I was asked to give a talk today at the Heureka Founders Conference in Berlin, Germany. In this article you’ll find an overview of the slides and a summary of the talk. A few edits have been made to make the crash course more thorough and complete.
OKR is a goal management framework, and stands for Objectives and Key Results. An objective tells you where to go, key results tell you how to get there. Imagine for instance you sell barbecues online, one of your objectives could be to grow revenue to $1 million this quarter. And a key result that will help you achieve the objective could be to generate 100.000 leads through a Google Adwords campaign.
OKR can be different things to different organizations. For startups it can be a framework for growth. For large, established enterprises it can be a framework for innovation. More on that later.
Goal management is of course not new, in fact it has been around for decades. At Perdoo we see OKR as 75 years of best practices in goal management, bundled together in a single framework and made simple. For us this simplicity is a key characteristic of OKR: it’s why it became so popular and it allows everyone in your organization to participate in it.
Peter Drucker developed a methodology called Management By Objectives or MBO in the early 1950s. The book in which he popularizes the term, The Practice of Management, is worth reading if you like to dive deep into the topic.
When Andrew Grove, who recently passed away, founds Intel together with Gordon Moore and Robert Noyce (ok – officially he was their first hire), he became a careful student of business management. After he became President and later CEO at Intel, he wrote the book High Output Management in which he first coined the term Objective and Key Results. His description is super simple and razor sharp:
“A successful MBO system needs only to answer two questions: Where do I want to go? (The answer provides the Objective.) How will I pace myself to see if I’m getting there? (The answer gives us milestones, or Key Results.)”
John Doerr, joined Intel in 1974, learned about OKR at Intel. He went on to join KPCB and after their investment in Google, when Google was still only 40 people, he pitched the concept of OKR to Larry Page and Sergey Brin. They were quickly sold on it and still use it today, with 60.000 employees.
From Google it spread to many other tech companies, like Twitter, LinkedIn and Zynga. When Google employees left Google to join other companies, they often brought OKR with them. Today organizations from 5 to 50.000 employees and across all industries have embraced the methodology.
But why do all these organizations all of a sudden have OKRs? What are OKRs really? What do they do?
If you have goals, you can work with OKR. As said, OKR is nothing else as a label applied to a wide range of best practices in goal management. And the truth is: every organization has goals, whether they realize it or not. The most well-known goals are the financial ones and the related sales targets. But there are many others. In fact, every project in your organization will benefit it is driven by a clear goal, or OKR.
OKRs let companies think about how they can break out of the status quo and at the same time provide guidance to achieve a new future. It is the missing link between strategy and results. In short: they take your organization from A to B. If you have a big dream, a vision for your company, you need OKRs that take you there.
KPIs on the other hand are to measure the status quo. If your company keeps on doing what it already does, all you need is a KPI dashboard to keep track. If you want your Support team for instance to answer every ticket within 30 minutes, you create a KPI for that.
OKR and KPI work perfectly together. Imagine for instance you want to introduceNPS, which is something I’m currently responsible for at Perdoo. Having nothing in place for NPS, I created a simple objective for Q2 to Implement NPS. Now that we have NPS up and running, we created another objective to get to an NPS score of at least +50. You can imagine this is a big objective to which many people and teams contribute, so we made this a company-level objective for Q3. Once we have achieved that objective, it will move to our KPI dashboard to keep track of it. If it drops below +50, we will probably create an objective again to increase our NPS score.
Let’s summarize that in a chart.
Your organization will have, or should have, a vision. A big dream, what it wants to be 5 or 10 years in the future. (If you need help creating a vision, have a look at this presentation).
The great thing about a (good) vision, is that it inspires. It’s the ultimate goal that makes sure you’ve got all your ducks in a row. The downside is that it isn’t actionable. So you need objectives, smaller steps, that take you there.
Together, the vision and objectives will tell you where to go. The key results and related tasks will tell you how to get there.
So why do you need OKR?
As said, the most important characteristic of OKR is that they take you out of the status quo. If you need to grow. Need to innovate, or take optimum use of an opportunity. If you have a big dream you need to realize. If you want to make things happen. You’ll need OKRs.
But you’ll also need people working AND collaborating on these OKRs.
Let’s start with people first. People are the key resource of any organization. Performance management – which has become a more wide-used term in HR in the last couple of months – is a difficult term when it comes to people. The problem with the word “management” is that it implies control- or governability.
People cannot and should not be controlled and therefore – in my opinion – performance management does not exist. At least not for people. People are not robots.
People’s performance can however be influenced. It can be influenced by keeping your team engaged and motivated. This is emphasized in a recent publication of Ipson/Edenred: “As an unpredictable economy changes the rules, employee engagement is at the heart of sustainable performance.”
Let’s zoom in on employee engagement.
According to a Gallup study from 2013, 70% of employees are disengaged and dissatisfied at work. The truth is even worse, only 13% of employees say they are engaged at work.
Apparently senior leaders are aware of this problem. The Financial Times executes an annual survey amongst a 1.000 presidents and CEOs worldwide, asking them what their biggest challenges are for the coming 5 years. Employee engagement has been ranking as a top #5 challenge for already multiple years.
