History of OKR:
Origin of OKR:
OKR has a long history to be traced back to the 50s. There are some stages and important personalities for whom OKR got the most importance from long times:
In 1954, Peter Ferdinand Drucker first invented MBO or Management by Objectives.
In 1968, Andy Grove co-founded Intel and while CEO at intel he developed MBO into the model of OKR, which we use today.
In 1974, John Doerr joined Intel and learned OKR, during his time there.
Later he joined one of the major investors in Google Kleiner Perkins Caufield & Byers and became an investor in Google at that time.
Google founders Larry Page and Sargey Brin were introduced to OKR by Doerr, and then both the founders implemented OKR at google which we still use in present.
google uses OKR much frequently than others and tries to set aspiring goal and track progress. John Doerr after joining one of the major investors in Google Kleiner Perkins Caufield & Byers and introducing OKR to Google founders Larry Page and Sargey Brin, OKR actually started its journey which still never come to an end.
To get more knowledge about Google OKR visit: https://youtu.be/mJB83EZtAjc
Benefits of OKRs
Starting with its origins with Peter Drucker, its successive distillations by Andy Grove and John Doerr, and its widespread (and successful) adoption by Google, Linkedin and other companies, the empirical evidence of the success of OKRs are all around. Nonetheless, many organizations remain wedded to anachronistic annual performance review processes, thereby missing out on the many benefits of OKRs.
OKRs were designed as a set of repeatable processes across the management hierarchy, with the goal of driving organizational success as well as employee empowerment. The following list has been created by us to help you make a convincing argument to skeptical stakeholders about the imperative need for OKR adoption across your organization:
- Clarity – Employees and managers benefit from clear objective setting, along with granular key result definitions, that are mutually agreed-upon. This leads to a focus on actual productivity towards the achievement of goals by the employee, instead of confusion on what exactly needs to be done, or a counter-productive fixation on the appearance of work. For the manager, instead of relying on subjective assessments, she gets to focus on tracking objective (or near-objective) metrics of progress.
- Strategic – They help in effectively communicating the organization’s strategic goals, and aligning an employees goals to that broader context. OKRs provide an opportunity for managers to answer the ‘why’ behind the objectives that are being set and are also an opportunity to appeal to an employee own narrative of professional and personal growth. Employees, especially millennials, view careers holistically through the lens of personal growth, and communicating a vision that they can buy into and build a sense of ownership around can make all the difference.
- Recurrence – They bring an ongoing cadence to performance management, instead of episodic, once or twice a year, occurrences. OKRs provide employees and managers a regular forum for re-calibration of objectives, checking in on progress towards key results, and objective feedback for improvement. This ensures that an employee’s goals remain mapped closely to the teams’ and are being tracked consistently. For the employee and the manager, this gives regular opportunities for bi-directional feedback and preventing issues from ballooning into crises.
- Transparency – OKRs can be the fabric that connects individuals to teams, and ultimately organizations. When everyone has access to objectives across the company, it helps drives accountability by highlighting the importance of everyone’s objectives in the bigger scheme of things. Additionally, it empowers collaboration and connection within (and across) teams, when individuals realize how helping others actually furthers organizational goals.
- Engagement – In a world where continuous learning and reinvention are the names of the game, it is incumbent upon organizations to also push employees beyond their comfort zone. OKRs provide a framework that focuses on continuous learning and development of new skill sets, in tune with the changing requirements of a dynamic workplace. By balancing achievable goals with some more challenging ones, they can help drive employee engagement and growth. Regular discussions with employees also helps managers to get a better sense of their personal aspirations and tune their moon-shot objectives accordingly.
- Simplicity– OKRs codify, by breaking down into smaller measurable steps, an easy to understand formula around objectives setting and tracking results. With the complexity of the modern workplace, this simplicity becomes critical in ensuring that employees can stay on track. E.g., by adopting no more than 4-5 objectives, and upto 4 key results that are set on a quarterly basis, employees can break them down very precisely into weekly targets. For managers, it demystifies performance at a very granular level, and if someone is lagging, interventions can be more precise and helpful.
