research on enterprise performance management from the perspective of okr

• Awareness of OKRs has been high for a number of years, but their full potential often remains untapped.
• Standardizing and scaling the methodology--as well as continuously assessing OKR maturity and focusing on the key goals for business impact--will help achieve targeted OKR outcomes.
• Our client experience has shown that corporate leaders can unleash the true power of OKRs with a battle-tested scaling approach consisting of five imperatives.

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Agile at Scale

/ article, unleashing the power of okrs.

By  Jan Wulff ,  Paul Sörgel , and  Nina Kataeva

Key Takeaways

In today’s dynamic and hyper-competitive business landscape, organizations seek fresh ways to focus, align, and rapidly progress toward successful strategic deployment. Objectives and Key Results (OKR), an increasingly popular methodology, has emerged as a go-to framework to significantly improve performance.

The concept of OKRs is simple and compelling. It’s about setting a clear objective, formulating measurable action steps and milestones (referred to as “key results”), and eliminating obstacles in the organizational landscape. But the journey from theory to effective practice can be difficult.

Indeed, many companies struggle to implement a consistently mature level of OKRs. All too often, OKRs suffer from low overall quality in both design and execution, and take far too long to reach a meaningful stage of evolution—or, they never move past the status of being just another goal-setting framework for isolated teams and projects.

Take, for example, this initial version of an OKR designed for an IT department:

Objective: We will roll out our new data platform.

Key Results:

• Tell 65% of our customers about our great innovation capabilities.
• Existing customers are happy with our new services.
• Perform a pilot for the new data solution.

This unfortunate OKR lacks clarity, customer focus, measurability, and ambition. It creates the illusion that rolling out a data platform is the objective, when the true goal is to achieve deeper customer satisfaction and higher business value. The data platform itself is only a means to an end, whereas an effective OKR should reflect the end rather than the means.

After internal discussion and BCG interaction with company leadership, the OKR was improved to:

Objective: Customers will experience our new data offerings as both innovative and strongly value-enhancing.

• Achieve a level of 65% of clients perceiving our innovation capabilities as better than those of our competitors, as measured by an ongoing survey.
• Reach average customer ratings of four out of five stars in service experience, as surveyed after every service request.
• Pilot implementations of new data offerings to achieve a 40% cost reduction compared to previous implementations.

This improved OKR offers a specific goal to be achieved within a year, clear measurability and ambition, and the targeted customer impact. It enables the IT department head to provide the company’s executive board with a roadmap to tangible business outcomes. This in turn allows the board to make an informed decision and sign off on the IT department’s plan.

In our experience, a key initial step in implementing successful OKRs and harnessing their power to drive transformational outcomes—particularly in change-focused business units—is to ensure a holistic approach and a high level of maturity from the outset. Yet, to do this, there are common challenges to overcome.

The Challenges of OKR Implementation

Although awareness of OKRs has been high for a number of years, their full potential often remains untapped for a variety of reasons. Among these are a lack of standardization, misalignment among different stakeholders, and overall insufficient management understanding of how to structure and execute a winning OKR. The effort is there on the part of many organizations, but the experience and savoir faire is not—at least not yet. Organizations frequently encounter the following five issues. 

1. A lack of standardization and understanding. The effectiveness of OKRs hinges on their methodological maturity—the extent to which the objectives and key results show easy measurability and high overall clarity. Yet many organizations struggle to establish a standard for OKRs, resulting in fragmented implementation across different teams and departments, or even worse, the repositioning of old, inconsistent, process-focused goals as OKRs. This lack of standardization often leads to confusion, hindering the ability to communicate and align on targeted business outcomes, to assess OKR quality and maturity accurately, and to achieve goals in a way that truly captures customer value.

2. Isolated implementation. When not seamlessly integrated with performance targets such as KPIs (Key Performance Indicators) and activities (such as TIES, an agile-based concept involving Themes, Initiatives, Epics, and Stories), OKRs can lead to overlaps in steering and governance. Parts of the organization can carry out duplicated work without realizing it. OKRs can truly streamline value creation only when fully integrated within the overall steering process. In this way, they can serve as stepping stones toward ambitious KPI goals and provide foundations for strategic activities.

