KPI & OKR: Bridging the Gap Between Strategy and Operations

We currently deal with an era characterized by technology disruption and business uncertainty forcing companies to adapt quickly to strategy and customer needs changes. It is essential to be agile and fast to overcome challenges like shortening the time to market, aligning objectives with strategy, and overcoming siloed approaches. According to the most recent end-of-year 2022 survey of the WSJ CIO Journal, CIOs will focus on “Speed & Agility” for the year 2023:

• "…the speed with which we deploy disruptive new technologies, deliver what the business needs for new opportunities, and expand and improve our offerings to customers…"
• "…prioritizing projects that will deliver top-line growth…"
• "…need to define and mitigate risks is not new, but its importance has never been greater given the pressure we’re all under to deliver business outcomes, faster…"
• "…be prepared to act quickly in any market situation, tracking performance of our entire portfolio and reacting to any changes…"
• "…close alignment with business partners across sales, service, marketing, commerce, IT, HR, finance and other teams… Partnerships with business leaders across the company are essential because they enable technology teams to prioritize and deliver the technology our stakeholders and customers need" (Lin, 2022).

Hence, long-term resilience, Agile delivery, constant business demand alignment, but also talent retention (Leschke-Kahle, 2022),

...What are the symptoms of a lack of Agility?

With several end-to-end transformation projects under our belt, as Accenture we observed frequently that disruption can manifest itself through various collateral effects shown in Fig.2.

The different challenges reported above, always fall within one of the following sets of “root-cause relation”:

• Strategic Misfit: “we are doing our best but failing to grasp our internal (and/or external) customers’ strategy and priorities” (MIT Sloan Office of Media Relations, 2018) and consequent prioritization of initiatives based on a scattered KPI landscape is challenging without the ability to measure progress towards your goals and performances.
• Tardiness at adapting & Siloed approach: “We suffer lack of sensing capabilities exacerbated by turbulence (fast-changing environmental conditions)”, and opposite goals between the organization’s departments (silos) lead to less focus and extended lead times due to context switching and overdrawn capacity.
• Perception as a Bottleneck: effort is not seen as valuable, often leading to the opposite perception, not being able to measure performance and business value prohibits demonstrating and improving capabilities while preventing leadership to take data-driven decisions.
• Silo-based thinking: which inhibits individuals' ability to cooperate, resulting in inefficiency and miscommunication, affecting the capacity of the organization to deal with continuous organization-wide changes.

As Accenture, we can help improve Agility and maintain continuous alignment at scale (Heltzel, 2023) by applying our proven approach based on modern methodologies and, of course, by leveraging our extensive experience sourced from our clients.

... The key to thriving: measuring and enhancing agility..

All challenges described in the previous chapter result from teams needing more Agility when called to respond to internal and external challenges. As Accenture, we have seen different definitions of Enterprise Agility throughout our clients' engagements. One thing is common to all of those conceptions: an organization's ability to sense and respond quickly to its environment's pressures1. According to our experience with helping our clients increase Enterprise agility, there are two divides to cross:

• A strategic gap: between the company’s strategic objectives and the daily agendas of the middle-line management.
• An operational gap: between strategic goals and the day-to-day activities resulting from running the company operating model.

The key to successful Agile transformation is to continuously measure the remaining gap, while, at the same time, covering this gap with the transformation roadmap initiatives: that’s where OKR and Operating model KPIs play a fundamental role. Developed by Andy Grove3, sought to improve and adapt management principles used in the traditional labor market to the new business world of “knowledge workers”, Objectives and Key Results (OKR) provide a framework to bridge the strategic gap

A key success factor for achieving short-to-mid-term goals effectively, based on Accenture's experience helping blue chip clients with their Agile transformations, is to measure the characteristics the processes must have to enable higher Agility. Measuring enables the capacity of a system to observe itself. By strengthening the focus on the factors that will embed greater Agility into its operating processes, an organization can exponentially accelerate its transformation. The Operating Model’s KPIs are defined as the key tool and the vehicle through which the organization can measure effectively how close or far is from its set OKRs and steer accordingly. They play a vital role in this process, helping to bridge the gap between mid-term goals and the firm’s daily operating processes:

..How OKR and KPI help Retail clients to thrive..

Disruption, pandemic, and technologies evolving at exponential speed are disrupting the Retail industry. Examples of challenges addressed by successful implementation of OKR and KPI include:

1. E-Commerce: empowering customers to shop online from anywhere in the globe opening the field to lean natively-agile online retailers;
2. Omnichannel retail: consumers are more demanding and expect a seamless shopping experience across all the channels (e.g., online, mobile, in-store) capabilities to meet those expectations when preferences are quickly evolving and changing across geographies. OKR will enable decentralized and adaptive goal setting to respond promptly to customer preferences and measure the agility in evolving the model to meet customers’ preferences;
3. Sophisticated Customers’ Demands: the growing pressures for decarbonization of the supply chain, coupled with empowered customers enabled by technology (e.g., blockchain) to track the products in every step of the value chain, creates higher complexity for retailers. Goal setting and reviewing through OKR, and measurements of agility in the supply chain processes become key success factors to reaching a pivotal role within the supply chain networks and winning the competitive game;
4. Data and Technology: retailers are refining their architectural capabilities to capture more data and harness the potential value embedded in the information. A higher global maturity of competitors, driven by massive investments in data and technology, is moving competitive advantage towards fewer tangible assets such as enterprise agility. Measuring the achievement of the mission through OKRs and fitness of the model through KPIs is key to improving Agility.

