An Introduction to OKRs
OKRs (Objective and Key Results) is a goal setting process that allows organisations to set the “What” i.e. clear organisation objectives and track their success through the “Hows” i.e. measurable parameters, called key results.
OKRs gained significant popularity through the book “Measuring What Matters” written by John Doerr in 2017. John Doerr had used OKRs quite extensively during his time at Intel in the 70s and 80s and had also introduced them to Google in their early days. Doerr himself had been inspired to use them by Andy Grove, Intel’s CEO, who had adapted Peter Drucker’s famous “Management by Objectives” framework to create his own goal management version.
How do OKRs help?
Well-defined OKRs help create clarity across the entire organisation of the strategic priorities and direction being taken. OKRs allow much higher odds of success of hitting the stated objectives by ensuring a high degree of alignment across all levels of an organisation by cascading key results downwards (a manager’s objectives are a sum total of the objectives of his direct team members).
A well run OKR exercise also ensures ruthless prioritisation of the most important objectives by throwing up a very real picture of the capacity available across functions that need to come together to deliver objectives. OKRs allow continuous monitoring and reassessment of progress instead of the more static nature of conventional goal management systems. Finally, OKRs result in higher employee engagement & performance because the process creates focus and transparency leading to higher performance.
An OKR illustration
The following is an illustration of what an OKR looks like:
Objective 1: Grow revenue to 100 mn USD
Key Result 1: Improve repeat transactions from 4 per month to 5 per month
Key Result 2: Launch the brand campaign to increase app installs to 2 mn
Key Result 3: Onboard the next 1 mn customers in Tier 2 and Tier 3 cities
Key Result 4: Create and launch a new sales property to increase traffic 2x
Objective 2: Improve margins by 200 basis points
Key Result 1: Improve staff productivity by 1000 basis points
Key Result 2: Reduce fraud related leakages to 10 basis points
Key Result 3: Transport costs to reduce by 200 basis points through rate negotiations
Key Result 4: Reduce staff spends by reducing attendance leakages by 500 basis points
Objective 3: Get into the top 5 ‘Great Places to Work’ rankings
Key Result 1: Launch ESOP policy 2.0
Key Result 2: Increase transparency through the launch of the OKR process
Key Result 3: Employer re-branding initiative to be completed this quarter
Key Result 4: Close all critical positions thereby creating required bandwidth
The Step-by-Step guide for setting up OKRs in your Organisation
1. Define your strategic priorities over a 12-24 month horizon
This involves laying out the strategic goals for the organisation over the next 12-24 months. It is important to take a reasonably mid-to-long term view to this exercise to allow an overall guidance to what the company wants to accomplish. Quarterly targets make a lot more sense when it is clear where the company is ultimately headed over a longer horizon.
Examples include a. Capture 40% market-share in the online grocery segment over the next 12 months, b. Reduce total cost of operations by 25% and c. Internationalise the core B2B business by expanding to the SEA region.
2. Design your Org structure keeping in mind the big strategic goals
This is a key step towards your ultimate objective of getting strategic priorities met. Ensuring that your org is structured well and allows all your strategic priorities to be reasonably self-contained and controlled by individual leaders and functions is crucial. Every time a strategic priority changes or is added, it is worthwhile to evaluate its implications on the org design.
For example, Launching Internationally will require re-designing the Org to setup the Internationalisation function with all the resources needed for success and accountability.
3. Start the OKR planning process 4-6 weeks before the Quarter begins
If you are setting up OKRs for the first time, it is strongly recommended that you start the planning process ~4-6 weeks before the start of the quarter. This allows adequate time for discussions on ‘Objectives’ in the leadership team, brainstorming and listing the ‘Hows’ i.e. Key Results by individual Objective owners, calling out cross-functional dependencies, cascading key results downwards, evaluating capacity available vs needed for the Objectives called out, and re-setting expectations.
As the OKR process matures in the Org, the planning phase can reduce to ~3-4 weeks.
4. Set up Review Cycles
Once OKRs have been set-up and cascaded downwards to each employee in an Org, it is equally important to set-up review cadence and frequency. Typically, having teams check-in every two weeks during the first couple of quarters of the process roll-out helps in identifying issues and risks early on. Having a well set-up tool to record and report progress is also immensely helpful.
A formal org wide, mid-quarter check-in with all teams presenting in simple terms (Green, Amber, Red) their progress and key issues also creates rigour across the organisation.
5. Reflect, learn and improve
The last 2-4 weeks of a quarter should be spent in analysing performance against the stated objectives. All objectives that were either exceeded easily or were missed by a distance, indicating poor goal setting and planning should be scrutinised. All functions where most people met their objectives and yet the function level objectives did not get met indicate lack of adequate effort in tying up and cascading objectives downwards.
Learnings from each quarter’s OKR review process should be incorporated into the next quarter’s planning exercise.
The 5 OKR implementation best practices John Doerr’s book doesn’t talk about!
1. Leadership commitment
The OKR process involves setting up measurable targets for yourself and your teams and doing the hard task of detailing the How-Tos. Organisations with the best track record on OKRs are those where the Leadership’s commitment to the process is very high. If it matters to the leadership, acceptance in the rest of the org is easier to accomplish.
Receiving company wide objectives from the CEO, periodic status emails and discussing OKR progress in town-halls are good ways to demonstrate commitment at the highest levels.
2. Appoint an OKR Champion
Implementing OKRs is a difficult task (at-least initially!) and you will need dedicated bandwidth to run this process. The first few months will need continuous follow-up and a high degree of tracking rigour to get the process to stabilise across most levels.
Typically, the CEO’s Chief of Staff is best positioned, in terms of visibility & mandate, to drive this process most effectively. If you don’t have one, appoint a senior leader as the OKR Champion as almost a full time job for the first few quarters.
3. Link OKRs to Individuals’ Performance Management
Linking individuals’ performance management to his / her OKR success has been seen to have a very strong impact on the overall commitment and execution rigour of the OKR process. All work done by employees flows from OKRs assigned to them, and so there is no better way of evaluating their performance than by measuring their OKRs.
Linking OKR achievement to performance management also creates a very transparent and open mechanism to assess & reward everyone’s contribution in the Org.
4. Stay Invested for at-least 3 quarters
If you are just starting out on your OKR journey, remember that the process will take at-least 3 quarters to stabilise and deliver results. Getting everyone to adopt the practice of OKRs, and to start setting them well (neither too aggressive, nor too easy) is an iterative process and will require time to get right.
Usually, by the 3rd quarter, most organisations start to see significant results in terms of major objectives getting achieved with a reasonable degree of consistency.
5. Dependencies and Capacity Management
One of the biggest failure points in the OKR process is not getting the capacity view right, especially of constrained teams like Tech. Most teams write OKRs calling out dependent OKRs on Tech, without a good view of available capacity. This eventually means a lot of Objectives not getting met because of lack of bandwidth, and an overall sense of frustration.
Spending time before finalising OKRs to evaluate all asks against available bandwidth of various teams allows de-prioritising upfront, OKRs that can’t be serviced and hence helps ensure a much higher success rate for teams.
OKRs can be an extremely powerful way of converting strategy into successful execution. Like anything new, it can be hard-work at the beginning but once the process settles in, it can provide breakthrough results. As mentioned, on an average the OKR process takes 3-4 quarters to fully stabilise, so get started and hang tight!