3. Ineffective monitoring and measuring. Many companies do not know how to monitor and measure OKRs accurately, which leaves leaders less able to challenge managers on progress. This in turn can result in subpar impact and missed revenue opportunities. Without a clear assessment method, the outcomes of OKR efforts become difficult to gauge, limiting their potential to create business value. Most corporate leaders, at least those without extensive experience in working with OKRs, do not yet possess the background or tools to challenge OKRs quickly and comprehensively.

4. Excessive and unproductive training time. Traditional approaches to OKR training and formulation can consume large chunks of time and resources. They also often focus on the wrong areas. Without using standardized OKR methodology and design, coaches can spend hours explaining how to create a good OKR without having a quantifiable evaluation process that OKR owners can be measured against. The complexity associated with such training can transform OKRs into a mystifying concept rather than a practical tool for driving progress. Such complexity can also prompt leaders to create “textbook” OKRs without understanding the real power behind them.

5. Lack of commitment and accountability. OKRs show their full impact only when managers take full responsibility for navigating budget and capacity constraints and for driving their objective’s overall level of success. Nonetheless, many companies do not hold their managers fully accountable for their commitments, nor examine in detail what might have gone wrong with a failed effort, or work with the manager to achieve a better result the next time around. At the same time, managers must be enabled and empowered to target moonshot goals. The overall process is not necessarily about achieving 100% of key results, but about accountability for setting ambitious outcomes, committing to them, and delivering to the highest extent feasible under current circumstances.

The multiple challenges listed above are indeed daunting, and many organizations have yet to detect that most of their assumptions about OKRs are not fully on the mark. In our experience, standardizing and scaling the methodology—as well as continuously assessing OKR maturity and focusing on the most important goals for business impact—will go a long way toward achieving the targeted OKR outcomes. But companies need a clear path to follow.  

A Path to OKR Maturity and Impact

To address the challenges of OKRs, organizations need a pragmatic approach that shifts the focus from method to true mindset, from indecision to impact. Companies should empower HR and agile coaches to facilitate this transformation. In our view, and in the experience of our clients, corporate leaders can unleash the true power of OKRs with a battle-tested scaling approach consisting of five imperatives.

1. Simplify methodological standards and demystify OKRs across the organization . Companies should employ an OKR checklist of distinct criteria, such as the one outlined below, to be assessed at the outset.

• Specificity and crispness: Is the OKR written in a clear, concise, and compelling way? (It should not be longer than a few lines or require multiple reads).
• Ambition level: Does the OKR describe an aspiring, yet achievable (with high effort) future state, a true moon shot? (The OKR should not reflect business as usual or a routine, easily achievable goal).
• Outcome orientation: Does the OKR describe an unambiguous added value for the customer and/or stakeholder? (It should describe future target states in a concise manner).
• Customer focus: Does the OKR clearly identify the customer and/or stakeholder and provide razor-sharp focus on these parties? (The OKR should specify exactly who will benefit from the endeavor).
• Non-binary measurability: Are the key results continuously measurable, and do they foster rapid and effective decision-making? (Key results should not be just binary—meaning achievable either fully or not at all—and should be measured on an ongoing basis to gauge progress).

Such a checklist demystifies and standardizes OKRs for the entire organization. Acting on these criteria further empowers leaders to challenge their teams’ OKRs quickly and effectively during quarterly and annual business reviews.

2. Make OKRs easily and transparently assessable. Companies need to implement an OKR heatmap, based on the criteria outlined in the above checklist, to measure the progress of different units within an organization and to challenge OKR maturity. (See the Exhibit). Although transparency in maturity levels initially can be uncomfortable for some leaders, it provides vital guidance for deploying scarce coaching and training resources effectively and can help foster productive internal competition for OKR progress. Transparency also permits the board to effectively challenge managers’ outcome commitments against each other, and to make informed strategic and budget decisions.

3. Deploy OKRs to your change - oriented businesses. Use OKRs only in areas where they can create true impact. Do not use them to steer your daily businesses and operations but employ them for change-focused units only. Given the resources needed to successfully implement OKRs, the ROI is far higher in areas of high complexity and high change potential.

4. Leverage GenAI to save time and to shift discussions toward outcomes for customers. Companies should utilize tools such as GenAI to help formulate OKRs across the organization. Such an approach can significantly reduce the time spent on OKR methodology training and development, allowing leaders to concentrate on fostering an OKR mindset.

