Work, as we know it, has changed irreversibly; organizations and employees are no longer bound to a physical desk, there’s no compulsion to commute, and there is no clear demarcation between personal and professional lives (although that is changing rapidly). Employees are looking toward achieving something more and not just focusing on their paychecks. They want to improve their skills, help their colleagues, and contribute positively to their communities and environment in general. This focus on personal fulfillment by the employees is making organizations rewire their processes and look at innovative ways of engagement.
Performance management is a big gainer in this regard, with many organizations all over the world getting rid of the annual appraisal process. Leading organizations even decouple performance management processes from remuneration and use Objectives and Key Results (OKRs), a framework designed to set goals and improve the performance of team members. Before jumping on the bandwagon, however, managers should be careful about not confusing Outcomes and outputs.
What is an Output?
Before we start with outputs, it is essential to understand what a ‘project’ is: a temporary endeavor to create a product, service, or result. This end of the project result is an output – called ‘product’ (or end product) if it is a facility, and ‘service’ if it is an action performed.
Technical project management has focused only on output over the years – this output can be a house, software, a vehicle, a new product that needs to be introduced in the market, a gadget – or even a working rocket. Outputs are the results of executing a project or an indication of what an organization has achieved in a defined course of a period. Products and/or solutions of a company are its outputs. Similarly, the number of awareness/education programs can also be considered as an output. Outputs have specific goals to achieve: they can be consumer goods produced by an FMCG company or local artisans, a seminar or workshop conducted by a consulting firm, or the results of a test.
What is an Outcome?
Outcomes are derivatives of outputs – They provide the capabilities to create products or solutions that generate revenue. Yet, the focus usually is only on the output and the technical requirements necessary to achieve it. In simpler words, organizations don’t focus on why the project is being executed, one of the reasons being the success of a project is directly linked to realizing the benefits expected, which makes teams focus only on outputs and project completion. These output-related milestones like on-time or under-budget deliveries and completions are celebrated, but the difference between outputs and outcomes expected can be realized when the product or solution finds no takers. When the team ticks all the output boxes (like add X features to the app, respond to customer queries in Z minutes) and still fails to progress, the focus should change from achieving such arbitrary numbers.
Differences between Output and Outcome
Outcomes indicate the success ratio of the project and are evaluated using different measures. The first one is efficacy, which is the potential of a procedure to solve a certain problem. Next comes efficiency, and it is measured by comparing cost and benefit analysis of different processes. Effectiveness, the final one, varies due to the impact of other factors encountered during implementation. Outputs are simple – there is a target that needs to be achieved, and employees work towards it – because it is relatively easy to come up with a list of tasks to finish during the day, week, or month. That’s why it is common for companies to define the Key Results part of their OKRs as a list of action-based Outputs instead of measurable outcomes. A simple way to distinguish between the two – is to ask the following questions while setting objectives and determining outcomes:
- Where do we want to be in X days/weeks/months?
This points towards the goal or milestones of the project, called ‘Objective’ in OKR parlance.
- What results need to be achieved to get there?
These are called ‘Key Results’, and they show if the project team is on track.
- What needs to be done to achieve those results?
These are known as ‘initiatives’, and they describe the actions that team members need to perform to achieve key results.
An Initiative can be any output from a task, or to do, a project, or a deliverable. Starting with outputs or initiatives is impossible, unless it is clear what these outputs need to accomplish. This act of starting with the end in mind results in defining the Objective first, then the Key Results, and then the initiatives.
For many leaders, managers, and employees, focusing on outcomes instead of outputs requires a significant shift in thinking. Doing things to achieve certain outcomes is complicated, as success is not measured by the percentage of output completion. This shows the consequences of actions to employees and helps them learn what they can do to achieve certain outcomes.
Executives and managers can try to answer how performance is measured within the organization to see if they are activity-driven or outcomes driven. Leaders and managers who are happy when a thousand prospects have been called in 1 week will find it difficult to define outcomes – but those who focus on the number of customers closed won’t. Also, focusing on outcomes gives managers and leaders a clear bird’s eye view of the project and lets them help the team figure out other initiatives when things are going south.
- Outputs are the first level of results, while Outcomes are benefits derived from outputs.
- Outputs address only the result – they don’t provide any detail on the impact or value of the services. Outcomes show the value added to the organization due to the activities or services provided.
- Outputs indicate completion without alluding to results – while an outcome indicates how effective the project was and what benefits can be derived.
- Outputs can be seen immediately after implementing an activity, project, or program. Outcomes depend on how the output is perceived by the target audience.
- Output signals the end of a process without providing details about advantages earned. Outcomes show the level of success of the project.
