OKRs are a system of collective and individual goals that converge in the pursuit of an organization’s overall goals. The simplicity and transparency of OKRs and their effects on team focus and motivation made OKRs quickly popular, especially among technology companies in Silicon Valley.
The OKR methodology, which is very similar to management by guidelines, has been winning over more and more companies interested in developing management based on indicators and goals as a path to a culture of high performance and results. Generally, a brief study on the OKR methodology brings more questions than answers.
For this reason, we have prepared this introductory article with tips and learnings about implementing the methodology.
Browse through the post:
- What OKRs are
- The anatomy of an OKR
- The difference between OKRs and traditional goals
- Strategic Planning and OKRs
- Cadence that tends to work
- The 5 benefits of implementing OKRs
- Implementing OKRs in your company with these 8 tips
- The 5 most common mistakes in defining OKRs
- The cadence of OKRs
- What’s wrong with the numbers?
- The five “whys”
- The Fishbone Graph
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What OKRs are
OKRs (Objectives and Key Results) are a re-reading of the Management by Objectives (MBO) articulated by Peter Drucker. The term Objectives and Key Results emerged from the book High Output Management, by Andy Grove (former CEO of Intel) and was popularized in the 2000s by John Doerr, venture capitalist and Google board member.
It is a system of collective and individual goals that converge in the pursuit of the overall goals of an organization.
The simplicity and transparency of OKRs and their effects on team focus and motivation have made OKRs quickly popular, especially among technology companies in Silicon Valley.
Its adaptability to different realities is also responsible for the great reception it gets. At Google, for example, the OKRs were adopted in the very first year of activities, when the company had about 40 employees – and are still in use today.
The anatomy of an OKR
An OKR is composed of a qualitative goal accompanied by some quantitative and/or measurable key-results.
As you can see, the goal (or objective) does not have to be SMART. On the contrary, objectives should be qualitative so that they do not conflict with key-results. Good objectives should also be aspirational: the more memorable, the better.
should be clear metrics and deliverables that measure whether we have
succeeded in reaching our goal. So a good exercise to do is: if we achieve our key-results, have we achieved our goal?
Good Key-Results are S.M.A.R.T., an old acronym that means:
The difference between OKRs and traditional goals
OKRs are goals. So why all the hype about them? Let’s understand: OKRs are an adaptation of the traditional goal practice to the more unstable and competitive reality of today’s companies.
OKRs are created and re-evaluated in shorter cycles ranging from 1 to 6 months, whereas the traditional practice is to manage goals in annual cycles. As we will see, the short cycles are nested in annual cycles, strategic cycles (from 3 to 10 years), and finally to the vision and mission of the company.
By default, everyone’s OKRs are public within the company. Since they are less directly linked to the compensation management process this is no longer a problem. On the other hand, the alignment and motivation benefits of having public goals are enormous. It is worth remembering that there are OKRs that will continue to be private – when they might compromise, for example, the competitive strategy of the business.
OKRs are defined in a more decentralized way, giving more voice and participation to teams and their members. In MBOs, Objectives tend to be broken down from the top down in a formal and rigid way, by a strategic planning or performance area.
In this way, if all employees beat their goals, presumably the company will have beaten its corporate goals. OKRs, on the other hand, are more flexible: employees are encouraged to set their OKRs in alignment with higher Goals (such as their team’s, or the company’s), and then view them with their managers.
In some companies, OKRs are achieved when their “owners” reach 70% success. So you ask me, is 70% the new 100%? Not really. The idea is that if employees, in aggregate, aim
higher, they will achieve more results. In this context, the actual results achieved are much more significant than the percentage of achievement.
In hard-core meritocratic organizations, goal achievement is the basis for variable pay. If you achieve 100% of the goals, you make Y times your monthly/annual salary. In this type of organization, employees tend to put their foot down and negotiate easier goals to make it more likely that they will achieve them.In OKRs, the % completion doesn’t matter – it’s the actual results achieved that matter. (In MBO, the quotient is what matters, or a proxy for the results. In OKRs, it’s the numerator that counts).