In the US alone, this costs companies over $370 billion in lost productivity, each year.
Engagement makes employees become part of of something bigger than themselves, a common advice from happiness gurus for living happier, healthier lives. Engagement thus is a double-edged sword. Employees are happier, more productive, less likely to leave the organization and so on. That this is as beneficial for the employee as for the employer should be clear.
Let’s have a closer look at what employees want and how to engage them.
The graphs speak for themselves:
- 70% of employees want more clarity on goals & strategy
- 67% of employees will be more engaged when their individual goals are aligned with corporate goals
- Transparency is the #1 factor contributing to employee happiness
- 70% of employees want to see how their job contributes to the company strategy
- 50% wants to know better what is expected of them at work
Some of it might be obvious or already known to you. What’s more important is that OKR satisfies all the requests above.
I hope it becomes clear that OKR is for the employee, not the manager. Surely the manager and executives will like OKR. But the real benefit for the organization is that it offers tremendous value to the employee. This focus on the employee, the end user, is exactly what makes Perdoo unique.
Now let’s look at what OKR will bring to your organization.
OKR brings 3 key things to your company: Focus, Alignment and Engagement. All 3 are crucial, as big goals are almost never achieved by an individual. You need an entire organization to make it happen.
To foster collaboration in the team you need to bring in focus, so that everyone knows what they key priorities are. And of course you need to make these priorities (top-level objectives) transparent. Once everyone know what is most important, they can make sure that what they will be working on contributes to that. Alignment ensures all activities in the organization contribute to the strategy, something almost every organization that is not using OKR struggles with.
But alignment also allows people to see how they fit into the bigger picture, and why they are working on certain things. This is a natural way of increasing engagement. You give employees a voice, and show they have an impact. Alignment is a very, very powerful thing.
Of course there are also hard facts about what OKR can do for your team, although not many case studies have been made public yet.
Sears Holdings, a US-based leading retailer focused on seamlessly connecting the digital and physical shopping experiences, performed an OKR case study amongst 20.000 (!) associates. They found that hourly sales increased by 8.5% after the introduction of OKR.
Now you know what OKR is and what value it can bring to your organization, you probably want to know how it works. The next 4 slides are all you need to get started with OKR.
- The 1st slide will remind you on how successful companies work with OKR.
- The 2nd slide is a timeline that provides guidance for when to do what.
- The 3rd slide is a simple checklist for anyone who has to draft OKRs.
- And the 4th slide is checklist for the ambassador, the person at a company who is responsible for OKR (see below).
Perdoo has already been around for 2 years. Having worked with hundreds of organizations that are using OKRs we have gained unique data and insights into what works and what not.
I’ve tried to summarize this on 1 slide:
OKRs only, and really only work if they are transparent and aligned. Transparency is a prerequisite for alignment. If I cannot see what else is being done in my company, if I don’t know my company’s top priorities, I can also not make sure that my activities will contribute to that. Note that according to a research by Don Sull that involved 10.000 respondents and more than 300 organizations, 42% did not know their company’s top #3 goals. That number is even more shocking if you realize the respondents were all people charged with executing the strategy!!
Once your OKRs are transparent and aligned, we call them connected. The OKRs are connected, as well as the people working on them.
Professor Amabile of Harvard Business School also found that making your goals transparent significantly increases the likelihood of actually attaining these goals.
OKRs should be set frequently. A healthy frequency for mature organizations are quarters. Startup companies, like Perdoo, might want to try bi-monthly timeframes as things might evolve quicker for you. At Perdoo we strongly advise against monthly OKRs, as you’ll spend almost more time drafting OKRs then working on them.
Think of it as your organization’s heartbeat. Every quarter everyone takes some time to review and learn from the previous quarter, and to think about what they should be working on next. We call this the Executional Heartbeat. If you realize your people will spend the next 3 months working on it, you’ll understand how important it is. Your beat should be too fast (like monthly), it will make people nervous. It shouldn’t be too slow (like annually), it will take out the energy. It should be healthy (like quarters).
Successful companies working with OKR make sure to involve all teams and all employees. Involving everyone reduces wasted efforts, ensure both vertical and horizontal alignment, in-functional and cross-functional. It allows for optimum coordination of all activities. And don’t forget that OKRs also have the power to signal and communication critical information company-wide. You don’t want anyone to miss out.
Successful companies also encourage their people to share their achievement through progress updates. They celebrate even the smallest achievement and stimulate recognition through simple social features like the famous thumbs-up.
The same professor Amabile found that “Monitoring progress to achieve a goal increases the likelihood that you will attain the goal. That same research found also that your chances of success are even higher when you report your progress publicly”.
Benjamin Harkin of the University of Sheffield conducted a meta-analysis of 138 studies comprising in total 19,951 participants. They found that prompting participants to monitor their progress increased the likelihood that the participants would achieve that goal. The more frequent the monitoring, the more likely they were to succeed.
We advise you to update progress on your OKRs at least once a week and recognize others.