- Visibility – As organizational complexity increases, instituting an OKR based performance evaluation process helps higher management get a snapshot of the state of affairs at every level of the organizational hierarchy through simple metrics that are easy to interpret and track. For key strategic goals, it is an opportunity to find where exactly bottlenecks exist and respond in an agile manner, instead of hearsay and subjective finger-pointing exercises.
You reap what you sow, and ultimately the performance management processes you set and adhere to religiously define how closely your results match the results companies like Google have seen with their workforce. GroSum can be your trusted partner in setting up and maintaining a sustainable OKR practice, and we would love to get you started with a live demo and consultation session with our experts. Thank you!
Implementation of OKRs
How to create OKRs
While it is relatively easy to understand at a high-level the benefits of an OKR based performance evaluation process, the success of OKRs lies almost entirely in its accurate implementation and adherence. With that in mind, the following steps should help an organization setting up OKRs for the first time get things off the ground quickly:
- The first step in implementing OKRs in your organization is to create awareness about them and evangelize the benefits of the OKR process. The goal of this exercise is to get buy-in from the bottom up, and for employees at every level of hierarchy to be engaged. This can be done through workshops, meetings or one-on-one sessions, with importance being paid on communicating the value OKRl bring to both employee and organization.
- Choose a tool that will ensure adherence to the OKR process. It can be in the form of a basic spreadsheet, or dedicated software like Grosum. Dedicated software has the advantage of streamlining the whole OKR process across the organization, and integrating 2-way communication as a core feature.
- Set a cadence for OKRs, which needs to be calibrated to the needs of the organization and the team. It is usually quarterly but can be different depending on the objectives being tracked.
- Set objectives, which cover definitively the most important and ambitious goals that one aspires to achieve. These need to be at a strategic level at the top and drill down to more fine-grained as we go down the hierarchy to teams and individuals. Critical to an effective OKR process is the involvement of all key stakeholders, instead of a mandated, top-down process. A consultative and collaborative approach is the most effective, ensuring all parties are on the same page. The number of key objectives has to keep low at every level (less than 5), to ensure that only the most important things are being tracked, and less strategic operational goals are nor creating a distraction.
- Set key results, which are measurable and objective metrics to track progress against objectives. Ensure that there are no more than 4 key results against every objective, to ensure maximum focus on the most critical metrics.
OKRs need to be defined at three levels:
- The company objectives should be defined first, by the CEO and the leadership team, tracking the high-level strategic goals of the company. This ensures that all levels of the hierarchy below can write their objectives aligned to them.
- The CEO or the leadership team should sit down with the managers of each team and draft the team objectives. In turn, the manager opens a discussion and feedback process with the team to refine them, ensuring all stakeholders have had a say, and are aligned to them.
- Individual objectives that define what each person is working on, need to be defined through a discussion between the manager and the individual. This is a negotiation, taking inputs from both sides to finally converge to something both parties agree on.
- Finally, there is a review and refinement process where team objectives are fine-tuned according to an individual’s objectives, and non-turn high-level company objectives are refined on the basis of team objectives. This completes the process and ensures that inputs from every level have been considered, and there are buy-in and engagement from everyone.
How to define OKRs
Defining effective objectives is challenging, especially given that the goal is to capture the most important ones at every level. The following guidelines help in defining them optimally:
- How closely objectives align with company objectives?
- Are objectives challenging and drive organization growth and inspire employees?
- If an objective is left out, does it hamper any other objectives higher up in the hierarchy?
- Is it possible to put a definite time frame around an objective, instead of having it open-ended?
Key results, similarly need a lot of thought, as they will be the key metrics around which performance across the organization is measured:
- Ensure that the results are specific
- They need to be measurable
- They should provide actionable insights into progress towards an objective
- They need to be relevant to the objective they are tracking, and not just another task or activity
- There should be a clear timeline for achieving the result
How to use OKRs
OKRs are a powerful tool to align teams and individuals to a company’s long term strategic goals, and setting a roadmap for achieving them across the management hierarchy. Once strategic goals have been set, OKRs must be used to define objectives from the top down.
