Looking at the wide use of OKRs in business today, it’s clear to see that this goal management tool is as relevant today as it was more than four decades ago. Contrastingly, Performance Management initiatives such as Annual Performance Reviews have a dwindling presence in many Fortune 500 companies.
OKRs
Objectives and Key Results (OKRs) are management methods that break down a company’s objectives into time-based, achievable actions termed Key Results. OKRs have increasingly become one of the principal ways for companies to organize teams, giving them clear-cut objectives and providing an easy, actionable road map to achieve them. OKRs are usually set on a quarterly basis, but can also be utilized on an annual cycle.
Performance Management
Performance Management, or PM ,on the other hand is focused on how employees perform relative to the expectations set for their grade or position. These evaluations take place annually, and are aptly called annual performance reviews. Now let’s look at the differences between OKRs & Performance Management.
Comparison between OKRs and Performance Management
1. Key Focus
OKRs focus on business results, while performance management focuses on how an employee performs their job.
OKRs are Business Centric. OKRs define what the business as a whole, a department, a team or an individual needs to do in a certain quarter. As they achieve those results, the general expectation is that the business will do better as a whole in terms of customer satisfaction, revenue, product quality, supplier satisfaction and a variety of other factors.
Performance reviews focus on an employee, and how their skills match up to their job requirements. The emphasis is on the employee, how to make them better at doing their current job, understanding/realigning their career aspirations periodically, as well as helping them with their career path through coaching, training, and sponsored higher studies. At the same time, a goal of performance management is to identify those who significantly lack the skills to perform their job and determine whether or not there’s a visible path to make the job a good fit for the employee. If this path isn’t present, he has to be taken for training programmes to build his suitability. If this effort also does not bring in good results, his termination will have to be considered.
2. Typical Cycle
OKRs generally have a faster rhythm, while performance reviews are a very involved process and are typically conducted once per year.
Assessment Periods
For OKRs, “assessment periods” are weekly, or sometimes biweekly. The assessment for this period of time is called a Check-ins
How does the cycle start?
- Corporate/departmental/team OKRs are established at the beginning of the quarter
- Individual OKRs are created and aligned with corporate/department/team OKRs
- Dependencies with other individuals/teams/departments are discussed and recorded through OKRs
How does the cycle end?
- At the end of the quarter, teams/departments/employees conduct a meeting to share their progress and what they learned, and evaluate how well they performed in regard to their OKRs.
- For each OKR, teams/departments/employees assess where they are and if it makes sense to wrap up the OKR as is, or to extend it to the next quarter.
- In addition to OKRs that are extended from one quarter to the next, new OKRs are added at each level based on business needs.
Assessment Periods
Performance management reviews should take place once or twice a year.
How does the cycle start?
- HR Department kicks off the assessment cycle
- Depending on employee’s grade, they receive a set of competencies that they will be rated on that are applicable to their job performance.
How does the cycle end?
- HR Department kicks off the assessment cycle
- Employees perform a self-assessment
- 360 degree feedback obtained peers and subordinates, often kept confidential
- Manager rates the employee on competencies identified for their grade and level
- Manager & Employee meet and discuss their ratings and complete the review. Disagreements are handled through the HR department, and training opportunities are noted.
- Additionally, goals for the next review period can be set.
3. Compensation
Let’s look at an example: in the software engineering department of Acmesoft Inc., John commits to delivering 10 features for a release and completes 8 of the 10 with great quality. Jacob commits to delivering 4 features for the same release, but completed 5 with great quality. Who is your pick?
OKRs
OKRs promote aggressive target-setting and therefore should not be used for determining employee compensation. They can be considered to put things in perspective, however should not be relied on by themselves.
Performance Management
Ever since HR became a business function, performance reviews and assessment have acted as the precursor to compensation revisions.
4. Transparency
OKRs
OKRs promote transparency, which results in a better culture and environment where targets and achievements are visible to everyone.
Performance Management
This is a confidential process between manager and individual employees, and remains largely undisclosed.With Profit.co’s software, you can implement OKRs and also Performance Management in your organization and accelerate your business’s growth towards stardom.