- Outputs are usually tangible, and are easy to measure/report or validate. Outcomes are intangible by nature and are difficult to measure or validate.
- Outputs are actions or items that contribute to achieving an outcome. Outcomes are the end results that require multiple projects or outputs to bear fruit.
- Outputs do not show the level of performance/achievement and highlight the end product. This focus on completion complements intangible outcomes and highlights achievements during the project.
- Outputs are within the direct control of the program/program managers, while Outcomes are pre-decided by leaders, and managers have no say once they’re set.
- Outputs can be controlled by the team members to suit their needs, but they can only influence outcomes by delivering the right outputs.
The need to understand the difference
With the constant change brought upon by the pandemic and other factors, it is imperative that businesses stay ahead with innovative methodologies. One of them is to encourage employee performance with a goal-oriented method like OKRs (Objectives and Key Results). Without properly understanding the difference, if organizations start making a list of outputs instead of thinking about outcomes they want to achieve, the operation will fail. Delivering measurable business outcomes is at the core of OKRs, and they are about focusing on results that bring real business value.
Even after getting the difference right, there’s a chance that OKRs are communicated wrongly if the objectives are cascaded down without much deliberation. It leads to a lack of clarity, which brings low business value because people miss the ‘Why’ of an outcome. How can employees deliver something good when they don’t even understand what they’re supposed to deliver?
Making right decisions using outcomes
While the leadership is responsible for the growth of the company, other employees down the ladder can also contribute in an effective way to set the direction of the company. Getting inputs from different departments like sales, development, and Support gives leaders a good picture of where the market sentiments are headed. And it makes the picture clear for employees, too – 95% employees who use OKRs understand how their work ties into the goals of the company they work for. When the outputs are consistent, but outcomes are not getting met, the time is right for the management to check if the direction they have taken is the right one in the larger scheme of things. While leaders try to introduce something that will bring their company a great benefit, the chances of their intuition being wrong is high too.
The relationship between Outcomes and Key Results
The Objective defines the direction of OKRs, and the Key Results help in understanding what needs to be achieved. Setting a good key result is a simple matter of asking ‘Why,’ which takes us away from initial ideas which can be classified as outputs. If the reason explains why a certain number (the output) needs to be achieved, then it can be considered a good outcome to pursue. For example, Objective: Rollout the new product by the quarter’ is a bad OKR because it is an action item, not an outcome. Focusing on what needs to be achieved, plus the specific criteria for success, gives us a Good objective – like ‘Significantly improve customer satisfaction’, which can be achieved by targeting key results like ‘85%+ issues should be sorted and presented to respective teams within 2 hours’ and ‘Increase customer satisfaction score from 6.5 to 8.5’. More examples can be found here.
Adopting an outcome-driven approach
The outcome-driven approach can help organizations to get their employees to understand the value of their goal and focuses all eyes on paths meant for improvement. But forcing any outcome-based methodology on employees without understanding their needs or the organization’s can lead to a dip in performance too. Here are a few steps that enable organizations to methodically adopt OKRs or any outcome-based method:
- Setting the Vision and Mission of the Organization
When the objectives of employees tie back to organizational business goals, leaders should be thoughtful and deliberate while setting them. These ‘goals’, or the vision and the mission of the organization, form the essence of its existence.
- Mapping the vision into employee goals
After leaders define the short- and long-term goals of the organization, it needs to reflect in the job description and other material that probable hires can access. For existing employees, managers can have one-on-one or team meetings to understand their goals and aspirations and guide them to find parallels in the organizational vision and mission document.
- Goal cascading across teams
The step between the organization and the individual employee is the team. When leaders set the vision and mission, they must look at the business as a whole – and set the Vision and mission statements accordingly. The HR department, along with respective team and vertical leads, should define and articulate the goals for the team, from which individual employees can derive their goals and KRAs.
- Settling on the right training method
Not every employee is the same – and no two individual training methods can be either. Managers and the Human Resources team can work together to understand the strengths and weaknesses of team members and settle on a one-one frequency that would determine the frequency of coaching and the kind of work the employee is interested in.
- Aligning learning and performance
To achieve this, organizations must decouple their compensation and assessment activities. When employees know that their pay won’t get affected if they admit their weaknesses, they’ll be more willing to get into the details and discuss with their managers how to overcome them.
Outcomes drive the business forward
As mentioned before, Outcomes help in understanding the business value of outputs. Managers should aim to get the outputs right, but their focus should be on achieving the outcomes set beforehand.
Outcomes matter in the larger scheme of things because when employees feel that their opinion and goals matter to the company they work for – their motivation will be more, and productivity will be high, too. There are plenty of motivational theories that have roots in psychology, which state that self-realization and feeling valued are very important for employees to get motivated.