Goal Alignment ROI ?? We often get quizzed on what’s the ROI on Goal Alignment ?? What’s the difference in critical metrics for organizations that put deliberate efforts on drawing & tuning goal alignment ? While there is enough evidence of this permeating into numbers – – in this read, we wanted to go many levels deeper to establish a substantial differential in critical metrics, between the ‘have alignment’ & ‘have no alignment’ organizations. Also see, how to improve goal alignment at your organization, & few success stories from The Brew’s Building High Performance Organizations.
The rider to above being, that there are too few things in organizational management that can be isolated & pointed out to have “direct” or single-step impact on the most critical of business metrics (sales, profits etc). It’s similar to finding the direct impact and ROI of hiring high performers/high potentials, or having a strong product or being a known brand.
It’s very clear that all of these impacts the sales & profits favorably. Yet, it becomes difficult to ascertain and measurable ROI due to complexity & interplay of several factors. With that said, there is now, quite a bit of emerging research data, analyses, assessments, and surveys that is able to isolate the variables we are looking at, enabling us to attribute a hard ROI to it.
Let’s start with drawing correlations with business critical metrics of Sales, Profit vis-a-vis goal alignment roi
Sales & Profit (Net Income) & Goal Alignment ROI:
Sales – 8.5% increase: “the group who used goal alignment techniques (OKRs) displayed an average increase of 8.5%” (Source: Ben Lamorte – OKR Expert & Consultant working with global enterprises, link); Additionally, there is data from Aberdeen about a 26% higher year over year growth in Revenue: (Source: Aberdeen Research, 2015)
Profit/Net Income – 6% Increase: (Source: MIT & McKinsey – published in the Harvard Business Review, HBR: The Management Revolution, A.McAfee and E.Brynjolfsson)
Modelling the Goal Alignment ROI organically
Here is the ROI derivation modeled to understand the impact better and it takes standard industry index and benchmarks of revenue per employee, profit per employee etc. (source: CSImarket) for a typical technology company as a customer (feel free to play with other types of industries & other parameters on Company, Sector, Industry, Market Analysis, Earnings, Stocks, Economy and News for indexing Revenue per Employee, etc.)
This is how the workings look, along with the Goal Alignment ROI (includes Performance Management) at 35.8x (for a 250 FTE firm, the higher the employees, the higher the roi; similarly, the higher the potential for revenues /employee, the higher the roi)
Let’s deep dive in to other critical drivers of results in the organizations that go deeper and are less obvious on the surface but are still incredibly important to every organization’s success.
Goal Alignment ROI & Productivity, Industry Growth, Attainment of Results:
37% Higher Productivity: there is a lot to be said about increase in productivity not only from saving time but also from better focus, better team alignment and less manual work from streamlined processes. (Source: SHRM)
65% – 80% Reduction in Wasted Time (i.e. on this specific process – manually setting and tracking objectives): CEO, Executives, Managers can all complete the goals and performance management processes much more efficiently thus saving a significant amount of frustrating and wasted time which, in turn, increases the cost savings at the company. (Source: internal user survey)
3.5x (450%) Increase in Scoring in the Top Quartile: Deloitte identified a 3.5x jump in business performance that put companies in the top 25% of their Industry’s benchmarks (Source: Deloitte: “High-Impact Performance Management Using Goals to Focus the 21st-Century Workforce”, Stacia Garr / Bersin by Deloitte, 2015, p.32)
Jump to 80%-90% Attainment of Results: MIT “Teams with specific and ambitious goals increase achievement from 50% to 80%, and to 90% with feedback.” (MIT: Professor Don Sull)
40% Increase in Employee Development: Setting clear objectives, measuring progress and giving the right development focus on employees in this context is a significant driver of success at companies. For example, GE invests more than $1B on employee learning and development every year. (Survey performed at GE)
233% Greater Customer Loyalty: (Source: Aberdeen Research)
Organization’s Market Value & Goal Alignment ROI
Stock Price Up 68%: many folks get skeptical – they say no way that you can tie your stock price to better performance management. Well, sure, not directly, not in one single one step relation. But setting objectives and improving continuous performance management will create better alignment, productivity, performance and results.
How Goal Alignment ROI worked out for Sears Holdings
In 2013, Sears introduced goal alignment (OKRs) and implemented the goals management system to 20,000 of its associates. Over a period of 18 months, they saw:
- 5% increase in hourly sales
- 5% increase in likelihood for an employee to move into a higher performance bracket, when using OKRs regularly (versus those who did not use OKRs regularly)
- Employees who used goal alignment practices just once were 3% more likely to move up a performance level
Employees who didn’t use goal alignment showed no change in performance level. However, for the group which deployed goal alignment saw an increase in their average sales per hour from $14.44 per hour to $15.67, or an average increase of 8.5%. This increase is not only statistically significant, but definitely gives the business an inherent competitive advantage in the market.
To conclude, there is a significant ROI on setting aligned objectives (and therefore managing performance continuously) directly & visibly impacting an increase in focus, alignment, productivity, performance, increase in sales, reduction in costs and a bump in profits, and while there can be variation to goal alignment roi baseline, the evidence of no impact to critical metrics is a moot point. However, deploying these management practices should not get incentivized with goal alignment roi, rather these are proven best practices in managing high performance organizations and it’s the job of every leader, executive & manager to give right tools their teams to be most effective in their work, & overall success of the organization.