While AI technology cannot replace the human resources and expertise required for successful OKR implementation, it can provide highly useful assistance in achieving speed and efficiency when designing OKRs. Our case experience has demonstrated that GenAI can significantly accelerate the process of formulating and assessing OKRs.

5. Establish quarterly and annual business reviews to oversee OKRs. Funding and capacity decisions in the steering model of an organization should be fully connected to OKRs. BCG has developed an agile steering system that includes quarterly and annual business reviews, as well as so-called big room plannings—frameworks that permit organizations to review, discuss, align on, and commit to OKRs on all levels of the company. The deep integration of OKRs into the steering system allows for holistic management of targets, activities, resources, and funding. Leaders need a 360-degree view on their strategy execution, with OKRs as a core steering artifact. Our case experience shows that deep OKR integration in governance and strategy-execution processes can become a powerful force in driving an outcome-oriented mindset and creating both client impact and business value across the entire organization.

Real Evidence, Real Impact

The transformational potential of OKRs is not just theoretical but is supported by real evidence. Our experience with Enterprise Agility clients vividly reveals the challenges organizations face with OKR implementation, as well as how to overcome them.

Indeed, we have witnessed remarkable shifts in organizational cultures that have simplified and standardized OKR practices. Leaders who previously struggled to comprehend OKRs quickly adopted the checklist and heatmap approach, enabling them to assess and challenge OKRs. This shift in focus has facilitated a transition to entrepreneurial, minimum-viable-product strategies that prioritize customer impact.

One revealing illustration is provided by Bosch Digital, the digital unit of Robert Bosch GmbH, the multinational engineering and technology company. By choosing the above approach, Bosch Digital was able to improve and scale the maturity of its OKRs within a very short time frame. BCG helped the company standardize and radically simplify its OKR landscape by defining simple, clear, quality criteria and by introducing a consistent and transparent OKR maturity rating. This approach was integrated within a holistic quarterly and annual business review system, which also utilized KPIs and TIES.

Before and during the business reviews, BCG conducted OKR maturity checks and reported back to company leaders via transparent heatmaps. This phase was followed by targeted sparring and coaching with the leaders on OKRs—interactions that revealed room for further improvement. BCG provided clear insight into the maturity of the OKRs and established a benchmark for consistency and quality. The heatmap gamified the OKR definition process and encouraged different business units to strive for better OKR formulation.

BCG’s overall approach also mitigated the risk of scaling poorly-defined OKRs, which could have led to a high number of ineffective efforts, thus damaging confidence in the methodology. The cycle of regular checks and adjustments was pivotal, not only in enhancing OKR quality swiftly but in managing coaching resources effectively by directing them toward units that needed specific improvements. The net result was a significant upsurge in OKR quality within two weeks. This result supported an outcome- and customer-oriented ethos, thereby fostering an agile mindset across the leadership of Bosch Digital and enabling the company to create highly mature OKRs on a team level.   Ultimately, the journey toward harnessing the power of OKRs requires leaders to unify, demystify, and scale the OKR framework across their organizations. By implementing crystal-clear methodological standards, utilizing hands-on tools, leveraging GenAI, making OKR maturation transparent, and fostering an outcome oriented OKR mindset, leaders can transcend the challenges and realize the full potential of OKRs. In so doing, they will accelerate time-to-market and improve true customer and business value.

Project Leader

Managing Director & Partner

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OKRs and Performance Management: What to Know

Key takeaway : While we don't advise mixing OKRs and performance management, we recommend aligning them for organizational success. By understanding the differences between the frameworks and integrating OKRs into each stage of the performance management cycle, businesses can effectively leverage OKRs to drive innovation and collaborative goal achievement while ensuring performance management goals are assessed and rewarded separately.

While objectives and key results (OKRs) can improve accountability and visibility, enmeshing OKR and performance management can deter progress and encourage wrong behaviors. 

However, this doesn't mean you should entirely forgo using OKRs and performance management. Instead, learn to align OKRs and performance management goals to ensure they serve organizational needs. 

To help you achieve this, this article will cover everything you need to know about making OKRs and performance management work for your business. It'll do so by covering the following:

• The difference between OKRs and performance management
• Why you shouldn't mix OKRs and performance management

How to align OKRs and performance management cycles

What is the difference between okrs and performance management.

OKRs are a goal management framework designed for and by teams. On the other hand, performance management is an assessment process designed for individuals and overseen by Human Resources or another hierarchical entity. Let’s look at OKRs and performance management separately for a better understanding of their individual components. 

