Disruptions have always been part of the business world, but in recent times they became the new normal. Enterprises are more and more struggling against new, more flexible competitors and changes in the economic landscape. But how to address this? Innovation based on Outcome Management is one way through the economic downturn as well as it is a tool to become a future-proof business.
- Why companies need innovation and where this urgent need is coming from
- How can large enterprises stay on top of the competition and adapt changes?
- Innovation booster: Outcome Management – based on the OKR framework
- How to implement OKR-based outcome management in your organization
Recent times and events have clearly shown that the need to remain adaptable and innovative is inevitably becoming more important for businesses today. Unforeseen crises, such as the COVID-19 pandemic, the Russo-Ukrainian War, and the resulting global recession, are making it increasingly difficult for businesses to stay competitive.
At the same time, customer needs are changing rapidly as well. While the product used to be the key focus in the past, customers are now paying for outcomes rather than outputs. This means that what they get out of using a product (= the outcome), is why they are potentially willing to pay for it.
Sharing Economy: Why buy one if I can have access to them all?
This shift in focus to outcomes is fuelling the Sharing Economy that is one the rise. Driven by sustainability and a more conscious consumption, businesses in the sharing economy have understood their customers’ needs and deliver exactly that: outcomes. Some famous examples are Netflix, Spotify or ShareNow. These businesses are not selling movies, music or cars as products, they are selling unlimited access to all these things – wherever and whenever their customers need it. Also examples like Uber or Airbnb – both businesses neither own cars nor houses – are showing how the sharing economy has built a direct connection between service providers and consumers (peer-to-peer).
The worth of a product lies in its ability to deliver an outcome – and not its ownership anymore. This is a threat to traditional companies that focus merely on the production of products and whose biggest competitors are becoming more and more companies that operate in the sharing economy.
The bigger the company, the bigger the challenge?
As if this is not challenging enough, in a changing market environment caused by unforeseen disruptions, enterprises are often faced with more difficult-to-manage problems than their smaller competitors.
Big companies often struggle with obsolete and complex internal infrastructures as soon as adaptability is required. This also makes it harder for them to align on strategically prioritized goals they need to achieve.
On the other hand, smaller and more agile companies are more likely to respond and adapt quickly to changes in their environment, because they are closer to their customers and in a better position to collect feedback and observe changing preferences. The factor flexibility therefore provides leverage to SMEs making it easier for them to potentially reach competitiveness in their market.
In order to adapt to changes more quickly, it is important to focus first and foremost on outcomes – to get done what is most important to the success of the company. But setting big goals is easy. However, actually achieving them is a different story. In a study, only 20 percent of the questioned leaders “say there’s agreement in the company on which capabilities are key for success, with people across the organization being aware and bought in.” So it starts with the issue of making the „big picture“ visible to everyone in the company.
If strategic goals are not communicated well enough, it often leads to the loss of the very resources that were meant to realize them. Due to lack of direction and communication, teams often remain unaware or insufficiently aware of the company’s intended strategies and goals, which causes misalignment and can pose a risk in terms of executing the company strategy successfully. If a clear direction is missing, dependencies are not visible between different strategic artifacts – and teams are not enabled to plan their own most important outcomes in line with them. Further, if strategic priorities are unknown, teams don’t know how they can contribute to them.
Leveraging strategy with Outcome Management
This is where Outcome Management comes in. It builds the bridge between the strategy execution gap by making strategies actually executable. Developing customer-centric outcomes, instead of output-centric goals that are not even considering customer demands, is the first step to success.
The four main benefits of having clear outcomes are:
- Higher chance of achieving strategic goals
If outcomes are transparently communicated, the chances to achieve them is significantly higher.
- Teams are empowered to define their own outcomes
This can be empowered to innovate by promoting outcome-thinking in the company as well as integrating it into the daily processes.
- Teams plan better in line with the strategy
The ability for teams to plan outcomes in line with the strategy is based on a functional process of consistent communication throughout the company.
