OKR: Objectives and Key Results - Guide to Setting Goals in Your Company
OKR is a goal-management framework that enables businesses to pursue pioneering goals in a realistic manner. Industry leaders vouch for it, and many companies have demonstrated stellar growth using this strategy. OKR is a methodology to guide your team towards ambitious targets in a very systematic manner.
Many of you want to know if OKR is really worth the hype. You can bet it is! In this article, we’re going to dive deep into OKRs: exploring what it is, how it works, and how you can make use of it. Let’s get started.
What are Objectives and Key Results?
OKR is a fairly simple framework, and that’s the beauty of it.
The Objective defines where you want your business or team to go. It is akin to a destination on a map. When you write an objective, you should not make it technical or include a metric in it. Rather, keep it simple so that any employee can understand it and feel inspired to work for it.
Objectives should be:
Directional: It should aim to change your current business status, and it cannot be something that will happen on its own. It need not be very specific, as the details would get covered in the key results.
Aligned: There should be an alignment of the objective with the wider objectives of the business, and with other OKRs.
Time-Bound: The objective has to be time-bound. It’s something you want to achieve in a particular quarter or fiscal year.
Circle-of-influence: It should be within your circle of influence. For instance, you cannot write an objective for the HR department if you are part of the marketing personnel.
And for a given objective, there are multiple Key Results. The Key Results are measurable milestones that you need to reach for achieving the objective.
Key Results should be:
Measurable: You have to use a metric to define a start value and another target value.
Ambitious: The fear of failure should not stop you from choosing challenging key results.
When the key result pushes you out of your comfort zone, you will think of creative ways to achieve it. You can further break down key results into initiatives, which are the sub-tasks that help you achieve your key results.
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Defining OKRs for Your Company
1) Explain OKRs to Your Employees
If you want to utilize OKRs in your organization, every employee needs to grasp the concept and be fully committed to it. So to introduce this concept in your company, identify one or more individuals who will be responsible for explaining the concept, tracking the progress, and making modifications when necessary.
Goal setting using OKR is a collaborative approach. You don’t write down OKRs and force them down on your subordinates. In fact, employees have more realistic insights on how to make things work at the ground level. Your entire team must participate in defining the OKRs.
2) Ensure Transparency
An organization should make OKRs a part of its work culture. This means apart from different teams, all employees should have their individual OKR. And no matter where the employees stand in the company hierarchy- whether they are at the corporate level or they are in charge of the production line, their OKR should be visible to the entire company. Yes, transparency is a very important part of OKRs as it leads to greater alignment.
3) Choose the Right Time
Before you can use OKR for goal setting in your company, you should be fully aware of the present business scenario. Ideally, the time right after your quarterly or annual reviews is great for setting OKRs. The team leaders of individual departments or projects can identify OKRs for the next cycle when they are evaluating the business metrics for the present one.
4) Writing OKRs
Here are some quick guidelines to help you write effective OKRs:
1) You can decide the frequency of developing objectives according to the nature of your business- you can have monthly, quarterly or annual objectives. You should not have too many OKRs at one time, as you would risk spreading your organization too thin. For instance, if you write new objectives every month, stick to 1 to 3 objectives at a time.
2) The objectives should really matter to the work you do. Achieving the objectives should result in business growth, employee growth, improvement in processes, and so on. As an employee, don’t come up with random objectives just because your boss wants you to write OKRs. Give real thought to the process.
3) For each objective, you have to define key results. Key results should be measurable. A Key result cannot be ambiguous. It cannot be a yes or no question. It must include metrics so that you can monitor your progress. State the present metric and the target metric. The target metric should be an ambitious figure so that real growth happens in the process of achieving it.
4) For a particular objective, write three to five key results. Again, this can vary according to the nature of the work. Just make sure you don’t write too many key results and create confusion.
For instance, you can frame an objective around talent acquisition in your company. The OKR could look like the following.
Objective: Boost talent acquisition to build team capabilities.
KR 1: Reduce the hiring time from 40 days to 20 days
KR 2: Launch hiring campaigns on a minimum of four job websites.
KR 3: Set up an employee referral program.
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OKRs vs KPIs
Many folks mix up an OKR with a KPI. Both OKRs and KPIs are used to assess the team’s performance, and both of them are measurable. The underlying difference between the two is the way in which they are used. Let’s discuss this in detail.
What is a KPI?
Key Performance Indicators are a part of daily business activities. These are the metrics that you track weekly, monthly, or yearly to see where your business stands. Businesses use KPIs to set targets for different departments and the people working in them, which makes it a very top-down approach. You would also find KPIs in job descriptions- they are often used to describe the responsibilities of an employee.
Here are some examples of KPIs:
1) Product Management KPIs:
Retention rate: The percentage of customers who continue to pay for a product or service over a time period.
On-Time Delivery: The ratio of customer orders shipped on or before the promised delivery date against the total number of orders. This is an important KPI for all e-commerce businesses.
2) Marketing KPIs:
Customer Lifetime Value: Average customer revenue generated over their entire relationship with a company.
Sales Qualified Leads: A lead who is highly likely to become a customer.
