Outcomes over Output; or why OKRs are here to stay
OKRs are a white-hot topic at the moment. The management methodology which took roots in technology companies of Silicon Valley is now being implemented by banks, cities, corporates; small startups and world’s largest enterprises equally.
While there is undeniable hype around OKRs, some are wondering if the whole thing is not just a fad. Is this an actual trend or something that we’ll all forget a year from now?
Trends vs Fads
At the core of it, the difference between a trend and a fad is that trend is something that is here to stay and will evolve with time. Fads, on the other hand, are something that comes fast and ends fast.
The problem is – telling a trend from a fad is not straightforward. Horrible, expensive mistakes can be done by erring on either side.
Among all the fads, management fads tend to be very popular. Relaying on the simple, prescriptive and often dogmatic approach – they come and go every so often. Billions of dollars have been spent on implementing TQM, MBO or Six Sigma.
It is rather obvious how spending time, resources, and money on a fad is a bad idea.
On the other hand, dismissing a trend as a fad is often an order of magnitude more dangerous, if not fatal. Think Ballmer making fun of iPhone, President of IBM saying that he thinks that there is maybe a global market for 5 computers or in a most drastic example, Blockbuster turning down the offer to buy Netflix (“They just about laughed us out of their office.” – Barry McCarthy, Netflix CFO).
Progress and evolution of ideas are inescapable. Outsourcing, remote working, distributed teams, agile software development… were all at one point something that resembled a fad very much, yet today we think of them as business as usual.
Identifying paradigm shifts
Harvard Business Review tires to classify fads through a set of shared characteristics, such as “easy”, “one-size-fits-all”, or “falsely encouraging”. I disagree with such a generalization, as I find it cynical – basically a case of statistical overfitting.
Using the methodology HBR suggests would lead us to dismiss the discovery of penicillin – as it’s easy, and it does work on basically everyone, and for all intents and purposes – is a miracle drug.
Lets’ go back to management or more broadly business. The single most important factor to distinguish a fad from trend is to recognize the mega-trends or paradigm-shifts which gave birth to a given approach. Fads, which disappear fast, are not a response to underlying paradigm-shifts, as much as they are rooted in the basic need for novelty (e.g. Japanese management was transplanted to the rest of the world, because Japan was doing extremely well in the 80s).
Which brings us to OKRs. There are three mega-trends that have changed the business landscape so much, that a new management methodology was needed.
In 2019, even small companies such as Gtmhub, have offices in 4 different countries across 10 timezones.
Internet, going hand in hand with globalization, gave birth to distributed teams and remote work
- Knowledge economy
While the economy of the 20th century was dominated by industrial, farm and service workers – the fastest growing sector of the 21st century is knowledge economy
These mega-trends are further augmented by smaller trends such as automation, AI, and slow but constant transformation of every company into a technology company (e.g. since 2018 all banks in the UK are required to provide an open API).
Globalization and the Internet, together with their implications, are well understood today – so I will focus on the knowledge economy and why this changes everything we know about management.
Knowledge workers are all about the outcome, not output
Some of the largest and most successful companies today don’t have what we would traditionally understand under assets (e.g. bank would not accept it as collateral).
Uber, the world’s largest taxi company, owns no cars.
Facebook or YouTube, the world’s most popular content companies, create no content.
Airbnb owns no property.
In the knowledge economy, it is people (a much nicer term for human capital) that represent the value. And the knowledge economy is real:
- The US alone has 60 million knowledge workers
- 1.9 million jobs are added every year in the knowledge economy (as opposed to 250k in other sectors)
- 70% of workers in US will work remotely at least one day a week (!?)
- The EU stats are pretty close to those of US
Which brings us to the ultimate question:
How is the management of knowledge workers different than those in other sectors?
And the answer is – in knowledge economy output does not equal outcome anymore.
An industrial worker in a factory may need to produce 7 gadgets per hour – the output equals the desired outcome.
A farmer may need to plow 20 acres per day – the output equals the desired outcome.
A flight attendant may need to cater to 40 passengers on a 4-hour flight – the output equals the desired outcome.
But, what about marketer, investor, customer success manager, programmer, designer, UX specialists, trader, storyteller, system admin… for all of these people – even showing up at work is optional.
No sane person would evaluate programmer on the lines of code she wrote or marketer on the number of tweets he posted. In the brave new world, results or outcomes are all that matters. Output and showing up are optional.
And to that end, the question that begs to be asked is: how do we manage these new organizations? How do we align them? How do we focus them?
Even though Elon Musk may disagree, aligning an assembly line is trivial compared to this new monumental challenge.
OKRs are Agile for the whole organization
At the very fundamental level, OKRs allow organizations to achieve alignment, focus, and transparency across the board (super condensed description of OKR methodology). But, more importantly, OKRs represent a mindset change where we manage outcomes or results, as opposed to a traditional way of managing effort and output.
It is this single quality that took OKRs mainstream within a few short years.
OKRs are notoriously hard to implement; we usually say that they are simple, but not easy. What makes OKRs so hard is not a set of rules or guidelines that define it as a methodology (remember, it’s simple), but rather the dramatic mindset change that an organization needs to go through. OKRs are often a scapegoat in a rigid organization that refuses to change, but such reaction is akin to throwing away your scale because you are overweight.
The bottom line is – some organizations will adapt successfully to the new ways, some will not; some will use OKRs, some won’t. Some will die of stubbornness.
The future of OKRs
As I have already said, trends will evolve and OKRs will not be an exception.
I expect the folklore elements of OKRs to go away first. Just as stand-up meetings and estimation poker were the first to be more or less eliminated from practical Scrum.
Dogmas will get reduced to guidelines soon after, as organizations gather real-world practical experience. Practitioners will replace consultants. Scalability and velocity will become the most important issues, replacing basic “how to” issues that we still deal with today.
Finally, forks or derivatives will develop. To borrow again from IT analogy, today companies can be equally agile using scrum or kanban – the particular flavor of agility is much less important.
But one thing that is given – we will all optimize for outcomes. We will need to align widely distributed, remote, intangible objectives of a workforce that deals in ideas and initiatives.
Robots will do everything else, anyway.