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Posts Tagged ‘OKR’

How to Integrate OKRs and KPIs for the Sales Department

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Most companies use KPIs (Key Performance Indicators) and OKRs (Objective Key Results) to track and drive the achievement of their goals or results. 

A successful sales team should set their goals and use the best metrics and methods to improve their performance, aligning their interest with top management expectations and focusing on what buyers care about most: achieving their desired results.

This article presents how OKRs and KPIs can be integrated into a hybrid system and how the sales department can use this approach in practice.

Three ways KPIs and OKRs can synergize at the organizational level

At the organizational level, there are three modalities of integrating KPIs and OKRs, each having its risks and benefits:

  1. KPIs can be incorporated in the OKRs

    Key results can be set based on KPIs that need improvement, what needs to be measured and settled according to the established objective.

  2. KPIs at the strategic level and OKRs at the operational level

    KPIs resonate more with key results in measurement terms. If a KPI shows a need for improvement in terms of recurring revenue per quarter and the numbers show that sales are flagging, the organization should develop an ambitious OKR that focuses on improving overall profit. Sometimes, achieving an OKR objective may imply discovering a new KPI. 

  3. KPIs at all levels and individual/team OKRs

    Some companies prefer this approach, especially the ones who already have an implemented Performance Management System and OKRs. They prefer to use them at the individual or team level to motivate employees in achieving and stretching their goals. This approach might work and give good results, however, if top management supports and creates OKRs, there will be an alignment and the employees will better understand the strategy.

Focusing on what matters

According to a survey developed by Harvard Business Review, 50% of more than 700 sales representatives respondents said they are using ORRs and monitor their sales process while they have raised targets each year, motivating them to stretch their goals at the same time. 

The truth is that OKRs and KPIs complement each other excellently. KPIs are a measurable expression for the achievement of the desired level of results in an area relevant to the entity’s activity. Meanwhile, OKRs are a goal management framework that aims to create a link between the vision and the reality of an organization.

They complement each other because both are management tools used for Performance Improvement. KPIs focus more on measuring the outcome, while OKRs are designed for measuring the whole process. OKRs are more general, the details given by their key results, while KPIs are more specific and focused on attainable goals. 

It is very important to use KPIs smartly. Aurel Brudan, CEO and Performance Architect at The KPI Institute & SmartKPIs.com, stated that “Selecting KPIs is like picking flowers from a field. You can’t pick all of them. Instead, you have to decide on the right combination and a limited number to make a beautifully balanced bouquet… Using your nose generally helps.”

Figure 1. Image Source: The KPI Institute. Visuals: Pixabay.com

Another great example of understanding the difference between strategy, OKRs, and KPIs is to use an analogy as illustrated in Figure 1. Let’s assume you are planning a road trip to Dubai.  The strategy is like Google which can help you decide where you want to go. Meanwhile, OKRs are analog to a GPS which helps you keep on the right path. As for KPIs, these are similar to the dials on the car dashboard that needs to be checked on constantly to be sure everything else is perfectly working.

Hybrid system way of integration for sales departments 

A hybrid system that includes both OKRs and KPIs will integrate both perspectives of performance and success. Both KPIs and OKRs contribute to the holistic picture of an entity’s success and performance, allowing for an effective improvement. Therefore, professionals should not choose between them; instead, they should find a way to leverage and integrate them. 

A hybrid system can be created based on both, with the specification that they will keep their different purposes: using KPIs for the operational metrics and OKRs for the aspirational objectives.

The sales department should benefit from this approach and focus on what really matters for each quarter, using between 3-5 objectives, with each objective having 3-5 assigned key results. 

Examples from practice

Assume that the most used KPIs for a particular sale department are the following as shown in Figure 2: % Customer satisfaction with service level, % Net Promotor Score, and # Leads created. All these KPIs are operational and focus on specific measurements. 

In this example, the sales team should know and report their numbers and use OKRs to increase customer satisfaction and experience, as well as improve the sales lead process. Developing the right KPIs and OKRs for a sales team requires a lot of knowledge and practice. 

Figure 2. Image Source: The KPI Institute

If a sales department uses this hybrid approach, they will not only focus on numbers but also on building and maintaining a relationship with the customers. By setting the right objectives and key results, stretching its goals, and measuring what matters by using the right KPIs, the sales team can become more productive, efficient, and successful. 

To learn the know-how and become a professional in Performance Measurement become a Certified KPI Professional and Practitioner. For learning how to set and work with OKRs, read more about Certified OKR Professional. Both programs are CPD accredited and represent life-long qualifications that serve as a key differentiator for top performers, attesting proficiency in a specific area.

The impact of the pandemic on performance management practices

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Image Source: aleksandrdavydovphotos | Canva

The COVID-19 pandemic has left a strong mark in all aspects of our lives. It has impacted society – our habits, routines, and the way we interact. It has pressured the economy, its financial stability, and the way we do business.

