just different ways of doing the same thing?
Let’s imagine a person, and to keep it simple, we will reduce that person to only two important numbers:
Those two numbers are
or Key Performance Indicators. Resting
and bank balance indicates
. It is usually a good idea to keep track of those two values at regular intervals – let’s say once per week.
Now, let’s imagine that the person has a resting
of 55 (excellent) and the bank balance is $14. In that case, the person should focus on increasing wealth – perhaps save more or take a second job. Health is in an excellent state, but the person is in a state of poverty. If that person decides to increase wealth over some period of time, that would then become an
Improve all the things?
Often, the question appears – why not improve all the
all the time? For example, in business, it may sound logical that we should always try to increase revenue.
If that is true then we could say that every quarter we should have
designed to “improve” every single
There are many reasons why this doesn’t work. Actually, it can be quite harmful.
1. Many KPIs have optimum values
Take the heart rate example. If we are 55, we could try to “improve” it all the way to 0 – but that is generally not advisable. In SaaS business, for example, the optimum for LTV/CAC is 3:1. If this ratio is lower, it indicates that you are not efficiently acquiring customers; if it is higher, it indicates that you could grow faster, but are being too cautious.
2. KPIs are interdependent
In other words, “improving” many KPIs will have adverse effects on other KPIs. In our personal example, we may decide to join the gym to improve our resting heart rate, but that will also mean another expense – which will decrease our bank balance. In sales, we often track ACV (Annual Contract Value) or ASP (Average Selling Price). On the surface, it may look like the higher those values the better – so, we should always try to increase them. However, increasing ACV / ASP will also usually mean that your sales cycle will be longer, that your TAM (total addressable market) is smaller, etc.
3. The Law of Diminishing Marginal Utility
Simply put, the
Law of Diminishing Marginal Utility
means that the more we improve something, every subsequent improvement will bring us fewer benefits. In our personal example, if we reduce our resting heart rate from 55 to 54, the benefits we will reap from this will be very small. On the other side, if we increase our bank balance from $14 to $2000, our personal welfare will increase greatly.
4. Low hanging fruit
It is usually much easier to improve things that are very broken, than those that are near perfection. For example, it is way easier to learn to play chess than to go from master to a grandmaster title. So, not only that you will reap bigger benefits because of the Law of Diminishing Marginal Utility, but focusing on things that are broken will also be easier.
5. Output vs Input
Many KPIs are what some call output variables or lagging indicators. For example, every business will track revenue as a KPI – but that doesn’t make revenue a good OKR or a goal, as healthy revenue is the result of many other things over which we have direct influence (e.g. pricing, product, customer service, marketing, etc)
So, as we have seen – many
will from time to time become
, if we decide to improve them in some ways, but in no way are all
to understand the performance and
to improve targeted elements of the
. Both are necessary.
How we do it at Gtmhub?
At Gtmhub we use Gtmhub to manage
We have divided our business in three different groups:
Each of these three groups has its own
defined that we track on weekly basis. For example, the Product group will track things such as 30-day NPS or DAUs (Daily Active Users); the Distribution group will track
such as bookings or pipeline and so on.
Each of the three groups (Product, Growth, Distribution) meets once per week and first order of the business is to go over
in real time makes it really easy for us to decide on our
, as it gives us a real-time insight into everything about our business.
For example, if we see that the number of Open Critical Bugs keeps growing week after week, then we know we have a problem with quality – but, also a problem with customer service. This becomes a natural OKR for the engineering team, where the objective is to “Improve Quality” and key results would have to do with open critical bugs, SLAs, number of new bugs, etc.
Answers are easy, questions are hard
When people just start with
, one of the initial hurdles they face is – what should I do for my OKR? The logical, albeit not very helpful, answer is to ask: “Well, what would you like to improve?”
Without having the baseline of the current state that
provide, it is indeed very hard to create
Or, in other words…
“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“–so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”
A common question we get is – should we set annual OKRs or quarterly OKRs? In this post, I am going to describe what we have found to work best in practice. Have OKRs follow your planning cadence The simplest answer is that your OKRs should be set at the same interval for which you
An encyclopedia-like blog post, catered to Chief Strategy Officers who want to learn how to successfully drive multi-axis alignment, and get a unique learning perspective on OKRs and strategy execution best-practices.
“Increase revenue.” That is by far the most popular Objective on our trial accounts. And, can you blame people. It is raison d’être for having a business. Yes, yes… make the world better place, impact – I know. But, it’s so much easier to make the world a better place when one is a billionaire.