Alignment
Should Supplier Performance be Based off OKRs
September 16, 2015
Darragh Toolan
2 minutes

If you type OKRs (Objectives and Key Results) into Google one thing will stand out: the names of the companies using them.  Google, Linkedin, Twitter.  All market-leading companies, and all using an OKR management system.  So what’s so special about OKRs, and could we use them to measure supplier performance?

OKRs are a management technique which focus on Objectives, long-term goals for the entire company, and Key Results, the steps taken to achieve the Objectives.  It is a quantifiable way of managing performance, and aligning it with long-term company goals.

One of OKR’s main benefits is that they can increase transparency across a large company.  Everyone can see what everyone else is doing, and how they are performing.  This could be a game-changer for a large and decentralised supply chain, where individual performance, and tasks can often get lost in the abyss.  Being able to see what everyone else in the supply chain is working on, and how they’re performing, could shed clarity on what’s expected of suppliers.

The supply chain can often be seen as working in silo; suppliers are focused on meeting the buyer’s targets and demands, and are not always clear on the company’s overarching business plan.  Basing supplier performance on OKRs could enable alignment between a company’s overall goals, and the supplier’s performance.  Their performance will be measured on Key Results which are designed to work towards overall Objectives.  Both the buyer and the supplier can move in the same direction.

OKRs could be a really effective tool to align suppliers with buyers, and to create a transparent network of relationships.  But only if we steer clear of linking high OKR performance to bonus payments and rewards.  Or, if we don’t use OKRs as a stick to hit our suppliers over the head with.

John Doerr, who implemented OKRs at Google, gave this guideline for OKR best practice:

“Don’t tie the OKR goals to bonus payments, except for sales quotas. We want to build a bold, risk-taking culture”.

It may seem counter-intuitive, but Doerr’s reasoning is simple: if we offer incentives for high OKR performance, and punishments for low OKR performance, than any ambition nurtured by the OKRs will be crushed.  We’ve talked about how The Secret to Enterprise Innovation is Failure.  Well, that holds true for OKRs as well.  One of the key benefits of OKRs is that they encourage a “risk-taking culture”.  Sometimes low OKR performance scores reflect an ambitious Objective, and high ones reflect that an Objective was too attainable.

OKRs could create a huge opportunity for measuring supplier performance. They could add clarity, alignment, and transparency.  They could even encourage a more innovative, risk-taking culture within our supply-base.  Or they could be another performance-measurement metric which misses the mark.  The distinction lies in how we view them.

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