Thus, what has changed in the way managers are doing performance management in these volatile times?  

1. The way we do strategic planning

Before the pandemic, risk management, scenario planning, and business continuity plans were specific to large corporations. Nowadays, even small organizations will have a plan B ready for different scenarios of the COVID-19 evolution. There are industries, like retail, where all planning revolves around foresting based on historical data. Nowadays, using data from the past to plan the future seems a futile attempt to regain the feeling of control.  

Moreover, most organizations, regardless of their industry, rely on annual if not 3 to 5 years planning. It is obvious that in the present circumstances and given the complexity of managing a business nowadays, these strategic planning practices seem useless. 

2. The importance given to performance measurement

More than ever before, real-time data is a vital management tool. Access to data is critical in managing a crisis. One of the positive side effects of the pandemic was the pressure to digitize operations that create opportunities for data collection and better measurement of operations.

3. The way employees can be evaluated

Remote work and hybrid systems (combining work from home with office time) are no novelty, but in the COVID-19 circumstances, they gained significant recognition and became the norm rather than the exception for many organizations.

Managers and team leaders can no longer directly observe employees. There is a series of soft competencies, like communication, collaboration, proactivity, and creativity that are very difficult to evaluate in an online working environment, and yet they are essential skills for many jobs.

What is the way forward?

1. A different way of planning

Risk management must be an inherent part of organizational strategy, regardless of the company size. You don’t need a risk management office to have a proactive management approach and handle risks well. Small organizations can use their performance scorecard and populate it with leading KPIs or Key Risk Indicators. 

For example, setting a red line level for # Days in accounts receivable can help you manage better cash flow, monitoring # Safety non-compliances can provide insights into the risk exposure to # Work accidents resulting in mortality. Identifying different scenarios in key areas of business and having contingency plans can give any organization a heads-up in case of a crisis.

Strategic planning must concentrate on shorter time horizons and reassess a series of factors that organizations may not have considered on a quarterly basis. 

Government interventions, international economic context, competitors’ reactions, customers’ preferences, customers buying power, suppliers’ situations, internal capabilities and optimization potential, and employees morale and productivity are factors that have changed post-pandemic and need to be investigated.  Moreover, agile strategic planning processes must be set in place to enable the organizations to react fast to changes.

2. Changes in the performance measurement framework

In the face of chaos, the most effective tool to put everyone on the same page is to use clear objectives, KPIs, and initiatives, even short-term ones. The challenge is to adapt the measuring and reporting of performance to respond to tight deadlines. Data must be available fast, preferably in real time.

Thus, identify five to 10 KPIs that are easy to use, concise (tackle the problem directly), and can be collected with high frequency (weekly, monthly). These will be the ones that help you navigate a crisis. Now is the time to replace complex measurements and reports with simple yet relevant tools.

In the medium term, most likely for many organizations, the entire strategy must be reconsidered and linked to relevant performance scorecards in which simple measurements can be combined with more complex KPIs to provide a holistic overview of performance.

3. Focus on building the right mindset for each job than defining the specific job outputs

Many organizations invest a significant amount of time in identifying the right KPIs and targets to capture as precisely as possible the employee’s performance or productivity. Moreover, the more complex the job is, the more difficult it is to capture all contributions in relevant KPIs. In a volatile business environment, such an approach makes targets and KPIs obsolete the moment they are communicated. 

The performance criteria used for employee evaluations should be flexible, easy to adapt and more focused on the extent to which the role is successfully achieved, as compared to looking at operational details. For example, it should be less important if the employee delivered one or three safety awareness sessions to factory workers if their awareness level is at the desired level. 

One methodology that can be used at the employee level is the Objectives and Key Results Framework. OKRs are set and reviewed quarterly, but they can be changed even more often if the result set is no longer of interest. They emphasize on the importance of personalizing the objectives and key results and making the employee accountable for setting and monitoring them. Not all key results have to be KPIs; some of them can be reflected by completing an initiative or other types of results.  

The end purpose of an OKRs system is not to compare employees or indicate what percentage of your staff are high performers. This methodology aims to facilitate communication, clarify expectations, align work activities to corporate strategy, and to provide a tool for managers and employees for discussing individual performance and improvement opportunities.

You can learn more about OKRs through The KPI Institute’s Certified OKR Professional Course.

A brief primer on team performance measurement

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Working in a team can create synergy, since a good team will likely produce better results than individuals working separately. However, measuring team performance is even more challenging than measuring the performance of each employee separately, since you have to take into consideration each and every member’s performance, in relation to the others’, as well as the overall team’s.