What are OKRs? 

Unlike performance management, OKRs focus on setting ambitious stretch goals for teams and the broader organization. This goal-setting methodology consists of objectives (i.e., qualitative descriptions of what you want to achieve) and key results (i.e., metrics that gauge progress toward objectives). These can be altered as your company’s environment changes. For the best results, structure your OKRs using the following formula: 

What is performance management? 

Performance management aligns employees and managers to ensure that employees’ actions serve organizational goals. The performance management cycle involves four steps: planning, monitoring, reviewing, and rewarding performance. 

During the planning stage, managers work with employees to establish individual goals aligned with overall business objectives. These goals are personalized to suit each employee’s skillsets and competencies.  

Next, the monitoring stage involves tracking employees’ goal progress through weekly 1-on-1s or monthly/quarterly progress updates. This allows managers to check in on employees’ performance and help them overcome issues, enabling them to advance toward their goals.  

Thirdly, the reviewing stage is essentially a retrospective meeting where managers look back at employees’ performance at the end of the quarter or year. During this meeting, managers assess whether employees achieved their goals, how they went about them, and if they received enough support from the organization.  

Lastly, the rewarding stage involves compensating employees based on how well they’ve achieved their goals. This is one of the most important stages of performance management as it keeps employees motivated and productive while they work to achieve their goals. 

Why you shouldn’t mix OKRs and performance management

As we’ve discussed, OKRs and performance management are different in nature which means your OKRs shouldn’t completely dictate your performance management (and vice versa). Here are several reasons why: 

OKRs and performance management have different scopes  

Employee goals have always been vital to performance management because they:  

• Ensure evaluations are fair by removing personal opinions, subjectivity, and biases 
• Provide accountability by defining the actions required to achieve these goals 
• Set expectations by clearly outlining the primary purpose and means of measurement  
• Enhance professional and personal development  

On the other hand, OKRs focus on impact as opposed to individual tasks, emphasizing outcomes instead of outputs. As most real outcomes (e.g., revenue, new customers) require joint efforts, it’s hard to conduct an OKR performance review based on individual performance. With this in mind, large organizations function best when they set OKRs for teams rather than individuals. However, smaller teams and one-person departments may benefit from individual OKRs. Most commonly though, some separation between OKRs and individual performance management goals is necessary. 

“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 

OKRs are transparent while performance management aren't

OKRs promote alignment , transparency, and collaboration with wider organizational goals. They encourage everyone to openly share their OKRs and the progress they're making towards them. This openness not only fosters ownership and accountability among employees, but also provides visibility into how each person's goals contribute to the overall success of the organization.

On the other hand, performance management tends to focus more on evaluating and measuring individual employee performance. Since this process usually takes a top-down approach, it's not as transparent as OKRs.

OKRs inspire innovation, while performance management prioritizes attainment 

OKRs are designed to be ambitious and encourage teams to set bold outcomes. Conversely, performance management goals are more conservative and promote tactical performance.   

If you want employees to come up with cutting-edge ideas, set OKRs. These inspire teams to try innovative things and walk in uncharted waters. However, when working towards OKRs, it’s important to remind employees that failure is an accepted part of the process.  

With performance management, however, employees’ goal achievement can be directly tied to their paycheck or promotion. This can cause some employees to set safer goals that they know they can meet or exceed instead of stretch goals that can have a bigger impact on the company. To avoid this, use OKRs and performance management for their intended uses rather than entangling them, which can impact employee and company performance.  

See how OKRs can help your organization innovate below

OKRs have shorter cycles, while performance management follows longer ones

OKRs thrive on shorter, more frequent cycles that typically last a quarter. These encourage adaptability, agility, and timely course correction. 

In contrast, performance management operates on longer, more structured cycles that extend over a year or even multiple years. These cycles are defined by predetermined goals and metrics that remain fixed throughout the performance management process.

OKRs require collaboration, while performance management doesn’t

When looking at goal achievement, OKRs and performance management work in opposing ways. When establishing direction, OKRs largely focus on collective goals (except in small companies or one-person departments). 

In contrast, performance management evaluates individual goals. As they’re set up differently, it’s essential to run OKR and performance management campaigns separately but on parallel tracks. In other words, coordinate OKRs and performance management in your organization while acknowledging their contrasting takes on collaboration.  

