OKRs in SMEs: Why they are not always the best choice
Jonas Reuter
The disadvantages, problems and challenges of OKRs (Objectives and Key Results) in SMEs. As the managing director of a medium-sized company, you face many challenges and must always make the right decisions to ensure the growth and success of your company. OKRs, as a popular goal-setting system, could help you to clearly define and pursue your goals. But what does it look like in reality? In this article, we would like to take a closer look at the potential difficulties that SMEs can face when implementing OKRs. At the end, we will provide you with ten simple questions to help you classify OKRs for your company.
What is OKR? - Definition of OKRs.
In this blog post, we will take an in-depth look at the discussion surrounding OKRs (Objectives and Key Results) in an organization. In order to grasp the topic comprehensively, it is advantageous to have a certain basic knowledge of OKRs.
OKRs (Objectives and Key Results) are a goal-setting system that helps companies to clearly define and effectively pursue their strategic goals. With OKRs, goals are set in the form of overarching objectives that are specific, measurable, achievable, relevant and time-bound. These objectives are linked to key results, which represent concrete metrics for assessing the degree to which objectives have been achieved. Companies establish OKRs to align their employees towards common goals that create transparency and clarity and promote performance and commitment. By focusing on measurable results and regularly reviewing progress, companies can work more efficiently and achieve their strategic goals more effectively.
OKR vs. OKRs: The different spellings in the context of the method
In practice, both the spellings "OKR" and "OKRs" are used, depending on the context and specific usage. When referring to the method or model in general, "OKR" or "OKR model" is commonly used. On the other hand, the plural form "OKRs" is often used when talking about individual objectives and key results. These spellings have evolved to clarify the distinction between the overall method and the specific objectives and results. It is therefore acceptable to use both spellings as long as the context is clear.
Simple example of an OKR model from practice
A medium-sized company works in the field of injection molding and mold making. The management has developed a new strategy and derived a vision from it, which aims to "become the most sustainable injection molder in the DACH region". These OKRs can be derived from this for the roles of Managing Director and Sales Manager
Managing Director:in
Objective: To increase sustainability as an injection moulding manufacturer in the DACH region by optimizing production and material consumption.
Key Results:
- Reduction of energy consumption in production by 20% through the use of energy-efficient machines and processes.
- Increase the proportion of recycled materials in our products to 50% through the use of recycling processes and the development of sustainable material alternatives.
- Implementing a waste management system that reduces the amount of waste by 30% and ensures sustainable disposal.
Sales Manager:in
Objective: To acquire new customers and increase sales of sustainable injection molded parts through active marketing and positioning as a leading supplier in the DACH region.
Key Results:
- Acquisition of at least three new customers who explicitly demand sustainable injection molded parts through targeted sales and marketing activities.
- Increase in sales of sustainable products by 15% through active market development and positioning as a leading supplier of sustainable injection molded parts.
- Conducting training courses for the sales team to raise awareness of the sustainability features of our products and actively communicate the topic in sales talks.
These key results support the overarching objective by defining specific goals and measures to increase sustainability as an injection molding manufacturer in the DACH region. The Key Results for the Managing Director focus on sustainable production and material use, while the Key Results for the Sales Manager focus on customer acquisition and sales of sustainable products. By clearly defining these key results, the individual managers can implement their measures in a targeted manner and contribute to the success of the company's goal.
The key results are reviewed, measured and new targets defined as part of a three-month cycle. This recurring process allows progress and success in relation to the sustainability targets to be continuously monitored. Based on the results, adjustments and optimizations are made to ensure that the company stays on track and achieves the targets set. This dynamic approach enables agile adaptation of measures and continuous improvement towards the overarching goal.
That's why OKR is all the hype right now
OKRs have gained popularity in recent years, and for good reason. They offer a solution to some of the biggest problems companies face. By clearly linking goal achievement to the company's vision, strategy and top priorities, OKRs create alignment and enable a targeted focus on the relevant goals. This increases productivity and improves efficiency. OKRs enable every employee to understand their contribution to the company's goals and align their own work accordingly. This promotes the assumption of responsibility and creates greater commitment. The measurability of key results ensures transparency regarding actual progress and enables data-based decision-making. Last but not least, the OKR framework offers agile strategy implementation that enables companies to adapt flexibly to changing market conditions and remain successful.