OKRs and (strategic) planning
Multi-year strategic planning may seem like a joke in today’s world – since we can’t even plan what our companies will be doing in 6 or 8 months. However, it is still important that there is some kind of plan in place, helping decisions to be made on a day-to-day basis.
Strategic Planning and OKRs
As we know, strategies involve a plan that reflects directly on companies’ decision-making. In this sense, it becomes much more concrete in the near future and more abstract in the long term.
In the short term, companies need to be concerned with OKRs and projects – which are essentially the articulation of the gaps you need to close and also the efforts and experiments needed to get there.
The map of the terrain ahead of the company (current state and the 1-year vision) is provided by the SWOT matrix – whose main objective is to articulate the opportunities and threats ahead of the company that can help or hinder the achievement of the 1-year vision.
Importance of strategic planning
Strategy and strategic planning exist so that the company can increase its chances of success. In other words, it will define point A (where the company is today) and point B (where the company wants to be in the future).
In this sense, a good strategy tends to maximize the chances of success and balance the short-term threats that the organization expects to encounter further down the road.
Points to be included in a good strategic plan
For the strategic plan to be considered good for the company, it must contain the following topics:
- Why the company exists (i.e. the mission or purpose of the business);
- The terrain that lies ahead of the organization, plus the strengths and weaknesses to get through that terrain – products of the SWOT analysis and learnings that the company has in recent cycles;
- Where the company wants to go in the future (expectation of where it wants to go), represented by both 1-year and 10-year visions;
- Strategy – what the company will do to achieve the defined vision.
Large companies rely on 3 or 5 year plans (visions) and do 1 year goal cycles, with semi-annual “reviews“. “Revisions” hardly ever occur, with exceptions for some scenarios:
- Scenario 1: Employee is delivering results. If everything stays the same, he will beat his goal by the end of the year. His boss, or someone in the company, tries at any cost to rehire a more aggressive goal for the employee, because that one “was too easy”.
- Scenario 2: The company enters a bumpy stretch in its path. Beating goals becomes impossible, due to some image crisis or factor beyond the employee’s control. No one rehires your goals, which “won’t be met anyway.
Goal renegotiations within a cycle are a very delicate matter. Therefore, it no longer makes sense to apply long target cycles in favor of shorter ones. This way, adjustments can be made without the impression that the targets are a lie, and the company corrects its course as needed.
Cadence that tends to work
The cadence that tends to work for most companies is composed of a dream (more on this later), annual corporate goals, and quarterly cycles of company, team, and employee goals.
The company has a missionary/visionary goal, which takes multiple years to achieve: a company seeking 1 billion downloads on one of its apps, for example.
Based on the Dream, the company sets annual corporate goals that must be communicated by the CEO to the entire company at the beginning of the fiscal year.
The further we look, the greater the uncertainties. That is, the less reliable our plans will be. In this sense, the ideal is for the organization to have two working visions: one of 10 years, far enough into the future, and another of 1 year, close enough to the present.
After all, there is greater clarity of where we want to be in 1 year and less clarity in 10 years.
At the beginning of the year, the company’s CEO sets the goals for the first quarter. From these, teams and employees plan the tactical goals that will bring them closer to the annual objectives.
The company’s long-term vision should be represented by a dream. In Google’s case, it is “to organize the world’s information and make it universally accessible and useful.
This dream should serve as a guiding star for the company’s major decisions and a springboard for every OKR cycle, whether annual or quarterly. According to Jim Collins, author of Good to Great, dreams should be big, hairy, audacious goals tied to the company’s larger purpose.According to Jorge Paulo Lemann – currently the largest individual shareholder of companies such as Anheuser-Busch InBev, Burger King, and Heinz Kraft – , “you have to dream big, because dreaming big and dreaming small is just as much work. Larry Page of Google and Eric Schmidt say the same, as does Jeff Bezos of Amazon.
