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:
- Group 3 – No use of OKR. This group showed no change in performance level.
- Group 2 – Irregular use of OKR. This group showed some improvement. Even just using OKR once made them 3% more likely to move up a whole performance level. In this group, the quality of OKRs was not even considered, yet there was a statistically significant, but small increase in performance.
- Group 1 – Regular use of OKR. This group were 11.5% more likely to move into a higher performance bracket.
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 software saves an average of $24,880 per quarter by streamlining the goal creation process. Traditionally, the process of creating goals has been a big time-waster for employees as they search for past goals and wait for approvals on new ones. With OKR software, company-wide historical and current goals are available instantly.
- OKR software saves an average of $37,440 per quarter through ongoing goal management. The simple act of employees navigating to their goals throughout the quarter and using them as a base for more focused discussions increases the effectiveness of manager-employee 1:1s.
- OKR software saves $80,000 per quarter by streamlining performance assessment. Instead of teams trying to recall what they worked on and how they performed, assessments are always available and can be accessed at any time.
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:
- OKR enables clarity: Organizations with high level of clarity around their goals are 4x more likely to score in the top quartile of their industry.
- OKR creates continued clarity: The frequency with which employees revise or review their goals impacts the bottom line. If employees revise their goals at least quarterly they are 3.5x more likely to score in the top quartile of their industry.
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.
- Focus – OKR helps teams focus on work that delivers the biggest impact by making it easier for employees to say “no” to work that is outside the scope of their OKRs.
- Alignment – By making individual, team, and departmental goals visible to everyone, employees have a clear understanding of how to ensure their own efforts contribute to team, department and overall company goals.
- Engagement – Managing goals using OKR provides clear purpose to the work employees do, helps motivate employees towards their Objectives by showing them their progress, and encourages a culture of collaboration through alignment, all of which lead to greater employee engagement.
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.