When or How Often Should You Conduct Performance Reviews?

Annual or Continuous? —Conducting performance reviews at the right time can help you unstuck your employees frequently and solve engagement issues preemptively.

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min read

Yes, performance reviews are important. But conducting reviews the right way at the right time is even more crucial. 

Today, most organizations realize the futility of once-a-year formal performance reviews, but they struggle to find an alternative that suits their needs. 

Furthermore, they struggle with implementing a regular review cadence that not only helps in performance appraisal, but also boosts employee performance and motivation.

In this article, we will discuss the following —

  • Different performance review cadences
  • Why annual reviews don’t work anymore
  • Some alternatives to traditional annual performance reviews (bell-curves and continuous feedback)

SUPER TIP — Are you finding it hard to transition from annual performance reviews to continuous performance management? Our detailed guide on CPM can help. Download for free today!

What is the best time to conduct employee performance review?

The frequency of performance reviews depends on the scale of the company’s growth, market, and performance deliverables. Implementing the right kind of performance reviews that is effective for the organization is where major growing organizations get stuck. 

There is no fixed answer to what kind of annual review is the best. However, the most common types of performance reviews are:

a) Annual reviews

Annual reviews are a traditional practice of performance reviews and almost all previously growing companies followed its system at one point. Companies hold annual performance reviews once a year for appraisals, feedback, rewards, etc. Even though in the agile digital  world, a lot of companies have stopped following the annual review system, a few big companies still follow the yearly reviews. 

In the absence of an effective performance management system they find it hard to transition into other more effective performance review processes with a large number of employees spread globally. 

b) Bi-annual reviews

This performance review system is similar to the annual review system. However, instead of conducting a review only once a year, bi-annual reviews are conducted twice a year. The review and feedback for performance are conducted once every six months. 

In these reviews, the participants discuss their achievements accomplished and areas that need improvement, and objectives that need to be achieved in the upcoming six months. 

c) Quarterly reviews

The most recent system that a lot of organizations are trying to implement for performance reviews is quarterly reviews. This review system sets a chain of four performance reviews in a year. It helps managers and team members set short-term goals that are achievable within three months. Since quarterly reviews happen so frequently, employees get instant feedback on their projects that help them improve their performance sooner. 

SUPER-TIP — Get all your top questions answered about managing employee performance in our detailed guide on Continuous Performance Management. Click here to download the PDF

6 reasons why annual performance reviews don’t work anymore

The system of annual performance reviews has lost its merit in the fast-paced, digital corporate scene. In the dynamic work culture without the office boundaries, waiting for reviews at the end of the corporate spectrum do not seem very fitting. 

1. Annual performance reviews are arbitrary and weakens company culture

Annual reviews are arbitrary, as they are something the manager recalls by memory about employees' contributions to the company. Thus prone to recency bias where managers tend to give more weightage to the work employees did and didn’t do in the last few weeks leading to annual review. It fails to take into account the actual performance of the employee throughout the year. 

Moreover, most annual reviews are filled with opinions and judgments rather than backed by actual data and involve using metrics like attendance, which has no real impact on an employee's performance. 

Using manager’s opinion as a valid input for performance reviews often creates an unhealthy work culture where employees are more interested in pleasing their managers than improving their performance. When employees don’t open up about their actual problems at the workplace, the management does not get a clear picture of the root problems leading to low employee morale and poor business performance.

SUPER TIP — Learn A to Z of building a high performance company culture. Download our free culture guide today!

2. Annual reviews fail to engage or motivate employees

As mentioned, annual performance reviews often put employees in a position where they are at the end of the goodwill and mercy of the manager. Managers who strive for employee welfare and wellness sometimes feel they are put in an uncomfortable position of power against their employees, making it hard to conduct themselves well to give an effective review in absence of a continuous unbiased performance tracking system.

In contrast, managers who seldom care about employees may use it as an opportunity to take advantage of their subordinates and assert their dominance. 

Both are unfavorable situations that flow against employee morale, goodwill, and productivity and can be easily avoided with continuous employee performance review methods that are more casual, transparent, and promote good morale. 

SUPER TIP — Supercharge your team’s engagement with custom pulse surveys and create your own index. Book a free demo here

3. Annual performance surveys are prone to favoritism and rater bias

Among the forbidden things that clog up the workspace dynamics to achieve productivity is favoritism shown by some managers to their employees. A practice that brings down teamwork, creates a gap between employees and generates ill will towards managers and the company. Some managers also fall prey to unconscious biases such as the rater bias, which makes them rate employees higher in performance reviews if the employees showcase behaviors that resemble them, even if their output at work may be less than impressive. Hardworking employees who may not be at the grace of the managers might also have to watch poor-performing coworkers climb up the corporate ladder. 