3) Customer Success KPIs:
Average Revenue Per User: An important metric for SaaS companies, it’s the revenue generated from each active user.
Customer Churn Rate: Another KPI useful for SaaS and other subscription-based businesses. Churn rate shows the percentage at which customers are canceling their subscription in a given timeframe.
How is an OKR different from a KPI?
KPIs only tell you where the business stands at a particular moment in time. They don’t indicate any action or solution. That is how they differ from OKRs. Objectives and Key Results define the changes you want to see in your business activities. The Objective defines the changes, and the Key Result is a measure for those changes. The management as well as the employees participate in setting the OKR framework, so it is a mix of a top-down and bottom-up approach.
Let us illustrate this with an example.
The Sales Qualified Leads for Product A was 100 during Q1. This is a KPI. It merely shows the present position. Whereas an OKR denotes a call for action, say doubling the Sales Qualified Lead in the next quarter.
In a nutshell, a KPI is just a metric that measures output at any given point in time. And an OKR is a complete framework that takes you on a journey with measurable outcomes.
Using KPIs and OKRs Together
Often, businesses use both OKRs and KPIs to drive changes in the organization. KPIs reflect your present business performance. They can be used to analyze and define the changes that you want in your business processes and outcomes. For example:
1) You want your business to strive for a higher KPI. Let’s say you want to increase the Customer Lifetime Value from $600 to $1,800 over the next fiscal year. You can use OKRs to define how to achieve this higher target.
2) The digital marketing department in your company had a KPI of achieving 10,000 new visitors every month, but the figure stands at 4,500. You can use OKRs to find what can be improved to fix this KPI.
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Organizations That Use OKR
OKRs find their origin in a concept called ‘Management by Objectives’, which was introduced by the famous Peter Drucker. He suggested that organizations should strive to achieve well-defined objectives and they should be able to measure their progress.
But it was Andy Grove who gave the framework of Objectives and Key Results its present shape at his company Intel. Further ahead in time, former Intel employee and famous venture capitalist John Doerr popularized OKRs by introducing it to other larger businesses.
The list of companies using OKR spans across industries. Facebook, Viacom, Amazon, Uber, Twitter, Panasonic, LG, GoPro, American Global Logistics are some of the big names who have reaped the benefits by using OKRs. But let’s talk about those companies that made OKRs go mainstream.
Andy Grove used OKRs to help Intel transition from a traditional memory storage company to a leader in the world of microprocessors. At that time, Grove called them iMBOs, an acronym for ‘Intel Management by Objectives’.
It was Intel’s success that demonstrated the power of goal-setting using OKR. By defining stretch goals, the company was able to achieve its highly ambitious plan in a step-by-step manner. Andy Grove says it took them a while to get used to OKRs. With time, they were able to utilize the tool effectively and take their business to a leadership possition in the microprocessors industry.
Andy has also stated that while OKRs should be used to inspire employees, it should not be the sole basis for evaluating their performance. Keeping OKRs separate from performance reviews would give employees the freedom to unleash their creativity and chase lofty goals.
Google is the most famous example amongst businesses that use OKR. It was John Doerr who introduced the OKR Framework to Google in the year 1999. The founders of Google, Larry Page, and Sergey Brin were tech geniuses with an entrepreneurial spirit. They had the talent, the team, and the conviction to disrupt the world of search engines. What they lacked was a solid interpretation of their ideas and strategy in terms of a business plan.
Doerr gave their team a 90-minute presentation on OKRs that would help them with goal-setting and monitoring progress. Needless to say, the team found what was missing, and OKRs continue to be a part of Google’s work culture to this day.
The world’s favorite online streaming service, Netflix, follows a highly transparent OKR driven work culture. Every Netflix employee is aware of the priorities of different teams and individuals working in the company. This culture demands accountability from every employee and eliminates those who are not comfortable with such close inspection of their work.
Yet, an impressive 94 percent of Netflix employees appreciate the OKR driven work environment. They feel satisfied because the goals of the company are clear to them, and they see themselves as part of its growth story. They appreciate the transparency and feel driven to achieve their own work-related goals.
Bill and Melinda Gates Foundation
Most organizations use OKRs to accelerate business growth. But there are organizations and individuals who adapted the framework to chase audacious goals for the betterment of the world. The Bill and Melinda Gates Foundation uses the OKR framework to fight poverty and diseases around the globe. Once again, it was investor John Doerr who shared the concept with Bill Gates.
The organization implemented the framework for disease eradication. One of their first objectives was the eradication of the Guinea worm, and the key results were quarterly and annual targets for reduction in disease incidence. The strategy helped the foundation to bring down the incidence of Guinea Work from 70,000 to 2,000 within the year 2015. And that speaks volumes about the direction and energy that OKRs can bring to any work.
Next Steps for Adopting OKRs in Your Company
You can use Excel or Google Sheets to keep track of OKRs in your company. But if creating rows and columns sounds tedious, you can also find software like Koan, Workboard, and others that are specifically created to track OKRs in organizations.
You should also remember that the OKR framework is a tool and not an end in itself. Involve your team in setting up OKRs, and support them by allocating the resources they need to work on the key results.