OGSM vs. OKR: Goal-Setting Approaches Compared
Goal setting is the fuel for your organization’s mission and vision. It is an integral part of motivating employees and enabling better workplace performance.
Hence why 82% of executives say that using strategic goals is “extremely critical” or “critical” to their company’s success. It is, therefore, important to not only set strategic goals but to set them in ways that guarantee the best results.
That’s where business planning methodologies come in. Two of the most popular management methodologies include the OGSM (objectives, goals, strategies, and measures) and OKR (Objectives and Key Results).
Companies use OGSM for long-term strategic planning and OKRs for more short-term goals. Furthermore, OGSM includes strategies for achieving the objective but is absent in OKRs.
In this article, we compare these two approaches and explore how organizations use them, their pros and cons, their differences, and much more.
What is OGSM and how it helps with strategic planning
OGSM stands for Objectives, Goals, Strategies, and Measures. The OGSM methodology is tailor-made for long-term strategic planning with added room for what should also happen in the short and medium term.
According to a survey by the Harvard Business Review, OGSM is the fourth most popular (19%) goal framework amongst executives.
The objectives focus on your organization’s long-term planning and vision. The objective dictates the other parts of the strategic plan.
Beyond stating the objective and desired results, it also emphasizes the how.
An example of an objective is “Increasing profitability by reducing operational cost and increasing revenue by the end of the next financial year.”
Think of goals as different measurable targets or parts of the objective. For the objective we shared above, the goals would be to increase revenue and reduce operational costs.
When writing goals, you must include the target. Our above goals thus become:
Increase revenue by 10% by the end of the next financial year.
Reduce operational costs by 10% by the end of the next financial year.
One key factor about setting goals for OGSM is that they must be SMART, that is:
For our example above, it's somewhat unrealistic to say you want to increase revenue by 150% within a year.
For each goal you identified above, OGSM compels you to specify how to achieve them. The strategies will include details, such as projects and initiatives, timelines, and resource allocation.
It's also important to assign responsibilities to departments and team leads to ensure there's ownership and accountability.
For our example, some potential strategies may include:
Launch a new use case for the product and expand into new niches.
Adopt artificial intelligence, machine learning, and data analytics to optimize all business processes.
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These are metrics or key performance indicators to measure success and track progress. The metrics will indicate if the strategies are effective or not. For our example, viable measures include:
Quarter-on-quarter operational costs to monitor if expenses are going in the right direction.
The number of use cases added to the product in each quarter.
Together, all four parts of the OGSM help you think forward and be proactive about the company’s direction.
What kind of goals are set with OGSM?
Although the OGSM framework pushes you to make plans and strategies for day-to-day operations, goals are often crafted annually or as much as 3-5 years.
They provide long-term strategic direction, and the strategies ensure strategy execution is given quality thoughts before adopting the plan.
Because of the plan's duration, OGSM goals are mostly tied to a company's financial health (revenue growth, cost reduction, and capital allocation) or quantifiable outcomes or outputs that greatly affect the business.
What is OKR and how it helps with business goal setting
OKR builds upon Peter Drucker’s goal-setting system, Management by Objectives (MBO). OKRs ensure teams are focused on work that moves the needle. OKRs favor short-term goals and plans and are more team-based.
That’s why it’s popular among executives. It’s the third most popular goal-setting framework. Approximately 30% of executives say their organization uses the goal-setting framework, per the survey by the Harvard Business Review.
For example, an objective may be to improve the quality of your company’s blog. Key results under this may be to hire an editor, develop a content creation guideline, and review, proofread, and edit all previous articles.
Organizations have goals and objectives all the time, but what the OKR does is help you envision how the objectives will be achieved. If the plans and day-to-day actions do not lead to the key results, you need a rethink.
What needs to happen for us to achieve this goal? What do we need, in terms of resources, to accomplish this goal? That’s where key results come in to further streamline the goal into a form of to-do list that’s easier to track.