Rater bias defers growth, and consequently, the manager's actions affect the whole company's performance. It also reduces employee satisfaction and makes the workplace toxic over time. 

4. Annual performance reviews often tie up with salary creating anxiety and stress  

One major factor that managers and employees hate about annual reviews is that it often ties with salary. 

Managers feel the stress as they have to make judgments about the employee's overall performance, review their productivity, code of conduct and finally make decisions about their future roles in the organization. The review decides whether to promote, demote, or fire the person. Moreover, in most organizations, there’s no proper learning program to train managers to provide a meaningful review.  

On the other hand, being at the receiving end, employees feel the pressure and stress as the once-a-year performance review decides their future in the company, and decisions will directly affect their livelihood. 

Add to the misery, sometimes, companies use annual performance reviews as a time to cut down wages, and staff either to survive in the market or to keep the charts clean in terms of profit to keep the goodwill of the stakeholders. 

Tying salary with performance reviews may have worked well in the past, but now it lowers employee morale, engagement and long-term employer brand. 

SUPER TIP — Looking for employee recognition ideas? Check out our complete guide on employee recognition do’s and don’ts.

5. Annual performance reviews are too formal and prevent open feedback from employees

Formally structured performance reviews fail to collect authentic and open feedback from employees. Instead, it often comes as a namesake, and employees feel that their feedback may either not get valued or might be used against them. 

Performance evaluations feel like a sit-down interrogation. The employees do not get enough room to comment and reflect on the manager's performance or share any other general issues that may indirectly affect them, making it a dull, unproductive, biased, and one-sided affair.

SUPER TIP — Take your performance reviews 1:1 and team meetings from being an interrogation to two-way feedback driven conversations with SuperBeings 1:1 meetings tool

You can also check these top 50 1:1 meeting conversations prompts to guide your next meeting.

Most of the time, the review's formal structure also prevents employees from opening and sharing their feedback. They are rigid, and the structure feels unwelcoming to provide any meaningful feedback. 

6. Lack of timely feedback in annual reviews negatively affect productivity

In this agile environment where scrum meetings and standups are the norms to save time and bring focus to work, annual reviews hold no significant value. It is because yearly reviews make managers wait to give feedback to an employee who urgently needs it. 

Instead of tackling an issue head-on, right at that moment, often they are dealing with it only when the performance review is near. Such delays negatively affect team morale and company culture because, during that waiting time, the poor performer is either stuck or only helping to bring down the rest of the team.

Continuous feedback vs. annual reviews

Annual performance reviews were a largely followed tradition for providing raises and bonuses and all the required feedback of the year. But with the changing times, the annual performance review methods and evaluation lost their value in performance management or employee satisfaction. 

These reviews allow employees to receive feedback from their immediate supervisor. But puts both managers and employees in a difficult, anxiety-ridden situation, where the manager has to deliver the feedback of their performance all through the year with various aspects at stake. It is inevitable that some major details are skipped, leaving employees dissatisfied with the results. 

Annual reviews were replaced with more modernized and tech-based processes to streamline the way feedback and reviews are done within the organization. Continuous feedback creates a cycle of more regular review and feedback sessions with transparent conversations between employees and managers. 

Since it is a two-way communication system, employees can voice out their concerns as well as receive praise and feedback instantly for their work. Continuous feedback provides real-time insights for employee growth, improving engagement, and building good relationships through open communication. 

SUPER-TIP — Read this article to learn more about implementing continuous feedback in your workplace

How relevant is the bell curve today?

Bell curve has also lost its relevance in the upcoming times, due to its extremely rigid system and several issues in measuring the performance of individual employees with accuracy. 

A bell curve is a form of equal distribution, it contains a large group at the center and then an equal number of people on either end of the spectrum. This means the maximum number of people falls under the curve of average while a relatively smaller and equal number of people are put in the top-performers and non-performers. In today’s workplace culture, employees look for equal treatment and opportunities when considering taking a job and the bell curve rarely includes any of it. 

There are several reasons why it lost its relevance such as —

  • In this method, collaboration isn't a factor 
  • Assessments that are inaccurate and unfair 
  • Employees are severely discouraged by forced rankings and constructing the idea of losers and winners sets the wrong example. 

The Bell Curve performance appraisal best remains irrelevant as it is replaced with much more effective and data-driven performance appraisal systems that provide results based on real-time insights. 

Which performance review cadence should you choose?

