The only way to achieve healthy cost-reductions is keeping the outcome for customers and the execution of strategic priorities at the center. This extreme focus on outcomes and execution is achieved through Outcome Management, based on OKRs.
This framework and methodology helps you to:
- Focus on what matters the most and thus avoiding outcome waste
- Align the entire organization around shared priorities
- Course-correct quickly
- Identify where resources are wasted and where better to allocate them
There are two types of companies that will emerge from the ongoing economic downturn: those that will have survived and those that have not. To avoid being part of the latter, enterprises need to look deeper into cost-saving, while increasing efficiency, resilience and agility. They have to get rid of old ways of thinking, even if looking into the past sometimes seems more comfortable.
But how do you successfully reduce costs? And how do you minimize the risk of cutting costs too far (and create a risk for future growth) or too little (and put your businesses survival at risk)? Or even worse: Cutting costs at the wrong end, resulting in new problems? A strategic and focused approach will be needed.
This is where OKR-based Outcome Management delivers the right tools for cost-saving and increased efficiency in disruptive times.
Just to make it clear - the current economic downturn is nothing like the pandemic we recently have gone through. The pandemic made some companies more successful while others were hit hard. Now, with the war going on and the rising energy prices and inflation, everybody’s affected.
So everybody’s looking at cost-savings or increased efficiency - two sides of the same coin.
In these volatile times, revenue forecasts are also no longer so reliable. The environment is changing too fast and you need insights from the front-lines to stay on top of the situation. Planning at the top while being removed from the front-lines is now a dangerous thing.
To reach your efficiency goals, OKRs are the right tool to go with because:
- They shift the focus on what matters most.
- They help the entire organization, from HQ down to every business unit and remote employee to align behind your most strategic goals.
- They help bottom-up, front-line insights and contributions to inform your strategy, so that you can adjust fast.
- They instill an execution performance culture - helping you frequently (quarterly ideally) to revise your goals and initiatives. Thus, they help you course-correct quickly.
- They make progress on execution 100% transparent so you don’t go crazy managing strategic projects in Excel or PowerPoint.
- They enable you to look at leading metrics, instead of just financial ones - which are lagging - so that you know you are on the right track instead of just guessing.
- Finally, you get a better grip where resources are actually draining - and where it is worth cutting budgets.
Increasing efficiency during execution of strategic goals is one of the key principles of the Objectives and Key Results (OKR) framework. It is a holistic strategy operationalization method. OKR enables companies to define objectives and key results at all organizational levels.
- The objective includes the internal or external customer, added-value and future state. It shows what we want to achieve in the next cycle.
- The key results are the measurements of whether we have kept the promises we have made in the objective. At the same time they show how far along we currently are on the way to our goal.
- Both objectives and key results focus on the outcome rather than the output. Thus, OKRs are a promising tool for reaching more outcome-centricity in a business.
Learn more about the difference between Output vs Outcome here!
Focusing on outcomes – on what matters the most – helps you save costs because you are laser-focused on what delivers value to your customer. All else is secondary.
Working with outputs - often muddles the result.
How does outcome waste look in practice? Let’s imagine you are thinking in outputs rather than outcomes. Relaunching your website - only for the sake of a relaunch - is most likely not going to create any added-value for your customer, and thus the strategic priorities of the business. Can this initiative contribute to a customer outcome? Can you put in place metrics that measure this? If the answer is no, it could be a leading indicator that a relaunch is not needed. Your focus should shift towards other projects.
With OKRs, each department or team defines a limited number of objectives (maximum 5) with associated key results (maximum 5 per objective).
- The overarching set of organizational OKRs are the focal point for the business.
- They include the most important strategic goals to reach in the upcoming cycle, normally in the time-frame of one quarter.
- This creates radical focus on activities that actually add value.
- As a result, OKRs identify improvement potentials and avoid waste.
To become more efficient in strategy execution also means to analyze the way teams and departments work together. These collaborations are usually where companies can find cost-saving pools. Very often teams are not aligned and they don't know how their work contributes to the larger organizational goals. Which leads to disengagement. Studies show that unengaged employees are one of the biggest cost factors, costing US companies up to $550 billions a year.
Using OKRs makes alignment the default mode of collaboration:
- They include a dedicated alignment phase after the drafting phase in the OKR cycle. All teams agree on OKRs they will work on in the upcoming quarter/cycle.
- They ensure vertical alignment. This aligns the priorities of teams and departments with the strategic priorities of the business. This way, everyone will run in the same direction.
- They ensure horizontal alignment especially on cross-functional projects.
- They help you uncover synergy potentials during execution and breaking down silos.
- They enable employees to find their teams’ outcomes to contribute to, thus motivating them to find innovative solutions.
Learn more about meeting crisis with innovation – with the help of Outcome Management!
When it comes to saving costs, sometimes decisions have to be made fast. To do so, companies need to have the right data insights at hand.
OKRs reduce the risk of preventable failures that cost money. By default, OKRs have specific points of analysis and review. These force teams to look at progress, spot bottlenecks and reprioritize initiatives that are no longer needed.
In addition, two types of data and metrics play a major role: process health data (strategy implementation process) and metrics in the key results themselves.
- On the one hand, at the heart of OKRs lies its process component: The OKR cycle. This means, all learning from the previous quarter can be transferred into the next one. Thus, the process will constantly be improved. To help with adjustments, there are certain metrics, like the progress of OKRs overall, that are taken into account about the process health.
- On the other hand, the key results themselves are metric-driven. At this point, we talk about leading indicators, showing exactly if and to what extent you have reached the promises made in the objective. But also lagging indicators (such as KPI) play a role in the context of OKRs, as they are implicitly influenced by the achievement of OKRs.
When teams update their key results at regular intervals, they deliver bottom-up insights to upper management. As a result, leadership is able to respond to these metrics and adjust the strategy fast.
Overall, the benefits of OKRs like transparency, focus (on customers), and having insightful data at hand, create a huge benefit in terms of cost-saving: being able to see, where resources are draining:
- At the end of each cycle, OKRs show the teams have reached their outcomes. By this, it becomes visible if resources have been invested where needed or if goals have been set correctly (too high or too low).
- There is a low risk of wasted efforts, since with OKRs, teams are able to focus on what matters the most. Also, with the implementation of OKRs, wasted resources become visible quickly.
- Activities not contributing to the needs of customers will glow up like lightbulb with OKRs – and can be adjusted instantly.
- Finally, every activity not moving the needle (and wasting resources) can be identified by using leading metrics.
A key indicator of success during a recession is whether an organization continues to adapt. Therefore, they become more efficient and profitable. Constantly improving the execution of strategic priorities while keeping the outcome for internal or external customers at the center of all actions is a promising way to prevent major risks while navigating through the economic downturn. Outcome Management based on OKRs the magic ball of looking into the future. It’s not comfortable, but it’s effective. It increases collaboration and paves the way to achieve company milestones.
If you are interested in finding out more about cost saving potential, we are here to help.