Melinda Gates Foundation, Zynga (the social game developer) and BMAT (music indexing service from Spain). And yet, several companies have abandoned OKR as it failed to improve the performance to execution (P2E) as promised. One reason for failure, experts caution, is a lack of senior leadership actively championing OKR. For instance, Sunder Pichai, head of Google and erstwhile business head of the Chrome Browser, was deeply involved in the selection of the objective metric that would represent Chrome’s success. When deploying OKR for the first time, such leadership is crucial.
After top management communicates strategic goals, the OKR should manifest in bottom-up and top-down planning including budgets and other resource allocation, followed by tracking. There are several enterprise software tools that can enable an agile and transparent OKR. Beyond software and leadership, a final pro-tip: pay particular attention to strategies that require confidentiality. This need could arise from the nature of client (e.g., defense or healthcare sector), or the nature of product (e.g., a new generation of software, or other novel product). In such cases, you would need to pair a confidentiality framework with the OKR. Remember: like all strategy, OKR is only as good as its implementation.
(The authors are Malay Krishna is a professor at S.P. Jain Institute of Management & Research and Nikhil Parva is a former consultant from KPMG, and the views expressed in this article are thier own)