There is no strict rule that specifies how many performance reviews an organization should do in a year. However annual and bi-annual reviews are being criticized for lacking accuracy. These reviews are usually related to salary appraisals and promotions, managers and employees both have to rely on their memory to recall the achievements of the past twelve or six months.

On the other hand, studies indicate that enabling managers and employees to have more frequent and transparent conversations about work expectations, problems, and progress improves engagement and performance in the long run.

Making it evident that having a continuous feedback-based performance review system naturally leads to proper employee development, brings more connected and engaging employees, builds solid organizational bonds and results in the company's overall growth and revenue.

Garima Shukla

Marketing, SuperBeings

Hello world! I am Garima and I research and write on everything we are doing to make the world of work a better place at SuperBeings

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Performance
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How to strategically align compensation and performance management?

The right compensation management practices and policies can make or break your employee experience. Of course, there is merit in linking compensation and performance to drive organizational success, it can lead to several questions and implementation problems as well. 

Read on to get all your compensation management related questions answered.

Why is fair compensation important?

Let’s start with the very basic question of why fair compensation is important and the merits it brings along. It is no surprise that if you are paid more and are compensated according to your efforts, you are likely to give in your 100% and stay with an organization longer. However, there are other factors that support fair compensation:

  • Reduce the risk of turnover: 50% employees are more likely to leave if they believe they are paid below market
  • Retain high-potential performers: High-potential talent brings 91% more value to an organization
  • Increase job satisfaction: Compensation/pay and benefits are 2 of the top 3 drivers of job satisfaction 

Thus, fair compensation as a part of compensation linked performance management has the potential to facilitate better employee outcomes such as engagement, experience and performance. 

Should compensation be tied to performance reviews?

To make compensation fair and inclusive in all aspects, it needs to have a clear foundation. Most organizations have relied on performance reviews as a way of reflecting on performance as a means of compensation decisions. However, there are several competing views both for and against tying compensation to performance reviews. 

Benefits of tying compensation and performance reviews

  • Compensation can act as a great motivator for employees to perform well, which can be reflected in their performance reviews
  • Enable employees to get a clear understanding of what rewards or recognition they get with an increasing level of performance
  • Give employees the opportunity to see the direct value of their performance in tangible ways
  • At an organizational level, it helps to align inputs (compensation) with outputs (performance), enabling efficient resource allocation
  • Ensure that compensation hikes and appraisals are seen as transparent and not arbitrary

Pitfalls of tying compensation and performance reviews

  • It focuses on only those aspects of performance which are under review and not the overall and subtler forms of organizational contribution for employees
  • Performance linked compensation system leads to employees giving themselves  more lenient ratings during self reflection during 360 performance review. Thus, driving the focus away from self reflection as a development practice
  • Biased peer review can also prevent fair compensation, especially when the departmental budgets are limited
  • Sometimes, it creates a blame oriented workplace culture and discourages collaborative problem resolution

Clearly, there are both sides to the story.

The most favorable outcome will be to keep performance as one of the parameters for compensation, but not the sole foundation.

Additionally, as one of the best practices, performance reviews can be conducted on a regular basis, where some are only developmental in nature and others can be tied to compensation management. 

5 compensation best practices today

As discussed, focusing only on performance reviews for compensation management needs a relook. Working with growing organizations, we have curated a list of the top five performance and compensation management practices you can leverage:

1. Keep up with market trends

Ensure that your compensation structure aligns with the market trends so your employees don’t feel underpaid and leave.

  • Conduct a dipstick survey to understand appropriate pay scales
  • Keep your pay structures updated based on market corrections
  • Leverage custom employee pulse surveys to regularly to check their perception on compensation according to market trends

2. Be clear about relationship between performance and compensation

Provide complete transparency and clarity to your employees on what constitutes high levels of performance and what it will take to earn a raise or appraisal.

  • Highlight specific job competencies that link compensation and performance management
  • Don’t rely completely on performance reviews as a means to determine compensation, let them be developmental in nature
  • Gauge performance against pre defined competencies over time

3. Have well defined criteria

Have specific, well defined and measurable criteria for the compensation strategy to ensure that there is complete transparency. 

  • Develop or choose metrics which are easy to comprehend
  • Try to quantify the value for each criteria, including years of experience, education, etc.
  • Account for difference in compensation based on skills, performance levels, among others

4. Communicate benefits effectively

Salary in hand or the pay check your employees receive is accompanied by a range of benefits that are a part of the compensation structure and cost to the company, but are often overlooked by employees. Make sure they are widely communicated.