OKR is more than just a simple target system
OKRs (Objectives and Key Results) are more than just a simple target system. OKRs were originally developed in the 1970s by Intel co-founder Andy Grove and later popularized by companies such as Google. It was designed as an organizational method to help companies clearly define their strategic goals, align employees around common objectives and improve performance. Today, OKRs are a flexible template that can be woven into the organization to different depths depending on its use and company context. They provide a structured method for setting goals and making progress transparent by linking clear and measurable outcomes (key results) to the overarching objectives.
OKR as an organizational method
The application of OKRs as an organizational method can vary from company to company, depending on their individual needs and corporate culture. Some companies use OKRs at a corporate level and weave them deeply into the different departments and teams to achieve a comprehensive alignment on common goals. Other companies use OKRs more on a team or individual level to promote goal achievement and personal growth of employees. It is important to note that OKRs should not be seen as a rigid set of rules, but rather as a tool that must be adapted to the specific needs and framework conditions of the company. The successful application of OKRs requires open discussion, clear communication and continuous adaptation to ensure that they bring the desired benefits to the organization.
The importance of top-down and bottom-up for the definition of OKRs
The integration of both top-down and bottom-up elements is crucial for the successful implementation of OKRs. Top-down structures allow management to set the overarching vision, strategic goals and corporate priorities. These are then broken down to the individual teams and employees to ensure that they are working towards the common corporate goals. On the other hand, the inclusion of bottom-up input allows employees to contribute their perspectives, ideas and suggestions that can help improve goal achievement and identification with the OKRs. The combination of top-down and bottom-up elements creates a holistic approach that takes into account both the strategic direction of the company and the expertise and commitment of the employees.
OKRs in the SME sector
OKRs can also be an effective method for setting goals and improving performance in SMEs.
In SMEs, OKRs offer an effective method for setting goals and improving performance. One possible implementation is to set OKRs at company level and break them down to department or team level. Regular reviews of OKRs in team or department meetings allow progress to be assessed and adjustments to be made if necessary. In addition, OKRs can be used as the basis for individual target agreements in order to strengthen employees' alignment with the company's goals. The implementation of OKRs in SMEs requires adaptation to the specific needs of the company in order to achieve the greatest possible benefit.
Problems of OKR, especially in the SME sector
Although OKRs are considered an effective organizational method, they are not free of criticism. In SMEs in particular, OKRs encounter challenges that can hinder their successful implementation. Excessive goal orientation, the complexity of implementation and alignment with corporate culture are some of the most common criticisms that arise in the context of SMEs. In the following, these points of criticism are examined in more detail and their impact on the effectiveness of OKRs in SMEs is discussed.
The danger of one-sided goal orientation
Another point of criticism concerns the complexity of OKR implementation. The introduction and maintenance of OKRs can be an additional burden, particularly in SMEs, where resources are often limited and a high level of operational tasks are involved. Defining measurable key results and regularly reviewing them requires time and commitment from managers and employees. However, many SMEs often lack the necessary time and resources to implement these processes effectively, which can lead to a lack of implementation and acceptance of OKRs.
Acceptance of bottom-up contributions in the SME sector
Probably the biggest obstacle to the successful implementation of OKRs in SMEs is that the full form of OKRs, which includes both top-down and bottom-up elements, is often not a good fit for SMEs. While OKRs in their ideal form represent a cascade of goals that are broken down by management to the individual teams and employees, the unwillingness to accept bottom-up contributions can lead to problems. In SMEs, there is often a more hierarchical structure in which decisions are made by management and communicated downwards. The involvement of employees in the OKR process at a lower hierarchical level is therefore often not fully implemented, which can lead to lower employee identification and motivation.
Transaction costs for maintaining and operating OKRs
The application of OKRs gives rise to transaction costs associated with the introduction and maintenance of such a target-setting system. Transaction costs refer to the costs and expenses incurred in carrying out economic transactions, such as setting and tracking targets. In the case of OKRs, these costs can be significant, especially if the company does not yet have the necessary resources and processes in place to implement the system effectively.
Transaction costs can take various forms, such as the time and energy spent on defining, monitoring and reporting OKRs. This can lead to an additional burden for management and employees, especially in small and medium-sized companies where resources are limited. In extreme cases, transaction costs can be so high that they tie up a large part of the available resources and interfere with actual business activities. It is therefore important to weigh up these costs carefully and consider whether the benefits of a formal OKR system justify the resources expended.
