OKR and Performance Management: How They Work Together‍

This article explains how OKR and Performance Management are connected to one another

OKR is increasingly gaining popularity as an agile goal management method. The fact that it also aids immensely in performance management has been an important reason for its adoption.

But are OKRs performance management the same? Some organizations treat both of them similarly without disrupting their regular operations. OKRs can trace their roots to Peter Drucker's Management by Objectives (MBOs) and help clarify team members' roles and responsibilities.

Qualitative goals or objectives are defined by three to five measurable Key Results; each enables organizations to translate their vision and strategies for future success into quantifiable goals that can be easily visualized at work for employees. The duration for OKRs that most organizations follow is typically quarterly, enabling teams to react quickly to market or customer needs changes.

The Performance Management Objective

Performance Management is a collection of activities that lead to desired outcomes for organizations and take them close to their goals. When applied at different levels, it translates to a series of agreed-upon activities that will improve the output of teams, individuals, or processes in question. But in practice, the term refers to appraisals and remunerations, not the management and development of employees and teams. The appraisal is an annual process, and here are a few differences they have with OKRs.

OKRs focus on teams, organizations, and departments – while performance management is primarily for individual employees. The goals of OKR are to increase performance by bringing in transparency, collaboration opportunities, and ambitious goal setting. Performance appraisals seek to create career paths, provide incentives and skill development opportunities, and formal feedback cycles. While assessments form the basis of employee compensation, OKRs should be decoupled from the monetary aspect.

Using OKRs for performance management is possible, but performance appraisal isn't. The fact that OKRs directly link specific key results to individuals or teams can cause appraisal/management confusion because using the completion ratios of OKRs for evaluating performance can seem logical. When compensation stays separate from performance management, employees can actively focus on the best possible way forward for all – instead of considering only their interests.

Nothing can be further from the truth. Coupling OKRs and compensation-related appraisals undermine the framework and negate the most significant benefit of OKRs – ambitious goals, also called 'Moonshots.' Employees whose raises are tied to OKR completions may set their goals low to get favorable ratings on completing them.

Letting Go of the Old Habits

An employee's performance slump can be multiple, and none of them might be because of the employee's shortcomings. Sometimes the OKRs set is too unrealistic to begin with, is not aligned well to the vision, or hasn't translated into measurable vital results.

The main reason for this is the older ways of setting performance management – where leaders set goals and are adopted by everyone else, evaluated once a year, and have a massive say in determining the compensation.

With the change in working conditions and the needs of employees, organizations have adopted various processes that improve transparency, self-organization, continuous improvement, work-life balance, and other aspects. These processes run counter to the annual review. When organizations expect their employees to respond in real-time to customer feedback, they should at least review their performance more regularly than annually.

The performance management revolution, as Harvard business review terms it, reports how leaders like Adobe, Dell, Microsoft, IBM, and others have embraced newer, personalized performance management methods.

The advantages of the modern, agile way are plenty: they address the drawbacks of the old performance management process and provide a fluid approach to learning, feedback, and development. Regular, constant feedback helps employees to improve continuously and opens up a dialogue between them and their managers about new ideas and methods.

The fact that these reviews and feedback sessions can be wrapped up in a few minutes is a net positive, considering the amount of time spent preparing for annual performance reviews. A survey by Deloitte revealed that it takes 210 hours for an executive to handle yearly performance reviews efficiently.

Achieving Objectives Through Continuous Performance Management

Continuous, or Agile Performance Management, is designed to drive, assess and improve employee performance. It enables organizations to create an inclusive atmosphere where employees feel they can speak their minds and take control if they need to.

Continuous performance management brings employees closer to supporting each other and creates a space where they can learn and grow together. Continuous Performance Management has several advantages over the old approach – its shorter cycles and agility lead to frequent check-ins by managers to give feedback to their employees when they need it the most.

Employees can discuss the issue, understand what needs to be changed, and tweak their processes or output accordingly, with flexibility and agility. The focus on improving employee skills makes the process a true performance-enhancing one, not to mention being cost-effective. The focus on individual and team improvements encourages collaboration among team members, leading to multiple high-performing teams.

Okrs for Continuous Performance Management

OKRs fit perfectly with modern agile performance management methods. The similarities between both are quite striking: Modern performance management relies on continuous recognition and appreciation, regular goal-oriented discussions, learning and development initiatives for enhancing employee skills, constructive feedback, frequent performance check- ins, conversations, and more.

These aspects are present in OKRs, too – and they perform roughly the same tasks as their performance management counterparts, even though OKRs are about organizational and team-level performance.

Managers can identify areas of improvement with individual team members and arrive at objectives that help them move in that direction. Setting relevant Key Results helps employees focus and ask for assistance if they are unclear about their next steps.

Words to Leave By

The benefits of OKRs and agile, continuous performance management are not mutually exclusive – they can work together to provide a better result than expected. With OKRs, employees understand why their job is important and set goals to achieve those important things, and performance management helps them acquire skills to do that.

With regular check- ins a part of both processes, managers can use OKR-related one-on-ones to identify and help with issues their team members might face. However, keeping them separate from compensation and personal development goals is essential.