OKRs – everything you need to know
OKRs stand for Objectives and Key Results. It’s a goal management methodology, especially well suited for ambitious, high-growth companies.
This post is a tutorial of sorts, which includes both the theory as well as tips from actual companies that have implemented OKRs.
- What companies use OKRs?
- Anatomy of an OKR
- Mission & Vision
What companies use OKRs?
In the beginning, OKRs were mainly used by high-tech companies, but lately, they are becoming popular with all kind of businesses.
Here is an incomplete, but very indicative list of businesses using OKRs:
Google, Intel, LinkedIn, Amazon, Facebook, Oracle, Twitter, Zynga, Uber, DigitalOcean, Buffer, Mozilla, The Guardian, GoPro, Booking.com, Sears, MongoDB, Atlassian, Spotify, Zendesk, Box, Dropbox, VMware, Eventbrite…
Source: Twitter list – OKR companies
OKRs were invented at Intel in the 1970s. At the time Intel was transitioning from a memory company to a microprocessor company, and a system was needed that would allow employees to set priorities.
John Doerr, of Kleiner Perkins, who was at the time working for Intel – later introduced OKRs to Google.
It was Google that made OKRs popular, as it attributed its success largely to OKRs and soon other Silicon Valley companies, such as LinkedIn or Zynga, started to follow.
Finally, the now famous Google video in which Rick Klau explains how Google sets OKRs made OKRs globally popular.
Anatomy of an OKR
OKRs are one of the simplest goal management methodologies. There are relatively few ideas and rules one needs to understand.
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Often, the best way to understand OKRs is to start with an example from real life:
- Objective: Become fit
- Key Result 1: Lose 10 lbs
- Key Result 2: Run a mile under 7 minutes
- Key Result 3: Lift 150 lbs on bench press
- Work out 3 times per week – resistance
- Run 3 times per week
- Remove sugar from diet
Now, using this example, we will dissect the OKR.
The objective is always aspirational and of qualitative nature. It is not a target. It is also said that while the objective is qualitative, it should be measurable. In other words, it should be possible to measure it in some way. For example, “fitness”, is not a good objective, as it does not imply do we want to become fit or maybe just stay fit.
Essentially, objective provides a context – what we want to achieve.
Key results are always quantitative and represent the definition of success for our objective. Key results always flow from the objective, which provides the context. For example, while losing 10 lbs may also be a key result for the objective “become a super model”, running a mile under 7 minutes would be hardly relevant for that objective.
Key results provide the desired outcomes – how do we know we’ve achieved our objective.
Note: Typically, key results should be very ambitious, so much so that achieving them at 100% should be nearly impossible. Most OKRs practitioners will say that 70% achievement of the key results is optimal. The reason for this is that below 70% is considered relative failure, while over 70% indicates objective was not ambitious enough.
Best practices suggest you should have between 3 and 5 key results per objective.
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Tasks are the final piece of an OKR. This is what you are going to do about achieving your objective.
So, to repeat, OKR is made up of three components:
- Objective: What do I want to achieve
- Key results: How will I know I’ve achieved the objective
- Tasks: What am I going to do about achieving the objective
You can find a more elaborate explanation of this in our Anatomy of an OKR: How to set your OKRs post.
Mission & Vision
Something that organizations often miss when just starting with OKRs is clearly stating and communicating mission and vision. It is essentially impossible to run a successful OKRs program without those two.
The mission is the reason a company exists.
Make better food so that people live a better life. – Nestlé
Vision builds on the mission, by taking into account where the company is at the moment and where it wishes to go.
To bring consumers foods that are safe, of high quality
and provide optimal nutrition to meet physiological needs.
In addition to Nutrition, Health and Wellness, Nestlé
products bring consumers the vital ingredients of taste
and pleasure. – Nestlé
All OKRs, from the top level ones all the way to individual ones are ultimately derived from mission and vision. Just as every law needs to be aligned with the constitution, every objective in OKRs needs to be aligned with mission and vision.
The OKRs process is pretty lightweight, compared to the alternatives. There are only a handful of rules or practices that define the whole process.
The critical part of each OKR is that it is time bound. Typically, companies will define the planning cadence that everyone in the organization will follow. The most often cadence is a quarter, meaning that an objective is to be achieved within a three month period. In addition to this, many companies will define annual objectives on the company level.
Smaller teams that are moving at high velocity sometimes choose a shorter cadence, anywhere between 4 and 8 weeks.
How many objectives?