  • Create a list of all benefits offered to employees and communicate to them via different ways, email, discussion sessions, etc.
  • Be vocal about the value these benefits are able to add over and above their monetary value
  • Illustrate how these benefits also act as tax saving options at times, leading to a more efficient compensation structure

5. Have a standard pay range

Ensure that there is a base pay range for every role and profile with variable additions based on candidate competencies.

  • Have clear guidelines and pay range for each position to set the right expectations
  • Illustrate the competencies/parameters based on which deviation from standard pay range will be acceptable
  • Have a well defined strategy to evolve the pay range and support employee transition from one range to another

How to ensure distributive justice?

The idea of fair compensation and linking compensation and performance management, leads to a very interesting concept of distributive justice. On a broad level, distributive justice essentially focuses on ensuring that the compensation received by employees is fair and equitable and is based on objective and rational grounds which are uniform for all. Here are a few ways to ensure distributive justice:

  • Be transparent about the criteria for compensation and what constitutes as parameters for raise
  • Ensure that measuring of performance/ other criteria for performance is bias free and doesn’t fall prey to halo, horns or recency effect
Measure potential and market value of the employee in addition to experience and expertise to ensure distributive justice for high potential employees 
  • Be fair in your compensation and appraisal assessment

Pay transparency: Merits and demerits

Another interesting component of compensation and performance management that you must acquaint yourself with is pay transparency. Essentially pay transparency refers to how openly or freely employees within an organization can discuss their compensation with others. 

This is not only limited to the check they take home but other perks and benefits they are entitled to. Invariably, many platforms today also enable individuals to anonymously share their salaries online and get insights from others doing the same. However, there are diverse views on when it comes to pay transparency for an organization. 

Merits of pay transparency

Those who advocate for pay transparency believe that it can enable large scale impact for the organization across performance management.

  • Meet employee expectations, build greater trust and augment engagement and overall experience
  • Attract the best talent by showcasing competitive compensation at market standards
  • Reduce chances of biases in salary negotiations and increments
  • Ensure fair compensation and distributive justice among employees
  • Greater employee motivation leading to better organizational outcomes
  • Fewer negotiations allowing employees to focus on adding value to their work

Demerits of pay transparency

However, there is a flip side to pay transparency too with some common pitfalls that need to be addressed proactively.

  • Risk of resentment and conflict if pay scale is not uniform and balanced
  • May lead to comparison of pay scales among peers in the organization with possible backfire
  • Requires strategic planning and meticulous implementation
  • May lead to high levels of turnover in case employees feel they are paid less than what they deserve, in comparison to others
  • Employees might have privacy concerns about their salary being shared with others

How to guide managers to have better compensation conversations?

In the last section of this article, we will focus on how managers play an integral role in compensation and performance management and the best practices to guide managers to have effective compensation conversations with their team members.

Almost 58% organizations do not train managers on pay communications 

This startling statistic clearly highlights how despite the apparent importance of compensation management, the focus on ensuring a seamless process is rather limited. However, organizations today can play a leading role in enabling their managers to have better pay communication and conversations by following these tips:

  • Create a communication toolkit with all the resources including compensation structure, criteria, performance linkage, etc. and share it with all the managers 
  • Conduct regular surveys to gauge employee pulse and data from employees on their compensation and share insights with managers to help create a conversation flow
  • Leverage tools for NLP led sentiment analysis of open ended responses and share guided 1:1 conversation templates for effective compensation conversations
  • Encourage managers to keep compensation conversations and performance reviews as separate
  • Give proper context, especially during an appraisal or raise, with both internal and external factors that led to the compensation decision
  • Communicate the value and importance of the employee to the organization, don’t rely on numbers and monetary increase do all the talking
  • Prepare for the conversation and be prepared for response, be an active listener and patiently address grievances, if any

Final Thoughts

It is quite evident that compensation and performance management are intrinsically interlinked and if leveraged well, compensation has great potential to not only drive performance, but also facilitate engagement, retention and much more.

However, to ensure the same, you need to have a very structured, transparent and fair compensation strategy and policy. Furthermore, you must, don’t forget to invest in training your managers to bridge any gaps and constantly gauge and address employee pulse — to ensure fair compensation for all.

Suggested Reading

10 tips for managers to effectively conduct performance reviews

How often should you conduct performance reviews?

How to use competency framework as a talent management strategy

Performance
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How to Use Competency Framework for Talent Development

Talent development is critical for growing organizations which see the workforce as their biggest asset. Focus on developing their talent stack not only leads to a pleasant employee experience, it also augments the overall performance and productivity for an organization. 

