Is OKR taken from KPI or KPI from OKR?

murat ulker

A job only gives more productive results when employees in that job are happy and think that they are getting what they work for. Today, corporate companies’ employee happiness has become as important as consumer or customer satisfaction. Now, even employees are called internal customers.

In order to ensure employee satisfaction, it is very important to measure their performance fairly. We implement the 360 Degree Performance Evaluation System in this regard and indeed, we have obtained satisfactory results. This system, which allows subordinate colleagues to be evaluated by team members as well as the employee’s superior, gives good results. So much so that those who do business with you, those you do business with, your teammates or those who are below you, give orders or receive orders, are producing a 360-degree evaluation of you. We have been applying this for quite some time and doing this is like holding up a mirror to ourselves. In all evaluations, everyone actually does conscience calculating, thus awareness is created. I think it is very useful in this respect.

I should point out that there are some difficulties for me in making this assessment. If you ask why, I can’t complete 360 on myself. A chief assessment is not available for me. However, we can also look at as it is like this – my biggest supervisor is of course, my consumers, my customers.  When we look at their evaluations, my grade does not look bad at all. In most surveys, Ulker, McVities, Godiva are the most preferred brands. When we analyze, we see that our market share has increased. So, we get good marks from our stakeholders and as such, my 360 is completed in this way. Make happy be happy.

As I’ve said, employee satisfaction is important. We try to provide this satisfaction not only now but already have a history of doing so in the past as well. We were conducting other performance evaluation systems until we reached 360.

In the early years of the company, a few people did performance reviews. In other words, three levels up, supervisors would evaluate all employees while supervisors were unaware of each other. In the following years, a more systematic performance evaluation was established. It was decided whether it was a performance evaluation or grading. This system was even applied to workers. But I would like to note that; some, even the union, opposed the construction of such a system and the distribution of premiums accordingly. Workers should not receive money or premiums in different kind. An interesting way of thinking!

Yet, the system we implemented had a disadvantage. Notes were given subjectively. While the entire year had to be evaluated, the events at the time of the grading and imminent events could be more effective. In order to prevent this, a solution was found for a few supervisors to give grades without knowing the other’s opinions. After all, it was a way of grading, showing a trend. Additionally, there weren’t many objections as everyone received money in their pockets. The first bonus system was used for piecemeal work (box filling, product sorting, etc.) and for the monthly sales success of salesmen. The salesmens’ premium was at least as much as their salary, i.e. 50%.  Later, for senior managers, this could start from 60% of their total income and exceed to 130%. For me, my income was entirely dependent on the business performing well. Though, I only had a monthly salary at Yıldız Holding and it was never the highest paid salary in the company.

Later, we developed performance measurements, making it what is called management by goals. So, we said let’s put on our lenses. We said, let’s set career goals, see how much it is noticed and let’s make a note of it; let’s make a mutual interview and note it like that. We got good results.

At the point we reached, there was a need to digitize the system in the form of “Smart KPIs” with key performance indicators. We decided that the majority, that is, 90 percent, should be made up of numbers and 10 percent should be the subjective side.

However, the most challenging part was still the challenge of face-to-face feedback, somewhat due to our Turkish culture. Some general manager colleges were even turning back and raising the low performance grade of a particular person after giving face-to-face feedback. This was because, according to them, the college had been warned friendly and would do what was necessary. Now the whole year was wasted. Who cares! To prevent this, evaluation and feedback were repeated several times during the year.

We achieved very successful results in this system. The 360-degree evaluation  has become a way to perfect our work by shedding light to guide it. Thus, the system evolved and became more refined.

Of course, in every evaluation system, there is a passive human and therefore subjective influence. When you look at this from above (helicopter view) it is immediately obvious. For example, the subjectivity of those who are obsessed with their supervisor in the 360 evaluations is apparent.

When I was the general manager, the threshold was 60 out of a 100. We would part ways with those who could not reach at least 60. Additionally, salary increases would also depend on this. Outstanding performers had astronomical salaries every year. The salary of a senior caretaker or foreman was sometimes higher than his supervisor. Once a manager, a friend whose job I liked came up sadly and asked why he was still not fired. Because the low wage increase clearly showed that he could not even get 60 points, so he should have been dismissed last month, whereas he was still working. When investigated, we encountered a material error and corrected it. Another example, we gave a very low score and low salary to another supervisor as a warning. But his commitment to the company was so much that he agreed to it and came and thanked us.

