5 min read

How do OKRs Differ From Performance Reviews?

How do OKRs Differ From Performance Reviews?

Rewarding individual brilliance is not something new to us. Performance management practices over the past 50 years continue to take inspiration from the vitality model, coined by Jack Welch, former Chairman of General Electric. Jack spoke about the 20-70-10 system, where 20% of the workforce are most productive, 70% work adequately and 10% are non-producers. Unfortunately, Bell curves (though not force-fitted), continue to prevail in many organizations, compressing people to ratings for compensation reviews. Thousands of hours are spent by managers, HR leaders, and business leaders in getting this right, only leading to heartburn for many.  

Not all is lost. For the past 2 decades, performance conversations, no bell curves, and frequent feedback have enabled many organizations to be forerunners. Adobe made the headlines in 2012 with Donna Morris, Former Chief People Officer, calling performance reviews a ‘dreaded dental appointment.’ How Adobe abolished Annual Performance Management became a game-changer in the industry, with bold moves and innovation around introducing check-ins.  

Earlier in April 2022, Google's CEO Sundar Pichai announced changes to Performance Reviews with the introduction of GRAD. Read about it at Fortune's article Google CEO Sundar Pichai changes performance reviews to just once a year.

Whatever be the stance on performance reviews, one thing is apparent. Organizations are now sensing the need to make people accountable for outcomes, rather than mundane tasks linked to roles and job descriptions.   

Enter OKRs 

OKRs (Objectives and Key Results) have been doing the rounds over the past few years. An industry has evolved around OKRs, with a community of OKR coaches, practitioners, and OKRs software providers, helping company CEOs,  Founders, and leaders sharply align teams to high-velocity business metrics. Google popularized OKRs in 1999. John Doerr’s bestseller ‘Measure What Matters’ made OKRs sexy, with inspirational stories from leading companies creating an impact by using a deliberate way of alignment.   

 

OKRs is a strategy execution framework. Leadership teams have a strategic direction, which is most often articulated in town halls once a year or quarter, calling out key priorities and progress. Not all in a company are mostly involved and become silent spectators to quarterly progress call-outs, and probably never remember ‘What goes behind a strategic choice?’ and ‘Does my task or project impact the same?’

The process of OKRs enables teams (not individuals) to write directly into the company’s strategy! This is a bold move, but yes, who else would know best on how to move the business needle than the teams who are actually doing the job?  

What Aspects of Performance Reviews Differ From OKRs?

Linkages 

OKRs are linked to the company’s strategic priorities. The process of performance review commences with goal setting, linked to the role played by an individual.  

For instance, a Software developer would set goals linked to the role which she/ he plays, linked to a project.  

Crafting or Setting 

OKRs are set as teams, rather than individuals. While crafting team OKRs, members of cross-functional teams come together to critically think about a key business metric in a company OKR, which they can together move forward. In performance management practices, goals are set between a manager and team member, usually during 1:1 meetings. 

Choice of Metrics

OKRs is a great balance of lead and lag indicators. Performance reviews mostly measure business as usual metrics, KPIs, or lag indicators. For instance, reducing churn and reducing bugs on an app could be KPIs, but OKRs require cross-functional teams to deeply reflect on ‘What causes the churn or bugs?’ and walk back to trace metrics that can be controlled a lot sooner than later.  

Alignment  

OKRs are aligned vertically and bi-directionally. These are not set in silos. In performance management, goals are usually set 1:1 between a manager and team member, aligned to a project.  

Tasks or Outcomes 

One of the fundamental shifts in OKRs is the shift from managing by tasks to ‘managing by outcomes’. OKRs focus on outcome metrics. Traditional goal setting often has tasks as goals, making it less impactful to the business. 

Eg: Writing 10 blogs, making 50 calls per day, and launching campaigns are inputs/tasks. OKRs focus on metrics that impact one or more of the company's KRs. Eg: ‘Increase qualified leads from X to Y’, or ‘Increase deal value from USD X to Y’.   

Download our Shareable Slide on how OKRs differ from Performance Management

Cadence: 

OKRs are definitely not about setting-and-forgetting. They have a rhythm and deliberate cadence, much like agile. Teams come together for week-on-week check-ins to share progress on outcomes and fine-tune experiments/initiatives  that move the business needle.  

Performance reviews are still mid-year and annual in nature, as they are seen as a process that is driven by HR, and not necessarily part of a business routine.

Linkage to Compensation: 

Ask a global OKR practitioner about their stance on tight linking to compensation and you would most often get a Nay. Rightly so, as OKRs are not the business-as-usual metrics, but the ones which are to move the company forward.  While you ask your teams to stretch and aspire, linking OKRs to compensation would be more like saying “Hey! Reach for the skies! Oh, by the way, it’s linked to your blue sky holiday as well.”

Teams – more often than not – will take a safe harbor, killing the spirit of OKRs.  Performance management practices converge on tight linking reviews and ratings to annual compensation reviews.  

So How Do Individual OKRs Differ From Performance Reviews?

Spotify had a great take on why setting OKRs as individuals did not really get them the bang for the buck. Setting Individual OKRs instead of Team OKRs often takes teams back to setting ‘cheeky little’ tasks instead of KRs. These are also known as the masquerade OKRs. We have seen that individual OKRs are effective when taken in the context of personal development or even for personal wellness, for instance, ‘Increase learning hours from X to Y’ or ‘Increase number of steps walked from X to Y’.  

Can OKRs and Performance Practices Co-exist?

OKRs and Performance practices can co-exist. Companies start with pilots, taking 20-30% of their teams through OKRs, and progressively adding more as they see success towards business velocity. The verdict: OKRs with feedforward conversations can be a very powerful way of driving velocity, at the same time coaching teams to move from good to stellar.   

To find the right productive balance, companies want to build a culture where every employee can visualize how they contribute to the growth story of the company. Many high-growth companies use OKRs to drive the amazing strategic advantage driving business growth rates higher and higher. Read more to know how 6 High growth companies are using the bright side of OKRs and managing their way through compensation increases in their own creative ways.

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About the Author

Vidya Santhanam is the Co-Founder of Fitbots OKRs. Having coached 600+ teams, and conducted 1000+ check-in meetings, Vidya likes writing about Metrics, high performance, and leadership.

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