How do profitable companies set goals and measure their success? Many high-profile businesses, including Google, Intel, LinkedIn, Zynga and many others use objectives and key results (OKR), a framework for creating a strategy and analyzing its results.
When Andy Grove co-founded Intel in 1968, he introduced the method, which was based on Peter Drucker’s Management by Objectives (MBO) principles. Since then, OKR has been widely adopted by numerous corporations and businesses around the world.
What are OKRs?
Simply put, OKRs define a team or business’s goals over a set period of time, after which they measure the progress made and how well the team did in accomplishing its objectives. Through this model, everyone is working together to the same end, because the goals, individual and team expectations and bigger picture are transparent. This helps everyone see how their individual accomplishments affect the larger strategy, as well as how the goals fit and work together.
The difference between OKRs and KPIs.
A key performance indicator (KPI) evaluates the efficacy of current methods or processes already in place. It is also an important method for setting a strategy and measuring success.
OKRs and KPIs often function together. OKRs focus on large-scale goals and how different pieces of the puzzle contribute to a larger mission, as well as the roles of individuals in achieving success. They generally concern setting new goals, while KPIs exist to evaluate procedures already in place. A KPI, for example, may indicate that a certain procedure is not functioning as desired, which would lead the team to create an OKR to improve that process. In other words, the KPI lays the groundwork for establishing an OKR.
The structure of OKRs.
In general, OKRs include around 3-5 objectives. These goals should be actionable and ambitious yet doable. They should also fall under the purview of a specific department or individual, and that person should be named.
Under every objective, you will list 3-5 key results. These results must be quantifiable, measurable and attainable. For example, they might evaluate the growth of some metric. To measure the efficacy, key results are usually assigned a numerical value of 0 to 1 or a percentage value. For the most part, key results are either accomplished or not accomplished, so they would be assigned a value of either 0 or 1 (1 for those that were achieved and 0 for those that were not), although in some cases, a percentage of progress may be made, in which case a percentage of a point would be assigned.
To get a better of idea of how OKRs function in the real world, let’s look at the example of Uber, as illustrated by former Google employee Niket Dasai. Uber hoped to achieve objectives including lower prices, more demand, faster pickups, less driver downtime, more drivers and more geographic coverage.
For each objective, Uber developed measurable results that would make it a reality. For example, for the “increase drivers in system” objective, they planned to expand the average driving session to 26 hours per week across all active regions, as well as raise the base of drivers by 20% in every region. The other objectives had measurable results as well. As you can see, the results were measurable, while the objectives were actionable.
The benefits of OKR methodology.
Using OKRs has a number of important benefits, such as:
• They are easy to set up, implement and use.
• They create a culture of transparency, in which everyone within a company or team understands the objectives and their role in achieving success.
• They help businesses create direction.
• They provide a means for measuring progress and success.
• They complement and contribute to the overall mission of the organization.
Choosing your OKR cadence.
Any OKR must have a cadence — in other words, the frequency with which OKRs are established, evaluated and replaced.
In many cases, businesses set up quarterly cadences. However, you certainly don’t need to adhere to this model when determining, measuring and replacing your OKRs. Instead, it should depend on certain factors unique to your organization. They include:
• The stage of your business.
A long-established business will probably not need to check in on product or service performance as frequently as a newcomer that’s just testing the waters will. A startup will need to evaluate and reevaluate its goals much more often.
• Target level.
OKRs that occur at the company-wide level will likely take longer to achieve than those set at the department or individual level, so you will want to use longer periods to evaluate their efficacy since success won’t occur immediately — although if overhaul does need to happen, shorter cycles are advised.
• Size of the organization.
OKR cadence will also depend on the size of the organization itself. Due to the number of clients or consumer served and changing landscape, businesses of different sizes may need to assess progress at different times and stages.
Industries move at different paces as well. Are there frequent innovations? How often to products and practices become obsolete? In an industry such as tech, for instance, you may need to implement shorter cycles to ensure that you’re keeping up with the market demand.
The OKR cadence of different teams within a larger organization does not need to be identical across departments. These departments will have a range of goals and objectives that may require longer or shorter cycles, depending on their nature.
Criteria for OKR success.
Once you’ve decided to use OKRs in your business, how do you set yourself up for success? Here are some tips to get started.
1. Use the help of an expert.
Although relatively straightforward to use, this method can be difficult to implement if you’ve never done so before. It can be helpful to engage some who is well-versed in OKR, whether it be a consultant or employee who knows the ins and out, to help you get it off the ground initially.
2. Make sure all teams and employees understand the methodology.
In order for the strategy to be successful, all players must understand the concept. You might have seminars explaining OKRs and how you’ll be using them at your company.
3. Formulate attainable, logical, aspirational goals that complement your overall strategy.
Ensure your OKR goals align with the rest of the company mission. This will help your employees understand the “why” of the methodology, as well as help them see what success looks like. Your goals should be ambitious but still attainable, flexible, time-bound and actionable. You should have a clear picture of what victory is.
4. Keep everyone on the same page.
By the same token, everyone must be apprised of the objectives being measured, the overall strategy and their individual roles in it. Articulate these goals upfront and check in along the way to ensure that everyone is on the same page.
5. Start small.
That doesn’t mean you shouldn’t have aspirational objectives — it just means that the cadence may be more frequent as you become adjusted to the new model. You might even start with a short trial as you test the waters, involving a couple of departments and frequently assessing goals and results. As you gain familiarity and comfort with the methodology, you can check in less frequently, setting quarterly OKRs or whatever cadence you’ve chosen. You might also begin to involve more departments.
6. Be transparent about results.
Make sure everyone is aware of how the goals panned out and their individual contributions. This will help them gain a better understanding of the bigger picture, as well as see how their individual contributions impact the company as a whole.
7. Understand that you won’t achieve all of your OKRs.
While you should be meeting the majority of your objectives, for the most part, you’ll probably achieve two-thirds of them. And that’s okay. In fact, if your success rate is 100% initially, your OKRs probably weren’t ambitious enough to begin with. Be patient as you implement the methodology — you’ll almost definitely encounter some road bumps along the way.
Common OKR implementation mistakes.
Before you begin using OKRs at your organization, be aware of common pitfalls.
• OKRs don’t align with the overall company mission — or there is no clear company mission at all.
• You haven’t clearly explained OKRs and their purpose to your employees, and they’re confused about why you’re using them and their role.
• You’ve created and assigned too many OKRs, such that your employees are overwhelmed and unable to meet objectives.
• You haven’t mapped out a clear strategy for your OKRs.
• Success isn’t clearly defined.
• Your OKRs aren’t measurable; in other words, they’re too subjective and vague.
• You haven’t defined everyone’s roles and responsibilities.
• Your OKRs are too aspirational — to the point where you’re highly unlikely to achieve them.
• Your OKRs aren’t aspirational enough, and you need to be more ambitious.
• You’re not checking in frequently enough, so you don’t know how everyone’s doing accomplishing these goals.
• You’re using OKRs to evaluate employees, rather than projects. (OKRs should not be used, for instance, in performance reviews.)
• You haven’t connected the OKR to the overall company mission, so employees don’t understand its purpose.
• The OKR focuses on tasks, rather than objectives.