OKRs – Objectives and Key Results – have been used quite widely in the industry as a framework for reporting. Created by Intel and adopted by companies like Google, Twitter, LinkedIn, Oracle and others, it represents one way to establish goals and report on their progress. Unfortunately, it’s fundamentally flawed.
OKRs measure the wrong thing
An ORK objective sets out what we want to achieve – e.g. improve annual budgeting and business planning and the key result areas that deliver it. The question is, though, “so what?” Why? OKRs miss out on the most vital element of strategic planning – the outcome. As such, their measures don’t give executive a view of whether investment initiatives are of value or not. They only measure activity and reflect “busy-ness”.
Evidence Based Management (EBM) and Key Value Areas
What is EBM?
Evidence-Based Management (EBM) is a framework organisations can use to help them measure, manage, and increase the value they derive from their product delivery. EBM focuses on improving outcomes, reducing risks, and optimising investments. In particular, it is very well suited to supporting business agility.
How does EBM differ from OKRs
Where people use OKRs to measure progress of explicit activities and deliverables, EBM’s focus is on value, outcome and impacts.
Start with the outcome, not the objective
EBM’s framework establishes the starting point as improving value in the market or within organisational capability. EBM has four Key Value Areas (KVA) to describe the outcome:
- Improving current value (CV) – Value being delivered to customers/users today.
- Leveraging and accessing unrealised value (UV) – Value that could be realised by identifying and meeting potential needs.
- Improving the organisation’s ability to innovate (A2I) – Ability to deliver a new capability that might better serve a customer need.
- Improving the organisation’s time to market (or delivery time) (T2M) – The ability to quickly deliver new capability, service or product.
The outcome is described as a hypothesis. Importantly, at its strategic level, it represents an outcome that is worth investing in.
We believe [this initiative] for [this customer] will achieve [this outcome]. We know that this will be true when we see [these leading/lagging indicators] change.
What are leading and lagging indicators?
A leading indicator is a predictive measurement, whereas a lagging indicator is an output measurement. The difference between the two is a leading indicator will indicate early signs of progress toward the the Lagging Indicator. EBM uses both, as it recognises that strategic investment needs early signs that progress is being made toward an outcome – improvement in customer satisfaction, market share, or overall market growth.
Current Value (CV)
The goal of CV is to maximise the value that an organisation delivers to customers and
stakeholders at the present time; it considers only what exists right now, not the value that might
exist in the future.
While project management tradition would have us report on time and on budget, CV would suggest reporting on features actually used by customers as true success of strategic initiatives equals maximising value.
Key Value Measures
Unrealised Value (UV)
Can any additional value be created in our market or other markets? Is it worth the effort and risk to pursue these untapped opportunities? Should further investment be made to capture additional unrealised value? All these questions are asked by executives using EBM.
Key Value Measures
Ability to Innovate (A2I)
The goal of looking at the A2I is to maximise the ability to deliver new capabilities and innovative solutions. Executives should continually re-evaluate their A2I by asking:
- What prevents us from delivering new value?
- What prevents customers or users from benefiting from that innovation?
As low-value features accumulate in digital products, more budget and time is consumed maintaining the product, not increasing capacity to innovate. Anything that prevents users from benefiting from innovation, such as difficult to install software, low usability, or even a lack of specific capabilities, will also reduce A2I.
Key Value Measures
Time to Market (T2M)
The goal of looking at Time-to-Market is to minimise the amount of time it takes for the organisation to deliver value. Without actively managing Time-to-Market, the ability to sustainably
deliver value in the future is unknown.
Questions that executive need to continually re-evaluate
for time to market are:
- How fast can the organisation learn from new experiments?
- How fast can teams learn from new information and adapt?
- How fast can the program deliver new value to customers?
A variety of things can reduce the Time-to-Market: everything from removing internal communication bottlenecks to improving delivery pipeline automation to improving application maintainability and removing technical debt; anything that reduces time spent waiting or time spent performing work.
Key Value Areas
Conclusions
Where OKRs fail to provide an holistic perspective of product management and delivery performance, EBM’s Key Value Areas provide a balanced perspective of both customer-facing and internal-facing factors that support improvement in the face of ubiquitous, disruptive change.
EBM is a timely reminder that profitability and market survival in the 21st century isn’t dependant on just current value, but also unrealised value, and internal ability to improve, innovate and react to changing needs in an agile way.
Download the EBM Canvas
ZXM’s EBM canvas aligns strategic planning activities with investment initiatives and Evidence Based Management (EBM). It fits in perfectly with Toyota Kata planning and learning cycles.
