OKR Objectives and Key Results

There are a great number of ways company may choose to manage its business. Some companies rely on KPIs or OKRs to keep track of their goals, while others choose to enlist the practice of MBOs, or maybe a combination of these. It is important to understand the differences between these tools and methodologies before deciding which to utilize in your organization. Let’s begin with OKRs.

What is OKR?

OKR (Objectives and Key Results) is a goal setting system, original concept came from Intel and spread to other Silicon Valley companies and later used by Google and other companies. It is a simple approach to create alignment and engagement around measurable and ambitious goals. Google adopted OKR in 1999, during its first year. It supported Google’s growth from 40 employees to more than 60,000 today. Besides Google, other companies use OKR, including Spotify, Twitter, LinkedIn use OKR, while OKR is not only for digital companies. Walmart, Target, The Guardian, Dun and Bradstreet, and ING Bank are also using OKR.

OKRs is a critical thinking framework and ongoing discipline that seeks to ensure employees work together, focusing their efforts to make measurable contributions that drive the company forward.

Based on definition, let’s break it down into more reasonable bite-sized chunks:

Critical-thinking framework: The end in mind with OKRs is accelerating performance, but you don’t get there simply by monitoring your results each quarter. In the preceding history lesson we introduced the work of Peter Drucker. One of our favorite “Drucker-isms” is this: “The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong questions.”10 When examining OKR results your challenge is to go beyond the numbers and, like a business anthropologist, dig deeper into what they’re telling you so that you can unearth the stimulating questions that may lead to future breakthroughs. OKRs, when implemented with rigor and discipline, facilitate this model of critical thinking.

Ongoing discipline: OKRs represent a commitment—of time and effort. Earlier, we warned against the danger of “set it and forget it” goal setting. To ensure you benefit from OKRs, you must commit to actually (as common sense as this sounds) using the model. That entails updating OKRs each quarter (or whatever cadence you choose), examining results carefully, and modifying your ongoing strategy and business model as necessary, based on results.

Ensure employees work together: We’ve already noted the importance of cross-functional collaboration and the value of teams in creating organizational success. OKRs must be structured, and used, to maximize collaboration and alignment. One of the ways this is facilitated is through the inherent transparency of OKRs, which are shared widely so that everyone, from top to bottom, can see objectives and key results from throughout the organization.

Focusing their efforts: OKRs are not, and should never be, considered a master checklist of tasks that need to be completed. The aim of the model is identifying the most critical business objectives and gauging accountability through quantitative key results. Strategy pundits are fond of noting that strategy is as much about what not to do as it is about what to do. So it is with OKRs. You must be disciplined in determining what makes the final cut.

Make measurable contributions: As we’ll explain shortly, key results are typically (and almost exclusively) quantitative in nature. Whenever possible, we want to avoid subjectivity and note with precision how the business is advancing based on achievement of our OKRs.

Drive the company forward: The ultimate arbiter of success is achievement of your goals. Follow the advice on these pages and we’re confident OKRs will light that path for you.

John Doerr started his career at Intel and went on to invest in companies such as Google and Amazon. Doerr, who introduced Google to OKR, has a formula for setting goals:

formula is the best way to explain the structure of an OKR:

I will (Objective) as measured by (this set of Key Results).

So, as the name implies, OKR has two components, the Objective and the Key Results:

Objectives are memorable qualitative descriptions of what you want to achieve. Objectives should be short, inspirational and engaging. An Objective should motivate and challenge the team

Key Results are a set of metrics that measure your progress towards the Objective. For each Objective, you should have a set of 2 to 5 Key Results. More than that and no one will remember them.

The big difference from traditional planning methods? OKRs are frequently set, tracked, and re-evaluated – usually quarterly. OKR is a simple, fast-cadence process that engages each team’s perspective and creativity.

OKR exists to create alignment and to set the cadence for the organization. The goal is to ensure everyone is going in the same direction, with clear priorities, in a constant rhythm.

Key Performance Indicators

KPIs are essentially company’s metrics. When you are looking at KPIs, you will likely see numbers, charts and graphs. All KPIs are directly measurable. They are a means of measuring how well an individual, team or organization is performing against their goals according to the numbers.

Benefits of KPIs

Again, we can think of the term KPI as being interchangeable with the term metric. Metrics are the hard numbers that give context to the success or failure of your business. By using KPIs as your primary tool for your management operating system, you will have a clear picture of where your business’ shortcomings and successes are, and you will have the numbers to prove it. This is only true however if you are choosing the right KPIs. Use the list of questions below to help determine whether are not you are on the path to choosing valuable and effective KPIs.

1. KPIs alignment with overall strategic goals of the company

You should have diff­erent KPIs for di­fferent teams, departments and management levels. Be sure to also avoid KPIs that are too generic. The purpose of a KPI is to help drive the success of YOUR business, so make it specific enough to have an impact.