The complexity of implementation
The implementation of OKRs can be associated with a variety of challenges. One of the central problems is the acceptance of the method by employees. The transition to OKRs requires a rethink and a change in working methods, which is not always easy. In addition, the introduction and implementation of OKRs involves considerable effort, both in terms of training employees and creating a suitable infrastructure. The complexity of the process also requires the organization to learn how to use OKRs and to continuously develop.
Another aspect is the high "transaction costs" associated with the introduction of OKRs. These costs relate to the time, resources and attention required to plan, implement, review and adapt OKRs. In many cases, this can lead to an additional burden for the organization. To minimize transaction costs and make it easier to get started with OKRs, it can make sense to start with an "OKR-Light" variant that focuses on personal employee goals and has less complex structures. This allows initial experience to be gained and acceptance of the OKR concept to be built up gradually.
Coordination with corporate culture and employees
Another aspect that often leads to problems in SMEs is the alignment of the OKRs with the corporate culture and the individual needs of employees. If the OKRs are not aligned with the values and culture of the company or are not sufficiently linked to the individual goals and interests of employees, this can lead to low engagement and motivation. In SMEs, where employee retention and motivation are critical to the success of the business, it is vital that OKRs are carefully aligned with employee needs and expectations.
Rigid objectives
Another point of criticism concerns the rigid objectives of OKRs. In many medium-sized companies, the general conditions and business objectives can change quickly. OKRs based on long-term targets could lose their relevance in such dynamic environments. Setting targets for a longer period of time can lead to companies not being able to react flexibly enough to new opportunities or challenges. This is a particular challenge for SMEs, which rely on agility and adaptability.
The danger of the "goal achievement mentality"
Another point of criticism is the potential emergence of a "target achievement mentality" in companies that use OKRs. If OKRs are overemphasized, there is a risk that employees will focus exclusively on meeting the targets set and neglect other important aspects such as innovation, collaboration or customer focus. In SMEs, where flexibility, creativity and the ability to adapt quickly to change are crucial, too much focus on OKRs can be detrimental to corporate culture and long-term success.
Potentials are not seized
Another critical aspect of OKRs in SMEs concerns the risk that potential and opportunities in the specialist departments are not seized because they are not defined as part of the core objectives. As OKRs are based on clear and measurable objectives, there is a possibility that specialist departments will focus exclusively on fulfilling these objectives and disregard potentially promising opportunities. Especially in dynamic markets where rapid innovation and adaptation is required, it is important that departments have the freedom to explore new avenues and respond flexibly to changing market conditions. However, if all resources and attention are focused on pursuing the defined core objectives, there is a risk that innovative ideas and opportunities will remain untapped.
Why are OKRs still frequently chosen despite these criticisms?
Despite the aforementioned criticisms, OKRs are often chosen anyway, especially in highly hierarchical, Tayloristic and less agile or customer-oriented organizations. In such cases, OKRs are usually seen as a kind of "lesser evil" and are perceived as a step in a "more correct" direction.
The reason for this is that OKRs maintain two illusions:
- The illusion of "successful" management of the company in terms of the overarching goal dimensions.
- The illusion that goals can actually be formulated bottom-up and thus enable strong participation by individuals
These illusions can lead to OKRs still appearing attractive and developing a certain hype effect despite their shortcomings and limitations.
Are OKRs suitable for your company? 10 questions that will help you
Answering these questions can help you make an informed decision as to whether OKRs are appropriate within the context of your organizational goals, culture and resources. It is advisable to initiate a comprehensive discussion and implementation process to ensure that OKRs are tailored to your specific requirements and needs.
We believe you do not usually need a target setting system in SMEs and are happy to discuss this opinion and the issues in a free 30-minute sparring session. Simply make an appointment with us.
Establishing new business models with OKRs?
OKRs can both help and hinder the introduction and implementation of new business models. While on the one hand they provide clear direction and focus, they can also be a hindrance in rapidly evolving environments. It is important to strike a balance between clear objectives and flexibility to ensure that OKRs meet the agile requirements of new business models. In addition, employee support and open communication about the benefits and purposes of OKRs when introducing new business models is crucial to overcoming any resistance and enabling successful implementation.
OKRs can help with internal rollout
OKRs can play a valuable role in the introduction and implementation of new business models. By clearly defining goals and metrics, they enable a targeted alignment and focus on the most important aspects of the new business model. OKRs can help teams to prioritize their activities and ensure that everyone involved is following the same vision and strategic direction. They promote transparency and the exchange of information by making clear goals and progress in their implementation visible. This can lead to more efficient collaboration and a better understanding of individual tasks and responsibilities.
