OKRs vs. performance management – Why you need both

While the performance management process appears to serve a similar purpose as Objectives and Key Results (OKRs), its role differs fundamentally.

OKRs (Objectives and Key Results) are a simple tool to create alignment and engagement around measurable goals and one of the keys to successful implementation of OKRs is to separate OKRs from compensation and promotions. Rick Klau, then an executive at Google, is cited in John Doerr’s book:

OKRs are not synonymous with employee evaluations. OKRs are about the company’s goals and how each employee contributes to those goals. Performance evaluations –  which are entirely about evaluating how an employee performed in a given period  –  should be independent from their OKRs.
— Rick Klau (Google)¹

Most larger organizations already have elaborate processes for goal setting in place, based upon which the annual performance reivew is conducted. This process goes by different names but features prominently in the human resources (HR) toolkit of most organizations.

The objective of this process is to support career development and encourage the continuous improvement of employees’ skills, competences and contributions to the organization. It is touted as

• an opportunity to celebrate achievements,
• reflect on where to improve,
• get feedback on past performance and, finally,
• to realign with the leader on expectations and career development.

As a consequence, the performance management process differs from OKRs both in its purpose and scope, as outlined below:

For this reason, John Doerr suggests to use OKRs only as one input among many for performance reviews.

It is not a legal document upon which to base a performance review but should be just one input used to determine how well an individual is doing.
— Andy Grove (Intel)¹

In my own implementations of OKRs, I have always defined the OKRs independently from the individual. This means that if a new person had inherited the role of someone, the OKRs would not have changed. But their performance evaluation very well might have been quite different.

Separating OKRs from Performance Management: A Key to Success

In order to effectively implement OKRs and ensure their success, it is essential to separate them from performance management processes. This distinction allows organizations to maintain a focus on the overall goals and objectives, while still supporting employee development and continuous improvement.

Differences in Timeframes and Flexibility

One key difference between OKRs and performance management processes is the timeframe in which they operate. OKRs are typically set on a quarterly basis, allowing for more flexibility and adaptability to changes in the business environment. In contrast, performance management is usually conducted once a year, limiting the ability to adapt and adjust to new challenges or opportunities.

• OKRs: Set on a quarterly basis for flexibility and adaptability
• Performance management: Conducted once a year, limited in ability to adapt

Collaboration and Cross-Functional Alignment

While performance management processes tend to focus on individual performance, OKRs are designed to promote collaboration and cross-functional alignment. This is achieved by setting shared objectives that span across different teams or departments, fostering a sense of shared responsibility and teamwork.

• OKRs: Promote collaboration and cross-functional alignment through shared objectives
• Performance management: Focus on individual performance and contributions

Encouraging a Growth Mindset

By separating OKRs from performance management processes, organizations can encourage a growth mindset among their employees. This approach allows employees to take risks and learn from failures, without the fear of negative consequences on their performance evaluations. This fosters an environment of innovation, creativity, and continuous improvement.

• OKRs: Encourage a growth mindset by allowing for risks and learning from failures
• Performance management: Assess individual performance, often tied to compensation and promotions

Implementing OKRs Effectively

To successfully implement OKRs, organizations should adhere to the following best practices:

1. Separate OKRs from performance management processes
2. Set OKRs on a quarterly basis to maintain flexibility and adaptability
3. Focus on collaboration and cross-functional alignment
4. Encourage a growth mindset among employees

The Role of Performance Management in OKRs

Although OKRs should be separate from performance management processes, they can still be used as an input to inform performance evaluations. By taking into account an employee’s contributions to organizational goals and objectives, managers can gain a more comprehensive understanding of an individual’s performance.

• Use OKRs as one input among many for performance reviews
• Gain a comprehensive understanding of individual performance by considering contributions to organizational goals

The Importance of Communication and Transparency

To ensure the successful implementation of OKRs and the effective management of performance, communication and transparency should be prioritized within the organization. By openly discussing goals, expectations, and progress, employees are better equipped to understand their role within the organization and contribute to its success.

• Prioritize communication and transparency
• Openly discuss goals, expectations, and progress
• Equip employees to better understand their role within the organization

Training and Support for OKRs and Performance Management

In order to maximize the benefits of both OKRs and performance management processes, it is essential to provide adequate training and support for employees and managers alike. This can include workshops, coaching, and access to resources that help individuals better understand and implement these tools.

• Provide training and support for employees and managers
• Offer workshops, coaching, and access to resources
• Ensure a thorough understanding and implementation of OKRs and performance management

Adapting OKRs and Performance Management for Different Organizations

While the principles of OKRs and performance management can be applied across various industries and organizations, it is important to adapt these tools to the specific context and culture of each company. This may involve adjusting the frequency of goal-setting, the scope of objectives, or the methods of evaluation to better align with the unique needs and values of the organization.

• Adapt OKRs and performance management to the specific context and culture of each organization
• Adjust frequency, scope, and methods to better align with unique needs and values

Ongoing Evaluation and Improvement

Finally, the success of OKRs and performance management processes relies on ongoing evaluation and improvement. Regularly assessing the effectiveness of these tools and making necessary adjustments can help ensure that they continue to support the organization’s goals and drive growth.

• Regularly assess the effectiveness of OKRs and performance management processes
• Make necessary adjustments to support organizational goals and drive growth

Key Takeaways

Understanding the crucial differences between OKRs and performance management is essential for organizations looking to implement these tools effectively. By separating OKRs from performance management processes, companies can focus on aligning their workforce around measurable goals while still supporting individual development and continuous improvement. To successfully utilize both tools, organizations should prioritize communication, provide training and support, adapt these tools to their unique context, and engage in ongoing evaluation and improvement.

1. Understand the crucial differences between OKRs and performance management
2. Separate OKRs from performance management processes
3. Prioritize communication and transparency
4. Provide training and support for employees and managers
5. Adapt OKRs and performance management to the specific context and culture of each organization
6. Engage in ongoing evaluation and improvement