As an example, an organization decides that it wants to double sales in given geography in two quarters. OKRs for the regional sales teams get set accordingly, with key results being possibly hiring more salespeople, and/or looking at strategic discounting. At the individual salesperson level, individual OKRs could get set based on their past performance and upsell opportunity to existing customers based on the strength of relationships.
At the end of the pre-defined OKR review period, the key results need to be analyzed objectively, and numerically as much as possible. Typically, success is indicated by a score between 60 and 70%. Falling short of this is not immediately an indication of failure, and can be due to objectives being too ambitious. Conversely, a 90% score might also be indicative of objectives that were not ambitious enough. In either case, learning from previous OKR cycles should feed into the next cycle, and help improve them. In our example above, if the regional sales team were able to meet their quota, it flows up the hierarchy and potentially leads to more aggressive goals for the next period.
The cadence, or the period after which previous OKRs are scored and new ones are created depends on the following factors:
- Typically, strategic company level objectives lend themselves better to longer, annual, review cycles. For teams and individuals, a quarterly review process is more aligned to the tactical nature of their goals. This is not written in stone though, and in special instances, teams and individuals can have longer cycles.
- The stage of the company has a bearing on the cadence. Pre product-market fit startups who need to iterate fast need shorter cycles, as opposed to more mature companies where longer cycles are the norm.
- In an industry that is undergoing rapid disruption, shorter cycles reflect the ability of the company to respond to external factors in an agile way.
- Depending on the seniority of the employee, to start off cycles can be shorter till they get into the rhythm of things
- Finally, when initially starting an OKR process within a company, a consistent cadence is recommended for starters, so as to not create additional operational overhead. Over time, as individuals and teams get used to the process, more variation in cycles could be built-in.
Common OKR Mistakes
Understanding the benefits of OKRs and getting started is a good first step, but the significant challenges in changing an entrenched culture should not be underestimated. Any change is challenging, and cultural change doubly so. Typically, an organization starting out with the OKR process takes 2-3 quarters to work out the kinks in the system and get in the rhythm of things. To that end, we have compiled a list of the most common mistakes that occur when starting out:
- Mis-calibration – Not being able to find the balance between too challenging and not challenging enough. If your team is meeting 100% of their targets, in most instances it might mean the goals were not challenging enough. Conversely, setting the bar too high and impractical can create issues with morale. As a rule of thumb, the target should be to achieve 70-80% of the goals, failing which you might need to reevaluate your OKRs.
- Setting too many Objectives and Key Results – This drives confusion and lack of focus, and is often an indication that OKRs are not tracking the most essential organizational priorities, but instead devolving into task-based tracking. Focusing on a few key objectives and key results can ensure that things more manageable operationally, and best aligned to overall strategy as well.
- No follow-up/check-in process in place – Key to the success of OKRs the weekly check-in process to review and recalibrate objectives, and give and receive feedback. Without this, the chance of finding yourself significantly off course at the end of the quarter are high. Making a weekly check-in part of the core organizational workflow is essential
- No metrics attached to key results – OKRs are most effective when every key result is measurable to the extent possible – i.e. a number value is associated with them. Without this, objective assessment is impossible and can lead to confusion at the end of the quarter, which also makes tracking progress difficult.
- Not tracking strategic goals – It is the role of management to communicate the high-level company objectives, and ensure that team and individual goals are aligned to them. Conversely, employees will be empowered when they understand how individual and team goals are contributing to the organizations’ strategic goals.
- Copying leading organizations blindly – OKRs have been hugely successful for organizations like Google, but just replicating their implementation is not a recipe for success. Instead, OKRs need to be adapted to the specific needs of the organization and individuals. The stage of the company, its current strategic goals, market dynamics, etc. all ensure that there is no one-size-fits-all implementation of OKRs.
