February 2020
9 minutes

Balanced Scorecard (BSC) vs. Objectives & Key Results (OKR)

Which approach suits us best?

It is necessary to develop a control architecture that fits well with your own organization and the existing control processes. (Image: Rawpixel.com/shutterstock.com)

Peter Drucker already made it clear in the 1950s that "goals" are the most important instrument for corporate management: "You can only steer what can be measured. Building on this basic idea, concepts such as the Balanced Scorecard (BSC) were developed in the 1990s, which have since been applied in practice on a number of occasions in breadth and depth. To a large extent, unfortunately, only with moderate success. Some BSC implementations are seen as too rigid, small-scale and costly to implement in practice. An overall control over them seems unclear and too complicated. However, this is not the basic concept of a BSC.

What are the reasons why we are struggling with the introduction of integrated target systems today?

  1. High Planning Complexity
    The high complexity of organizations with usually at least 3 planning dimensions (e. g. business unit, region and product groups) leads to a huge number of objectives and in the end to contradictions and time-consuming coordination rounds in order to put the objectives in a clear relation.
  2. Goals and Activities Are Difficult to Relate
    The combination of time-point-related goals with time-frame-related activities (initiatives, projects, etc.) at different levels leads to a further increase of complexity.
  3. Missing "Fit" of Structures With Our Planning Units
    Due to the increased market dynamics, we are forced to make our planning work more agile and at the same time plan in a more differentiated manner. Our grown and relatively rigid organizational structures can no longer reflect this planning complexity.
  4. Practical Limits of the "Top-Down" and "Bottom-Up" Target Dialogue
    A top-down and bottom-up goal alignment process requires a mechanism that allows goals to be "pushed", "pulled" and evenly interlocked. Pure cascading quickly reaches its limits when there is a need to formulate bottom-up goals and reconcile them with top-down goals.
  5. Unclear Handling of Qualitative Objectives and Lack of Calculation Logic
    The demand for consistency of a goal logic from group goals to employee goals is correct and good, but difficult to implement in practice. Often it fails because we have difficulties in dealing with qualitative goals in practice and lack a consistent calculation logic that creates a comprehensible continuity and consistency of goals.
  6. We Want Too Much of the Good …
    In most cases, target systems with too high a demand for depth and level of detail, too fast and with the same level of coverage are introduced. This often leads to an overburdening of the organization and too little consideration is given to the current "maturity level" of the company.

In recent years, the problems outlined above have again brought the discussion about target systems more to the fore, and we notice that concepts that were developed under relatively stable planning conditions can no longer be applied in their original design today.

Among other things, the OKR concept (Objectives & Key Results) has become more popular in recent years. It promises a more flexible, agile approach to objectives and is intended to create a better balance between alignment and autonomy, between shared objectives and creative scope. The familiar concepts are good and coherent. But whatever the chosen methodology, what is the key?

It is about an organized and constantly conducted goal dialogue for more agility and implementation power.

The basic idea of an integrated target architecture is still correct. Not only that - functioning target logics are becoming a critical success factor, especially in highly dynamic markets, and are drivers for more agility in corporate management and strategy implementation.

The reasons for this are simple. At the core of every strategy are goals, investments and activities. This triangle must be organized and balanced throughout the company. If we …

  1. …  what we want to have achieved in the future (goals)
  2. … with what we measure the achievement of objectives (expected results)
  3. … with what we do (activities)

then we form the necessary bridge between strategy development and implementation. It is the foundation for the operationalization of the strategy into the world of implementation. In this context, operationalization does not only mean the practically still relatively simple "breaking down" or "distributing" of goals, investments and activities. Rather, it means ensuring a strategic dialogue consisting of "give and take", of targets and own interests, of requirements and contributions, and this in the interplay between the relevant planning and control levels.

Schematic representation of a consistent goal logic connected with activities and categories on different levels.

This interaction is a practical challenge in implementation, especially in medium-sized and large organisations. At the same time, this "translation mechanism" is the most effective lever for rapid increases in agility. It is important to give a "home" to the many goals and the metrics behind them. We get the reference from the activities, that is – depending on the "flight level" – from our thrusts, programs, initiatives, projects, etc.

In the end, all control architectures are always about focusing on people and organizational units, about clarity in terms of priorities and contributions to the big picture, about transferring and assuming responsibility and about orientation towards measurable or at least assessable results.

BSC vs. OKR? I Asked the Wrong Question …

Whether BSC or OKR are used for this translation service is of secondary importance. Both concepts address the same problem, even use similar mechanics, but have different philosophies in their application. Both concepts have their advantages and disadvantages and are now used in practice in many different ways.
It is necessary to develop a control architecture that fits well with the own organization and the existing control processes.

10 Points to Be Considered in the Design and Implementation in General

  1. Provide clarity regarding the necessary agility in the management of objectives – based on market requirements.
  2. Pay attention to "cultural fit" and take into account one's own degree of maturity in relation to, for example, the existing target culture, the way target discussions are conducted, existing management structures such as committees or target agreement processes or the available data.
  3. Consciously differentiate between goals (What do I want to achieve?), the expected result (How do I measure or evaluate the achievement of goals?) and my activities (What do I do to achieve the expected result?).
  4. Ensure that activities, the expected results and objectives are interlinked – horizontally and vertically.
  5. Choose the methodology according to the motto "necessary but also sufficient". Methodologically, do not demand too much in the first step and do not force the claim of completeness.
  6. Allow qualitative goals and expected results – even if these cannot always be measured hard, but can only be assessed qualitatively.
  7. Formulate a small number of essential goals and activities, thus ensuring focus. Less is more!
  8. Ensure clarity and transparency of a centrally held list of metrics (expected results). Among other things, this ensures that we can better assess the effectiveness of our activities in terms of expected results and learn from them (impact controlling). It also provides the basis for agility in strategy adjustment. Here, too, according to the motto: a few, but essential metrics.
  9. Choose a uniform categorisation for objectives, expected results and activities (e. g. BSC categories, OKR or others) to enable comprehensive evaluation and implementation control.
  10. Ensure that the origin of the formulated objectives is known from strategy development. This is how we answer by far the most important question of the WHY!

In summary, the task is to reconcile the things we want to achieve at a future point in time (goals) with what we actually have to and want to do (activities) and what we are prepared to invest along the official financial calendar in a coherent and meaningful way. And this is done at several planning and management levels in a dialogue-oriented alignment process top-down and bottom-up.

There is no universal recipe for the successful implementation and sustainable "living" of such architectures. It is necessary to define a methodology that is "suitable" for one's own organisation or to combine elements from existing methods so that they create the necessary networking, initiate a target dialogue, ensure accountability and motivation and ultimately promote strength and agility in the context of strategy implementation and strategy adjustment.

In any case, the question of the need for software to support this does not arise. Modern software support is not an option, but one of the basic prerequisites for successfully mastering this mammoth task and finally making the enormous potential of integrated and networked control logics a reality.

The support in fulfilling the outlined task by means of modern, lightweight software is our drive and claim at Evolutionizer. Our software platform Solyp 4.0 supports, among other things, the continuous design of the bridge between strategy development and implementation up to strategy adjustment. Our Enterprise Cloud for Strategy makes it possible to implement target logics independent of the concept via configurations throughout the organization – vertically as well as horizontally and in each case taking into account the coherent interlocking of targets, activities and investments.

Our mission at Evolutionizer is to support strategic management with innovative software.

Learn more here about our platform, Solyp 4.0 – Enterprise Cloud for Strategy, and how our technology can support you in the strategic decision-making process and implementation.

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