The difference between Metrics, KPIs ...
I read a lot about goals and it has always annoyed me when people use the terms…
This is the fourth of a five-part series examining how OKR compares with other management frameworks. In this post, we look at how OKR compares to Balanced Scorecard.
The Balanced Scorecard has a 20-year history as a strategic management framework used by companies across the world. While it’s still a popular framework, the Balanced Scorecard has faced competition from other frameworks in recent years. Widely regarded as Silicon Valley’s secret weapon for achieving business goals, OKR (Objectives & Key Results) has risen to prominence over the last 10 years and has been linked to some of the Valley’s biggest successes. We talked to Paul Niven a consultant and best-selling author in the field of strategy execution about the difference between OKR and the Balanced Scorecard as well as the benefits of each framework.
Paul, tell us a bit about your background and what you do?
Virtually every organization on Earth has some sort of plan for the future; what they’d like to accomplish. Sadly, the vast majority don’t turn those plans into reality. Using tools like OKRs and the Balanced Scorecard I help them beat the odds by crafting measurement and management systems that turn strategy into action. Over the past twenty years, I’ve written six books on the topic of strategy execution and have worked with over two hundred global clients.
Whether someone reads up about OKR or Balanced Scorecard (BSC), your name is one of the first ones that will pop up. Can you explain the key differences between the two frameworks?
Using a scientific analogy, the two share a lot of the same DNA. Both are focused on objectives—broad goals designed to propel the organization forward—and metrics (called Key Results in the OKRs field and measures in the BSC) that gauge your success in achieving the objective.
The biggest difference between the two is cadence. When creating Balanced Scorecards, most companies will draft objectives and measures that are designed to stay in place for at least one year, but often longer. With OKRs, however, most organizations change their Objectives and Key Results each quarter, focusing on what can create the most value in the next 90 days.
Another key difference relates to “parameters for creation.” When constructing a Balanced Scorecard, organizations create objectives and measures in four distinct, yet related perspectives of performance: Financial, Customer, Internal Processes, and Learning & Growth. OKRs on the other hand, do not rely on the use of perspectives. Again, the focus is on what is most important in the next quarter.
What are the advantages and disadvantages of OKR on the one hand and BSC on the other?
Both tools are valuable in their own right, but I would suggest that an advantage of OKRs is, as noted above, the shorter cadence. We all know that things are changing faster than ever, and thus it’s vital we have metrics that allow us to be agile in our approach, which OKRs do very well.
Having said that, the four perspective model of the Balanced Scorecard also provides substantial benefits: it forces an organization to think holistically about their business and how the objectives and measures spanning the four perspectives weave together to tell their unique strategic story.
When comparing organizations that succeed with BSC and organizations that succeed with OKR, are there any significant similarities or differences?
In my opinion, both systems are as much about change as they are about measurement or strategy execution, and thus in order to succeed you have to ensure the “soft stuff that drives hard value” is in place. For example, executive sponsorship is vital. If your senior leaders don’t understand, aren’t involved in, and don’t use the tools, they will quickly fade from view.
It’s also important to have a compelling reason for implementing either system. And by the way, “Because Google did it,” is not a valid reason for adopting OKRs. You must have a compelling business rationale that makes sense in your strategic context, one that has been widely communicated, and is well understood throughout the organization.
Finally, it’s important to remember that these tools aren’t like a piece of software that you download and they work. Both require nurturing, embedding in the culture, etc. Therefore, it’s critical that someone (or group depending on the size of the organization) own the process on an ongoing basis.
Can OKR and BSC work together in a complementary way, or should organizations pick one or another?
Absolutely they can work together, and that combination of the two is a major focus of my current work. I’ve developed a model I call “Two Speed Execution,” combining a Strategy Map (which is a key part of the Balanced Scorecard system) with OKRs. Organizations, especially at the senior level, need to gauge longer-term execution success, and the Strategy Map can provide that compass.
However, to drive execution day in and day out, we need to ensure all teams within the organization are focusing on what matters most, and are reacting to any shifts in the landscape. OKRs are ideally suited for this. I’d invite readers to learn more about the concept by visiting my website at okrstraining.com to download a paper on the concept.
Is there anything organizations should consider when moving from Balanced Scorecard to OKR?
They should critically examine why they are moving from one to the other. OKRs are the “hot thing” right now, propelled chiefly by their use at Google and other high profile organizations, particularly in the Silicon Valley. However, popularity is not a valid rationale for switching systems. As discussed above, there must be a business reason.
Any organization that has success with the Balanced Scorecard must recognize what they’re giving up if they go to a total OKRs based solution, and that is primarily the four perspective model. For some companies, the diagnostic value of the perspectives is vital in outlining how they differentiate themselves and may be sorely missed if they switch to OKRs.
What do you see as the future for OKR and BSC?
The Balanced Scorecard is a very mature methodology; it’s been around since the early 1990s. However, it remains extremely popular. Bain does a study each year of the most popular management tools and the Scorecard remains on that list to this day. One of the reasons for its longevity is that it has evolved over time. When it was developed it was used primarily as a measurement system – helping organizations balance financial and non-financial indicators. But over time we’ve seen the creation of Strategy Maps, and the linkage of the Scorecard to risk, budgeting, and other key facets of the organization.
I believe we’ll see a similar trajectory for OKRs. At this point, it’s primarily centered on creating objectives and measuring their success. Over time I believe organizations will begin embedding OKRs in more organizational processes, making it the centerpiece of their strategic agenda. As for which will be more popular, the victor will be that which ultimately provides the most value to the greatest number of organizations. Spoken like a true consultant, right 🙂
About Paul Niven
Paul Niven is a management consultant, author, and noted speaker on the subjects of Strategy, Strategy Execution, the Balanced Scorecard, and Objectives and Key Results (OKRs). As both a practitioner and Consultant he has developed successful strategy execution systems for clients large and small in a wide variety of organizations, including Fortune 1000 companies, public sector, and nonprofit agencies. Paul has developed strategy execution solutions for over two hundred clients around the world. A small sample includes:
Paul’s bestselling books have been translated into over fifteen languages. His latest is “Objectives and Key Results: Driving Focus, Alignment, and Engagement with OKRs” (co-authored with Ben Lamorte). Other books include: “Balanced Scorecard Evolution: A Dynamic Approach to Strategy Execution,“ Roadmaps and Revelations,” (his first business fable, which provides practical solutions for strategic planning), “Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results,” “Balanced Scorecard Step by Step for Governments and Nonprofits” and “Balanced Scorecard Diagnostics.” In addition to consulting and writing, he has delivered keynote addresses on Strategy, the Balanced Scorecard, and OKRs in cities around the world.
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