OKRs are not always flexible enough
However, OKRs can also present certain obstacles when introducing new business models. Especially in situations where the new business model is not yet fully mature or is evolving rapidly, it can be difficult to define and pursue long-term OKRs. The uncertainty and complexity of new business models often requires a high degree of flexibility and adaptability, which may be limited by rigid targets. OKRs could lead to teams focusing too much on predefined goals and metrics and ignoring potential opportunities or changes. In such cases, it is important to find a balance between clear objectives and flexibility to ensure that OKRs meet the agile requirements of new business models.
The OKR model should not be introduced together with a new business model
Another potential problem with using OKRs when introducing new business models is the potential resistance to change. OKRs often require a change in the mindset and working style of employees. If the introduction of new business models is already a major change, the additional burden of switching to OKRs can make acceptance and implementation more difficult. It is important to ensure that teams are sufficiently supported and trained to use OKRs effectively and understand their benefits. Communication and dialog about the benefits and purpose of OKRs when introducing new business models can help to overcome any concerns or resistance and ensure a smooth implementation.
Alternatives to OKR as a target setting system
There are various alternatives to OKRs when designing corporate objectives. Each of these methods offers its own approaches and advantages. It is necessary to assess which approach best suits your needs and corporate culture and how it can help you effectively define, track and achieve your goals.
KPIs (Key Performance Indicators)
KPIs are a proven tool for measuring and tracking performance in companies. They focus on the most important key figures that reflect the success of a company or a specific area. In contrast to OKRs, which can also include qualitative targets, KPIs can usually be measured quantitatively. They provide a clear and unambiguous measurement basis for monitoring progress and performance. KPIs are particularly suitable for companies that prefer a focused and number-based approach.
BSC (Balanced Scorecard)
The Balanced Scorecard is a strategic management system that takes into account various perspectives such as finance, customers, internal processes and learning & development. It provides a balanced picture of a company's performance and makes it possible to link strategic goals with specific measures. The BSC is based on a comprehensive analysis of the company's goals and strategy and provides a framework for implementing and monitoring these goals. Compared to OKRs, the BSC places a stronger focus on holistic corporate management and the consideration of various aspects of performance.
MBO (Management by Objectives)
MBO is an approach in which corporate goals are defined in close cooperation between managers and employees. It focuses on the agreement of individual goals that contribute to the achievement of overarching corporate goals. In contrast to OKRs, which are often applied at team or department level, MBO focuses more on individual goal setting and performance measurement. It provides a clear structure for agreeing objectives, regularly reviewing progress and evaluating performance.
Hoshin Kanri
Hoshin Kanri is a Japanese management method that aims to improve strategy development, implementation and tracking. It is based on the idea that the company's strategic goals and measures should be integrated into all levels of the organization. Hoshin Kanri focuses on clear communication, continuous improvement and creating a shared understanding of the company's strategy. In contrast to OKRs, Hoshin Kanri provides a systematic approach to aligning the organization with strategic goals and tracking progress.
Do we even need an alternative? Simply not use a target setting system?
In small and medium-sized enterprises (SMEs), goal-setting systems can often make little sense, as the transaction costs of maintaining them are often disproportionately high. SMEs are characterized by flat hierarchies and direct communication, which means that managers work closely with employees and can communicate goals and priorities directly. In this informal environment, goal-setting systems can cause additional effort and costs, for example through the implementation and maintenance of the systems, training for employees and the time required for goal agreements. These transaction costs can be disproportionately high in small companies and outweigh the potential benefits of a formal target-setting system.
In addition, target-setting systems in small and medium-sized companies can also lead to other problems. Firstly, there is a risk of excessive bureaucratization and formalization, which can contradict the agile and flexible nature of SMEs. Goal-setting systems often require extensive documentation, regular reviews and reports, which can tie up employees' resources and creativity. This can slow down decision-making and restrict entrepreneurial freedom. On the other hand, target-setting systems in SMEs can also lead to a focus on short-term goals and results, while strategic considerations and long-term perspectives are neglected. In a dynamic and rapidly changing environment, it can be more important to remain flexible and adapt to opportunities and challenges rather than strictly adhering to predefined goals.
It takes courage and a positive attitude to actively drive change now. We must not see change as a one-off measure. We must reorganize companies in such a way that continuous change becomes a basic process of the company.
Jonas Reuter
OKR as an organizational method - is it any good?