The 5 benefits of implementing OKRs
The time has come to understand the main benefits of implementing OKRs. Check some of them out!
1. Focus and Prioritization
OKRs force the company to prioritize the business results that are most important in a given period. From this prioritization, they generate focus and facilitate new layers of prioritization across all areas and hierarchical levels.
It is worth pointing out that it is scientifically proven, mainly by the American academic Edwin Locke (and long before the term ‘OKR’ existed), that goals increase focus.
2. Greater alignment
The OKRs are born from a company’s vision and mission, and are unfolded until everyone knows what is most important here and now. This alignment occurs in two ways: temporal and organizational. In practice, the company creates its strategic OKRs aligned to its mission and vision. Then it creates its annual OKRs aligned to its strategic OKRs. This is temporal alignment.
The alignment effect is enhanced by the fact that OKRs are transparent. That is, by default everyone can access everyone else’s OKRs, and the reverse is the exception. Dependencies and contradictions can be quickly identified, discussed, and resolved. Here there is a significant difference from traditional goals.
4. Contributes to the motivation of professionals
It is scientifically proven (again, by Locke, before the term “OKR” existed) that difficult (but attainable) goals increase people’s motivation towards the tasks they have to perform.
Since OKRs are less directly linked to employee compensation (i.e., they are a management tool rather than a compensation tool), it is encouraged that aggressive goals are set to encourage innovation at work.
Vicente Falconi, Brazilian management guru, goes further: he relates difficult goals to the engagement of employees when he says that “from the point of view of the people involved, the value of the goal should be above their ability to achieve it, so that they need to learn more and grow in the process of achieving this goal.
5. Culture of results
We hear people talk about “focus on results” left and right. Perhaps 9 out of 10 companies have, among their corporate competencies, values, or strategic guidelines, some variation of the expression “focus on results”.
What the heck does “result-focused” mean? A person who has “result focus” has a clear sense of the difference between an effort and a result. Let’s look at some efforts and results that are often confused:
- Taking a sales meeting is an effort. Closing the sale is a result;
- Implementing the ERP system is an effort. Reducing accounting and financial errors is a result;
- Making a new feature for the e-commerce shopping cart is an effort. Increasing the conversion rate is a result.
The relationship between an effort and an outcome is always relative, not absolute. It is always important that an individual’s or team’s OKRs have Key-Results based on results relative to the person who owns the OKR.
So if the team that handles only the cart feature of ecommerce needs to “improve customer conversion from the cart” (Goal), their Key-Result should be, for example, “conversion rate from carts with items to purchases” and not “sales”.
Implementing OKRs in your company with these 8 tips
Now that we have a good understanding of what OKRs are and how important they are, we will offer some practical tips on how to implement them in your company.
1. Adapt the methodology to your needs
The OKR methodology has a number of characteristics of its own, which does not mean that it should be implemented in the same way in every company.
There is no recipe that can be applied in a standardized way with guaranteed success, nor is there any point in simply copying it from other organizations. Before adopting it, it is necessary to adapt it to the reality of your organization.
2. Implement it in stages
Ideally, the introduction of the OKR methodology should happen gradually. Choose one area to act as a pilot and start there.
It is a sure way to evaluate the methodology’s success and accompany the employees’ adaptation to the new process, which is being inserted into the company’s management culture. Then, expand the use of OKRs to other areas.
3. Set short cycles
The success of the OKR methodology depends heavily on the definition of shorter cycles for the achievement of goals. In general, companies define a period of three months for the deployment of individual and team goals.
4. Have a leader and some ambassadors
Choosing a leader for the implementation of OKRs in the company is a way to facilitate the process of adjustment to the new goal methodology. It is recommended that this leader be one of the company’s managers.
He must study in depth how the methodology works so that he can command the entire process. The leader will also be responsible for creating a group of ambassadors of the practice that will be responsible for ensuring its correct and constant application in the company.