Typically, people and teams that own OKRs should have 2-3 objectives per planning period. One of the biggest benefits of adopting OKRs is better prioritization and focus across the organization. Limiting the number of objectives someone owns encourages the critical thinking on what is really important. In OKRs methodology deciding what not to do, naturally, is as important as deciding what to do.
While not necessary, OKRs can also be aligned to each other. This concept is best understood with a simple example:
- Objective: Improve sales process
- Objective: Shorten sales cycle
- Objective: Improve sales collateral
- Objective: Automate lead scoring
- Objective: Shorten sales cycle
In this example, we can see that the top objective – Improve sales process – is being supported by two sub objectives. Also, we can see that the supporting objective – Shorten sales cycle – is supported by another sub objective, namely Improve sales collateral.
Not every objective needs to be aligned and more importantly, objective alignment does not have to follow the organization hierarchy. It is completely plausible that a summer IT intern has an objective that supports CEOs objective.
Who should own OKRs
OKRs can be owned by a person, team and a business itself.
To learn more about the nuances of this topic, refer to this blog post.
When it comes to setting OKRs, there are three fundamental approaches:
- top down
The manager comes up with OKRs and assigns them to her reports
- bottom up
Individuals and teams come up with OKRs, while taking into account company’s mission, vision and company OKRs
The manager and individual negotiate the objective and key results together. Typically, the manager will communicate his objectives and ask the individual “How can you help me achieve my objectives?”
To learn about pros and cons of each approach, read this blog post.
One of the most important practices of OKRs methodology is regular retrospective meetings where progress is discussed. Those are short meetings that typically take place every week or every other week.
Every team should gather and discuss the progress as well as the priorities for the next week. In addition to this, the confidence level of each OKR should be updated on these meetings.
Organizations that fail to establish retrospective meetings are almost never successful with OKRs.
OKR champion is a person in charge of the OKRs process. Depending on the size of the organization, there may be more than one OKR champion.
This is a go-to person in regards to OKRs.
Businesses find various benefits when adopting OKRs, and many of them depend on the particular company, culture, and other circumstances.
That being said, there are four benefits that most if not all business will see after successful adoption of the OKRs process.
OKRs methodology prescribes that everyone in the organization, including the company itself, chooses 2-3 objectives that they will focus on for the quarter. This simple limitation enforces everyone to focus on the most important objectives.
Stating explicitly objectives that will not be pursued during the planning period is also an essential part of the OKRs process.
As companies grow and new people join, making sure everyone is pushing in the same direction becomes increasingly challenging. Employees often do not know company’s mission, vision or even current objectives. In addition to this, knowing what one’s peers are working on can often be a challenge.
This often leads to waste, as effort and resources are employed in a sub-optimal way.
OKRs solve this, by providing a simple framework which allows everyone to know the direction and objectives being pursued. Armed with this information, every employee is able to use his time and resources in the most productive way.
There are several reasons why OKRs increase employee engagement:
- People understand the purpose of their work
- The quantitative nature of key results makes success, as well as failure, unbiased
- Typically, employees participate in setting the objectives which both empowers them and instills sense of accountability
Because OKRs are public for everyone in the company, transparency is a directly built-in benefit.
Much simpler in theory than in practice
OKRs make a lot of sense in theory. They tend to be deceptively simple and many organizations rush into implementing them without proper preparation. In practice, however, it typically takes organizations 3-6 months to adopt the process. The ones that are not anticipating this, often abandon OKRs.
70% is the new 100%
Most of us have been raised in an environment where 100% is considered the best – in the environment where one always strives for straight As. OKRs often present a mindset change, as they encourage people to set ambitious objectives, which are almost impossible to achieve – and 70% achievement is treated as optimal.
A term sandbagging is used for individuals and teams that consistently achieve 100% on their OKRs. It is a negative term, as it indicates that the objective was not ambitious enough, but rather it was designed in such a way to be confidently achievable. One of the underlying philosophies of OKRs is to look for ways to break status quo and strive to deliver exceptional results. If one has to choose between missing the target and lack of ambition, missing the target is always more favorable.
Coming up with metrics can be hard
The examples of OKRs on the internet, always use simple straightforward objectives that have nice clean metrics that can be used and key results. In practice, however, things are not always so tidy.
Coming up with objectives and well defined key results is not easy and it takes time. While it sometimes may be discouraging, one should realize that this is a valuable process in itself which forces us to think explicitly about what is it that we want to achieve and how are we going to measure it.
There are no direct alternatives to OKRs, however, there are some similar methodologies.