What's the main difference between OGSM and OKRs?
Since the OGSM model affects the long-term strategic direction of an organization, they are crafted by the top executives and then cascaded down to individual divisions and teams.
As such, OGSM is more of a top-down model. On the other hand, OKRs do not necessarily have to be set by C-level executives. Teams and departments can define OKRs based on the company’s OGSM plan. That’s the key difference between the two.
Another major difference is the feedback loop. OKR encourages employee input and feedback through 1:1s or check-ins. In management science, this is called Conversations, Feedback, and Recognition (CFRs), a form of appraisal to evaluate the progress of the OKR.
Pros and cons of using OGSM framework
The OGSM offers many benefits to businesses and organizations of all sizes. However, it’s not without its drawbacks. Below, we share the pros and cons of using the OGSM framework.
Easy to use and versatile: Usually in one-page format and thus straight to the point. Large and small businesses alike can use the OGSM framework. It can also be adapted for projects.
It's a useful tool for communicating strategic priorities.
Guides execution: Doesn't stop at objectives and benchmarks. It stipulates how to achieve them with actions and strategies.
It encourages a long-term outlook.
Outlining strategy can help you identify gaps in resources.
Measures and shows visible progress: Encourages accountability by all stakeholders through objective and predetermined metrics.
Requires lots of advance planning: This may make it difficult to pivot in the face of a new and contrary business environment. Thus, OGSM requires speed and focus in light of an unpredictable business landscape.
Can be perceived as overly bureaucratic, with low transparency in strategic decisions. Leaders may be missing out on top ideas from employees at the bottom.
May take time to course-correct when some strategies are not working.
Pros and cons of using OKRs
Pros and cons of using OKRs include:
Regular review: Because they are tailored towards short-term goals, you can often evaluate them. Regular assessments are handy, considering how fast-paced the world is.
Bottom-up and sideways: Encourages input and feedback from employees. Teams can therefore create tailor-made objectives and key results that apply to their responsibilities and mission. Employees are thus more engaged when using OKR compared to OGSM.
Agile framework: Easy to pivot and make changes because it encourages feedback and employee input.
Works well with ambitious goals.
Lack of company-wide alignment: Different teams and departments can work on similar or related OKRs. Without synergy, many departments may easily and quickly become unaligned with the company’s universal objectives.
Doesn’t provide the “how”: OKRs are silent on the strategies to implement. As such, teams may adopt strategic plans that get results in the short term but may not be beneficial long term.
OGSM vs OKR - Which one is more suitable for your business?
During strategy development, it’s prudent to think in terms of your company’s long and short-term vision. That’s why the answer to this question is not one or either, but both.
You may adopt OGSM to craft a cohesive long-term plan for the business and use OKRs for execution and cascade the overall objective to teams and individuals.
Doing this negates one of the drawbacks of OKRs - the potential risk of multiple unaligned OKRs. Using an OGSM to anchor multiple OKRs promotes alignment and ensures all individuals and teams are working in unison to achieve one overall objective.
Using both methodologies also bakes a feedback loop into your overall strategy and makes it easier to pivot if strategies are not working in the immediate term.
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Takeaway: Long-term planning with OGSM, short-term flexibility with OKRs
OGSM and OKR are popular performance management tools that you can adopt for strategic planning. OGSM lends itself to long-term planning, and OKRs shine for short-term agility and flexibility.
While many companies only adopt either of the strategies, we believe that OGSM and OKR are complementary frameworks that can galvanize your strategic planning.
OGSM will provide the company's overall strategic direction, while OKR will help you link the plan to individual and team efforts to facilitate execution. Together, they'll provide a comprehensive strategic approach for your organization.
Are you looking for a tool to help you implement OKRs and cascade your organization's strategic direction to your teams and individuals? Kippy is a great tool that can help you stay on top of your OKRs and KPIs. Learn more by scheduling a free demo today.