We take a look at OKR as an organizational method and examine the advantages and disadvantages as well as the importance of communication and continuous adaptation in each organizational form
Advantages and disadvantages of OKR as an organizational form
OKRs as an organizational method offer both advantages and disadvantages. One of the biggest advantages is that they provide clear alignment and focus on key objectives and priorities. By setting measurable goals and regularly reviewing progress, OKRs can promote improved performance and productivity. They create transparency and enable employees to understand and feel accountable for their contribution to organizational goals. In addition, OKRs can serve as a communication tool that enables teams to effectively share and exchange their goals and progress.
On the other hand, OKRs can also present challenges. One potential drawback is that they can lead to an excessive fixation on quantitative targets, while qualitative aspects may be neglected. This could lead to a limited view of a company's overall performance and success. In addition, the introduction and implementation of OKRs often requires a considerable amount of time and resources. Defining and tracking goals requires a clear structure and discipline, which may not always be easy to implement in small and medium-sized companies. There is also a risk of OKRs becoming a rigid system and limiting the flexibility and agility of an organization. It is therefore important to carefully weigh up the pros and cons of OKRs and check whether they fit an organization's individual needs and objectives.
OKR can be used as an organizational form in various stages of development
OKR can be used as an organizational form in various forms. Depending on the specific needs and requirements of an organization, OKR can be implemented in various forms. It is possible to apply OKR at company level to define the overarching goals and priorities and ensure that all teams and employees are working towards a common vision. In addition, OKR can also be applied at team and individual level to ensure clear alignment and focus on individual goals and contributions. The flexibility of OKR allows organizations to adapt the framework to their specific circumstances and organizational structures. However, it can also be useful to "cherry-pick" from the OKR approach and select elements that best suit the organization and offer the greatest added value. Adapting and combining different aspects can lead to a tailor-made OKR implementation that best supports the individual challenges and goals of an organization.
Every organizational form has advantages and disadvantages
Each organizational form has its individual advantages and disadvantages, but these depend heavily on the way it is implemented within a company. It is important to recognize that the effectiveness of an organizational form does not depend solely on its theoretical structure, but rather on the concrete implementation and the commitment of the employees. A well-implemented organizational form can lead to a clear focus, efficient processes and high performance. On the other hand, deficiencies in implementation can lead to inefficiency, lack of communication and ambiguity in the allocation of responsibilities. It is therefore crucial that companies regularly review, adapt and continuously improve their organizational structure to maximize strengths and minimize weaknesses. It is important to carefully weigh the pros and cons of each organizational form and select the appropriate structure according to the organization's individual needs and goals.
Good communication is the basis of every organizational form
Good communication is the basis of every organizational form. Clear and open communication between employees and the various levels of the organization is crucial for smooth functioning. Through good communication, information is shared effectively, misunderstandings are avoided and collaboration is improved. This can lead to increased efficiency, better implementation of company goals and a stronger sense of togetherness. However, good communication requires a culture of listening, respectful exchange and open feedback. It is important to establish clear communication channels and structures to ensure that information is passed on transparently and promptly. Open communication builds trust, encourages collaboration and enables employees to reach their full potential.
Organization is constantly changing and never "finished"
Organization is a continuous process of change and adaptation. An organization can never be considered "finished" as the environment, technologies and customer needs are constantly evolving. To be successful, an organization must be able to adapt and keep pace with change. This requires a culture of learning, agility and proactive action. Companies should be willing to try out new ideas, accept mistakes and learn from them. However, change can also bring challenges, such as uncertainty, resistance to change and the need to adapt resources and processes. An organization should be prepared to accept these challenges and take the necessary measures to deal with change successfully. By continuously evolving and adapting, an organization can remain competitive and achieve long-term success.
Conclusion - When should you use OKRs?
The use of OKRs in SMEs can make sense in various scenarios. In particular, the introduction of OKRs can offer added value when companies strive for clear alignment, improved collaboration and effective target achievement. It is important to note that OKRs are not a panacea and careful consideration of the individual company situation and culture is required to determine whether OKRs are the right organizational method.
Are OKRs suitable for your company? 10 questions that will help you
Answering these questions can help you make an informed decision as to whether OKRs are appropriate within the context of your organizational goals, culture and resources. It is advisable to initiate a comprehensive discussion and implementation process to ensure that OKRs are tailored to your specific requirements and needs.
We believe you do not usually need a target setting system in SMEs and are happy to discuss this opinion and the issues in a free 30-minute sparring session. Simply make an appointment with us.
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