OKRs will never be enough
Nuanced goal-setting frameworks to help manage the complexity in a growing company.
As a company scales, the organization requires more specialization to succeed. More often than not, this requires the introduction of nuanced processes to help manage the complexity.
When a startup is small, it can be sufficient to run a fairly simple objectives-and-key-results (OKRs) process to keep everyone aligned and moving in the right direction. However, over time, this process may not scale well across all of an organization’s roles especially for business and operationally-focused roles. It becomes essential to find balance between managing the current business while simultaneously innovating and building out a product.
Organizational Goal Setting Frameworks
There are three key goal setting frameworks that are needed to run a business for scale: the financial plan, objectives and key results (OKRs), and business scorecards.
The financial plan helps a company orient itself around a budget and helps manage cash flow, OKRs help align key initiatives with the company’s overall strategy, and business scorecards enable organizations to understand its performance against specific operating goals.
A financial plan is a set of documents that outlines a company’s financial goals and objectives. It includes a budget that accurately reflects the organization’s financial situation, as well as projections of income and expenses over the coming years. Generally, the budget should be a rollup of planned business outcomes and expected efficiency improvements from new initiatives.
It is important to create a regular process of reviewing the budget, variances, and forecasts each month to keep everyone aligned, enable conversation amongst the management team, and uncover insights around assumptions and variances to plan. Ultimately, this leads to a business feedback loop that enables the company to grow the business more effectively over time.
Objectives and Key Results (OKRs)
OKRs are a popular goal-setting framework that enables an organization to focus on the key priorities that matter. They are made up of two components: objectives, which are overarching goals that the organization is trying to achieve, and key results, which are measurable outcomes that can be used to track progress towards the objectives. OKRs are often themed by quarter to emphasize a specific area of need and to align a company on a shared direction.
As a company scales, OKRs inevitably become at odds with business results and the OKR system becomes bloated. It becomes hard to focus on the priorities that matter most while ensuring that every area of the business is running as expected. When this conflict occurs, it is important to decouple OKRs from comprehensive business results and introduce a separate, business scorecard process.
Business scorecards are mutually-exclusive, collectively exhaustive list of business outcomes that ensure everything is running as expected (e.g. a step-by-step conversion funnel). These are often broken down by a mathematical formula, such as sales = # new leads * call schedule rate * call close rate. Often scorecards contain leading indicators and can be different for each team based on their scope of responsibilities.
This part of the business operates much like a sports team where the focus is about playing the game well and getting better over time with effortful practice (e.g. 20 signed customers to 40 signed customers in a given time period). While OKRs can change from quarter-to-quarter to emphasize shifting priorities, the items in the business scorecard stay consistent over time with higher targets.
These goals are measured weekly and often have status indicators to determine whether the team is on track to hit the goals. At the end of the period (e.g. quarter), everyone looks at the results together to see the score.
Over multiple quarters, OKRs that start out as business scorecards can lose their functional representation and lead to proxy metrics that are not tied directly to business outcomes.
OKRs will never be enough. The financial plan helps ensure that a company is adequately budgeting for growth and managing cash flow, OKRs help align key initiatives with the company’s overall strategy, and business scorecards enable organizations to understand their performance against a comprehensive set of business indicators. All three of these goal setting frameworks must be in place for a business to scale.
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