As times change, new systems emerge. Technology companies are bringing new perspectives to company management, as is the case with artificial intelligence applications. Companies that want to be innovative and want to make a difference in customer experience are struggling to recruit and keep talented employees. Human resources departments search for scientific and effective performance management tools that will motivate employees better and increase productivity. As I said at the beginning, numerous performance tracking methods have been developed and implemented, including: Critical Incidences Technique(Flanagan & Baras, 1954) (1), Management by Goals (Drucker, 1954) (2), Key Performance Indicators (KPI), Balanced Score Cards (Norton & Kaplan, 1992) (3), 360 Degree Evaluation (Kuzulu and İyem, 2016) (4) and Electronic Performance Monitoring Systems (EPTS). What I understand is OKR, the new performance management system implemented by innovation-based technology companies such as Oracle, LinkedIn, Facebook, Chinese Baidu, Uber, and Netflix, was first implemented by Google, It is also applied in non-tech companies such as BMW, Disney, Exxon, Samsun, and Anheuser-Busch and it is claimed to increase success. Many consulting firms that I have seen, are also marketing this method.

On August 16, 2020, I wrote in my article titled “The Best Bargain is an Expensive CEO“:

“Our mission (Make Happy Be Happy) oriented goals connect CEOs’ performances other than financial purposes to other measurable goals, KPIs. For example, Net Promoter Score, consumer satisfaction score, churn rate for customers. For employees: absenteeism rates, satisfaction rates, and turnover rates, over time, brand awareness, market share, return on investment by market and profitability compared to competitors can be such measurable goals. The feature of these metrics is that, it depends on the success of the work in detail. Although managers decide in favor of one of the stakeholders in the short term, these goals balance long-term sustainable performance.

During a given period, mission-related objectives should remain constant, and metrics should not remain the same and instead become increasingly difficult. If there is an improvement in this approach compared to the competitors, compared to the previous year, a bonus is earned. The Board of Directors takes a bilateral approach to resolve the short-term long-term ruptures experienced today. It links a CEO’s long-term bonuses with the mission and balances them with short-term bonuses. Thus, CEO behavior is effectively monitored and guided. Short-term achievements are rewarded in annual operations plans (KPI), long-term results are rewarded based on long-term plans (LTIP).”

Erden Tüzünkan, the founding partner of the company Corvisio, wrote the following text as a comment and added a link explaining what the OKRs are:

“Murat Ülker, thank you for your valuable comments and analysis. I have benefited greatly from your article. At this point, I would like to make a contribution. In today’s world, we are experiencing a very rapid transformation. As you mentioned in your article, both Board Members and CEOs have to act agile. This reveals the necessity of creative thinking and solution-oriented action. At this point, I think that the current KPI and financial reward system linked to the salary misses the creativity and development dimension of the job and falls short. I think the remedy is the #OKR methodology, which was first implemented in Google and then spread to giants like Intel and GE. Therefore, I think that in innovation-oriented and international companies like you, KR (Key Results) determined by the OKR method should also be used to evaluate the performance of CEOs. In order to get detailed information about OKR, I present the following article: https://corvisio.com/what-is-okr/”

I had heard of Objectives and Key Results (OKRs). I think it was last year when I visited Alibaba during my visit to China and learned about business models. It was there that I learned that Jack Ma, who once thought “An idea without a KPI, is an empty idea” also combined the KPI / OKR performance system. I remembered this experience with Ender’s comment and reached to the book “Measure What Matters” by John Doer, one of the inventors of OKRs. After a bit of googling, I found a lot of duplicate reports on how to implement OKRs from the last five years. There were too many references to a book written by two consultants and published by Wiley (5). I understood that when the method which had begun in Google started to become more widespread and marketed by consultants, the real developer of the method took control of the situation by writing a book.