2. realistic KPIs

An easy way to assess this question is to consider the data points and resources that would be needed to reach the KPI. Consider new processes that would need to be in place, and whether or not the time spent on those processes is realistic for those directly tied to the KPI. Ultimately, you must determine whether the time put into it, will be worth the potential return.

3. prioritize KPIs

Be deliberate with your choices, and prioritize KPIs that will benefit the company as a whole. By determining which KPIs are truly important early on, you will have less maintenance in the long-run.

4. construable

A good KPI has to be something that you can be actively working on. If your business realistically can not change it, why is it a measure of your success?

KPIs:

Leading, Latent and Lagging Indicators

Lagging indicators are those that are very easy to measure. They are the actual output numbers we look back on and learn from. For example, when measuring the success of a sales team you may consider Quarterly Sales Revenue as one of your lagging indicators. Easily measurable, and will indicate how the sales team performed over the quarter. Another example mileage counter of vehicle.

Latent

Latent indicators are those that describe latent conditions that have a potential to result in high consequence

Leading indicators

Leading indicators are those that contribute to the success of the lagging indicators. Going back to our example for lagging indicators, there are a number of contributing KPIs that could be associated with Quarterly Sales Revenue–daily outbound calls or proposals sent for example. These are your leading KPIs.

Management by Objectives

Peter Drucker set the standard for management philosophy and the theoretical foundations of the modern business corporation. Many of his more than 30 books are considered classics in the field. It is one book, his 1954 release, The Practice of Management, which is of particular significance to those of us interested in OKRs. Drucker proposed a system termed management by objectives, or MBO. He introduces the framework this way:

Each manager, from the “big boss” down to the production foreman or the chief clerk, needs clearly spelled-out objectives. These objectives should lay out what performance the man’s own managerial unit is supposed to produce. They should lay out what contribution he and his unit are expected to make to help other units obtain their objectives. Finally, they should spell out what contribution the manager can expect from other units toward the attainment of his own objectives. . . . These objectives should always derive from the goals of the business.

What is the difference between OKR and MBO?

MBO, or “Managed By Objectives”, is a goal-oriented management approach where managers align an employee’s objectives and KPIs to the organizational goals and mission.

OKR is an evolution from the MBO framework and offers a few extensions in order to structure your objectives and execute strategy in a more clearly defined way. It outlines the key ways in which success will be defined, along with what needs to be done to achieve the goal. It breaks it down into an objective portion, and key actions and results portion.

Whilst both frameworks set and communicate goals and measure performance to achieve organizational objectives and strategy, MBO will focus on what you want to achieve, and OKR will set out what you want to achieve and the key things you need to do to achieve them.

As MBO was the original performance management approach the majority of companies and teams are utilizing this. However, OKR is increasing in popularity and there is a lot of interest due to the level of organizational goals and objectives being integrated into the review metrics.

Regardless of the framework company chooses to review performance, company should constantly review output to ensure maximum productivity and efficiency.

MBOs vs. OKRs

Annual Performance Management Versus Continuous Performance Management

What’s unique about OKR?

There is not a single way to use OKR, each company or team can adapt and tweak it, creating different versions of it. But there are some core concepts:

Agile Goals

Instead of using annual static planning, OKR takes an agile approach. By using shorter goal cycles, companies can adapt and respond to change.

Simplicity

Using OKR is straightforward, and the OKRs themselves are easy to understand. Intel’s original model set goals monthly, which required a lightweight process. Companies that adopt OKR reduce the time spent setting goals from months to days. As a result, they invest their resources in achieving their goals and not on setting them.

Transparency

The primary purpose of OKR is to create alignment in the organization. To do so, OKRs are

public to all company levels — everyone has access to everyone else’s OKRs. The CEO’s

OKRs usually are available on the Intranet.

Nested Cadences

OKR understands that strategy and tactics have different natural tempos since the latter tends to change much faster. To solve this, OKR adopts different rhythms:

·       A strategic cadence with high-level, longer term OKRs for the company (usually annual).

·       A tactical cadence with shorter term OKRs for the teams (usually quarterly).

·       An operational cadence for tracking results and initiatives (usually weekly).

Bidirectional Goal Setting

Instead of using the traditional top-down cascading model that takes too much time and does not add value, OKR uses a market-based approach that is simultaneously bottom-up and top-down.

From the company’s strategic OKRs, teams can understand how they can contribute to the overall strategy. In this process, around 60% of the tactical OKRs are set by the teams in alignment with the company goals and then contracted with the managers in a bubble-up approach.

This model creates engagement and a better understanding of the strategy while making the process simpler and faster.

Ambitious Goals

The philosophy behind OKR is that if the company is always reaching 100% of the goals, they are too easy.

Instead, OKR targets bold, ambitious goals. Besides aspirational objectives, OKR believes in enabling the team to set challenging goals. Goals that make the team rethink the way they work to reach peak performance.

