01 Goal Management Development Before OKR - What Everyone Used to Manage Organizational Goals #
Hello, I am Teacher Liu Liu.
In our first class, I would like to share with you the stages and challenges of organizational goal management, so that you can have a comprehensive understanding of the methods and practices of goal management in different stages.
On March 12, 2020, on the occasion of the 8th anniversary of ByteDance’s establishment, Zhang Yiming issued an internal letter. In the letter, he mentioned:
“Drucker’s thoughts on goal management inspired us to value organizational effectiveness and practice OKRs.”
There are a few key terms in this sentence that are particularly worth our attention: “goal management,” “organizational effectiveness,” and “OKR practice.”
Let’s first look at “organizational effectiveness.” The effectiveness of an organization lies in whether it has achieved its goals. So whether it’s ByteDance, Baidu, JD.com, Alibaba, or Tencent, the existence of each company is only meaningful if it achieves its goals. Therefore, an organization can only be effective if it has completed its goals.
Since goals are so important, we need to manage them. The development of management studies over the past hundred years has revealed one rule: management is to improve efficiency.
Therefore, the significance of goal management is to improve the efficiency of setting and implementing goals in the dimension of organizational goals. Efficiency is always related to methodology and excellent practices. As a result, we can see that goal management practices such as OKRs, which have swept through major internet companies since 2000 and have become a mainstream goal management methodology, have helped organizations, including ByteDance, manage goals more effectively.
With the explanation of why ByteDance made a firm decision to apply “OKR practice,” I helped you understand that OKR is an excellent practice of “goal management” and has the value of improving the efficiency of achieving organizational goals.
So, many of us may ask: Is OKR the only practice method to improve organizational goal management? Are there any other methods and accumulated practices? Next, let’s explore together the key stages that organizational goal management has gone through, the methodologies that have emerged, the value of these methodologies, and the problems they face.
Stage 1: MBO (Management by Objectives) #
MBO (Management by Objectives) was proposed by management guru Peter Drucker in 1954. He reminded us from a practical perspective that companies must pay attention to and manage goals, otherwise they will face low efficiency issues.
Let’s not talk about how to solve the problems in the process of goal achievement or how to motivate people. If goals are not valued and followed up, the organization cannot form a concerted effort and will be like scattered sand, increasing chaos until it fades away in market competition. Therefore, goal management in an organization must not only serve as a management system and leadership style, but also as an important guarantee for improving performance.
The significance of MBO is to emphasize the importance of goal management from 0 to 1 and bring the attention of organizational management back to the starting point. Sometimes we only focus on walking with our heads down, forgetting to look up and find directions. However, direction is the foundation for an organization to eventually succeed.
So, when we pay attention to goal management, how can we refine goals and set them from which dimensions to facilitate better communication and follow-up? This involves the SMART principle.
Stage 2: SMART Principle #
SMART is an acronym for five English words, as shown below:
The SMART principle is the basic principle of goal setting. In other words, if any of the five principles is not followed or achieved, the setting and implementation of goals will be challenging.
For example, if goals are not specific enough, there will be a lack of understanding; if goals cannot be measured, it will be difficult to evaluate the results; if goals are set unrealistically, it will be an exercise in futility; if goals are not relevant, they will deviate from the main course of organizational goals and fail to form cohesion; if goals have no deadlines, there will be no pressure, and without pressure, efficiency will suffer.
Therefore, because the SMART method is the most basic five dimensions that goal setting must adhere to, later methods such as KPIs, BSC, and OKRs also require compliance with the SMART principle of goal management. Otherwise, the setting of goals will not be clear, and implementation will be neglected.
Phase 3: KPI (Key Performance Indicators) #
With the development of organizational management, in the 1990s, the practice of Key Performance Indicators (KPI) emerged for organizational performance management.
KPI is the decomposition of organizational strategic goals, and in the process of application, KPI conforms to an important management principle - the “80/20” rule. What does this mean? It means that in the process of creating work performance in a company, there is an 80/20 rule, where 80% of the performance results of each department and employee are achieved from 20% of the key objectives. By focusing on the 20% key objectives, the core tasks can be analyzed and measured, thus capturing the focus of performance evaluation.