In general, employees are members of departments. A department is a subdivision of an organization and an individual, generally, can only be part of one department. That being said, nowadays, teams are more flexible in how they are formed and how they operate: a team can be a temporary group formed to work on a specific task or project. Therefore, employees can be members of only one department, but several teams.

The first step is to link the team results to the organization’s goals, by cascading the objectives and KPIs from the organizational level to the team level. It is not very productive to have a well-performing team whose work does not help the organization reach higher performance goals.

Key aspects of team performance measurement

There are many indicators and measurements that can be useful when considering measuring your team’s results. In what follows, we’ve put together a list of the most widely employed benchmarks, so that you may get a general feel for what is considered useful to keep track of.

Employee attendance: Employee attendance is an important aspect of team performance since absenteeism incurs excess costs and will have an unwanted effect on team productivity & employee morale.

Moreover, late employees can be the source of annoyance or frustration, which will reduce team cohesion and further reduce a working unit’s effectiveness. Therefore, attendance related KPIs should be the first ones to track, when we talk about team performance:

  • % Absenteeism: Indicates the percentage of employees within the team who are repeatedly and/or unexpectedly absent, out of the total team members.
  • $ Lost time accounting: Measures the potential revenue lost because of idle workers or wasted hours within the team.
  • # Time lost by starting work late: Measures the volume of time lost due to employees starting their working hours late.

Client satisfaction: Every team has an internal/external customer, which is why satisfaction can be a good measurement unit. Improving customer satisfaction will eventually result in a more efficient production process, better service and ultimately, lead to more satisfied external customers. The most important KPI to measure in this regard is the following:

  • % Customer satisfaction: Measures the level of satisfaction exhibited by the team’s customers (current employees, distributors, vendors, departments, or external clients), towards the inter-functional services provided, be it communication, productivity and/or responsiveness.

Employee retention within the team: A low retention level or a high turnover level is usually connected with low levels of efficiency and productivity, which in the end can lead to a negative impact on an organization’s overall results.

This aspect can be influenced not just by the team performance, but also by the HR department’s performance, the working environment and work policies, the supervisor, as well as the promotion and professional development opportunities for the future. However, high level of employee turnover within a specific team could indicate team-related problems. The most important employee retention KPIs to measure are the following:

  • % Employee turnover: Measures the rate at which employees leave the team in a given time period (e.g., month, quarter, year).
  • % Employee retention rate: Measures the total number of employees retained at the end of the reporting period, expressed as a percentage from the total number of employees that were in the team at the start.

Employee satisfaction: Studies suggest a direct correlation between employee satisfaction, employee engagement and increased performance. Employee engagement can be increased through various company efforts, such as facilitating the development of skills for its employees, giving them a sense of trust and integrity, and clarifying their opportunities for future career development. The most important indicators to take into consideration, when looking to improve or maintain employee satisfaction, are the following:

  • % Employee satisfaction: Measures the employees’ satisfaction and motivation level, with aspects regarding their job and working environment: job responsibilities, team and management, workplace, and professional development.
  • # Employee Engagement Index: Measures the engagement level of employees in their work activities and responsibilities, in terms of enthusiasm, commitment and discretionary effort.

Productivity of individuals: Productivity of individuals is a key element of team performance. The following KPIs help measure a team’s contribution to the organizational goals, and the contribution of its members to the general team results:

  • $ Profit per employee: Measures the team’s contribution to the overall profit pool. It is a particularly important ratio in customer-focused businesses, such as those in the service sector.
  • $ Sales per employee: Measures a team member’s productivity and efficiency in generating sales.
  • % Human Capital Return on Investment (ROI): Measures the return on investing in a team’s human capital, after adjusting for the cost of financial capital.
  • $ Human capital value added: Measures the value added through productive activities, by a team’s members. Reflects the adjusted operating profitability figure, calculated by subtracting all expenses except for labor expenses, from revenue, and dividing the adjusted profit figure by the total headcount.

OKRs or KPIs?

In some specific cases, where the productivity of a team is not directly linked to the organizational revenue or profit (ex. support teams), it is more advisable to use OKRs (Objectives and Key Results), instead of KPIs (Key performance indicators), to measure productivity. OKRs contain a well-defined objective and one or more key results. OKRs help define how to achieve a goal through concrete, measurable actions. So, in case of the support teams, these results should be measured to track team performance, as they will be able to paint a more accurate picture of their efforts.

Conclusion

It is a complex process to measure team performance; therefore, it should be analyzed from numerous angles, according to each team’s specialization and workload. It should be noted that the aforementioned indicators are not the only ones which can portray a group’s results. However, if you are looking for a quick introduction into this topic, these KPIs will serve as a sustainable foundation on which you can build your employee management system.

Find out more about the team and employee performance measurement from our Certified Employee Performance Management course  or learn more about the OKRs from our Certified OKR Professional course.

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