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OKRs vs. Balanced Score Cards! What Should be Your Key to Management?
If you’re a scaling business, you might have come across the terms like OKRs and BSCs lately. Both are the systems for driving change and seeking the alignment of departmental work with the strategy and transparent goal achievement.
Industry stalwarts talk a lot about objectives and key results and balanced scorecards, and the momentum they’ve gained over the years. However, what’s rare to find is the combination of the two within the same article. Both the frameworks are quite similar in spirit and mainly focus on implementing goals within the organization. But, what’s the difference between the two? Are OKRs superior to BSCs or vice-versa? Which framework will work best for my company that is growing at a rapid pace?… These are some questions that our experts are asked more often in the consultation sessions. Thus, we decided to take the onus of breaking the ice and differentiate between two of the most popular performance management systems, OKRs and BSCs.
Before jumping directly on the ‘Versus’ between the two, let’s start with the basics.
What are OKRs or Objectives and Key Results?
OKRs or Objectives or Key results is one of the most popular goal-setting frameworks that has been helping businesses gain tremendous success for over the decades now. When Google achieved success through the OKR system, people started calling them silicon valley’s ‘secret weapon .’The goal-setting structure that was established for easy management of goals is now largely practiced by both tech and non-tech companies of all scales, including Google, Amazon, and more. The approach of OKRs breaks down the strategy and execution part into two main components, i.e., Objectives and key results.
Objectives are the goals that you want to achieve, whereas key results are the roadmap of how you’ll achieve them while measuring them in the best possible manner.
What are Balanced Score Cards?
Balanced cards are quite similar to the OKR methodology on the strategic level. Like we set high-impact goals and objectives in OKRs, we set the company’s top strategic priorities in Balanced scorecards.
These four Perspectives (as the BSC lingo says) are Finance, Customers, Internal Processes, and Learning and Growth.
The balanced scorecards, as the name suggests, is designed to clarify the core objectives of the organization and measures across the above-mentioned key areas. Like OKRs, Balanced scorecards have been revolving around strategic organizational frameworks for decades. Many businesses have also gained momentum using this performance management tool for clarifying and communicating the strategic objectives.
In balanced scorecards, the financial aspect plays a crucial role of being a key parameter in determining the success of any organization during the said period of time. The success of BSC system is determined by the questions such as,
• “What are those financial goals that are likely to impact our organization?”
• “What are the important things to our customers, how will they impact our financial standing?”
• “What should be done in order to meet our customer goals that will impact the financial standing of the company?”
• “What are the required skills, culture, and capabilities for executing on the process that works?”
Scorecard basically tracks progress by establishing certain key metrics for the success of any organization from both operating and financial points of view. These metrics usually range from all sorts of financial indicators like revenue and earnings growth, asset turnover, balance sheet leverage, and most important of all, cash flow.
But, how Different is the OKR framework from balanced Score Cards?
Simply put, unlike balanced scorecards, OKRs do not use any parameters for measuring the performance of your organization; instead, it’s the team who gets to decide the priority and the high-impact objectives to be covered within the given time frame (say, a quarter).
This is to give you a rough idea of the differentiation between the two performance management tools. Furthermore, there are a lot of things to look for while differentiating between OKRs and BSCs.
• The Cycle of Measuring Progress:
Balanced scorecards are the easy way to approach integrating and balancing financial and non-financial information. This helps in the effective achievement of long-term goals by presenting the balanced scorecards information significantly in the ‘Annual Reports .’However, this is not the case with OKRs. While setting the goals within the OKR framework, it is recommended to set new OKRs every quarter. This unleashes the high-impact objectives as well as the least impact ones for the organizations.
• Holistic vs. Strategic Approach
In OKRs and BSCs, the bottom line of differentiation goes between the approach they follow for the goals management and measurement. Balanced scorecards follow a holistic approach as they have four key parameters and ‘perspectives’ Financial, customer, Internal, Learning. These perspectives measure the company’s progress as recorded in the company’s income statement, balance sheet, and cash flow statement. OKRs, on the other hand, serve as a strategic approach for campaigns that may need more momentum than business-as-usual. Scaling companies also show a very futuristic approach with OKRs, meaning companies tend to foresee the important objectives to be stretched in the next quarter while staying in the OKRs of existing quarters. OKRs ask you to measure what matters and what matters is what you keep most of your focus on.
When it comes to Performance Management, Balanced Scorecards are being played as a safe bet. BSC stresses accountability more over the pre-planned activities, which means the progress is measured in terms of what is achieved and what is not while NOT stretching the activities to the next quarter. As a result of this, it is often found that companies only set goals that they are sure as easily achieved by them. Whereas, in OKRs, risk-taking is highly encouraged, wherein both committed and aspirational OKRs are set to push the team a little more. The OKR framework highly relies on “stretch goals,” which help companies to be extra ambitious in trying goals out of their capacity
Which Performance Management Framework should be your Favorite?
If you’re a scaling business like your industry competitors, OKRs can become the high momentum campaign you need your teams to rally behind!
JOP preaches a lot about the agility of your performance management system in 2022, and if your PMS has goals modified every quarter, it has the quality to be called agile. OKRs help you identify your business priorities, which means you quiet the noise and focus on objectives that have the highest contribution to the company’s growth and desired success.
To sum it up, OKRs encourage you to go ‘above and beyond with your business goals while ensuring success.
Then you need to give it time; remember no performance management or goal-setting system results in swift success. Also, you can’t change the company’s process upside down either. You need to give yourself time to be patient with your company’s process and gradually introduce OKRs to the existing system. If this seems difficult to you, trust us, it is not. Talk to the leading OKR experts to know how OKRs do wonders for your company. Happy Success.