It’s a framework-jungle out there and there are many concepts to set goals and measure success. They all differ in flight level, focus, time frames, and many other aspects. Objectives and Key Results (OKRs) have the potential to add a certain value to each of these concepts and, therefore, create more focus and improve strategy execution. We explain how OKR relates to other frameworks like Hoshin Kanri and how they can be combined.
KPIs have long been serving as an organizational health check by measuring vital aspects of success. They enable companies to translate their business into quantifiable results, such as revenue growth or customer satisfaction. However, they are Lag Metrics that only provide a look at the results of what you have done in the past. They fall short in providing actionable insights. OKRs, on the other hand, focus on the future and a strategic direction. They focus on Lead Metrics that can be influenced to reach a certain value. Another difference is the time frames both frameworks capture. KPIs continually measure performance and reviews usually take place every six or twelve months, whereas OKR cycles are 3 to 4 months long.
For a detailed comparison read our article OKR vs KPI – a delineation
Despite, or rather because, of the different perspectives they provide, KPIs and OKRs complement each other well if you know how to put their individual metrics together. OKRs can put the spotlight on certain aspects to influence a distinct KPI over several cycles and ensure focussed work towards that goal. KPIs, on the other hand, provide quantitative feedback about the created value and give you an idea of where to focus on next.
You find examples for combining KPIs and OKRs in our article How to connect KPIs and OKRs
Balanced Scorecard expands the concept of KPIs by adding additional perspectives to company strategy beyond financial key figures. These are the perspectives of a customer, an internal process, and a learning and development perspective. This extension was made to help organizations make strategically more balanced and differentiated decisions instead of orienting oneself to short-term and very abstract, financial key figures as success factors.
These aspects complement the approach of OKRs to include learning and customer value into the goal-setting process. However, like KPIs, Balanced Scorecard focuses on Lag Metrics with clear goals and is drafted for longer time frames. They can work well with OKRs to deduce objectives to influence the goals and focus on the process of goal achievement. OKRs provide a structure for the four perspectives of Balanced Scorecard and how to achieve the respective goals.
You can read more about similarities and differences in our article OKRs and Balanced Scorecard
SMART is an acronym that describes how goals should be Specific, Measurable, Attainable, Reasonable, and Time-bound. These criteria set the same scope and direction as Objectives and Key Results by focusing on a certain direction and how to get there within a certain time. SMART Goals, however, are just a concept for goal setting and do not tie into the overall strategy. It also falls short in terms of alignment and learning.
Therefore, SMART goals and OKRs do not take place on the same flight levels. OKRs tie goals into the overall strategy and provide an organizational context. SMART goals rather set a frame of quality criteria for goals that can be leveraged in the OKR drafting process to ensure quality and focus. As the criteria partly contradict the qualitative characteristics of Objectives, they are more relevant for Key Results. These should be as specific as possible, clearly measurable, to some extent attainable (but also ambitious), reasonable (in terms of reaching the objective), and time-bound when one objective depends on various consecutive Key Results.
Ultimately, SMART goals take a subordinate place compared to OKRs and should be treated accordingly. While its criteria can act as a control mechanism for goal drafting, it does not provide a single point of truth. While good Key Results do fulfill SMART criteria, drafting them with only SMART in mind can still result in weak Key Results.
Hoshin Kanri is a strategy execution framework that ensures focus on a limited number of goals, as well as alignment and transparency across all levels. The leadership team develops breakthrough objectives and metrics to address a selection of critical issues. These are handed down to the level of departments, teams, and employees. It is up to them how they achieve these goals. Once they decide on their strategy, they report it back to management. This „Catchball“-principle ensures transparency and alignment through a bidirectional information flow. Additionally, regular review loops ensure constant learning and identification of roadblocks.
Hoshin Kanri and OKRs have very much in common: Enabling employees and teams to choose their own way of reaching organizational goals by alignment, transparency, and perpetual iteration. They do differ in complexity and time frames, though. Hoshin Kanri usually features various goal levels, long-term and annual. Goal drafting also includes priorities, important metrics (qualitative as well as quantitative), success factors, and the teams involved. OKRs, on the other hand, take these aspects into account during drafting, but the goal focuses on a specific value. Also, they run in shorter cycles of 3-4 months (sometimes with long-term or annual Objectives). Additionally, they are much more lightweight with fewer components needed for goal-drafting and focus on value.
The shorter time frames of OKRs make the framework compatible with Hoshin Kanri to provide focus over one cycle to influence goals. Several OKR cycles can influence annual goals and put the spotlight on certain values that move the needle on the respective metrics. Additionally, these cycles provide regular review and retrospective opportunities.
OGSM stands for Objectives, Goals, Strategies, and Measures. Objectives set the strategic direction for a desired long-term goal (up to five years), while goals define the metrics to measure success. Strategies explain how the Objective will be reached and Measures define its successful progression. It is a concise format that ties company strategy to operational aspects and allows for long-term planning.
OGSM contains equivalents to Objectives and Key Results but differs in various aspects. First, it is a top-down framework that sets long-term goals and does not involve granular cycles. It does not provide a set rhythm for Check-Ins and Reviews and, therefore, does not enable course-correction and feedback. Also, Measures can but do not have to be congruent with Key Results. They do indicate progress with quantitative measures, but these can also be KPIs or other Lag Metrics. Key Results should be metrics that you can influence to deduce Initiatives.
Therefore, OKRs are a useful addition to OGSM. It provides guidance for granular planning, temporary focus on specific aspects, and focused strategy execution over a short cycle. It also adds the elements of bottom-up execution to OGSM, as well as autonomy, alignment, and collaboration. This provides organizations with the ability to adapt their strategy quickly while keeping long-term goals and metrics in mind.
Management by Objectives (MbO)
MbO is a management framework that cascades goals through the organization and sets individual metrics to indicate successful progress. Therefore, each employee knows how his or her work contributes to company success. It also creates alignment for the whole company towards common goals.
While MbO and OKRs both structure work according to goals for the whole company, they represent entirely different philosophies. MbO focuses on quantitative measures instead of a value. It does not foster autonomy or cross-functional collaboration and goals are usually set for one year. It does not provide a cadence of meetings, reviews, and, therefore, no opportunity for reflection or course-correction.
As OKRs are actually a modernized version of MbO and both contrast each other in various aspects, it is hard to leverage both frameworks simultaneously. However, many organizations that leverage MbO try to move to OKRs to become more adaptive.
If you want to find out more about the differences and how to switch to OKRs, read our article From MbO to OKR
Leveraging OKRs into an organization that already uses another framework that makes sense for a variety of reasons. OKRs provide a simple framework that unites all principles vital to company success in today’s economy. It can be combined with goal-setting techniques, such as SMART and Balanced Scorecard, which add more value when combined with KPIs and can be well integrated into the bigger picture of Hoshin Kanri and OGSM. As all of these work on different flight levels, OKRs offer a useful addition to focus on the bigger picture, but also manage strategy execution in day-to-day work.