Therefore, in organizations that have been using KPI for a long time, KPI has become an indicator for performance assessment, overly relying on assessment and attention to numbers, which causes us to neglect the importance of organizational process management. For example, the lack of culture, motivation, leadership, and team-related development. Eventually, the use of KPI becomes mechanistic and inflexible, resulting in the loss of organizational vitality.
In addition, KPI is based on a more important assumption: breaking down strategic goals from top to bottom, and aligning and decomposing indicators from top to bottom. If the assessed numbers can be achieved, the organization can achieve success, and the individuals involved in KPI-related tasks actually gain organizational benefits. With the completion of KPI, individuals have more development opportunities and promotion platforms, while employees who are not assigned KPI gradually become marginal and their growth potential is limited. Therefore, this basic assumption overlooks the possibility of allowing each person to create performance for the organization and neglects the contribution of each individual in the organization, which leads to organizational success.
Phase 4: BSC (Balanced Scorecard) #
In addition to KPI, another management method that emerged during the same period is the Balanced Scorecard (BSC). BSC is a method of managing organizational strategic goals from four perspectives: financial, customer, internal operations, and learning and growth. Unlike KPI, BSC systematically categorizes the completion and assessment of organizational goals.
BSC not only considers financial and non-financial assessment factors, but also considers internal operations and external customers, as well as the combination of short-term and long-term interests. For example, listed companies release financial reports every quarter, and the data on the financial report focuses on dimensions such as revenue and user volume, which are financial and customer-oriented indicators. However, the operational efficiency, cultural development, and capability accumulation of an organization are also important, which means that we need to include human resources and organizational effectiveness indicators in the formulation of organizational goals.
Therefore, BSC interprets the completion of organizational goals from multiple perspectives, emphasizing the need for systematic thinking, not just focusing on market size, but also internal efficiency and growth.
However, whether it is KPI or BSC, they only help us solve the problem of focusing on goal management and systematically selecting goals. In the face of uncertain environments and the era of knowledge workers, how should goal management be adjusted to adapt to changes in the environment and individuals? Thus, OKR emerges.
Phase 5: OKR (Objectives and Key Results) #
OKR (Objectives and Key Results) is a communication and management methodology for setting and tracking goals and their progress. It was invented by Andy Grove, the former CEO of Intel. In his book “High Output Management,” he explained why he created OKR:
- Where do I want to go? The answer is the objective.
- How can I get there? The answer is the key results.
OKR brings more structure to organizational goal management. Each goal consists of an objective (O) and key results (KR). The objective represents the direction, and the key results are the desired outcomes in that direction. Everyone’s objectives and key results can be developed through detailed communication between superiors and subordinates. Additionally, OKR establishes a set of processes to monitor and evaluate the progress and completion of objectives, which facilitates discussions, confirmation, and consensus among team members regarding the content of the goals.
What’s more, OKR emphasizes flexibility in goal management. It allows for timely additions, modifications, and adjustments of objectives and key results when unexpected or uncertain goals arise due to changes in the organizational environment. This flexibility in OKR makes it agile and well-suited for the current era of rapid change and innovation. Furthermore, the OKR methodology promotes self-driven goal setting and contribution to the organization, aligning well with the characteristics of knowledge workers who require self-management. It has a positive impact on inspiring and unleashing the potential of knowledge workers.
Summary #
In this lesson, I introduced you to the five important stages of organizational goal management. By understanding and applying these stages, you can make goal management more effective. For example, when discussing goals with your team, you can refer to the SMART principle to reduce ambiguity in goal setting. Additionally, based on your understanding of the Balanced Scorecard (BSC), you can guide your team to develop metrics that focus on organizational effectiveness and human resources, as these process-oriented metrics are also essential for the long-term development of a team and organization.
Furthermore, I have summarized the stages, value, and issues of organizational goal management in a table, which will help you review and absorb the key points of today’s lesson.
Learning is a symbiotic process of “learning” and “practicing.” Therefore, I would like you to think about the following question:
Organizational goal management has gone through many stages. Nowadays, top companies both domestically and internationally, such as Baidu, JD.com, Huawei, Tencent, ByteDance, Uber, and Google, are using OKR. So, what are the concepts and characteristics of OKR? How does it help organizations manage goals better?