As OKRs and performance management have different takes on measuring performance, you must distinguish them to accurately depict what’s happening inside your business. Let’s look at ways to successfully integrate OKRs at every stage of your performance management cycle — without actually creating OKR performance reviews. 

OKRs and the planning stage 

When looking to combine OKRs and performance management, avoid setting individual OKRs if you have bigger teams or a larger organization. There are several reasons for this: 

• Individual OKRs can slow down your organization, adding time-consuming admin work, check-ins, and meetings that deter teams away from organizational goals 
• Not everyone can contribute to growth or innovation on their own 
• The more OKRs you have, the harder it becomes to understand what’s prioritized 
• With individual OKRs, employees will prioritize their own goals over the company’s, resulting in a shift from group thinking to individual thinking 

OKRs and the monitoring stage 

OKRs are meant to be flexible, where you adapt objectives or key results to fit your organization’s environment. As such, combining OKRs and performance management requires you to embrace adaptive performance management.  

With adaptive performance management, you alter individual goals, objectives, and behaviors to the changing work environment. These changes can be brought on by external (e.g., technological, political, international, sociocultural, economic) or internal factors (e.g., interpersonal relationships, technical resources, infrastructure, operational capabilities). As such, adaptive performance ensures you’re able to deal with strategy failure and incorporate feedback, leading to improved creativity, resilience, and problem-solving skills.  

You should also keep an eye on your organization’s OKR progress during the monitoring stage to ensure employee performance contributes to OKRs. But keep in mind that OKR progress depends not only on individuals, but also on team sizes, employees’ preferences, and the frequency of check-ins. 

OKRs and performance reviews 

Individual feedback is essential for employees' success — but make sure this feedback is also related to organizational OKRs. This helps you consistently recalibrate employees’ efforts towards wider company OKRs . For example, you can say things like:  

• "Thank you for referring to our OKRs when prioritizing your tasks." 
• "When deciding what to work on next, you could pay more attention to the team OKRs currently at risk." 

While you shouldn’t totally tie OKRs and performance reviews together, you can use OKRs to see how employees spearhead goal-related outcomes and outputs. This can help you assess how employees contribute to the activities that impact your organization’s OKRs. As such, you can combine OKRs and performance reviews during quarterly retrospectives, where you review employees’ performance and use your company’s OKRs as a guiding light. 

OKRs and the rewarding stage 

When you combine OKRs and rewards — where employees are judged based on how much progress (in %) has been made towards their team goals — employees are less likely to help their team members and more likely to focus on their own performance. This forgoes a fundamental aspect of OKRs: their cooperative nature.  

Additionally, as only 60-80% of key results are meant to be accomplished, mixing OKRs with compensation makes employees prioritize rewards over creating ambitious goals. This results in lazy OKRs and a lack of innovation. 

As performance management is risk-averse and often tied to compensation — while OKRs are aspirational and collaborative — OKRs are never supposed to be linked with rewards.  

“OKR is a management tool, not an employee evaluation tool. As such, a building block of the OKR framework is to separate OKRs from compensation and promotions.”  - Felipe Castro

See what OKR experts say about linking OKRs with individual performance

Final thoughts on OKR and performance management integration

OKRs can guide teams and organizations towards aspirational goals, while performance management assesses individuals’ abilities to perform tasks and generate desired outputs. While acknowledging the differences between the two frameworks is essential, aligning OKRs and performance management can streamline organizational success. Using the best practices highlighted in this article, you can coordinate OKRs and performance management to facilitate organizational success and ongoing growth.

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Additional resources

How okr and agile work together, okrs vs. smart goals: similarities, differences, and uses, okrs vs. kpis: examples, definitions & differences, modernize your performance management cycle with okrs, subscribe for our newsletter.

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A Primer on OKRs

By: Suraj Srinivasan, Li-Kuan Ni

The OKR framework is a popular goal-setting and strategy execution tool that uses goal setting through "Objectives" and measuring performance using "Key Results" on a periodic basis to measure and…

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• Publication Date: Mar 22, 2023
• Discipline: General Management
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The OKR framework is a popular goal-setting and strategy execution tool that uses goal setting through "Objectives" and measuring performance using "Key Results" on a periodic basis to measure and drive performance. The OKR framework has been adopted and practiced at companies such as Intel, Google, LinkedIn, Twitter, Netflix among hundreds of others ranging from start-ups to large businesses. Users have found it to be a powerful performance management and goal setting tool as it focuses on near-term measurable goals without losing the aspirational aspect of an organization's unique mission or purpose. This primer aims to explain fundamental OKR concepts, summarize implementation best practices, discuss OKR mistakes to avoid, and compare OKR with other common management goal setting tools.

