This year OKR proved to be a great method to overcome crisis situations. Therefore, I interviewed our CEO Gunther Fürstberger about the direct impact of OKR on our growth as a consulting and training company and asked an essential question: Does OKR – Objectives and Key results actually pay off?”
Aline: “In many companies across all industries upper management is discussing, whether the implementation of OKR in their company makes sense. For sure, an essential question is: Does OKR pay off”?
Gunther: “Yes I am also hearing these discussions especially in the finance and health industry at the moment.”
Aline: “I suppose it is difficult to give a general answer. But you are a CEO of a smaller company group in the areas of consulting, tourism and real estate and you have been working with OKR for 4 years, what is your resumé?”
Gunther: “In the time before Covid, OKR contributed a lot to our growth path. We grew 76% in 3 years and it had a great impact on commitment in our team. Since Covid the growth party was sadly over. Because almost all our offered solutions had to do with people coming together: seminars, events and renting out apartments to tourists. This year OKR proved to be a great method to overcome crisis situations. Never has it been more important to adjust continually to a dynamic environment. All companies of the Fürstberger Holding survived all setbacks without the need of making any debts.”
Aline: “That sounds great, but could you be more a little but more specific on how to measure the impact of OKR?”
This year OKR proved to be a great method to overcome crisis situations. Never has it been more important to adjust continually to a dynamic environment.
Gunther: “Each company is different, and you need to work with assumptions and estimations, but I can share, how I see the costs and benefits at MDI GmbH – a consulting and training company.”
Aline: “Can you give us some hard facts about the company?”
Gunther: “Sure, we are talking about 27 employees, 4 of them in leadership positions. Let’s take 3 months as calculation period and a quarterly revenue of € 1.300.000,-.”
Aline: “Thank you. Now I am curious about the impact of OKR on the balance sheet.”
Gunther: “Good, let’s start with costs: For a quarterly planning meeting we need 6 people for 5h i.e. 30 hours altogether. And 27 people spend each 2 hours on formulating team OKRs including listening to the presentation of company goals and presenting afterwards the new quarterly OKRs to each other, that are 54 h.
Then we need to take into consideration the Check in meetings: Each second week 30 minutes for each employee + 2h for 4 leaders = 12h + 8 h = 20 h; 5x in a quarter are 100 h.
In total we come to 154 h per quarter. If we calculate € 50, – per hour we have people costs of € 7.700, -.
As all organisations who did not introduce OKR somehow deal with goals, we must consider that there are always related people costs. Probably in a classical MbO (Management by objectives) -organisation less time for planning is needed, but on the other side lot of time is spent on ad hoc priority talks.
After analysing the direct costs of running OKR, let’s look at the impact:
My estimation is, that 10% of sales is the result of OKR decisions, due to flexibility in creating and offering fitting solutions, better processes, training, marketing. That counts for € 130.000,- per quarter. But for sure, higher sales means also higher costs involved. For € 130.000 higher sales the related costs might be appr. 80%. That leaves an additional gross margin of € 26.000,-.
But OKR influences also productivity and thus the costs. OKR focuses on change, not on the routine tasks. It helps you to think again and again about which routine task can be stopped, started and optimised. This results in automatization and digitalization. OKR helps to drive this faster and smarter. If we reach a productivity growth of 2% per quarter and the competition only 1 %, we could argue that OKR contributes in our example to € 10.400,- cost advantage. Calculation: If we have 80% of sales as needed costs this means in absolute numbers 1% of € 1.040.000,- of means a competitive advantage of € 10.400,-.
Summing up the financial impact of OKR per quarter we get:
- Gross margin on higher sales: € 26.000,-
- Productivity advantage: € 10.400,-
- Total: € 36.400,-
The positive impact on the balance sheet of OKR is almost 5 x higher than the related people costs.”
Aline: “It seems you are convinced that OKR pays off?”
Gunther: “For us, it is definitely a YES!”