“Since OKRs are a shock to the established order,” Doerr says on the first pages. ‘…hence it may make sense to ease into them. They must be approached slowly and carefully. They are short term goals that drive the real business. It is they who keep the annual plans honest and executable. Nothing can move a person as much as the deadline. Organizations need to be more agile than ever before to gain a foothold in the global market’. After reading that paragraph, my interest grew even more. Now it is possible to summarize it as follows:

OKR consists of two elements. First one is the TARGET. This element is qualitative and inspiring. The second item is KEY RESULTS. This item is also numerical and measurable. Goals are what is wanted to be achieved, namely the answer to the question, ‘WHAT’. Goals become very valuable when they are concrete, action-oriented, guiding and certain. KEY results are the things that are paired with goals, enabling us to track and compare HOW we are progressing towards a goal. Time limits are put on key results, they are aggressive but realistic. They are measurable and verifiable. In the process of determining OKRs; Goals are set first, a maximum of 5 (as few as possible) key results are determined for each goal, practice is carried out to achieve the goals and regular feedback is provided. The most recurring word of the OKR system is: “… we will hit that specific TARGET measured by the KEY RESULTS below.”

It is claimed that the OKR system is not a hierarchical organization, but rather a structure that opens the way for talented people who work horizontally and enables them to be employed, where managers give up their small feudal lordship for a greater purpose. It is said that where there are OKRs, talent comes before seniority. Other listed advantages are as follows: Managers become coaches, mentors, and architects. Actions and data sound more and express more than words. In the OKR system, there is value in what you do, not what you know. It works in monthly and quarterly cycles; a target of at least 50% bottom-up or horizontally is set, often separate from salary and bonuses, a desire to take risks is created.

Measuring what is important (HIGH TARGET OR TARGETS) begins with the following questions: What is the most important thing for the next three or six or twelve months? What are our main priorities in the upcoming period? Where should people focus their efforts? For corporate-level OKRs, all responsibility lies with the senior leader. And then at least 50% OKRs are spread from bottom to top and on the subject of “how?” employees are freed.

OKRs seemed to me like a framework for defining and tracking the company’s most important goals and associated results. OKRs are transparent, everyone knows what everyone’s goals are and what they are doing, and ensures performance consistency among employees, bringing with it the unlimited pursuit of accountability and excellence. The reason OKRs are popular is because they address the focus, compliance, and engagement problems that organizations experience while maintaining execution. It is important that OKRs can be traceable, reviewed according to conditions and changed when necessary. Negotiation, feedback and appreciation are at the core of the OKR system.

The OKR application can be simply divided into four steps: The first step is to set goals, including monthly / quarterly / yearly goals for the company, department and employees. The aim is to reach a qualitative goal within a certain period of time. The second step is to identify key results for each goal. Measure whether key results are met at the end of the period. The third step is to implement the based plan. The fourth step is regular feedback. (6).

In his book, Doerr describes the OKR set of an imaginary American football team using a diagram using the KPI system. In the table you will see below, after the Head Coach sets the goal of winning the “Super Bowl”, it spreads to all levels with the correct sub goals and key results in line with the main goal. Key results are the target of the two managers below, who they set their own key results. Then they become the targets of the other three.

Doerr says: “To put it in moderation, cascading or cascading makes an operation more harmonious. However, when all goals are cascaded, the process becomes mechanical with four side effects: 1) Lack of agility, 2) Lack of flexibility, 3) Marginalization of participants and prevention of lower-level entry, and 4) Lack of horizontal connectivity. Unlike the KPI system, in OKR, a target can jump directly from the CEO to an individual employee. Or the company management can present its goals to everyone at once. In this way, everyone is sure where the company wants to go.” (5).

Not only the OKR rankings bring success to the company. The fact that enlarged Google 10 times with OKRs, is its system that allows software developers to work on side projects once a week. Doerr Google claims that by freeing up 20% of its smartest workforce, it’s changing the world. He says: “The strongest OKRs in an innovative organization come from those outside of top management. Salespersons understand changing customer demands better than management, financial analysts are the first to understand that the foundations of a business have changed. An optimal OKR system frees participants to set at least some of their own goals and most or all of their key outcomes” (5).

Doerr gives many examples of companies adapting their KPI system to the OKR system for a better understanding. One is Adobe. In the table below, Adobe’s “Before and After” system is given. While Adobe became an innovative company with OKR, it also increased its growth coefficient. As you can see, the important issue here is the reward system, it does not depend on OKRs!

BEFORE: Annual Performance Review  AFTER: Check-In

It analyzes the Doerr KPI system as a hidden competitor and makes OKRs more advantageous. Then let’s have a look at what has been written on the KPIs that we have been successfully applying.