Learning Objectives

• Introduce the basics of the OKR Framework - Provide real-life examples of OKRs - Discuss OKR best practices and pitfalls - Compare OKRs with other popular goal-setting tools

Mar 22, 2023

Discipline:

General Management

Harvard Business School

123081-PDF-ENG

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OKRs as a results-focused management model: a systematic literature review

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OKR and Performance Management: How they work together

While OKR is enjoying increasing popularity as a method for agile goal management, traditional performance management is receiving more and more backlash. At the same time, however, OKR and performance management are often mentioned in the same breath, as both concepts revolve around increasing the organization’s performance.

This article aims to provide clarity around the two concepts and answer the questions:

• What are the differences between OKR and performance management?
• What is the difference between OKR and MBO?
• Is OKR a performance management tool?
• What is continuous performance management (CPM) or agile performance management?
• What are the differences between traditional PM and CPM?
• Are OKR and performance management compatible?

What is the difference between OKR and performance management?

What is OKR? OKR stands for “Objectives and Key Results” and is a modern method for goal and people management. One of the key advantages of the method is the linking of qualitative goals (Objectives) with two to four quantitative goals (Key Results) each. In this way, OKRs enable a company to translate its vision and strategy into measurable goals that are more tangible for employees. OKRs are typically set every quarter in order to be able to react quickly to changes.

To learn more about the benefits, process and history of OKRs, check out our OKR Guide . To learn what OKRs can look like in real life, visit our collection of OKR examples .

What is Performance Management? Performance Management (PM) is the process of ensuring that a set of activities and outcomes achieve an organization’s goals in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, an employee, or the processes used to accomplish specific tasks.

In practice, the term performance management is used primarily in connection with performance appraisal and management and development of employees. The performance appraisal (also known as performance review or performance evaluation) usually takes place once a year.

How exactly can OKR and performance management be distinguished?

Why OKRs and compensation should remain separate

We notice that the two concepts differ considerably in terms of their understanding and purpose. Nevertheless, OKR and performance management are often mentioned together because employees are directly linked to specific key results as owners. On the surface, it seems obvious to use the attainment or non-attainment of OKRs as the basis for evaluating the performance of the respective OKR owners.

In fact, however, this is one of the most common mistakes made when implementing OKRs:

Coupling compensation to OKRs undermines the OKR method, since one of the main benefits of OKRs is to set ambitious goals, test out what is possible, stimulate innovation, and experiment. Employees whose bonuses and promotions are directly tied to achieving their OKRs will understandably set their goals so low in the future that they will achieve them no matter what. This behavior to be avoided is also called sandbagging or under-promising.

In reality, however, not achieving goals can have very different reasons, rather than underperformance by the employee in question. Perhaps the OKRs were too unrealistic at the corporate level, the formulation of the OKRs still needed improvement, or new developments occurred within the cycle in the neighboring team, so that it was no longer possible to rely on the support of the team in achieving a shared Key Result. Thus, a whole range of systemic reasons may be responsible for non-attainment.

Another reason for the incompatibility between OKR and PM is largely rooted in an outdated worldview of traditional performance management.

Prior to OKR, the " Management by Objectives” (MBO) goal management framework was widely used. With MBO, goals are set top-down, evaluated annually, and are tied to compensation. This approach thus went hand-in-hand with traditional PM and its annual performance appraisals and employee reviews.

However, the new complexity and unpredictability of the world of work requires a focus on principles such as transparency, self-organization, and continuous improvement, with the goal of responding in real time to customer feedback and evolving requirements. These principles were at odds with the common practice of cascading goals top-down and measuring employees against them once a year.

In response to these new challenges, MBO gave rise to the OKR framework. And the outdated, yet structurally entrenched model of performance management, also began to crumble. Harvard Business Review calls it a performance management revolution and reports how technology giants such as Adobe, Dell, Microsoft, IBM, and even General Electric, former role model for traditional performance management, have turned their backs on the practice and are exploring new paths.

