Aligning OKR into BSC

OKR and BSC are popular frameworks in strategic management. Many organizations have adopted the frameworks and gain benefit from the implementation. Then which one is better? Should we choose only one of it? Which one is most appropriate to our business? These question has arisen many times by business strategist when they're comparing OKR and BSC. Both frameworks have their own advantages. Therefore instead of endlessly comparing one to each other, in this article, I give my perspective on aligning OKR into BSC to create much more powerful Strategic Management Framework.

The History

Balanced Score Card or BSC is a framework for strategic management that has been adopted almost 30 years by thousands of organizations in many countries. The framework was first introduced by Robert Kaplan and David Norton was taken from their article in Harvard in February 1992. In 1996 Kaplan and Norton published a book with a title The Balanced Scorecard: Translating Strategy Into Action to be used by anyone who would like to implement BSC. Along with time, the framework is improving. Kaplan and Norton realize there is something missing. Therefore they introduce Strategy Map as a complementary in BSC Implementation. Thereafter, many other Strategy Consultant adopts the framework and write their successful experiences in implementing the BSC on a book to enrich the BSC Implementation Framework. Since then, BSC is adopted by many organizations to set up their strategy and as guidance in the strategy execution.

While OKRs Interestingly, have also been around for decades – the term was first introduced by Andrew Grove, former CEO of Intel, in the early 1980s as a sort-of update of Peter Drucker’s Management By Objectives (MBO) approach (which dates back to the 1950s). One of the reasons the OKR approach has gained so much attention is its use at Google, after the concept was introduced to the company in the late 1990s by venture capitalist (and early Google investor) John Doerr. Since then, OKRs have been adopted by other top Silicon Valley companies like Twitter, Spotify and LinkedIn – which explains why the concept has gained so much traction in recent years.

The Similarity

Both frameworks emerged from the idea that one-sided and very rigid goal targets are not suited for the complexity of today´s organizations. They try to give employees and leaders a differentiated and at the same time handy and practicable approach for goal setting at hand. Moreover, they both stress the importance of employee development and motivation as foundation of organizational success.

Both frameworks are very good to help organizations reaching their goals. Both are focused on objectives and metrics that guide to the achievement of the objectives.

The Difference

Although both frameworks has similarities and comes from the same DNA, there are a lot of differences between the two frameworksTime Horizon

When creating Balanced Scorecards, most organizations will draft objectives and measures that are designed to be used for at least one year, but often longer. Balanced Scorecards is very effective to provide long term direction for the companies, but one of the disadvantage of this designed is it's not agile. It would take a month or more to create a new strategy if the company is facing something impactful to the business but not yet predicted or included in their strategy. A recent case with the Covid-19 pandemic coming out, the organization who use Balanced Scorecards as their strategic plan might take a longer time to adapt and adjust their strategy on the new normal situation.

With OKRs, however, most organizations change their Objectives and Key Results each quarter, focusing on what can create the most value in the next 90 days. Therefore OKR is very agile responding to any business situation. However, due to their short time horizon, may lead to losing focus on the big picture.

Picture 1 : Typical timeline of OKRs cycle

When constructing a Balanced scorecard, organizations create measures in four different perspectives name FINANCIAL, CUSTOMER, INTERNAL PROCESS and LEARNING AND GROWTH. Those four perspectives should create a balance measurement although at the end the ultimate goal of most organizations to be achieved is their financial objectives. Seeing the business from four different perspectives may create complexity in the implementation and lack of focus in the area need to be improved

Picture 2 : Balanced Scorecards Strategic Perspective

While OKR on the other hand, don't rely on the perspectives. They will focus on what is most important in the next quarter. It doesn't have to be on the revenue. But only focusing on the one most important goal, often ignoring the other important things that also crucial to the business.Target Setting

OKR encourages people to be more ambitious. Being willing to fail is an important concept within OKRs. The idea is to set ambitious, inspirational goals, rather than setting goals that can be easily achieved. With OKR, if you only achieve some of the key results, that’s okay – you’ve still achieved more than you would have without that ambitious goal. But with BSC, people are expected to deliver on all the goals.Cascade down approach

OKR is done bottom-up and sideways, as well as top-down. With OKRs, people have more freedom to pick their own success factors, or they can provide more input into the process, which means they are more engaged with the objectives. It’s also a more transparent process, with OKRs being visible right across the company.

In contrast, BSC is usually an entirely top-down process; the leadership goes off and designs top-level goals that are then cascaded down throughout the organisation. This means employees can have less ownership over the goals as it is given by top management.

Aligning OKR into BSC

BSC can be used with OKRs in a complementary way, particularly at the senior level. There, the BSC strategy map can help executives and other leadership develop OKRs by seeing what’s important for that year and then breaking it down.

For example, a strategy map provides a great visual of how OKRs may cascade down through an organization. And since healthy organizations strive to have half of their goals come from the bottom-up, a BSC strategy map is a great way to make sure that company seniors have checked-in on everyone on the frontlines.

From there, OKRs function to help an organization keep an eye on what is the most important thing to individual departments and teams for the next month or quarter with Key Results. So while BSC helps develop holistic approaches to strategy, OKRs help make sure strategies don’t become too macro, have more defined and time-sensitive measurements, and are not all output goals.

Picture 3 : OKR - BSC Alignment Framework

The Future of OKR and BSC

The balanced scorecard is very mature methodology. However, it still extremely popular for many organizations. According to the research by Bain who does a study each year of the most popular management tools, the Balanced Scorecard remains on the top list. One of the reasons is because it has evolved over time. When it was developed it was used primarily as a measurement system – helping organizations balance financial and non-financial indicators. But over time we’ve seen the creation of Strategy Maps, and the linkage of the Scorecard to risk, budgeting, and other key facets of the organization.

While OKR I believe still have a long journey of evolution. Now it's primarily only to create objectives and key results, but I believe it will evolve to become centre of any strategic agenda.

By that time happens, I believe we need to revisit the alignment model to match the new OKRs methodology .

Have you tried OKRs and BSC? What’s your experience? Share in the comments and let's discuss.