OKR (Objectives and Key Results) has recently been noticed as a popular management method for strategy execution in all kinds of organizations. It has been extremely insightful to see the method used to bring strategies to people’s everyday actions. With the LATO team, we notice that the term OKR comes up almost on a daily basis in our conversations with potential and current clients. Another popular framework for categorizing (and clarifying) strategic objectives is the Balanced Scorecard, BSC. The BSC has been recognized as a useful tool especially in businesses but the methodology is also used in governmental institutions. Once we have two good management frameworks for strategic management, one could ask what are the differences between OKR and BSC? Are there any overlaps with these two methods? What are the key benefits for both OKR and BSC? Well, lets find out!
Balanced Scorecard, BSC
With all of it simplicity, BSC is a strategic framework which has four dimensions or perspectives:
- Learning & Growth
Organizations that use BSC in their managements think that once they succeed in all four dimensions, they have the required strategic and operational excellence. The BSC also acts as a communication tool: you can categorize organizational goals which can be further cascaded to units, teams, and even personal level. In a nutshell, the BSC is a very simple and easy-to-use management framework!
Objectives and Key Results, OKR
In my previous blog I wrote some insights about the OKR model. In practice, this management method adapts the strategy to concrete goals and actions. Objective tells us what the desired outcome is and what we want to accomplish in certain period of time. You can learn more about goal setting and management by objectives here. On the other hand, Key Results are the actions that you need to execute in order to accomplish the objective. So, the objective describes what we need to accomplish and key results how the objective is accomplished. Quite simple, isn’t it? The OKR is based on Peter Drucker’s Management by Objectives (MBO) which has been widely used since the 1950s, and for example Google and many companies from Silicon Valley are using OKR to help them execute their strategies efficiently and successfully.
OKR and BSC combined
Now that we have briefly defined the OKR and BSC, lets take a look what are the differences and key benefits of these two popular models. The BSC’s advantage is its simplicity: goals and KPIs can be tied to the four dimensions explicitly, and if the goals are defined well and related to the strategy, one could argue that success is guaranteed. Compared to OKR, BSC clarifies the areas of success better. Basically, OKR is just a list of goals and actions and when OKRs are poorly formulated, their relation to strategy can be quite far-fetched. When this happens, OKRs advantages are not recognized since it is not clear to stakeholders why they are doing what they are doing. With BSC, goal-linking and goal structures are transparent and clarified. For example, if my goal is to keep the annual churn-rate under X %, I’m contributing to company-level goal where the company is seeking annual Y % growth, and my goal is further linked to the customer dimension.
Acknowledging this, why the OKR is gaining more foothold in all kinds of organizations’ managements? Compared to BSC, OKR provides more concrete daily- and monthly-based actions and doings. When Key Results are well defined (and measurable), individual tasks are directly summed up to strategic success. Ultimately, OKR means continuous actions and helps organizations to divide their strategic goals to smaller entities. OKRs also support development, both from organizational and individual perspective. Typically, OKRs are defined once in a month, and some organizations are capable of defining OKRs that are both cascaded from strategy and take personal development and career goals into account. Quite advanced, am I right? One point to the OKR, so this ties the game.
Both OKR and BSC have their own advantages, but can the advantages be combined? Short answer: yes, they can. Strategic themes or must-win-battles can be taken directly from the BSC, and OKRs can be defined under these focus areas (Finance, Customer, Process, Learning & Growth). We can monitor dimensional KPIs and cascade OKRs to units, teams, and employees. By combining BSC and OKR, strategy is well-structured and determines the concrete actions: what we need to do to accomplish progress in BSC dimension KPIs? It has been noticed in management literature that once employees are tied to organizational objectives, performance increases both from organizational and individual perspective. It also generates higher commitment and satisfaction rate. Traditional KPIs can still be used in reporting purposes, and OKRs create the milestones for strategic success. Below you can see a simplified framework where BSC and OKR are combined: Blue boxes indicate the BSC relation, and green ones are the OKRs.
If you are interested in hearing more about these thoughts, please feel free to contact the LATO team anytime!