Performance Management

How to fit objective setting into performance management strategy

By on January 2, 2023

Does goal setting fit into an organization’s performance management strategy? Or can goal setting based on modern frameworks like Objectives and Key Results (OKR) work well with performance management systems? The answer is yes, it can. In the rest of this piece, we will go into how the two can coexist and work to each other’s benefit.

OKR platforms are becoming increasingly popular today, and with good reason. The OKR process has proven its mettle to ensure that an organization’s highest strategies are converted into practical, achievable short-term goals for individuals, teams, and departments. So, it is a strategy that several companies would be willing to adopt.

However, it does not necessarily mean that the need for a performance management system is gone. On the contrary, a combination of objective-setting processes and newer age performance management systems are being viewed as the best option for more effective performance management. 

OKR and traditional performance management systems

Before we get into what works well with an objective setting, it is essential to identify, at the outset, what probably does not fit. OKRs, given they evolved in recent times, differ from the traditional performance management practice of annual appraisals in specific ways. 

While OKRs primarily work at the macro level (i.e., the entire organization, departments, or teams), traditional performance management strategies focus on the micro level and, typically, are only concerned about individual employee performance. The goal of OKRs is to create a collaborative, transparent work culture with a collective focus/direction to focus on. 

With performance appraisals, the focus is on the micro; therefore, the spotlight is more on individual skill development, training, career strategy and path, and compensation or monetary incentives. The one main area where OKRs do not fit is compensation.

The objective setting should always be kept separate from compensation. If the two are tied together, the effectiveness of OKRs will be reduced. One quick example of how that can happen is that when employee compensation is tied to OKRs, they will look to set less ambitious goals, or only work towards achieving the easier ones, in order not to lose out on a bonus or a raise in pay. Thus, the whole purpose of OKRs, which is to create an atmosphere that encourages innovation, is undermined. 

Goal setting works best with continuous performance management

If objective setting, or OKRs, don’t fit very well with traditional annual performance management practices, what exactly do they work with? It’s said that OKRs align best with modern performance management strategies like continuous performance management. A continuous performance management system is one wherein an employee’s performance is not just reviewed once or twice a year at scheduled, lengthy performance review meetings. Instead, the check-ins between employees and their managers occur on an ongoing basis.

How does that align with the objective setting and OKR? The objective setting should ideally be an ongoing, dynamic process. Organizations typically look to set or adjust high-level objectives every quarter. This is particularly necessary for this day and age, given the various global uncertainties, from pandemics to geopolitical conflicts that can disrupt entire economies. 

Hypothetically, if a company adopted an OKR process and a continuous performance management system, meetings between managers and employees would occur more frequently than once or twice a year. Tools and solutions are available that also help companies foster this kind of real-time feedback culture, such as UpRaise for Employee Success app for Jira.

At these meetings, along with individual employee performance, there’s also scope to discuss OKRs or high-level objectives. It’s a good time and place for managers to check in and see how each employee is aligned with the wider OKRs and where there’s room for tweaks. 

In other words, how both OKR platforms and continuous performance management are structured have fundamental synergies. They are both based on continuous check-ins, recognition, and learning. 

Therefore, aligning your objective-setting process with a modern performance management strategy, such as continuous performance management, could be the most efficient strategy. However, it is important to stress that OKRs should remain separate from compensation even if an organization follows a continuous performance management strategy.

Comprehensive, integrated systems boost performance

Whether setting objectives for the quarter or reviewing your performance management strategy for a specific period, it is essential to make sure both align well with each other. Here are a few examples of how you can do that.

Examples of aligning objectives with performance management strategy

Setting objectives at various levels:

Once an organization has identified its highest objectives for a specific period, it is essential to ensure a trickle-down effect. While top management creates the highest objectives, each department, team, or employee must work toward achieving those. So, once the topmost priorities of a company are established, each department or team should take time to understand, identify, and set their own objectives that align with the company’s broader goals. That, in turn, will foster an atmosphere where employees have clarity in what is expected of them and can work better to achieve those goals and perform to their full potential. Therefore, a comprehensive system best aligns objective settings with performance management strategies. 

Review objectives during performance check-ins:

If an organization adopts both OKR processes and continuous performance management strategies, then it could use the regular performance check-ins between managers and employees to do a status check on OKRs, too, using an OKR platform to keep track of progress. These check-ins are as crucial for macro goals as they are for assessing employees’ performance. Suppose any changes are required to a particular team, department’s objectives, or even the organization’s highest objectives. In that case, these check-ins are the best space to identify and remedy those. 

Integrating recognition, rewards, and training:

Nothing functions at its best in silos. Combining your objective setting or OKR process with your performance management strategy and align these with your employee recognition, rewards, and learning & development programs will yield maximum benefits. For example, if an employee shows initiative and assumes the lead in chasing a challenging goal, they can be recognized even if the goal is not entirely achieved. Similarly, if an employee has reached 100% of a challenging or critical goal, it can be identified, recognized, and rewarded. Or let’s say an employee or a team is not performing to its full potential and, therefore, a key result is being affected. Then, too, an organization can use an integrated system to identify the challenge at the check-in stage; maybe shift or alter its goals if that’s where the issue lies or identify the necessary training and development plans for the employee or team if the challenge arose due to skill/experience/knowledge-related gaps. 

Boosting overall performance:

When you have a comprehensive objective setting and performance management strategy, combined with processes and systems that are integrated with employee recognition, rewards, training, and development, they ought to work well together and will ensure optimal performance at the organization level. 

Base objective setting and performance management on clear communication

Finally, all the above points we have made will only work if there is clear communication, which builds trust. The clarity in communication should begin at the top when senior management sets out a company’s highest goals and communicates them to the next rung and remain as strong through every stage of objective setting and performance management that follows. 

For example, if there are ambiguous goals at the highest level, the chances of it being further and further diluted as they make their way from the macro to the micro are high. And, when the objective is set at the individual employee level, its whole purpose may be lost.

Similarly, when teams or departments set their OKRs against the organization’s highest goals, there should be clarity among team leaders or department heads on how best their groups can work towards a particular high-level goal. They should also communicate this clearly to their teams and departments. 

A workplace culture that thrives on collaboration, teamwork, innovation, and belief in the organization and its management is crucial to achieving a company’s highest goals. Clear communication is the bedrock on which that kind of atmosphere can be built.

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