Target agreement discussions are outdated - how we can shape Agile HR with OKR

Annual goal-setting meetings are pretty much the opposite of agile work, and the underlying approach of setting goals for a year seems almost grotesque, not least in light of the many successive upheavals we as a society have experienced recently. Yet this management tool continues to be used across the board. As is to be expected, however, agreed-upon goals become invalid after just a few weeks, sometimes even days, or at least require adjustment.

But what is the alternative? A look at the most successful digital companies of our time quickly reveals that almost all well-known players rely on the agile process model "Objectives & Key Results" when it comes to defining and working on goals.

Imagine it's autumn and the fourth quarter is drawing to a close. Another year has passed and the company-wide annual and target agreement meetings are coming up. From an HR point of view, we have been informing our managers about the process for a long time, taking the target agreement sheets out of the cupboard and putting the dates in the calendars. And when it's all over again, everyone is happy to have completed the discussions, but it doesn't feel really satisfying and successful.
Annual and goal-setting meetings are often perceived as very time-consuming, not very motivating and certainly not goal-oriented. But what is the reason for this and how can we, as HR, break out of this situation and rekindle motivation when working on common goals in our organization? OKR, short for "Objectives and Key Results", the agile operating system of Silicon Valley are the solution here.

Why do we manage 21st century companies with 70 year old methods?

However, before understanding how this agile goal setting system can help us, it is necessary to understand why the existing one works less and less. Our year-based goal setting is largely based on the management methodology MbO (Management by Objectives), which was invented by Peter Drucker in the 1950s.
It is characterized by:

• 12-month definition and implementation cycles of the goals (annual goals) which makes quick adjustments during the year difficult
• A directive supervisor role in which the manager is significantly responsible for defining, controlling, and reviewing employee objectives
• A strongly top-down goal cascade in which goals are broken down from the "top" (e.g., the board of directors) to the individual employees, thereby reflecting not only hierarchies but also the silo structure of the organization
• Definition of goals at the individual level, which takes place individually and in some way secretly or at least not publicly and transparently
• Strong linkage of goal achievement to extrinsic motivators, such as monetary bonuses or hierarchical career moves

In addition to these characteristics, working with MbO in our digital VUCA world (V-olatil / U-secure / C-complex / A-mbigue) is often characterized by a feeling of unease and is perceived as little motivating or - in the truest sense of the word - goal-oriented. A circumstance that is largely due to the fact that MbO simply dates from a time when we still had long development cycles, no digital activities and a greater degree of planning security. In those days, the strongly directive management culture that was necessary for MbO still made sense. Long-term goals could still be broken down by a management team in relatively uncomplex environments.

These times are over and everything that worked 70 years ago (at the time of the invention of MbO) no longer works today! Therefore, annual goals and the associated annual goal discussions seem to have fallen out of time.

Why are annual goals problematic?

• Defined goals have often become obsolete after only a few weeks (or days) and have changed
• In order to be able to write down goals that are at least somewhat sustainable, they are either formulated in such a general way that their significance is almost completely diluted or they no longer represent the actual activities
• The goal reviews in the annual reviews therefore often feel like a "horse-trading" between supervisor and employee, in which, due to difficult measurability (the goals may have become completely superfluous), a measurability is somehow tried to be established
• The motivation of the employees to work on the goals with commitment comes to a standstill or does not arise at all due to the difficulty of defining the goals and even more due to the fact that the goals quickly become obsolete
• Managers sometimes feel helpless, since genuine control via goals (see above) is increasingly losing its effect and the process of annual goals is perceived more as overhead and a burden than as an enrichment

In addition to all these dysfunctionalities of MbO in the digital present, however, the greatest danger is the accompanying decline in the competitiveness of our companies. Either the wrong goals are set, or the goals become obsolete very quickly, or the motivation to really achieve these goals is low. Either way, motivating and successful work on the really important things in an increasingly dynamic environment is taking place less and less.

New challenges of the present require new methods of target definition

But what is an adequate alternative to the current model? What can we offer in HR to eliminate this dysfunctionality?
A look at the successful digital companies of our time is advisable and this quickly reveals that almost all successful players rely on the agile process model "Objectives & Key Results" when it comes to defining and working on goals. 

How do OKR support us in taking working with and on goals to a new level? A comparison of the basic features of both process models can help here:

It quickly becomes clear that with OKR we do not have a new "Management by Objectives" in an agile cloak, but a completely new way of working with goals. Because through an optimal use of OKR we experience four positive changes in our organizations.

