The 1970s saw the rise of "management by objectives" (MBO), i.e. management using key performance indicators. While this approach was invaluable in establishing a data-driven style of management, nowadays more and more companies are coming up against the limits of the system. MBO was a perfect fit for the industrial age, with plannable and rule-based processes that needed to be monitored. Key performance indicators (KPIs) have also been used very successfully to manage employees – either as part of the corporate culture or in the form of variable compensation systems.
However, a high degree of stability of the entire system was required, as current data was always compared with data from the past. If the baseline changed, a new reference line had to be established.
And this is exactly what makes it increasingly difficult to apply in our current work context. How can you measure an effect without a stable basis for comparison in a system that is constantly adapting? This is the reality for many companies these days – the VUCA world (volatility, uncertainty, complexity, ambiguity) of modern-day markets. In practice, this means that annual plans have to be revised during the year and target agreements with employees have to give way to other priorities after only 3–6 months.
The established system is increasingly being pushed to its limits when it comes to planning and employee goals because…
Of course, a company's KPIs will remain an important instrument for management to record and evaluate results in the future. At least as a management instrument in the form of annual employee targets, KPIs are on their way out, because corporate KPIs always reflect what is measurable and available – i.e. the past.
The newer OKRs (objectives and key results) are a useful tool for companies to take a more forward-facing approach. This approach focuses on future objectives for teams to work towards.
The basis for OKRs is the vision or strategic direction of the company in the future. A company's long-term objectives should, in addition to having a solid strategic component, be as motivating as possible for employees.
Key results are therefore always entered using a quantitative value. Three questions come up again and again in this context:
OKRs are always team objectives, which have ideally been chosen by the team itself with regard to a set company objective. OKRs are processed by a team in a concrete cycle of 3–4 months. It is important for OKRs to focus on the company's strategic objectives rather than on day-to-day operations.
A change in leadership is also necessary for this to succeed: no employee should be personally punished for not achieving an objective. It is not recommended to create a connection between OKRs and compensation, because then the intrinsic approach and the necessary error management culture will quickly get lost.
Of course, key performance indicators (KPIs) are still important tools for any company – they are useful to management as an overview and measurement of all relevant data. The successful implementation of OKRs brings the company one step closer to its vision with each cycle and is reflected in the KPIs in the long term.
An OKR master is in charge of the process, and without this "caretaker and driver", an OKR process will rarely succeed. It is exciting that an OKR team can bring together participants from different business functions and areas to work together on a single issue – an effective antidote to silo thinking.
For this reason, pure "top-down defined" OKRs should be avoided. A combination of "bottom-up" suggestions from the teams and "top-down" guidance often produces a motivating mix.
At PLUCH Interim Management, we consider OKRs very useful as a target definition for teams and the implementation of a strategic corporate vision in today's complex times. We're happy to support you with the implementation and assist your company with the successful introduction.
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