KPI, MBO & OKR
Key Performance Indicators (KPI) are measurable indicators of achievement of key business objectives. They can be set at every level of the management hierarchy, with high-level company level targets at the top, and low-level targets specific to departments like sales, marketing, HR, etc. A performance management process based on KPIs is based on setting targets and tracking progress against them. In many instances KPIs act as leading indicators, which if met, lead to positive outcomes downstream.
Management by Objectives (MBO) is a performance management model based on setting clearly defined objectives mutually agreed upon by management and employees. The collaborative aspect, where the buy-in is ensured across the organizational hierarchy, is touted as one of the key benefits of MBOs by ensuring commitment and participation towards common goals.
Differences between KPI and OKR
KPIs are a method to track output metrics for an ongoing process or activity inside an organization. OKRs, on the other hand, provides a way to respond to changing dynamics in an agile way by updating objectives and aligning activity on an ongoing basis. In a broader sense OKRs subsume KPIs and are not exclusive of them. Often, a missed KPI becomes the starting point for creating an OKR.
As an example, in a support organization, a KPI could be a successful resolution of 90% of incoming issues. If, at the end of the quarter, the KPI indicated only a 60% successful closure rate, reducing that metric from 90 to 60% can be a key result, against an objective of improving customer support. This focus then enables setting appropriate processes like hiring a customer support executive, setting up new support software, etc.
KPIs are like the cockpit dials in an airline, giving the pilot real-time view into the key metrics like fuel, pressure, etc. If one of the metrics is flashing warning lights, OKRs are analogous to the systems and processes in place that guide the plane safely back to the ground. By using KPIs and OKRs in tandem, companies can highlight problem areas, and go about fixing them efficiently and effectively.
Differences between MBO and OKR
While MBO and OKR are both performance management models that depend on communicating goals and measuring performance against them, there are some key differences:
- A key aspect of OKRs is the cadence of review and evaluation which is much more frequent than for MBOs, where a formal annual review is a norm
- MBOs can be more open-ended, with both quantitative or qualitative objectives, leaving some subjectivity in place. OKRs, on the other hand, need to be quantitative and measurable.
- MBOs are typically set between manager and employee in a role-based manner, and not disclosed externally. OKRs, on the other hand, is set in the broader framework of the company and team objectives, and hence openly shared across the organizational hierarchy,
- MBOs traditionally, given their annual cadence, and their focus on the individual are closely tied to compensation. OKRs, on the other hand, focus more broadly on improving productivity and aligning everyone to strategic goals.
- In MBOs a very high score (90% or above) is an indicator of success, but in OKRs which are more flexible and need constant calibration, it might be an indicator of objectives that were not challenging enough and hence need to be re-evaluated. Conversely, a poor score might also be an opportunity to review if objectives were too challenging.
How do OKR, KPI, and SMART goals work together
KPI and SMART can be considered not separate, but an integral part of OKRs. However, OKRs are about more than KPI and SMART.
KPIs, being a method to track output metrics, are a useful starting point for OKRs. That is, if a certain KPI is lagging, the objective can be set around rectifying that, with a quantifiable improvement set as a key result. It should be noted, however, that there might be other OKRs that come up organically from strategic changes and priorities, and not tied to existing KPIs – e.g. if an organization is going into a new business, OKRs can be set around hiring initial hiring, launching an MVP product, etc.
SMART, on the other hand, refers to essential criteria that must be met by key results, namely:
- Ensure that the results are Specific
- They need to be Measurable
- They should provide Actionable insights into progress towards an objective
- They need to be Relevant to the objective they are tracking, and not just another task or activity
- There should be a clear Timeline for achieving the result
How many key results should be present?
Any Objective requires 3 Key Results to accurately let you know whether or not you’ve accomplished it. Every company and team is unique, and the challenges that they face can vary greatly. Sometimes this means that 6 Key Results are required for an Objective, which is totally fine. It can sometimes also be the case that you only need 1 or 2 Key Results for an Objective.
How do I tie bonuses to OKRs?
Many experts argue that goals, in general, should never be linked to compensation, but it CAN be done successfully, and in fact, can be a powerful way to drive performance.