5. Follow up on goals regularly
During the process of implementing the OKRs, it is important to perform a weekly follow-up of the evolution of the goals. This is a way to evaluate if there are any difficulties in their application and if there is a need for any adjustments to proceed with the process.
As people become more proficient in using OKRs, this evaluation can take place at longer intervals. Remember that goals should be set for a three-month period.
6. Start with the company’s OKRs
The first step in determining goals is to define the organization’s OKRs. Start with global goals, outlining company objectives for the period of a year, for example. From this annual goal, determine more specific goals, which must always be met within a quarter.
7. Move towards OKRs in the areas
Now that the company’s objectives have been determined, it is necessary to choose the goals for the areas and for the teams. For this step, the tip is to be prudent.
It is not recommended to start by defining a large number of goals, nor very bold goals that may confuse or overload the collaborators. The ideal is to start with simpler goals, so that everyone can contribute and follow their evolution, better understanding how the methodology works.
Achieving easier goals can be an impetus for greater challenges, which will come with the implementation of bolder indicators in later cycles.
8. Involve employees in setting goals
After one or two cycles of team goals, it is time to determine the individual goals. Here’s a practice adopted by successful companies when implementing OKRs that should be noted: the employees themselves participate in setting their goals.
In general, individual OKRs are defined partly by the company’s leaders (40% of them) and partly by the employees themselves (60%). But of course this does not happen randomly.
It is necessary for managers to bring their teams together and, based on the company’s global goals, determine how each member can collaborate so that the organization achieves its objectives.
Ideally, each employee should have between 3 and 5 OKRs to accomplish in each cycle.
The 5 most common mistakes in defining OKRs
The OKR methodology can make a big difference in your company’s processes. But it takes some care to ensure its success. Check out some common mistakes when implementing OKRs:
1. Not following the OKRs (set and forget)
A goal that is not monitored may even fall by the wayside. Its periodic follow-up contributes to the engagement of those who must achieve it.
2. Disrespecting phased deployment
Working with OKRs presupposes a change in company culture. And this needs to happen gradually.
3. Lack of leaders and champions
More than a project coordinator, the leader is the great motivator of the implementation of the OKR methodology in the company. As Jorge Paulo Lemann says, “everything must have an owner”.
4. Lack of communication and alignment
OKRs are goals that converge toward a larger company objective. Therefore, it is necessary that the areas exchange information and subsidies. It is unlikely that the work of one area will not influence the other ones.
5. Linking OKRs to bonuses
The motivation to achieve goals is linked more to the challenge to be conquered and the result than to the reward.
The cadence of OKRs
Understand a little more about the main steps that should be followed in an OKR cadence.
The first – and most important – part of monitoring OKRs are the follow-up meetings. It is essential that the organization promotes a culture of learning around the goals. That way, no one will be afraid to bring up “bad news” so that the whole team can come up with solutions. According to Dean Spitzer:
“One of the main reasons why performance measurement is rarely able to fulfill its potential business impact is because it is almost never properly conducted in a positive way in the social fabric of the organization. It is this building of a positive environment for performance measurement that I believe is the missing link between ordinary performance measurement of the truly transformational kind.”
What’s wrong with the numbers?
But what is wrong with the way we measure and learn from goals, if we are accustomed, from school and childhood sports, to measuring results (grades, goals) in a numerical way? Dean Spitzer once again sums it up perfectly:
“Why does the attitude toward job performance measurement range from ambivalence to hostility? Because many people are conditioned to expect the punitive effects of measurement when things don’t go well, especially the judgment, humiliation, and anxiety that follows. The reward for the few, the punishment for the many, and a search for the guilty.”
Basically, for every goal, there should be an action plan that defines what will be done – and by whom – to accomplish that goal. To figure out what the action plan is, the team should convene and discuss possible solutions to the “problem” at hand, through problem-solving techniques such as:
- Five Whys;
- Fishbone Diagram;
- Design Thinking session with brainstorming. C
With the possible courses of action identified, the team chooses the priority ones based on the Pareto Principle, which states that 20% of the actions will account for 80% of the impact.