While you may come across many ways to facilitate talent development, leveraging the competency framework can help you move the needle very quickly. 

Let's see how.

5 Stages in talent development

Before moving directly to how you can implement the competency framework, let’s quickly understand the 5 stages of talent development.

1. Planning

The first stage involves planning for your talent needs based on your organizational priorities and creating the position profile based on the skills, attitudes and other competencies. 

2. Identifying

Based on the position profile, you need to start attracting talent for the position. You can do so by spreading the word in the right networks, through job portal platforms, etc. The objective is to ensure that you are reaching out to the right network. You can also explore the right candidate for the position internally to considerably save hiring and training costs. 

3. Onboarding

Once you have identified the right person, the next stage of talent development is extending the offer to the person after a thorough background check as well as a competency and expectation match. It also requires creating personalized onboarding plans for the first 30-60-90 days of the candidate’s journey within the organization. Read our guide to employee onboarding to learn more about onboarding do’s and don’ts.

4. Developing

The main focus of talent development starts with providing the right development and learning opportunities to your workforce. This can involve upskilling for both technical and soft skills, leadership building or any development intervention based on the need of the role and position. 

Read: How to create employee development plan based on performance history

5. Retaining

Finally, talent development involves undertaking initiatives to retain your talent. While learning opportunities are important, facilitating engagement, wellness, motivation, etc. all contribute to employee retention. 

What is the competency framework?

If you are wondering how the competency framework aligns with talent development, you need to start by decoding what the framework actually stands for. 

Put simply, a competency framework is a set of behaviors, skills, abilities and attributes that an organization considers imperative for creating a high performance culture. 

The competency framework can be implemented at all stages of the talent development or the employee lifecycle within an organization. The idea is to ensure that certain core competencies are kept at the heart of the decision making that in any way impact the workforce. 

Importance of talent development for employee retention

Competency framework based talent development is very important for employee retention. Talent development practices when undertaken effectively have the potential to encourage team members to stay with the organization for long and at the same time become ambassadors to help attract high quality peers. 

Here are the top reasons why competency framework based talent development matters:

  • Recruit the right person for the right job
  • Provide the right learning and development opportunities
  • Be an active participant in professional growth for employees
  • Train and develop employees for professional obstacles
  • Enable employees to navigate through challenges with mentoring support
  • Enable employees to see a clear career growth path within the organization

Implementing the competency framework: Process, steps and ownership

Now that we have covered the basics of talent development and competency framework, let’s understand how leveraging the latter to advance the former can create a far reaching impact for organizations. 

Step I: Create a competency framework

The first step is to create a competency framework which involves identifying the key competencies which will be instrumental in guiding all decisions around talent development. Depending on the nature of your organization, there can be categories within the competency framework that you seek to focus on. Your competency framework should focus on behaviors, skills and attributes which are critical for performance and overall success. The following steps can help you create a competency framework for talent development:

1. Identify key competencies

  • Establish core competencies that are required to be possessed by everyone in the organization, for instance, teamwork or collaboration
  • Highlight the functional competencies that are required for specific roles and positions, for instance, situational awareness and the ability to think on one’s feet for those in business development roles
  • Identify competencies that align with your core values and are non negotiable, for instance, if your core value revolves around innovation and experimentation, a key competency will be a risk taking attitude

2. Determine behaviors and attributes

  • Define the key parameters for each identified competency i.e. what are the factors that collectively contribute to presence or absence of that competency
  • Establish metrics to judge the level of competency alignment across the workforce and identify the gaps

3. Link to organizational goals

  • Create a business statement of how the competencies can advance overarching organizational goals
  • Focus on the value add they bring along for organizational success
The responsibility of creating the competency framework is collective. It starts with involving the executive leadership to ensure alignment with the vision, people managers to ensure they are ideal for the culture you are trying to build and functional managers to ensure inclusion of right competencies for each role and position. Furthermore, involving those on the ground can be fruitful as they have the best idea of what competencies are critical and others which are good to have. 

Step II: Align the competency framework with recruitment

Once the competency framework for talent development is ready, the next step is to align it with your recruitment process to ensure precise and effective hiring. There are a few steps along the way:

  • Mention the keywords from the competency framework in your position profile or job description
  • Specifically identify 5-7 key competencies for each role important for high level of performance
  • Identify behaviors for each competency to look out for during the selection process
  • Leverage psychometric assessments customized with your competency framework to test your candidates
  • Conduct competency based interviews and assignments for a comprehensive view
  • If there is a significant competency match, identify gaps if any for competency based development later
  • Document results to align performance management for selected candidates
The onus of implementing the competency framework during selection lies primarily with the HR team and recruiters who assess the candidates with different tests and assessments. Team managers and leaders also play a role in assessing functional competencies and fit. 