?..How OKR and KPI help Banking & Insurance clients to thrive..

The Banking and Insurance industry is facing a time of previously unknown disruption. Challenges our clients are facing include:

1. Competition from new entrants: The advent of technologies like Blockchain is switching the core paradigms of trusted third parties at the root of value creation for financial institutions. The fintech industry is opening the value chain of financial services to a set of new players of diverse nature (organizations, individuals, peer networks), disrupting sectors previously closed to substitutes. In this context, bridging the gap between strategies and operations becomes crucial to raise entry barriers to secure competitive advantage;
2. Regulatory Compliance: the Banking and Insurance industries are heavily regulated, and companies must comply with complex and quickly changing regulations. Agility in continuously spotting bottlenecks in operating processes and the capacity to set mid to short-term strategies (enhanced by OKRs) is crucial to respond;
3. Operational Efficiency: measuring Enterprise Agility at the process level can help identify and eliminate inefficiencies, streamline operations, and respond quickly to changing environmental conditions. Operational efficiency is essential when inflation affects financial institutions' margins to keep the margin without increasing interest rates over a certain threshold (which would increase credit risk).

..How OKR and KPI help Energy & Utilites clients to thrive..

A core foundation of hard assets amplifies inertia raising entry barriers, while a growing number of new digital players disrupt previously immune segments of the value chain. In the face of two opposite pressures, utilities need to develop a comprehensive strategic response. Energy companies are struggling to deal with the volatility of energy prices, largely affected by geopolitical dynamics, carbon price changes, regulatory pressures, renewable energy demand explosion and growing regulatory complexity (EMIR, REMIT, MiFIDii, MAR). As the uncertainty of the environment rises, developing agility becomes fundamental to securing competitive advantage. In such a context, OKR and KPI can help an energy company thrive:

• By enabling a more tuned environmental sensing, gathering information about the environment from the whole organization;
• By allowing breaking the strategy into short term goals which can be addressed, in context of high uncertainty, by encouraging a prototyping approach to innovation (fail fast, fail often);
• By building higher agility in the processes rooted in the organizational model and across the borders of the organization along firms partnering to cover the value chain.

..What are the key Takeaways to keep in mind..

A well-implemented Enterprise Agility measurement system based on Objectives and Key Results and Operating Model KPIs will measure these gaps, securing the ongoing alignment which allows the firms to reach Agility and speed at scale. In order to cross the tactic and operational gaps, measuring strategic effectiveness is critical (Drucker, 2018), especially when combined with other vital elements, such as culture, top management commitment, leadership, and a critical eye when fitting the tool to its intended purpose and governing its implementation. Having provided a brief overview of how OKRs and Operating Model KPIs can help improve organizational performance, it's crucial to highlight the Key Success Factors (KSFs) to the implementation of successful KPIs and OKRs. This recipe is the read wire leading to successful agile transformations, regardless the industry. A set of KSFs, distilled from Accenture experience, belong to the Governance Domain:

• A Comprehensive Approach to strategic Value: OKRs and KPIs are effective when aligned with the corporate business and operational strategies. It is unlikely that only a partial introduction of OKRs and KPIs will have any significant impact;
• Management Buy-In: to get the initial momentum aimed at triggering a second bottom-up phase and sustaining the change, OKRs and Operating Model KPIs introduction, in the broader context of an agile transformation, must be supported by executive management commitment. A strong champions’ network is fundamental to facilitate adoption and reduce resistance in the key phases of change management
• Strong Ownership identified at Process Level: required to ensure straightforward communication with internal stakeholders, particularly during challenging project phases;

Another fundamental ingredient of a successful Implementation is to build a strong culture that is characterized by:

• Stewardship: to act responsibly and to carry out activities with integrity, care, and trustworthiness while maintaining compliance with internal and external guidelines5.
• Adaptability: tools must fit the purpose, methodologies should be critically analyzed and adapted if necessary;
• Strong Outcome-not-Output: prioritizing achieving results over producing a high volume of output (and work);
• A Powerful Sense of Belonging: fundamental to create a sufficient degree of psychological safety aimed at enabling the risk-taking attitude to “go for ambitious objectives”

Platforms and digital technologies can support the adoption of OKRs in several ways such as Automation, Collaboration, Data Visualization, Real-Time Tracking and Accessibility.

Figure 11, summarizes the recipe for a successful implementation of OKRs and operating model KPIs