Key Performance Indicators (KPI) are a performance evaluation tools, used for the first time in the UK. A system that simplifies performance evaluation according to the evaluation criteria of key indicators. KPIs follow the SMART goal setting criteria. Its history goes back to the 1940s. In particular, the metrics used in performance dashboards are often referred to as Key Performance Indicators as they are used to measure how well an organization or individuals are performing against predefined goals and objectives.

KPIs focus employees’ attention on the tasks and processes managers deem most critical to the success of the business. Eckerson says there are two main types of KPIs: leading and lagging indicators. Kerzner believes that if the purpose of creating an assessment is to increase utility, the KPI should reflect the factors controlled, and that the KPI only measures some of the goals. KPI is the mature performance management system of much more mature companies, but it also includes the clumsiness. One of the theoretical underpinnings of the KPI is the Pareto Principle, which is to concentrate 80% of resources on 20% of key indicators. For this reason, KPIs inevitably ignore some things that we also consider unimportant. The weak points of KPIs are (7):

1) Employees always do what their performance evaluation measures. The high emphasis of the KPI on some indicators makes it easier to ignore some new market factors.

2) In practice, auditing key performance indicators can be expensive or difficult for organizations. For example, it is not that easy to really measure employee satisfaction.

3) KPIs require time, effort and employee involvement to meet their high expectations, but in fact there is no clear indication of “who uses what” and how to use it. Lack of communication makes it difficult for the KPIs to effectively achieve the final organizational goals.

As the rising star of performance evaluation tools, OKRs’ advantages can be summarized as follows (5):

1) OKRs focus on what matters most. Moreover, OKRs ask you to set their most fundamental priorities and focus your focus on a limited subset of potential variables relevant to any company’s management.

2) OKR scores are not directly linked to performance, they are for reference only. Through OKRs, employees are willing to do what they think are good for the organization, and can also spark new thinking that leads to unpredictable levels of success.

3) OKRs are not a top-down exercise of goals – they reflect a top-down and bottom-up mix of goal setting, and this can increase communication times between upper and lower levels. They both argue many times about the goal and the key result and ultimately do it together.

4) In a company, teams must be able to see the performance goals of other teams. OKRs improve employees’ perception of fairness and motivate employees to improve their personal performance, encourage the whole organization for transparency.

5) At the individual level, OKRs will reflect a mix of personal growth ambitions and contributions to the company.

Well, OKR system has no disadvantages? Wouldn’t it be okay, let’s see … (5, 7).

1) OKRs need high quality employees, where high responsibility and creativity are required to meet the needs of the employees. However, it is difficult for standard personnel to meet these needs.

2) Makes managers question their management ability and leadership style; some styles, such as authoritarian leadership, are not suitable for this type of management model.

3) OKRs can lead to a lack of teamwork. Individuals can focus more on their personal OKRs rather than the team-level OKRs.

I know that no matter what performance evaluation tool it is, its sole purpose is to achieve the strategic goals of the organization, to realize the profit of the company and to create value. If anyone knows a goal other than that, let us learn.

My conclusion is that OKR and KPI have the same goal. They derive from OKR and KPI organizational strategies and point to organizational goals. I think it could not have been expected any other way. The whole aim is to align the company / companies towards common goals. The valid word in both KPI and OKR is “key” because each KPI and OKR must be associated with a specific result. Moreover, both OKR and KPI require management controllability.

The key indicators highlighted in KPIs and the key results highlighted in OKRs seemed similar again to me … KPIs also contain a target value, but the KPI target covers a wider range than OKRs.

Also, there are numerical requirements for both vehicles. While determining a suitable number of figures for the KPI, the OKR’s goal is to limit the business to 5 figures. More than 5 key results are not suitable for every goal.

I think if we look at the application, KPIs pay more attention to digitizing and expressing employee performance. The results are directly linked to the employee’s benefits, such as wages and bonuses. In this case, it is mentioned that the employees put their own interests first and so to speak (7). Thus, it can ignore the strategies that guide the KPI, and an excessive adherence to numerical indicators emerges. OKRs on the other hand, are a goal-achieving tools that do not conflict with the direct interests of the employees and is mostly used to evaluate the completion of the target. OKRs also have quantitative indicators but focus only on key outcomes that can promote better achievement of goals, so employees are eager to improve performance.

KPIs are formed from top to bottom, and few managers participate in this process while developing and valuing. Not all KPIs are clear and specific either. It can be easy to take KPIs out of context or misunderstand them. The result may have nothing to do with the original intention. Most OKRs are developed from bottom to top. Thus, teams and individuals are enabled to claim their own goals from the outset.