Step III: Facilitate competency based performance management and development opportunities

Irrespective of whether an employee is onboarded before or after you have implemented the competency framework for recruitment, you need to ensure competency based performance management and development opportunities. 

Performance management

  • Align OKRs and goals with competencies; focus on behaviors that can help drive the key results. For instance if a key result is expand to 5 new markets, a key competency can be adaptability
  • Conduct competency based 360 feedback review; encourage your managers to review performance not just on outcomes but presence or absence of competencies that made the outcomes possible
  • Encourage competency based self reflection for employees to assess their performance based on the competency framework
  • Identify development areas based on competency needs for particular roles as well as the next career path in the trajectory
  • Reward competency based performance and outcomes
  • Measure competencies on an ongoing basis and compare results with recruitment analysis

Talent development interventions

  • Define competency gaps for each position and identify talent development interventions to bridge the same. For instance, if communication is a key competency for a sales role, learning can be oriented towards better communication skills
  • Align developmental interventions with competency based OKRs
  • Identify learning objectives for each role and position and determine how they connect with the competency framework

From a talent development perspective, the focus of the competency framework should equally be on developing employees for their next or subsequent role based on the specific competencies for the same. 

The onus of aligning performance and development with the competency framework lies with team managers as they are best able to determine the performance gaps. Furthermore, employees with their managers can identify competency gaps for better performance and focus on the right learning and development interventions to bridge the same. 

Step IV: Leverage competency framework for succession planning

Finally, the competency framework must also impact the subsequent rungs of talent development where an employee moves up the ladder from one position to the next. Based on the organizational matrix and competencies for each level, you need to identify key attributes that differentiate one level from another and ensure the same is communicated to your employees. 

You should:

  • Help you employees create a career development plan based on your competency framework to help them understand which competencies will enable them to grow
  • Make succession planning a key organizational priority and focus on talent development from that lens

Final Thoughts

In a nutshell, it is quite evident that the competency framework can inform and advance every stage of talent development for fast growing organizations. If you implement such a framework across the employee lifecycle, you will significantly reduce your chances of a wrong hire and will be able to nurture a workforce that aligns on the vision, goals and overall organizational culture. 

A clear competency based talent development approach can help you achieve high levels of performance which is observable and measurable.

OKRs
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Should Your Business Invest in OKR Software? See the ROI

While most people managers are able to create a business case for setting OKRs as well as for the adoption of an OKR software by leveraging industry benchmarks and best practices, there is a need to explicitly decode the return on investment of using an OKR tool as well.

Unless they are able to clearly illustrate how the return achieved using a goal management software is greater than the investment, it becomes difficult to sustain the adoption and get long-term leadership buy-in. 

Continue reading to strengthen your business case on the same.

What’s the ROI of Goal Management using OKRs?

Let’s quickly understand how the OKR framework is integral for an organization, especially high growth companies. Most fast growing organizations have competing priorities they need to focus on with limited resources at hand. 

Therefore, simply setting goals by adopting a top-down approach without supporting parameters can lead to confusion and incompetence. OKRs help drive away this ambiguity by linking measurable key results for each objective and facilitating a collaborative approach to achieving goals.  

Here are the top three benefits of implementing OKRs in an effective manner:

1. Better focus and more clarity

OKRs enable employees and leadership to have a very clear focus on what needs to be accomplished and what work is out of scope. The idea is to have complete clarity on — 

  • what each goal or objective means, 
  • its purpose for the overall success of the organization, and
  • what achieving it will look like. 

The last part is extremely important as it helps create a sharp focus and set priorities straight. 

93% of employees don’t really understand what their organization is trying to accomplish in order to align with their own work.

This illustrates that there is a big absence of clarity and focus amongst employees when it comes to what needs to be accomplished, which stands in the way of creating a high performance culture. Therefore, OKRs can help reduce such uncertainty and ambiguity, making it easy for the workforce to concentrate on what matters. 

2. Strategic alignment

Taking cue from the first point, the second benefit or purpose of implementing OKRs foris a need for clarity of expectations and overall team and organizational alignment. In case of fast growing organizations, there is an overlapping of roles and responsibilities and a lack of clarity on expectations from each employee. This leads to lower than average outcomes, productivity and revenue growth and data backs the same. 

97% of employees and executives believe lack of alignment within a team impacts the outcome of a task or project. Whereas, companies that regularly exceeded revenue goals were 2.3X more likely to report high levels of alignment.