Factors to be kept in mind are
- Don’t make it the only factor
- Consider collaborative eligibility
- Make expectations 100% clear;
What percentage of completion makes an OKR a success?
Check-ins are one of the imperatives in an OKR implementation. Great OKR software provides automated prompts to encourage employees to complete their regularly scheduled Check-Ins to monitor progress.
Google employs two types of OKR goals; Committed and Aspirational. Committed goals should be realized at 100% achievement, 100% of the time. Aspirational, or stretch goals, have very different expectations. Most organizations utilize a combination of initiatives, some more mundane, and some stretch, or aspirational.
Should OKR always be quarterly?
OKRs can be set for any time period from one month to a year, But quarterly OKRs (set for 3 months) is considered the optimal solution as it is long enough time to get things done and see the results of your labor. Teams and individuals will usually want to plan their OKRs on a quarterly basis – giving them at least 4 times a year opportunity to adjust.
What’s the difference between OKRs and KPIs?
KPI goals are acquirable and represent the outcome of a procedure or project already there, while OKR goals are more aggressive and ambitious. However, while OKR goals should be bold, they shouldn’t be unreachable.
However, if you have a larger vision to change your overall direction, OKRs might be the better alternative. OKR has a greater depth which will allow you to stretch your goals even further and to be a bit more creative on how you plan to reach those goals.
What’s the difference between OKR and MBO?
OKR (an acronym for Objectives and Key Results) is developed from MBO, taking the best idea out of it and combining a few of its own. Management By Objectives (MBO) was introduced by Peter Drucker in 1954 when OKR was introduced by Andy Grove in the70s. Both MBO & OKR are Goal setting frameworks.
What’s the difference between OKR and Balanced Scorecards?
Both are focused on an objective like broad goals designed to propel the organization forward and metrics (called Key Results in the OKRs field and measures in the BSC) respectively that gauge your success in achieving the objective. The biggest difference between the two is cadence.
What’s the difference between OKR and SMART goals?
A direct comparison between OKR criteria and SMART criteria is Objectives have a clear scope and set direction but the Key Results further specify what achieving the Objective means. Key Results contain metrics always which can measure progress toward the Objective.
What’s the difference between an Objective and a Goal?
Objectives are the exact steps your company must take to reach its goals. They are written without emotion, and they are typically measurable and quantifiable. They also are realistic and attainable and have an associated timeline. Goals are statements you make about the future for your business. They represent your aspirations for it.
Some management academics would say that the difference between goals and objectives is that a goal is a description of a destination, and an objective is a measure of the progress that is needed to get to the destination.
What are typical OKRs for a CEO?
Objectives and Key Results typically fall into two large buckets for CEOs:
- Operational goals — These are the goals having to do with the company’s metrics, for example, project plans related to product release, hiring, market share, etc. They are the organization’s operating drumbeat.
- Aspirational goals — In contrast to the operational goals, these goals are bigger picture ideas about how the CEO is going to go about changing the world. These goals set the scene and are designed to help other employees figure out how they can contribute to the CEO’s aspirational ideas.
When both operational and aspirational goals are provided by the CEO, other employees know how the companies is oriented and also understand that thinking big is required.
What is the Ideal timeframe for OKRs?
If you plan to set OKRs monthly, imagine investing time and resources to repeat the same procedure for 12 times a year and setting up weekly OKRs are of no use.
If you plan to set OKRs monthly, imagine investing time and resources to repeat the same procedure for 12 times a year and setting up weekly OKRs are of no use. Annual OKRs should be proposed if they are aligned with vital company goals. Otherwise, they would only lead to disengagement and kill productivity across your teams and individuals.
What is the ROI of using goals management (like OKR goals) at a company?
Implementing a goal-setting framework like Objectives and Key Results (OKRs) can improve performance and help your company achieve bigger wins. Without clear expectations, employees become uncertain and their work suffers. When goals and performance management clarifies expectations, employees will develop more autonomy and confidence, thereby allowing them to put their best efforts forward and help your company achieve accelerated results.
Should startups use the OKR system?