If we explain it from a place I know well, with a metaphor from product manufacturing…

KPI evaluation method is a standard production line that does not leave people with authority, a simple operation with a clear pattern, low operating cost. Therefore, their strengths can be captured by copying the tools. New entries to the market can be made easily.

OKR is a mass “customized” production process. The outputs of a certain standard may vary according to the needs of the customers and the market. Once adapted, it is no longer the same product, but it maintains its main idea not only to maintain the production standard, but also to meet changing needs.

OKRs allow employees to adjust according to their personal goals, while maintaining the core objectives of the organization. However, KPIs are not corrected over time according to market changes and employee needs. “OKRs are not magic wands,” says Doerr. They are no substitute for healthy reasoning, strong leadership, and a creative workplace culture. If these basic elements are available, OKRs can bring you to the top. ”

I think no performance management system is a magic bullet. The KPI-based system also requires leadership and creativity to achieve the goals in the long term. If OKRs really lead to a more innovative environment in non-technology companies as it is explained, if they provide 10 times growth, why not start somewhere and build OKRs on the KPI system supported by a 360-degree valuation and LTIP?

In Yildiz Holding, the situation is different. We have a successful KPI system that reflects on the results. In fact, we now support this with LTIP system.

As for the OKR system, it will be implemented by Yahya Bey in the NEW VENTURES section of our company, where our youngest executives are in charge of startups and new, especially digital businesses. I talked to Ayca on the advice of Yahya, and this is what I learned:

Although KPIs are detected annually, OKRs can be renewed every quarter. In fact, a relationship such as target and plan can be defined as the relationship between two indicators (KPI, OKR), the first of which determines what we want (target), while the second one is the preference of how we want (method). Because there are always multiple ways and methods to achieve the goal. Our choices are important in terms of cost, time, and ability to keep or exceed the target. In other words, OKR is the name of our determination, for every level manager how we will apply the tactics we will determine according to our strategy. For example, be KPI, NIS (negative net working capital). How do we achieve this, OKRs for various departments; it can be deferring month-end balances for accounting (financial wizard), stock reduction for business, additional maturity for purchasing. But the result will be either short-term success, maximum attention for inventory management in the business, or reputation cost of establishing maturity pressure on dealers, respectively, according to the choice of the administration. This is how the strategic determination of how to achieve the sub-goals in all departments will be done with OKRs. But I think we should avoid OKRs in top management in terms of empowerment and delegation.

Note: This article, which is open source, can be cited by mentioning the author. Copyright not required.

Bibliography:

(1) Flanagan, J (1954). The Critical Incident Technique, American Institute for Research and University of Pittsburgh, Psychological Bulletin, vol.51, no.4

(2) Drucker, P. (1954), The Practice of Management, Harper Business.

(3) Norton P.D, and Kaplan R.S. (1992), The Balanced Scorecard—Measures that Drive Performance, HBR;

(4) Kuzulu E. ve Iyem C., ‘360 Degree Feedback Appraisal an Effective Way of Performance Evaluation’, International Journal of Academic Research in Business and Social Sciences, V.6, No:5; Günay, Z. (2018). Calısanların 360 derece Performans Degerlemeye Yaklasimlari: Bir Telekomunikasyon Sirketi Ornegi, Bingol Universitesi Sosyal Bilimler Dergisi, Y.8, pg.16.

(5) Doerr, J. Onemli Olanı Olç, Buzdağı, 2020; P. R. Nivan, B. Lamorte, Objectives and Key Results: Driving Focus, Alignment, and Engagement with OKRs, Wiley Corporate, pg. 224, (2016);

(6) Trinkenreich, B. (2019). Combining GQM+Strategies and OKR -Preliminary Results from a Participative Case Study in Industry, https://www.researchgate.net/publication/336590987.

(7) Zhou, H. ve He Y. (2019). Comparative Study of OKR and KPI, International Conference on E-commerce and Contemporary Economic Development.

(8) Eckerson, W.W. (2007) Creating Effective KPIs, J. DM Review.16:15-28.

(9) H. Kerzner (2011) Project Management Metrics, KPIs, and Dashboards: A Guide to Measuring and Monitoring Project Performance, John Wiley & Sons, Inc., Hoboken.