By ensuring organization-wide goal visibility, OKRs help teams to decode what is expected out of each team member and their respective contribution towards achievement of the shared goals. Thus, increasing alignment and collaboration. 

3. Greater engagement

Finally, setting and implementing OKRs is often a collaborative process. Employees get involved in and participate during the entire OKR process and feel engaged in the same. This greater involvement and participation leads to deeper levels of engagement and ownership of key results which drive impact. 

OKRs also enable employees to also gauge their performance and measure their progress in an effective manner. This motivates them to get more involved in achieving the common weekly, quarterly and annual goals. This higher level of engagement directly impacts key organizational parameters such as retention, productivity, profitability, etc. 

How does an OKR software make a difference? 

The business case for OKRs is very clear. However, for companies that are scaling up, with limited bandwidth and competing priorities, often setting OKRs itself gets left behind due to other business priorities.

If an organization focuses on a manual approach to the OKR system, there are several steps which require a lot of time and effort including setting and writing, implementing, tracking, grading, evaluating and modifying OKRs.

Fortunately, today there are OKR tools in the market, which can help automate all of these aspects to help simplify the OKR journey. The right goal management software can help you maximize the realization of the return on investment for your OKRs. Following are the top five ways in which an OKR software makes a measurable difference on the bottomline — 

1. It allows you to document goals

First, an OKR tool can help organizations document or record the OKRs in a way that is visible and accessible to all. There is supporting evidence to show that what gets documented has a higher chance of being achieved, as what is out of sight is often out of mind. 

Individuals are 42% more likely to achieve goals when they are physically recorded.

Therefore, the OKR tool can enable organizations to clearly define the business and team OKRs in a written manner which can be reflected on, seen again and again to create instant recall for employees. 

2. It drives accountability and alignment

OKR tools are great for creating alignment and accountability. On the alignment front, the OKR software can help achieve high levels of strategic alignment on what is the responsibility of each team member across organizations towards the key business goal achievement. 

Highly aligned companies grow revenue 58% faster and are 72% more profitable than their misaligned counterparts.

The dashboard of a good OKR software can help you constantly gauge the level of goal achievement, ensure that team members are aligned on different phases as well as keep a track of when their responsibility is due. It creates high levels of transparency. 

Moreover, greater alignment leads to high levels of accountability. Generally, since there is a lack of alignment on responsibilities, there is an accompanying lack of ownership and accountability, and most employees shirk away from taking accountability. 

84% of the workforce describes itself as “trying but failing” or “avoiding” accountability, even when employees know what to fix.

A goal management software like SuperBeings allows you to integrate OKRs with regular meetings and check-ins to keep track of progress. Thus, driving a culture of accountability.

3. It enables real-time OKR progress and goal tracking

It is very common for companies to set OKRs and then evaluate them only at the end of the quarter/year. There is a lack of mid-term tracking which makes it difficult to gauge whether the progress is aligned with the key results or not. 

40% of people that write down goals don’t check whether they’ve achieved them. Moreover, only 5.9% of companies communicate goals daily. 

An OKR software can help you address this concern by facilitating day-to-day OKR progress tracking. A daily dashboard and history of 1:1 and team check-ins on OKRs, can help organizations track developments over time. 

ROI of OKR software
SuperBeings OKR dashboard helps you get a quick overview on all primary goals

It can also help identify and resolve any performance issues that stand in the way of goal achievement preemptively. At the same time, even if organizations are tracking and monitoring OKR progress, doing so with a manual process is inefficient. An OKR tool can automate most of these processes to enable HR and people managers to spend more time on driving results. 

4. An effective software offers OKR training for success

Another major concern that organizations face when it comes to OKRs is being prepared and ready for the same. Many line managers and others struggle with writing effective OKRs. Many organizations believe setting OKRs once is enough. However, that is far from the truth. 

Research says, companies that set performance goals quarterly can generate 31% more returns than those reassessing annually.

Using an OKR software can help eliminate all these challenges. 

  • First, the right tool will offer OKR coaching and onboarding support to train managers to write OKRs which are effective and result oriented.
  • Second, it can help reflect on OKRs at regular intervals to realign on them and adjust according to changing market conditions. 
  • Third, the OKR tool can help managers have meaningful 1:1 conversations with team members to link OKR with performance and facilitate high levels of goal achievement. This is a direct return on investment which can create value across the organizational verticals.  

5. It facilitates greater collaboration

Finally, an OKR software can promote high levels of collaboration for goal achievement. For many organizations, the inability to collaborate leads to low levels of results, diminishing the ROI for OKRs.

