If you’ve read anything about strategy and performance management lately, you might have come across the phrase OKRs (which stands for Objectives and Key Results). I’ve certainly noticed that OKRs are suddenly gaining real momentum. However, some people have noted that the OKR approach is pretty similar to the Balanced Scorecard approach (or BSC for short).
In this article, we’ll look at how OKRs and BSC differ – and what they could learn from each other.
Defining OKRs and BSC
Let’s start by clarifying what the terms OKR and BSC mean.
The BSC is a strategy framework that sets out a company’s top strategic priorities across four areas (known in BSC lingo as “perspectives”). These four perspectives – Finance, Customers, Internal Processes, and Learning and Growth – are considered critical to any business’s success, and the BSC is designed to help the organisation clarify its core objectives, initiative and measures across these four areas. The BSC has been a hugely popular management tool for decades, with many successful businesses using it to clarify and communicate their strategic objectives.
OKRs are similar to the BSC in that they define top strategic priorities. The approach breaks down strategy and execution into two components: Objectives (i.e. the most important goals that you want to achieve) and Key Results (i.e. how you will achieve and measure those goals). So, essentially, you set a goal and then define how you will achieve it. It’s as simple as that.
Interestingly, OKRs have also been around for decades – the term was first introduced by Andrew Grove, former CEO of Intel, in the early 1980s as a sort-of update of Peter Drucker’s Management By Objectives (MBO) approach (which dates back to the 1950s). One of the reasons the OKR approach has gained so much attention is its use at Google, after the concept was introduced to the company in the late 1990s by venture capitalist (and early Google investor) John Doerr. Since then, OKRs have been adopted by other top Silicon Valley companies like Twitter, Spotify and LinkedIn – which explains why the concept has gained so much traction in recent years.
Differences between OKR and BSC
As you might have guessed, both approaches have a lot in common. But there are some subtle and important differences between the two.
Here are a couple of areas where, in my opinion, BSC outshines OKR:
- BSC is better at clarifying desired results. In my experience, the BSC approach is better at clarifying the metrics that define success. In many OKR implementations, there can be confusion between what you need to do and how you measure success – both could be key results. I find the results are better defined in the BSC. This, in theory, makes it easier to translate objectives into action.
- BSC shows the relationship between objectives. OKRs are basically a simple list of goals, whereas the BSC with its strategy map, shows the connections and relationships between different objectives. Plus, the more visual aspect of BSC helps people to remember the objectives and results more easily – visuals tend to stick in our heads better than a list of text.
And here is where the OKR approach has the edge over BSC:
- OKR is done more regularly. Traditionally, BSC is done on an annual basis (although if I’m working with a client to implement BSC, I always advise revisiting the process more frequently that that). In contrast, OKRs are typically reviewed and updated on a quarterly basis, sometimes monthly. In today’s fast-paced business world, where it seems like we live in a constant state of change, a quarterly review of objectives and results is much more sensible.
- OKR is done bottom-up and sideways, as well as top-down. With OKRs people have more freedom to design their own goals, or at least have more input into the process, which means they are more engaged with the objectives. It’s also a more transparent process, with OKRs being visible right across the company. In contrast, BSC is usually an entirely top-down process; the leadership goes off and designs top-level goals that are then cascaded down throughout the organisation. This means employees can have less ownership over the goals.
- OKR is not linked to pay or bonuses. OKR is mostly separated from compensation and incentives, which is a good thing. BSC, on the other hand, is often linked to compensation and bonuses, even if it’s only partially linked (such as financial indicators that inform bonuses). I always encourage my clients to separate performance metrics from compensation.
- OKR encourages people to be more ambitious. Being willing to fail is an important concept within OKRs. The idea is to set ambitious, inspirational goals, rather than setting goals that can be easily achieved. With OKR, if you only achieve some of the key results, that’s okay – you’ve still achieved more than you would have without that ambitious goal. But with BSC, people are expected to deliver on all the goals.
What they can learn from each other
By comparing the two, it’s clear to me that both approaches have something to learn from the other.
I believe OKR could be improved by turning the list of objectives and key results into a strategy map or another kind of visual, because this is a really powerful way to communicate and embed strategy. BSC provides a nice framework for visualising strategy, but I personally prefer to use a plan-on-a-page format.
BSC could definitely benefit by being reviewed more frequently, and this is something I’ve advocated for a while. I always encourage my clients to revisit their BSC framework or plan-on-a-page once a quarter.
BSC would also be improved by giving people more freedom to design their own ambitious goals in a bottom-up or sideways manner, rather than simply handing down objectives from on high. Note that I said ‘ambitious’ goals. I really like how OKR fosters this sense of aiming high and accepting that you might fail, rather than playing it safe.
If done well, I don’t see why you can’t combine the best of both approaches. For example, you can build on your OKRs with a strategy map that visualises your goals. Or if you’re using BSC, instead of cascading goals down through the organisation, give people the chance to create their own OKRs that help to deliver the organisation’s top-level objectives.
This blending approach may be a much more successful way of defining and executing strategy than resolutely choosing one over the other.