One of the most common questions among executives before starting with the implementation of OKRs is: How do I calculate the ROI of goal management?
Experts and consultants, like Ben Lamorte and Paul Niven, agree that the answer to this question is notoriously difficult to quantify. OKR can bring many benefits to an organization, but not all of these are easy to explain in concrete numbers.
That doesn’t mean the numbers don’t exist. The ROI of goal management is a topic of increasing interest amongst academics and researchers as the framework grows in popularity. Numerous organizations have also published case studies with interesting results, which we’ll present below.
OKR increased sales by 8,5% and revenue by 26%
Sears Holdings, a leading US-based retailer focused on connecting online and offline experiences, performed a study on the ROI of goal management amongst 20.000 associates. The study was performed in the summer of 2013 and again one year later in the summer of 2014. For the focus group who used OKR, they saw an increase in their average sales per hour from $14.44 per hour to $15.67. This translated to an average increase in sales of 8.5% over 1 year.
OKR increased overall performance by 11,5%
To measure the general impact of OKRs on performance, the Sears study classified employees into three tiers. High performance (roughly the top 20%), middle performance (middle 70-75%) and low performance (bottom 5-10%).
Then, they categorized each worker into three groups based on their use of OKR and compared changes in performance between 2013 and 2014.
The results were significant:
According to Chris Mason, Sr. Director of Strategic Talent Solutions at Sears Holdings, although the Sears’s study was confined to a specific test group, executives were surprised to find that additional employees, who were not part of the study were actively looking to join the experiment.
OKR can save your team $520,000 a year
A recent study of companies with over 1000 employees and found that by automating the process of setting goals using OKR software, the ROI of goal management amounted to a saving of $520K annually in efficiency gains. Here is a breakdown of the results:
OKR makes you 4x more likely to score in the top quartile of your industry
Research from Bersin by Deloitte reveals that successful employee goal-setting processes correlate strongly to positive business outcomes:
Goal setting increased market value by 68%
In March 2012, Adobe Systems replaced stack ranking, a practice in which managers are asked to rank employees on a curve according to their performance with those at the bottom placed on “performance improvement plans” or fired straight away. Adobe replaced stack ranking with what it calls “Check In”, an internal software application in which managers and staff members agree on goals and review performance on an ongoing basis.
Setting OKR and improving continuous performance management created better alignment, focus, productivity and performance. As a result the company’s stock price increased by 68%.
OKR increased revenue by 26%
The Aberdeen Group shows on average a 26% higher year over year growth in revenue from companies with highly engaged employees. This can be attributed to the fact that engaged employees are more motivated to satisfy the needs of their customers. Satisfied customers in turn, spend more, and remain customers longer.
The business impact of OKR comes from three key benefits
Based on the study results it’s clear that increases in performance can be attributed to the three key benefits of OKR: Focus, Alignment and Engagement.
All 3 are crucial, since achieving organizational goals requires collective effort. With focus, alignment and engagement an entire organization can increase performance and make big goals a reality.
The business impact of OKR is clear
Despite the difficulty of finding data that proves the ROI of goal management, the results of the studies we’ve referenced speak for themselves. The connection between the benefits of using OKR and its business outcomes are clear. Companies that use OKR and have studied its impact have proven that it adds huge value and has made a clear and measurable improvement to their business.