In order to create a learning and problem-solving culture (opposite of a blame and finger pointing culture), we seek inspiration in the analysis of problems in the Hoshin Kanri book by Vicente Falconi. In it, the author describes a table in which, basically, it is analyzed if a goal was reached or not reached, and if the proposed action plan was executed or not.
Therefore, we are able to analyze, basically, whether or not a goal was achieved “on purpose” or “by accident”. Here’s how to deal with the 6 possible cases!
1. Actions were executed according to plan, but the target was not met
In this case, the plan was wrong. Or, there was some new variable that affected the problem (and that only emerged after the action plan was created). Initially the team has to know why the action plan was wrong. In the next cycle, the new variable can be taken into account.
2. Actions were not executed according to plan and the target was not met
It is important to understand why the plan was not executed. If there were factors that prevented the plan from being executed, the team must understand why these were not neutralized with new actions or alternative courses of action.
3. The actions were executed according to plan and the goal was achieved
Even when goals are met, teams should carefully analyze the accomplishments and evaluate whether they were a consequence of the action plan or external factors. What were these external factors? Why were they not foreseen? The team must understand the “whys” behind each answer.
4. Actions were not executed according to plan, and target was reached
Again, it is important to understand what unforeseen factors contributed to the goal, and why they were not foreseen. It is also important to understand why the action plan was not executed. It was hardly a conscious effort not to execute the plan.
The five “whys”
The five “whys” is a method for getting to the root cause of a problem. When people get to the first layer of a problem (the first “why”), they tend to overlook its true root cause. Therefore, the tool indicates asking yourself for five subsequent times (or as many times as necessary) until the definitive root cause of a problem is found.
In our example:
Sales dropped by 10%.
- Because of the demonstration.
- Why did the demonstration affect sales?
- Because some streets were closed, and our trucks could not reach the merchants.
- Why didn’t we use smaller trucks to deliver the goods that day?
- Because we don’t own smaller trucks.
That’s it! You have reached the root cause of the sales drop, which is much more subtle and specific than simply blaming the demonstrations.
The root cause often makes the action plan to solve a problem obvious. In this case, the suggestion is to buy a smaller truck for use during demonstrations planned for next month. If sales are maintained after the experiment, the company then adopts a new pattern: having smaller trucks for these events.
The Fishbone Graph
The fishbone chart (also called Ishikawa Diagram or cause and effect diagram) is nothing more than a way to organize root causes in a visual way after the five whys exercise. It aims to clarify the thought process of all parties involved.
Discussions with the team
Every Monday you should bring your team together to discuss the progress of the OKRs. The idea is to discuss the progress of all the key-results, the prospects of meeting each one (here you should ideally use a tri-color traffic light that indicates the likelihood of the OKR being met), and then discuss the action plan needed for each of the goals.
Focus on the solution
Again, it is very important not to discourage people, humiliate them, or criticize them if they admit in the meeting that some Key-Result is not to be beaten. The right path to take is to focus on solving problems, removing obstacles, and finding solutions that will strengthen the person’s or team’s ability to achieve their results.
This is very similar to Alan Mulally’s *Working Together* method: when Mullally was in charge of the project to create the 777 jet at Boeing, he made sure that no one could ever be punished for bringing bad news to the project team (“shooting the messenger”).
Thus, bad news travels fast and the group has the necessary time to use its combined gray matter to seek constructive solutions. Remember: you cannot manage a secret.
In this content, we present what OKRs are, what their goals are, and why they are so relevant for a company. And you, do you think your business is ready to implement OKRs?
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In this content, we present what OKRs are, what their goals are, and why they are so relevant for a company. And you, do you think your business is ready to implement OKRs?
If you wish to stay on top of other relevant materials, subscribe to our newsletter and receive our materials directly in your inbox.
Do you want to learn more about OKRs – Objectives and Key Results? Download our ebook “OKRs: from Mission to Metrics” for free.