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Why use OKRs in managing your company?

Francisco Homem de Mello

OKRs are a management tool that brings many great benefits to any company that uses them the right way. Let’s see what some of these benefits are:

Focus and prioritization

OKRs force organizations (and teams and individuals) to prioritize the most important business results in a given period (for example, next quarter), and ripple that focus and prioritization throughout the organization.

The focusing effect of OKRs is well documented and researched, especially through the work of American academic Edwin Locke.

Alignment

OKRs come from the company’s mission and vision in a process of alignment that has the ultimate goal of getting everyone to know in which direction they should row, here and now.

This alignment process happens in two dimensions: through time and through the organization.

The company creates its strategic OKRs aligned to the mission and the vision. It then creates its annual OKRs aligned to its strategic OKRs. That’s aligning them through time.

Within the same cycle different people and teams within the organization also align their OKRs to each other. VPs create their OKRs in alignment with the company’s. Directors create their OKRs in alignment with VPs’. Squads create their OKRs in alignment with the OKRs of business units, and with each other’s. That’s aligning them through the organization.

The alignment superpower is enhanced by the fact that OKRs are public by default. Dependencies and conflicting OKRs can be promptly identified, discussed, and resolved.

Motivation

It’s scientifically proven (again by Locke, long before the term “OKR” existed), that difficult but achievable goals increase task-related motivation.

Because OKRs are less directly linked to employee compensation (i.e., they’re a management tool rather than a compensation management tool, which we’ll talk more about this later), supporting aggressive goals is encouraged. These goals are called roof-shots, or even moonshots, depending on how bold they are.

Vicente Falconi, a Brazilian management guru, relates difficult goals to employee engagement when he says that “from the point of view of the people involved, the value of the goal must be above their capacity to reach it, in a way that they need to learn and grow in the process of working towards it.”

Culture

OKRs are a very powerful tool for solidifying a culture of execution and results orientation.

Perhaps 9 out of 10 companies have, among their corporate competencies, values, or strategic guidelines, some variation of “results orientation.” But what does “results orientation” mean?

In our view, a results-oriented professional clearly knows the difference between an effort and a result. Let’s look at some efforts and results that are often confused:

  • Attending a sales meeting (or 50, for that matter) is an effort. Closing sales is a result.
  • Implementing an ERP system is an effort. Reducing accounting errors is a result.
  • Building a new feature for the e-commerce shopping cart is an effort. Increasing the conversion rate is a result.

The relationship between efforts and results is always relative. To illustrate this, let’s think about football. “Running faster” is a result of the “workout” effort, but “running faster” is also an effort to “score more goals.” And “scoring more goals” is an effort to “win the game.”

An OKRs should track results relative to the person or team that owns them. So, if a product team works exclusively with the shopping cart feature, its Objective will be something like “improve shopping cart conversion rates,” and the Key Result will be “improve the conversion rate between adding items to the shopping cart and making a purchase from 3% to 5%.”

As people better understand what the results of their efforts are, they create a culture of fewer politics, less subjectivity, and more, voilá, results orientation!

PS: If you want to learn more about how to manage your company using OKRs, download for free our book OKRs, From Mission to Metrics, also available for sale on Amazon.