The History of Performance Management Systems and OKR

The performance management process dates back to the earliest days of organized human effort. Some historians believe the performance system has an ancient history dating back to 221 AD. Records from this early period exist. These records show that Wei Dynasty Emperors rated the performance of their family members. This was a primitive system for determining merit. These first applications were different from today's systems. It functioned more as a mechanism for control, loyalty, and competency audits. The goal was to ensure that people in critical roles met expected standards.

Let's take a deeper look at the history stretching from these primitive audit mechanisms to today's agile OKR systems.

The Industrial Revolution and Early Performance Observations

The traceable beginning of modern performance management lies in the heart of the Industrial Revolution, in the 1800s. At that time, Welsh textile manufacturer Robert Owen was observing his employees at his cotton mill in Scotland. He used a method he called "silent monitors" for this. This system consisted of a wooden block hung above each worker's loom. The block was painted in four different colors (black, blue, yellow, white). Each color represented the worker's performance from the previous day. White symbolized excellent, yellow good, blue mediocre, and black poor performance.

This system focused on the individual performance of employees. It did not look at the factory's overall performance holistically. Owen's goal was not actually to punish. He aimed to encourage employees to do better through social pressure and visual feedback. This approach was inherently mechanical. It measured individual output and viewed the worker as a part of a machine. Concepts like development, collaboration, or individual potential were completely outside this system.

The Age of Scientific Management and the Quest for Efficiency

In the early twentieth century, a name that would change industrial efficiency emerged. This person was the American mechanical engineer Frederick Taylor. Taylor focused on putting performance on a "scientific" basis. In his 1911 book "The Principles of Scientific Management," he published a management theory. This theory embraced the idea of breaking down jobs into their smallest components to increase efficiency.

Frederic Taylor suggested that productivity would increase by optimizing and simplifying jobs. He aimed to find the most efficient method for each task. For this purpose, he conducted "time and motion studies." He also argued that workers and managers needed to cooperate. This cooperation model was based on a rigid hierarchy. Managers "thought," while workers "did."

Taylor's methodology prioritized the way work was done—that is, the process. Employee creativity and autonomy were left in the background. Taylor's Scientific Management Theory supported the idea that there was "one right way" to do something. This approach fundamentally conflicts with systems based on individual initiative. Approaches like Management by Objectives (MBO) or OKR are based on the employee deciding how to achieve the goal.

By the 1920s, some sources point to the name Walter D Scott. It is shown that performance appraisals were invented by Scott at WD Scott & Co. in Sydney. Scott was an industrial psychologist. He developed a "man-to-man comparison" scale to rate employees based on merit. This may have been the earliest documented use of formal performance appraisals. Still, WD Scott's system was not a widely recognized concept. Few people outside his own firm had even heard of it.

The 1920s and 1930s carried the economic pressures of the Great Depression. During this period, operational efficiency and effectiveness gained more importance. The concept of "Return on Investment" (ROI) was introduced in this era. Organizations were working with extremely limited budgets. They wanted to make the most of their budgets. Efficiency in the factory alone was not enough. Financial results, such as company performance and net income, also needed to meet expectations.

Management by Objectives (MBO) and the Rise of the Human Factor

Post-World War II economic expansion occurred. The rise of the "white-collar" concept challenged Taylor's mechanical world. This new era required a new management thinker. That person was Peter Drucker.

The Austrian-born management consultant Peter Drucker wrote a groundbreaking book in 1954 titled "The Practice of Management." In this book, he defined a concept called "Management by Objectives" (MBO). Its principle was not to manage work according to strict rules. It was based on the need to manage based on needs and goals.

Peter Drucker opened a new window in the approach to business management. He said that successful leaders should not focus only on profitability. He suggested they should put people first, instead of rigid work routines. Taylor had the idea of "doing things right." Drucker, in contrast, advocated for the idea of "doing the right things."

According to him, doing the right thing was more important than doing things right. Effectiveness was the foundation of every organization. The cornerstone of MBO was the manager and employee coming together. They needed to set goals together for a specific period. It was necessary to set SMART goals and cascade them down through the entire organization. Increasing communication through alignment was, according to Drucker, the management style that would lead organizations to success.

According to Drucker, companies that adopted this system could increase productivity. They could increase employee engagement and create a transparent and ethical work environment. MBO was a system unlike the Taylorist model. The Taylorist model told the employee "what to do." MBO, however, involved agreeing on "what needs to be accomplished." It was also the first system to grant autonomy on how to succeed.

Over time, MBOs strayed from Drucker's humanistic vision. In many companies, MBOs turned into a bureaucratic system, conducted once a year. It became rigidly tied to salary increases and bonuses. It became an inflexible "report card" system. While it should have been a communication tool, it turned into a "judgment" tool. It was precisely this corruption that prepared the ground for the next evolution in performance management. This evolution was the necessary foundation for the birth of OKR.

Agile Transformation with OKR

Peter Drucker is known as the father of MBOs. He established a modern and human-centric system. He has been an inspiration to many companies and leaders. One of them is the legendary CEO Andy Grove. Grove transformed Intel into a world giant during the 1980s and 90s.

MBOs had been an inspiration for Grove. Grove had also seen the corruption and slowness that MBOs experienced in practice. Grove needed a faster, more agile, and more ambitious system. He took the "what" (objective) and "how much" (measurement) parts of MBOs. He restructured them under the name "Objectives and Key Results" (OKR).

Grove posed 2 simple but powerful questions to organizations. He brought a new approach to the performance management system:

This system was transparent and visible to everyone. Alignment was at the forefront. Everything from the CEO's OKRs to an intern's OKRs could be seen by everyone. All employees could see the big picture. They could clearly understand how their own work contributed to the company's overall goals. They would become part of the success by embracing a collaborative culture.

During this period, leading companies like Intel realized an important fact. Simply cascading goals from the top down was not enough. They saw that bottom-up and horizontal, cross-team alignment were also vital. Teams, individuals, and departments began to align their objectives with company objectives. They saw that they could improve their operational performance and focus this way.

The OKR methodology was first used at Intel. Intel entered a major strategic transition in the 1980s. It decided to exit the memory market and focus on the microprocessor market. This was a "company-re-creating" step. Grove needed the entire company to lock onto this new goal. Focus and alignment were essential. OKR was the primary management tool they used to manage this massive transformation.

At that time, John Doerr was working as an engineer at Intel. He was being mentored by Andy Grove. Doerr experienced the power of this system firsthand. He immediately adopted Grove's OKR system to help his team focus. He placed this system at the center of his career.

It was an idea that helped me set my priorities. The idea of having a sign or a north star every quarter interested me. It was powerful for me to see Andy's OKRs, my manager's OKRs, and my colleagues' OKRs. I was able to quickly tie my work directly to the company's goals. I kept my OKRs in my office. I wrote new OKRs every three months. The system has stayed with me ever since.

— John Doerr

Intel successfully completed this strategic transition. The focus and alignment provided by OKRs brought this success. The company continued to use OKRs.

Google and the Modern OKR Era

By the late 1990s, John Doerr had left Intel. He became a venture capitalist. He met the founders of a small search engine company he had invested in (Larry Page and Sergey Brin). In 1999, he presented the OKR system to them in the modest office of this company, which was Google. Google adopted OKRs from day one. This system became a fundamental part of Google's growth engine.

Today, many pioneering and visionary companies apply the OKR methodology. From Google and Intel to Bono's ONE campaign and the Bill & Melinda Gates Foundation, they have adopted this system. What John Doerr described in his published book "Measure What Matters" has inspired these organizations.

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