Decoupling Rewards

Separating OKRs from compensation and promotions is crucial to enable ambitious goals. Employees need to know they will not lose money if they set ambitious goals. It is hard to set ambitious goals when you need the bonus to pay for your kids’ college tuition.

OKR is a management tool, not an employee evaluation tool.

OKRs never Cascade. OKRs Align.

OKRs should be set in a parallel process in which teams define OKRs that are linked to

the organization objectives and validated by managers, in a process that is simultaneously bottom-up and top-down.

From the company OKRs, the teams can get a clear direction and understand how they can contribute to reaching those OKRs.

Each team then defines a set of tactical OKRs for the quarter that contribute to the strategic OKRs and that roughly align with them. Teams’ OKRs don’t have to be 100% aligned with the company’s OKRs since they may also choose to include a local OKR.

Dr. Grove’s Basic OKR Hygiene

The essence of a healthy OKR culture—ruthless intellectual honesty, a disregard for self-interest, deep allegiance to the team—flowed from the fiber of Andy Grove’s being. But it was Grove’s nuts-and-bolts approach, his engineer’s mentality, that made the system work. OKRs are his legacy, his most valuable and lasting management practice. Here are some lessons I learned at Intel from the master and from Jim Lally, Andy’s OKR disciple and my mentor:

Less is more. “A few extremely well-chosen objectives,” Grove wrote, “impart a clear message about what we say ‘yes’ to and what we say ‘no’ to.” A limit of three to five OKRs per cycle leads companies, teams, and individuals to choose what matters most. In general, each objective should be tied to five or fewer key results.

Set goals from the bottom up. To promote engagement, teams and individuals should be encouraged to create roughly half of their own OKRs, in consultation with managers. When all goals are set top-down, motivation is corroded.

No dictating. OKRs are a cooperative social contract to establish priorities and define how progress will be measured. Even after company objectives are closed to debate, their key results continue to be negotiated. Collective agreement is essential to maximum goal achievement.

Stay flexible. If the climate has changed and an objective no longer seems practical or relevant as written, key results can be modified or even discarded midcycle.

Dare to fail. “Output will tend to be greater,” Grove wrote, “when everybody strives for a level of achievement beyond [their] immediate grasp. . . . Such goalsetting is extremely important if what you want is peak performance from yourself and your subordinates.” While certain operational objectives must be met in full, aspirational OKRs should be uncomfortable and possibly unattainable. “Stretched goals,” as Grove called them, push organizations to new heights.

A tool, not a weapon. The OKR system, Grove wrote, “is meant to pace a person—to put a stopwatch in his own hand so he can gauge his own performance. It is not a legal document upon which to base a performance review.” To encourage risk taking and prevent sandbagging, OKRs and bonuses are best kept separate.

Be patient; be resolute. Every process requires trial and error. As Grove told his iOPEC students, Intel “stumbled a lot of times” after adopting OKRs: “We didn’t fully understand the principal purpose of it. And we are kind of doing better with it as time goes on.” An organization may need up to four or five quarterly cycles to fully embrace the system, and even more than that to build mature goal muscle.

Recognition

Institute peer-to-peer recognition. When employee achievements are consistently recognized by peers, a culture of gratitude is born. At Zume Pizza, the Friday all-hands “roundup” meeting concludes with a series of unsolicited, unedited shout-outs from anyone in the organization to anyone else who’s done something remarkable.

Establish clear criteria. Recognize people for actions and results: completion of special projects, achievement of company goals, demonstrations of company values. Replace “Employee of the

Month” with “Achievement of the Month.”

Share recognition stories. Newsletters or company blogs can supply the narrative behind the accomplishment, giving recognition more meaning.

Make recognition frequent and attainable. Hail smaller accomplishments, too: that extra effort to meet a deadline, that special polish on a proposal, the little things a manager might take for granted.

Tie recognition to company goals and strategies. Customer service, innovation, teamwork, cost cutting—any organizational priority can be supported by a timely shout-out.

What are the benefits of using OKR?

The main advantages of using OKR are:

Agility

Shorter goal cycles enable faster adjustments and better adaptation to change, increasing innovation and reducing risks and waste.

Alignment and cross-functional cooperation

The use of shared OKRs improves collaboration among different teams, solving interdependencies and unifying competing initiatives.

Reduced time for setting goals

OKR simplicity makes the goal setting process faster and easier, drastically reducing the time and resources spent on setting goals.

Clear communication

Transparency and simplicity enable the team to understand the goals and priorities of the organization as well as how each individual can contribute.

Employee engagement

OKR bottom-up approach for goal setting connects the employees with the company’s objectives, increasing engagement

Autonomy and accountability

Teams receive a clear direction and are free to choose how to achieve their OKRs. They become responsible for their objectives, with clear success criteria known to the whole company, creating mutual obligations.

Focus and discipline

The reduced number of goals creates focus in the organization and more disciplined efforts and initiatives

Bolder goals

Decoupling OKRs from compensation and using stretch goals, even partially, enable the team to set ambitious, challenging goals.

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