The reasons for this are manifold, but essentially it comes down to three drawbacks of the old performance management:

• Feedback to employees comes far too late : For employees to continuously improve, they need timely and relevant feedback. Keeping feedback under wraps long after an event and saving it for the end-of-year conversation is ineffective and creates unrest for both managers and employees.
• Costly and time-consuming : Preparing for annual performance reviews takes a lot of time - consulting firm Deloitte found that the average executive spends 210 hours on performance reviews. Add to that a new layer of bureaucracy that also takes up a lot of resources.
• Demotivating : Almost all employees loathe the practice of annual performance appraisals because it is associated with a lot of effort and negative emotions. In addition, the pure focus on numerical ratings fosters the feeling of being just a cog in the wheel. Lastly, timely recognition of achievements and praise are often neglected.

We therefore conclude that traditional performance management must give way to a new and more contemporary model of PM.

But where is the journey headed? The answer is continuous performance management (CPM) or agile performance management.

What is Continuous Performance Management (or Agile Performance Management)?

Continuous Performance Management (or Agile Performance Management) is a modern, people-centric approach to driving, assessing and improving employee performance. It enables your organization to create a trusting environment where employees feel empowered to take control of their own development.In a culture of continuous performance management, employees support each other with a wide range of real-time feedback - appreciative, instructive, and meaningful.

Continuous Performance Management has several advantages over the old approach:

• Shorter cycles and agility: Annual reviews give way to frequent check-ins with employees to give them feedback exactly when it’s most relevant. This in turn allows employees to adjust behaviors and respond to new changes with flexibility and agility.
• Focus on employee development: Employee reviews focus on the development of the employee, rather than sober and demotivating performance evaluations.
• Cost Efficiency: The CPM approach is much leaner than the annual bureaucratic fuss about employee reviews and performance appraisals.
• Teamwork: Instead of pitting employees against each other with rankings, Continuous Performance Management encourages collaboration among them and the creation of high-performing teams.

How does Continuous Performance Management compare to traditional PM (performance appraisal)?

The following table provides an overview of the key differences between the two concepts:

Why OKR and Continuous Performance Management are the perfect fit

Continuous Performance Management has the following core elements as its foundation:

• Continuous recognition and appreciation
• Regular discussions about goals
• Initiatives for learning and skill development
• Constructive feedback
• Frequent performance check-ins and conversations

It turns out that the elements of Continuous Performance Management are highly compatible with the events of the OKR process.

While OKRs revolve around organizational and team level performance, Continuous Performance Management covers individual employee performance and development goals. Of course, the attainment of Key Results may be included in conversations around performance and development. However, it is crucial to make it unmistakably clear that the goals are not hardwired to compensation and performance evaluations of employees. When Key Results fall significantly short of expectations, it is important to explore the causes from a systemic perspective, rather than blaming this on the individual performance of the employee per default.

The benefits of OKRs and agile, continuous performance management can be mutually reinforcing when they are integrated with each other in the process.

However, it is always important to keep in mind that OKR and compensation should remain separate, otherwise it will nullify the benefits of OKRs.

Another pitfall is equating OKRs with personal development goals – these concepts should also remain separate.

If OKRs are already in use in your organization, then they are the perfect hotbed to implement a successful Continuous Performance Management process. Conversely, your CPM process can be significantly supported and enhanced by the OKR framework.

In both cases, it’s worth looking at a dedicated OKR software that also offers regular team check-ins to embed OKRs in the organization, encourage collaboration among employees, stimulate discussions about goals, and facilitate continuous feedback.

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Lean Management KPI and OKR

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Lean management must be an integral part of any enterprise and organization. Performance improvements and permanent adjustments are important factors for the successful implementation of lean structures. Performance management therefore integrates a cycle from performance measurement and analysis (Plan), the performance action and implementation (Do), the performance management controlling (Check), and the performance improvements and adjustments (Act) as illustrated in the lean performance management cycle in Fig. 12.1. The figure shows the lean performance management cycle as an iterative and continuous process for the control and improvement of processes, products, or services. The original P-D-C-A four-step framework is also known as Deming circle (Slack 1995).

Data is of course important in manufacturing, but I place the greatest emphasis on facts. Taiichi Ohno (1912–1990)

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Helmold, M. (2020). Lean Management KPI and OKR. In: Lean Management and Kaizen. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-46981-8_12

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