1. Alignment and cross-functionality
   By setting the few but the most important topics from a strategic (top-down) but also operational perspective (bottom-up) and by allowing each employee to contribute to the goal definition process, OKR provides us with a set of goals aligned across all hierarchies every OKR cycle. With a strong focus of the goals on the customer and the added value to be delivered, we do not formulate departmental goals but customer goals that can only be achieved if we work on them cross-functionally. Thus, in addition to hierarchical alignment, horizontal alignment also takes place across all silo boundaries. With OKR, we are all working together again on common goals.
    
2. Creation of meaning and new motivation across the entire organization.
   The same, extreme focus on customers and customer benefits does not describe in the goals the working off of a plan, but gives the answer to the "why". Why are we working on this goal? What is the meaning & purpose of it? And what does our customer get out of it? The Objectives provide the answer and enable each employee to understand what his or her value contribution is and why it is worth working for the goals. With OKR we experience new motivation and fun on the job beyond pure duty fulfillment.
    
3. Short reaction times and thus rapid strategy adaptation in the event of changes in the general conditions
   Short definition and implementation cycles, based on the agile principle of PDCA (Plan-Do-Check-Adapt), make it possible to realign and calibrate our strategic direction, if necessary, at least every 3 months. At the end of the cycle, conducting retrospectives to review our collaboration helps us to draw learnings and, if necessary, adapt our "Ways of Working" to the new circumstances. With OKR, we are able to pursue equally dynamic strategies and respond quickly to change in a highly dynamic VUCA world.
    

4. Better goal achievement and more success
   The key results in OKR are quickly and directly measurable values that quantify the path to the goal. They do not focus on output (e.g. number of tasks implemented), but on outcome, i.e. the actual added value delivered to the customer. They are therefore not (management) reporting, but rather the "compass" for the OKR teams, which enables them to control (themselves) the work on the goals in the best possible way. Missing targets is still possible with OKR, but the risk of not reaching targets is significantly reduced by fast, continuous and direct measurement. With OKR it is possible to achieve the self-set goals better, to experience more success and ultimately to go to work freshly motivated.
    

How can an OKR deployment succeed in our organization?

First, it should be mentioned that OKR will significantly change our organizational structure and the processes within our organization. We are moving from silo-based working to company-wide cross-functional collaboration, and the old structures such as divisions and departments are receding further into the background. The way goals are defined and implementation is managed is changing from a strong directive management role to more self-organization and agile servant leadership. Both together mean that our culture will change and we will become a different company with OKR.
However, if one wants to follow this path consistently, OKR can be introduced successfully if these points are taken into account:

• Definition of implementation strategy: Depending on the size of the organization, the agile maturity level, and the complexity of the business, different implementation strategies are possible (e.g., along value chains or start within the existing team structure). The implementation strategy sets the pace and the procedure for the further rollout
   
• Training and enabling: In order to obtain sufficient surefootedness in working with OKR, user trainings are indispensable. We introduce a new method, it has to be understood and practiced. In addition, they offer trainings for internal multipliers (called OKR Masters / Coaches / Champions) and managers
   
• Implementation and support of at least one OKR cycle: Once the strategy for the introduction is clear and the organization has been sufficiently trained, the next step is to prepare the first, e.g. quarterly, cycle, carry out the necessary appointments and coordinate processes. An external OKR expert can provide support here to keep the learning curve flat and eliminate typical stumbling blocks
   
• Continuous adaptation of further processes: Once the first cycles have been successfully mastered and initial insights into what went well and less well have been identified, it is important to further adapt our processes to the OKR approach: How do we handle individual bonus payments, for example? What influence do OKR have on personnel development and career paths? As far as the definition mode of OKR teams and the recruitment of new employees? Not all challenges are solved immediately with OKR, but most of them become quickly visible and thus addressable with OKR

The uneasy feeling that something is no longer right with our annual target agreements is not deceptive, and this feeling does not get any better if we stick to industrialization methods in the age of digitization. A paradigm shift to OKR brings challenges like any change. But if you embrace them, you unleash a huge potential: the transformation of an organization toward rapid adaptability, increased company-wide motivation, value-creating collaboration and, ultimately, greater success.

Learn how to successfully apply OKR in the KEGON Training. You can find all information here.