Strategy is critical to guiding the direction of an organization. To develop strategy, senior leadership of an organization may spend a few days at an offsite retreat engaging in activities to stimulate planning long term goals and aspirations, often articulated in a vision and mission statement. But then what? Far too often, the vision and mission statements are updated on a website and left until the next offsite. Many organizations struggle to turn strategy into action to drive tactical operations. This is where strategy performance management tools come into play. This article will examine two of the most popular and effective strategy performance management tools- objectives and key results (OKRs) and the balanced scorecard (BSCs).
The balanced scorecard was established in the early 1990s as a way to incorporate leading indicators into performance tracking instead of relying exclusively on lagging indicators. It evaluates strategic priorities across four perspectives: finance, customers, internal processes and learning and growth. Objectives for each perspective are established and measures are developed to monitor the success of each objective. Displaying the four perspective’s measures and objectives provides a great way to visualize the strategy and communicate it across the organization.
Objectives and key results rose to fame from their use in high profile silicon valley companies, such as Google and Intel. OKRs start by defining objectives, qualitative aspirations that are the most important goals for the next quarter. Next, key results are established to measure and track progress of the objective. Key results are concrete, measurable targets that are easy to track. OKRs are highly visible among the organization and are monitored daily.
Two significant differences between BSCs and OKRs lies in the cadence and focus of the two tools. From a cadence perspective, in BSCs, the objectives and measures are designed to stay in place for at least 1 year, often longer. In OKRs, the objectives and key results are usually established on a quarterly basis. They also place focus in different areas. The BSC’s framework of 4 perspectives places focus on financial, customer, internal process and learning and growth. In contrast, the focus of OKRs is completely discretionary to whatever is most important for the next quarter.
The implementation differences between the tools can provide insight into which tool would work best for your organization. OKRs are designed to produce ambitious, stretch goals to peak performance above any level previously attained. The quarterly cadence allows to implement OKRs in an agile method, reassessing and changing directions when necessary. OKRs are developed in a bottom-up or sideways approach, with individuals and teams often creating their own OKRs. BSCs, on the other hand, are developed in a top-down approach, with leadership establishing the objectives for each framework and then each team choosing measures to assess and monitor performance. The BSC framework of four perspectives facilitates holistic thinking about the organization’s overall strategy and competitive advantages. BSCs are a better option if the organization’s leadership doesn’t have a specific, targeted direction for the next quarter.
Regardless of what tool you choose to implement, these common factors are critical to success. First, senior leadership participation and sponsorship is vital. If leaders don’t buy in to using a strategy performance management tool to drive tactical operations decision making, most others will view the development of such tools as fluff and busy work. Secondly, there must be a visible and communicated “why”. The business justification for implementing must exist and be communicated. Just developing the tool won’t drive implementation. Lastly, there needs to be cultural alignment. The strategy performance management tool must be embedded into the culture. This doesn’t happen overnight and requires thoughtful action on behalf of the organization’s leaders. Incorporate OKRs into team meetings and 1:1s. Set aside time to facilitate OKR development and formally review OKRs on a quarterly basis. Be transparent with OKRs developed by leadership. Use OKRs as justification for decision making, and communicate that justification.
When implemented correctly both OKRs and BSCs can be transformative tools, turning strategy into action. Which tool to use comes down to which implementation approach is best suited for your organization. The two tools aren’t mutually exclusive. The four perspective strategy map of a balanced scorecard can be combined with stretch OKRs reviewed quarterly. Whatever tool or combination of tools you use, the bottom line is clear: Don’t leave strategy on the shelf in between offsite retreats. Leverage strategy performance management to drive tactical operations.