Tools for annual plans and performance management
The last quarter of the year is approaching. A good time to look back and look forward. To what extent have the goals you set been achieved? What do you want to achieve next year? COVID-19 has completely turned 2020 upside down, impacting the achievement of targets for everyone. How do you ensure that you stay on course despite these kinds of unexpected circumstances or that you adjust your course in a timely and conscious manner? With this insight, we provide you with various tools for making annual plans and (adjusting) control of the actual performance.
Drawing up an annual plan often entails difficulties. For example, because objectives are not clearly communicated to all departments of the organization or because there are no clear actions associated with achieving the objectives. The best way to draw up and implement a successful annual plan depends on your own organization and working method. In this insight, we discuss two commonly used methods for drawing up annual plans: OGSM and OKR. We also describe the differences so that you can better determine which tool is most adequate for you.
Clear annual plan on 1 A4: OGSM
OGSM (Objective, Goals, Strategies and Measures) is a methodology for translating your business or department strategy into an associated annual plan. This method makes your objective and strategy measurable by drawing up KPIs. In addition, you convert your strategy into concrete actions so that you can ensure that you achieve your objective. This annual plan can then be translated into annual plans of the underlying departments of the organization. In this way it is clear at a glance for all those involved how mutual teams contribute to the overarching goals. This method is therefore also called the “annual plan on 1 A4”.
OGSM: in 5 steps to a clear annual plan on 1 page
Flexible annual plan: OKR
In a continuously changing environment it quickly becomes difficult to make a plan that gives the right direction in advance. Our experience shows that this is not due to the quality of the annual plans, but that there is so much uncertainty that it is impossible to map out the exact right route in advance. In that case, Objectives and Key Results (OKR) is a method that enables you to build flexibility into your annual plan and way of working.
As the name implies, OKR has two components: a clearly defined objective (Objective) and one or more core results (Key Results). These are specific measures used to achieve the objective. OKR takes a bottom-up approach to goal setting, with employees and teams themselves taking responsibility for setting and executing their own goals. These goals are regularly reviewed and usually drawn up on a quarterly basis. This requires highly motivated and highly mature employees and teams. In addition, it also requires management to 'let go' and trust in the employees to give substance to this independently.
Although OKR and OGSM are two different methods, they are also complementary to each other in some ways. For example, it can be a challenge to think out all concrete actions for the entire year in advance with OGSM. OKR can support this by building in several recalibration moments. See the image below for what this might look like.
There are two types of targets: roofshots and moonshots. Roofshots are realistic, achievable goals. When such a goal is set, this 100% must be achieved. OKR consists of so-called moonshots. This means that ambitious, courageous goals are set that are difficult to achieve and which also affect your gut feeling. If you make it, you have really created something beautiful together. The advice is to use moonshots to challenge and motivate people in this way to get the most out of themselves. Even though these objectives are "only" achieved for 75%, in practice we see that more is achieved than if you set lower (more realistic) goals. For example: for this year, an improvement program sets the goal to improve the punctuality of trains from 92 to 97% (moonshot). Even if there is “only” an improvement to 95%, that is still more than when a roofshot target of 94% is set.
However, focusing only on moonshots can make you demotivated and lose sight of the objectives. To avoid this, it is advisable to pair roofshots with moonshots so that the feasibility remains in view and the team stays motivated. A simple example: you set a target of € 20 million (moonshot) for this year. You then break this down into smaller quarterly objectives of 3, 4, 6 and 7. The intermediate objectives (roofshots) are more realistic and easier to achieve, keeping motivation high and the whole team aiming for the moonshot.
Which Method Is Right For Your Organization?
OGSM and OKR are both methods that are successfully used by various organizations, such as P&G, NS, Google and Linkedin. What are the differences? First of all, OKRs are usually prepared quarterly, OGSMs once a year. This makes OKRs more tangible and flexible to change. OKR works well in changing and complex environments, where giving direction is difficult. OGSM, on the other hand, provides a clear and coherent plan with associated actions throughout the organization.
OKR is based on the maturity and autonomy of teams and with the help of moonshots, teams are challenged to determine challenging goals from the bottom up. The maturity of the team determines whether a team is ready to work with OKR and moonshots. A pitfall is that it leads to demotivation and not taking the objective seriously. Be aware of this. When using OGSM, the course is determined top-down, but there is also room for interpretation and involvement of underlying departments in its implementation. OKR works especially well when results-oriented management is used. When there is a lot of task-oriented management, OGSM is the more suitable method.