86% of employees and executives cite lack of collaboration or ineffective communication for workplace failures.

Using a good OKR software makes collaboration seamless by aligning cross-functional projects and tracking cumulative progress. Invariably, an increase in degree of collaboration is a direct ROI of an OKR tool which can create far reaching impact.

How to calculate the ROI of an OKR software?

In this final section of the article, we will talk about the key parameters that can help you gauge the ROI of an OKR software. While the above mentioned are primary impact areas, most of them have a qualitative aspect to them. 

Gauging the ROI requires backing of data points from employee experience and business results, which the following parameters can help explain.

1. Level of transparency

Organizations should start by gauging whether or not transparency and alignment on goals has increased. This can be measured using employee pulse surveys to understand their opinion on how well they have visibility of goals and clarity on what they need to work towards. Therefore, the first ROI parameter for an OKR software is to identify the increase in level of transparency to ensure everyone is working in the same direction and there are no gaps or overlap in efforts. 

2. Degree and time period of goal achievement

The main purpose of an OKR tool is to facilitate the effective and efficient achievement of the goals set by an organization. Thus, the next parameter to measure ROI should revolve around the degree and time period of goal achievement. 

You can start by comparing the degree of goal achievement by leveraging OKR grading to see if there is a significant improvement in percentage terms as compared to pre-OKR tool period. Second, it is important to gauge whether or not the goals/key results have been achieved in a shorter period of time or not. Since the OKR platform facilitates better alignment, collaboration, tracking, etc., it can help organizations achieve or realize the goals faster. 

3. Reduced administrative overheads

Third, there are several administrative overheads that accompany the setting and implementation of goals/OKRs. These include tracking, grading, etc. for managers and providing inputs on the part of employees. The ROI of an OKR software can be gauged by mapping whether or not these overheads come down. 

  • For the managers, ROI can be calculated in terms of time saved which can be invested in other value add tasks. 
  • For employees, the ROI comes in the form of reduced time and effort spent in juggling between platforms to work on goals and projects. The right tool will provide organizations with integrations across top productivity tools like Slack, Jira, etc. which reduce administrative overheads for all organizational stakeholders. 

4. Increased revenue

The next parameter for ROI calculation is to measure the change or increase in revenue after the adoption of an OKR software. Since an OKR tool seeks to enable organizations to achieve their goals faster, cost effectively and to a greater extent, there should be an increase in the revenue realized. 

According to Larry Page, co-founder, Google claims that “OKRs have helped lead us to 10X growth, many times over.” 

5. Better employee experience

Finally, gauging the value of employee parameters like retention/turnover, productivity, engagement, etc, can cumulatively be leveraged to capture the ROI of an OKR tool. There are several ways to gauge these workforce parameters, along with factors like eNPS, etc. which have a direct business impact. Calculating them can help measure the ROI of the OKR tool for an organization. 

Final Thoughts

It is evident that adoption of an intelligent OKR software is not only good to have, but integral for organizational success. Using the right tool has a direct business impact which can be measured in numbers using the ROI parameters mentioned in this article. 

There are both qualitative and quantitative aspects to measuring the ROI and a balanced approach to both can empower organizations to align individual performance with business goals.

If you are considering implementing the right OKR software in your business, try out SuperBeings free 21 day trial. Book today. (No credit card or commitment required)

Suggested Reading

How to find the best OKR tool

Master OKRs in 10 days: Free OKR email course

References

https://www.forbes.com/sites/johnhall/2019/10/06/why-accountability-is-vital-to-your-company/?sh=4297f3cb6580

https://www.salesforce.com/in/work/?sfdc-redirect=219

https://www.minsilo.com/resources/strategic-alignment/why-is-alignment-important

https://www.cnbc.com/2019/09/13/self-made-millionaire-how-to-increase-your-odds-of-success-by-42-percent-marie-forleo.html#:~:text=The%20results%20were%20clear%3A%20Participants,down%20on%20a%20daily%20basis

https://lsaglobal.com/insights/proprietary-methodology/lsa-3x-organizational-alignment-model/#:~:text=Based%20upon%20research%20of%20410,Effectively%20leading%208.71%2Dto%2D1

http://www.cedma-europe.org/newsletter%20articles/Clomedia/Want%20Results%20-%20Fix%20Accountability%20(Feb%2015).pdf

https://www.asuresoftware.com/

https://fierceinc.com/employees-cite-lack-of-collaboration-for-workplace-failures/#:~:text=Key%20survey%20finds%20include%3A,will%20impact%20bottom%20line%20results.

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