Are OKRs a tool for Strategy Execution or for Performance Management? This is the question Agile Strategies CEO Daniel Montgomery explores in the wake of the trend towards integrating OKR and HR systems.
Integrating OKR with HR systems
In the world of OKR software these days, we are seeing a trend towards integrating OKRs with HR systems. I'm watching this trend with some concern. Mushing OKRs into a more generalized HR/performance management tool runs the risk of diluting the real strategic power of OKRs.
At Agile Strategies, we believe OKRs are first and foremost a practice for rapid and adaptive strategy execution. And, it’s true that OKRs have to be supported by the right kind of culture. But strategy has to come first. So let’s start by talking about what strategy is.
On adaptive strategy
For a 21st century organization, strategy is a holistic, and collectively shared, view of what it takes for an organization to win. It’s a complex game that balances people and culture, business processes, technology and above all a clear focus on continuously building value for customers. It requires a plan, but the plan has to adapt to emerging circumstances.
This is why the classic methods for strategic planning are increasingly outdated in a rapidly changing economy. Commonly quoted studies show that the majority of strategic plans are not executed effectively. Why? Because there’s too much emphasis on planning and not enough on execution.
To be adaptive, organizations must regularly challenge their assumptions about where their market is going and iterate as needed. Once the big strategic questions are answered — our aspiration, our decisions on where we’ll play, and how we’ll win (to quote Roger Martin’s excellent strategy cascading framework) — we use OKRs to test and iterate the strategy.
The OKR cycle includes regular conversations to review past performance, challenge the mental models that underlay the strategy and the last round of OKRs, and set a new tack that reflects fresh understanding.
OKRs actually thrive in the kind of culture that progressive HR practitioners aspire to. But there are lots of hidden assumptions, systems, and practices in the HR world that have the potential to seriously blunt the impact of OKRs in your organization.
Who am I to say this? Although I founded and now run an OKR consultancy, I cut my teeth in the HR function. I spent the first 8 years of my career in HR departments. I did recruiting, compensation, performance management, trained managers to use Management by Objectives, and built a comprehensive HR information system from scratch. Later, I did organization development consulting and executive coaching. I ramble on about my history only to convince you that I’ve been there, that I understand the functions and personality of the HR function.
In my experience, HR tends to have a dual personality. On one hand, many people in that profession are motivated to improve the overall culture and performance of the organization. Training, coaching and organization development are tools to achieve this.
On the other hand, HR is also tasked with a number of well-intended and necessary compliance duties — ensuring that people are treated fairly and equitably, that they get required safety training, understand what is expected of them, get feedback on their performance, get paid on time, etc. And in many cases, these two personalities — culture and compliance — overlap.
For example in the case of Diversity, Equity and Inclusion (DEI), there is a recognition that diverse employees bring greater perspective to the organization, and at the same time managing DEI involves a lot of counting and reporting. These two personalities can at times conflict with each other.
OKRs, on the other hand, are explicitly NOT about compliance. They are a powerful tool for strategic transformation, that is, big changes in the way we create and deliver value. They are NOT for managing business as usual, operating within established bounds and regulations. That’s the job of Key Performance Indicators (KPIs). KPIs are essential for keeping the lights on, but don’t serve the rapid evolution of the organization.
An effective deployment of OKRs will actually challenge a number of assumptions, systems, and processes that are deeply embedded in the Human Resource organization. As a result, an HR-centric deployment of OKRs can effectively blunt the potential strategic impact of OKRs if these assumptions are not called out and addressed.
OKRs as a team sport
We see OKRs as a team sport. Traditionally, HR views the organization in terms of the individuals who work there, each possessing a certain mix of skills. Early in my career, I built a performance management system for a hospital. We dissected every job in the hospital into a set of standardized tasks. We could compare the performance of the receptionist in the emergency unit to the receptionist in the accounting department. We could more objectively measure performance on standard tasks, leading to more equitable pay and promotion. All good objectives on the compliance side of the ledger. What were we missing? In a health care setting, patient care is delivered by teams, teams with vastly different jobs to be done and challenges. The receptionist in Emergency faces a very different reality from the receptionist in Accounting. We locked employees into rigid role and behavior expectations that ignored innovation and learning, let alone patient experience or clinical outcomes.
Organizations are greater than the sum of their parts
When I look back now, I see that we operated from an unstated assumption that an organization is the sum of its parts. In reality, it’s more than that, there’s a synergy. That’s why OKRs become especially powerful when they are shared between individuals and teams. They improve the performance of value streams with clear benefits to the customer. Rather than thinking of the organization as a hierarchical organization chart, in fact, it’s a value network, a dynamic system of conversations and exchanges, including suppliers and customers, that can rapidly reconfigure itself in response to emerging opportunities and disruptions.
Fluidity versus compliance
This level of fluidity can be very challenging to the compliance-oriented side of HR, and if that personality is dominant in a given HR organization, the potential for success with OKRs will be limited. There will be a tendency to put the brakes on in the name of better integration with the compliance functions. It’s like a glacier — the ice at the top is ready to flow a lot faster, but is held back by the ice grinding along the rocky surface beneath. The demands of performance management and compensation, in particular, dictate slower cycles, constraining the speed at which people on teams can re-focus OKRs to meet emerging circumstances.
I had a wise teacher once who loved to say “The opposite of a great truth can be another great truth.” I started off by saying that OKRs should NOT be deployed as an HR tool. But at the same time, OKRs can be a great tool for reinforcing a more collaborative, empowered, and adaptive culture. And that’s something that enlightened HR practitioners want to see. In fact, the clients we’ve seen who are most successful with OKRs already have, or are actively building, a culture that emphasizes servant leadership, healthy practices for accountability, and cross-functional collaboration.
Good OKR management practices can serve as a structure for reinforcing these kinds of behaviors AND aligning everyone to the strategic priorities of the organization.
About Agile Strategies
Agile Strategies is a boutique OKR training, consulting, and coaching firm based in Boulder, Colorado, USA serving a diverse range of clients – from tech startups to nonprofits to global manufacturing, service, and consumer brands.