Last but not least, they take OKR seriously. A common best practice is to appoint an internal champion who is responsible for your OKR program. At Perdoo we call this champion the Ambassador. It is our key point of contact and our OKR coaches work closely together with them to ensure a successful roll-out and adoption of OKR.
This timeline provides guidance for running an OKR program. What I like about it is that in this timeline you are actually able to see your Executional Heartbeat!
The timeline speaks for itself and we’ve added a few pro tips (in yellow) of things we see work well at our customers.
To give you a rough overview:
- The Executive Team should brainstorm about next year’s annual company-level objectives (as well as the company-level objectives for Q1, if you work with quarterly company-level objectives).
- For the annual company-level objectives it is a great idea to solicit input from your employees. Let them submit 1 idea for an objective and discuss the input in the Exective Team. This ensures buy-in from the organization.
- Once company-level objectives for the year (and quarter) are set and presented to the employees, departmental heads and team leads can define their department- and team-level objectives. Also they should solicit input from their team and make sure their objectives are aligned with the company.
- Once team-level objectives are defined you can go down to the individual level. Make sure at least 50% of your OKRs are coming from the bottom-up and not everything is dictated top-down. You want to give your employees a voice, crowdsource their knowledge and make sure they’re engaged. We’re not living in the Industrial Age anymore where it was assumed the manager knows everything and is best equipped to make decisions.
- A Mid-Term Review can be done on team-level and is great to see if everyone is still on track. It is also an opportunity for individuals to raise a red flag if they think they won’t make one of their OKRs or to ask for help from team members.
- OKRs should be closed once you stop working on them. And they can also be graded. You can use grading to assess the quality, where progress is a pure quantitative assessment.
This is a simple checklist that has incorporated the best practices of successful companies. Everyone in your organization can use this checklist to see if their OKRs meet the requirements. You will only need this checklist in the beginning, after having drafted a dozen OKRs you should be fine.
Let’s quickly run through all elements.
An objective should be:
As mentioned before, objectives tell you where to go. So make sure the objective gives direction. Ambitious
OKRs stimulate innovative thinking. With only incremental changes people continue to think along the lines of what they’re already doing. If you’re used to selling a 1.000 books a month, setting a target of selling 1.100 won’t encourage you to find new solutions. With a stretch goal of 2.000 books people will have to explore new paths.
OKRs are the missing link between strategy and results. With OKRs you want to make sure that activities in the organization support the organization’s strategy. It’s a double-edged sword as this alignment will also boost employee engagement and let you crowdsource the knowledge of your people. Alignment is key, so make sure all objectives are aligned.
- Time bound
Every objective should be limited in time. If you set OKRs on a quarterly basis, the deadline is automatically the end of a quarter. You can also add a due date, should the objective be due before.
A key result should:
- Make the objective achievable
Imagine you have achieved all your key results, have you then also achieved the objective? Remember: an objective tells you where to go, key results tell you how to get there.
- Be measurable
Key results should be progress-based. At Google they’ll tell you a key result should have a number. This number will allow you to objectively define progress.
- Not a KPI
A key result is not a KPI. KPIs belong on a KPI dashboard and help you keep track of the status quo. OKRs help you break out of the status quo and drive execution. If this is not clear, have a look again at my NPS example above.
- Not a task / todo
If your key result can be accomplished with a single task, it’s probably not a good key result. Remember: key results are the key results you need to achieve in order to get to the objective. On individual you shouldn’t have too many, 3 or 4 key results for each objective should be enough. Of course there are exceptions (I sometimes have 5 or 6 key results for an objective), but if you have more you might be able to group some of them.
Then there is the simple Rule of Thumb we developed for both objectives and key results: if someone looks at one of them and sees 50% progress, what will it tell that person? You can simply test this by asking a colleague. If he or she has no clue what 50% progress for a specific OKR means, you should probably phrase it better. Imagine for instance you’d like to learn to play the piano. Many people are likely to create an objective Learn to play the piano. But if that objective is at 50%, what does it tell me? Nothing. Instead I can create an objective which symbolises that I can play the piano, for instance: Play the Moonlight Sonata at my best friend’s wedding. If progress is now at 50%, people probably have an idea of where I stand, and I can be sure that once I mastered this song so well that I can play it in public, I’ve probably learned to play the piano.
And of course you shouldn’t have too many. Too many OKRs fragment attention, it means you’re not able to focus on what is really most important right now.
Please note that writing good OKRs is like a muscle you need to train. You might struggle a bit in the beginning, but you’ll quickly improve over time! It’s a great skill to develop which will benefit both your business as well as your private life.
A great way to ensure a steep learning curve in your organization is to let each team review the OKRs of their team members and provide feedback. Not just on whether they have decided to work on the right things, but also to provide feedback on whether the OKR has been drafted correctly.
And here’s a simple checklist for the ambassador. As said, you should appoint an ambassador who is responsible for OKR (and Perdoo) at your organization. This checklist I assume requires no further explanation, as everything has already been addressed above.
This checklist helps the ambassador stay on track.
Best, Henrik-Jan Founder & CEO