- Quick and reliable business results
This shows the importance of Outcome Management: At the organizational level, it leads to strategies being quickly and reliably translated into business results, regardless of how market conditions and customer demands change. At the team level, shared outcomes lead to improved collaboration and clearer communication within and between teams.
One key component of successful Outcome Management therefore also lies in a well-aligned cross-team collaboration. The above mentioned study shows that companies that are aligned around strategic goals are twice as profitable and three-times faster in growing than their incoherent competitors, since new solutions and ideas can be executed faster in aligned processes.
To distribute a company’s targeted outcomes in a useful and achievable way and to align all departments around them, it can help to break them down into quarterly planning cycles – which are part of some agile leadership and goal management frameworks.
The OKR (Objectives and Key Results) framework can be one gateway to implement Outcome Management. It is a promising tool to manage a company’s outcomes throughout a quarter properly, while improving transparency, alignment, and employee engagement. In case the framework is new to you, here is a short insight of what it contains:
Objectives are ambitious goals and answer the question: "Where do we want to go?".
They provide clear direction and are intended to motivate everyone involved to work towards them. Objectives are described qualitatively, not quantitatively. There are three core points to consider when formulating them: who is the customer, what is the value to be created and what is the future state? Therefore, outcome-centricity is automatically given.
Key Results answer the question "How far have we progressed towards the goal?" They are ideally quantitative and measure whether you are achieving what you promised in the Objective. Key Results usually have a start and a finish value to measure how you are progressing towards the Objective. This allows you to see how close you are to the end goal at any time, and whether adjustments are needed along the way to reach the goal.
OKR-based Outcome Management boosts innovation by..
- Making innovation part of the process
Innovation needs constant and quick adaptation, always referring to what exactly is needed during given circumstances. Luckily, at the heart of OKRs is the OKR cycle, the process component of the framework. This means that the execution of the outcome-centric OKRs has a limited timeframe, normally a quarter.
Also, this cycle is divided into 4 different phases:
Therefore, the OKR cycle already contains important key elements for innovation, while always staying focused on achieving customer-centric outcomes. The fourth phase is all about adapting to the learnings from the quarter and driving new ideas and processes in the upcoming one.
- Keeping the value for customers in the spotlight
Ideally, the customer is the focus throughout the whole OKR cycle. Starting off with planning outcomes a business wants to create for their customers, keeping the focus on them while executing, up until revising what was achieved in the quarter and how the customers responded.
This way, it quickly becomes clear when customer requirements change. It also gives an indication of how the “old ways of doing things” are still relevant or if innovation is needed to meet the new needs in the future – and therefore stay competitive.
- Making the need for innovation visible through data
Innovation is not only limited to external solutions, it is also relevant when it comes to internal processes. As the OKR framework is also based on making results quantifiable with Key Results, the respective data for this is always at hand. The progress of a Key Result is an indicator for the need of innovation, if businesses have trouble achieving their goals.
For example: The product development department of a company wants to reach an “Increase of the average first month feature adoption to 28%” and has set this as their Key Result.
In a scenario where the feature adoption is not achieved by far, the team has to reevaluate their initiatives. Could it be that the new features are not meeting the customers needs? If so, they have to review their tactics and think about innovative and new ideas.
- Motivating employees
By working with OKRs, employees know exactly what tasks and projects they are working on and to what higher goal they are contributing to with their work. To ensure that this is the case, it is crucial to draft goals which are supporting the overarching organizational targets. This can be done by a well-organized drafting phase and transparent company goals.
This is also where the advantage of diverse teams becomes visible: the more knowledge on the industry is within the team and the more customer-understanding has been collectively gained, the higher the quality of the desired outcomes will be as teams are part of the strategic planning process. Employees become more involved and motivated as they see their tribute to the overarching business outcome and think more about innovative ways to reach it, rather than just working the hours.
This means that with more knowledge about the big picture and motivation, there is more room for innovation.
The smoothest way to implement outcome management based on OKR is by being advised by experts/OKR coaches, and a suitable software which provides the company with overall transparency and easy tools for a successful implementation. The hybrid model of Workpath enables your company to have full-access to the Workpath OKR software and offers several coaching formats and training for you and your employees.