Objectives and Key Results (OKRs) is a goal-setting framework that also has some elements of performance management like Objective planning, tracking, and reflection. It is thus common for people to link with the process of performance management. OKRs help you create and communicate business outcomes that are measurable and inspirational. The performance management aspect of it ensures you deliver them efficiently.
However, a closer look will reveal that all is not the same. OKRs focus more on business outcomes in terms of “what” and “how” whereas, performance management concentrates on the performance evaluation, improvement, and career planning of individual team members. OKRs are all about outcomes that give a clear picture of business impact. Performance management looks at the interpersonal dynamics of employees.
If you are confused, this OKR vs. performance management guide will help you understand the ideal framework for your organization.
What are OKRs?
OKRs are a goal-setting framework with objectives and key results as their components. Objectives are time-based problem statements that teams can achieve through clearly defined Key Results. OKRs are an ideal framework for organizations to align and engage their teams. Clear-cut objectives and measurable results give everyone a good understanding of how they can achieve progress. OKRs can be set quarterly and annually.
What is Performance Management?
Performance management focuses on how employees performed against the goals set for themselves by managers. Managers evaluate employees half-yearly or annually, which also forms the basis for year-end performance reviews. Whilst yearly assessments are common across most companies many are shifting from annual performance management to continuous performance management. Continuous performance management (CPM) includes frequent performance conversations, feedback, and recognition (CFRs) of employees’ day-to-day achievements and exhibited behaviors.
OKR vs. Performance Management: Key Differences
Combining the OKR framework with continuous performance management elements of conversations, feedbacks and recognitions gives organizations a powerful performance stack for aligning, engaging, and building a robust performance culture that focuses on outcomes and not output.
However, let us first understand the difference between the two through four key parameters.
1. Area of Focus
OKRs focus on achieving results. On the other hand, performance management looks at the way employees do their duties. The focus of OKRs remains on business, where teams decide what they need to achieve during each quarter. Teams also look at the steps they will take to achieve the desired company goals. When businesses work on the objectives and achieve results, there is an expectation that the overall output and customer satisfaction will improve. Performance reviews look at the skills of employees and how they match the requirements of their job. The focus remains on employees regarding their improvement and aligning them with the overall business objectives. There are training programs as well to ensure employees grow holistically. Businesses also need to identify employees who do not have the skills to perform their job better. They can then chart out an action plan for improvement. If that doesn’t work out, the last option is the termination of employees.
Businesses carry out performance management reviews once a year. Meanwhile, the OKR cycle is typically quarterly and annual. Teams can also have regular check-ins once every week or two weeks. During OKR evaluation at the start of each quarter, departments and the organization need to establish new OKRs.
Managers then create the individual OKRs for each employee and align them with that of the organization. Teams can then conduct meetings with other departments to identify dependencies and ease them out. The cycle ends at each quarter when departments sit down for reviews. Managers ask employees about learnings and performance against each objective. Teams can then look at the OKRs to see if they need termination or get carried forward to the upcoming quarter based on business needs. The next quarter may have one or two old objectives and the remaining as new ones.
Performance assessments happen when HR teams start the evaluation cycle. Employees receive ratings based on how well they met their expectations. They will then get rated based on their performance during the year. Employees need to do a self-assessment and peer validation. Managers then rate employees based on expectations and offer ratings to complete the review process. The HR team will step in if there are any disagreements. Furthermore, managers and employees finalize the goals for the next cycle.
OKRs are ideal to set aggressive targets that can lead to better development of employees. However, you should avoid linking them with compensation. It will then lead to employees setting lesser-challenging goals for themselves. Performance reviews have always found a link with compensation. Companies use performance ratings to estimate how much increment and bonus they should offer to each employee.
OKRs are known for promoting transparency. It leads to an improved organizational culture where the focus remains on achieving business outcomes. Teams additionally remain aware of the objectives of all other departments. Performance assessments remain confidential as they have a direct link with compensation. HR teams set a rule to disallow employees to discuss salary details with each other.
What does performance management mean for employee growth and engagement?
Performance management is an approach that goes beyond the performance reviews that companies usually have. The framework focuses on having better alignment between managers and their team members. It can ultimately improve the workplace culture and lead to the overall growth and development of employees.
OKRs are ideal for devising and executing impactful business outcomes. At the same time, performance reviews can improve the effectiveness of OKRs through regular check-ins. If there are any issues, these assessments can help improve performance by removing any blockers.
The continuous performance workplace culture will focus on how each employee makes an impact on the business outcomes. It will also pave the way for incorporating conversations, recognitions, and feedbacks at regular intervals. When used together, OKRs and performance management can integrate company objectives with the daily tasks of team members.
How to implement OKRs together with regular performance assessments?
Businesses must have an OKR framework that helps execute business strategies well. You can then integrate performance management with OKRs. The performance reviews can become a part of the 1:1 meeting you have during each OKR cycle. You can engage and motivate your employees much better through this mechanism.
OKRs can provide a base to measure performance. However, you should avoid using them as a standalone performance analysis tool. It will lead to a situation where you cannot realize the true potential of your employees. It is one of the reasons why compensation is not a part of OKRs. Managers can still include data from OKRs for performance appraisal and increments.
The need for keeping OKRs and compensation separate
OKRs deeply thrive on straightforwardness and bringing teams on the same page. The focus is to keep everyone aligned across the organization. If aspirational goals link with compensation, employees may not feel confident about achieving them. It will ultimately lead to a situation where they try to play safe and not take any risks. The fear of failure will be high.
The successful implementation of OKRs can take time. When organizations do not follow the best practices, they won’t be able to write effective OKRs. It will show in the performance of their employees. Failure to achieve results will affect the team morale and let everyone down.
The widely prevalent compensation model linked with performance is losing its force. Gone are the days where merit pay alone worked to drive individual performance. More companies are re-examining the regular practice and emphasizing growing and developing employees.
Businesses must focus less on linking employee compensation with their output. Instead, there should be an emphasis on promoting better behavior and recognizing behaviors exhibited. OKRs, when implemented correctly, can lead to a culture of better behavior.
Employees will find it much better to innovate and go beyond doing what anyone would usually do. OKRs promote an environment where each employee becomes aware of how their contributions will impact the organizational goals. There will be a better sense of accomplishment among employees when they understand their purpose in the organization.
You can also take a bi-directional approach regarding performance goals. When creating objectives at the top, ensure you also have bottom-up planning. Your employees will feel much more engaged in the process of setting goals. There will also be better accountability towards achieving organizational goals.
If you want to integrate OKRs and continuous performance management, it is always best to implement the former first. OKRs can lay the foundation for performance management and employee productivity. Organizations can promote engaging discussions around employee achievements.
These conversations will also help managers understand the challenges and opportunities that can drive better business growth. It will also be easier for managers to understand the contribution of each employee. OKRs thus becomes ideal for promoting a culture of growth, alignment, engagement, and productivity.
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