OKR

OKR Background

OKR is not a new concept; Peter Drucker invented Management by Objectives (MBO) in 1954,  and Andy Grove, co-founder of Intel, developed MBO into the OKR model in 1968. However, one of the first investors in Google, John Doerr, really made OKR known. Recognizing its apparent success, companies like LinkedIn, Twitter, DropBox, Uber, Spotify, and AirBnB also made OKR a priority. 

The OKR Formula

The OKR formula, according to John Doerr, is as follows:

• Set an objective. What do you want to accomplish?
• Determine key results. How are you going to accomplish this?
• Measure progress. How will you measure your progress?

Objectives

Objectives, or goals, are what a company wants to achieve at the various levels: 

• Company
• Team
• Individual 

Objectives need to be:

• Ambitious 
• Qualitative 
• Measurable 
• Actionable 
• Concise 
• Inspirational 
• Engaging 

Establishing an objective, in its most basic form, is what a team or company wants to accomplish within a certain timeframe.

Some examples of objectives are: 

• Increase profits by 10%.
• Be the number one online book retailer in the country.

Key Results 

Key results are points of success or progression toward an objective. They’re expressed numerically; they can be quantitatively measured and stored. Key results are often difficult – though not impossible. 

Key results can be based upon: 

• Growth 
• Revenue
• Engagement
• Performance 

The most important element is success measuring. Key results must be qualitative. For example, OKR results statements should be specific, i.e., “Onboard 15 new sales managers”. In this way, results can be measured and progress towards the overall goal can be tracked. 

Generally, there should be no more than 4 key results per objective. 

OKRs Put into Practice 

OKRs should fit with business goals and enterprise initiatives. Regular check-ins throughout the quarter are critical to measure progress. 

Typically, there are 3-5 high-level objectives with 3-5 key measurable results for each. Smaller organizations ought to aim for 3 OKRs, and the biggest organizations should not exceed 5 at a time. The progress of each key result must be tracked individually during the quarter. 

When a project comes up, OKRs help determine if it will be added in and take priority over something else or if the project will be nixed. 

One company that was able to employ the OKR model exceptionally well was LinkedIn, led by CEO Jeff Weiner. He was able to use the OKR system in a way that greatly contributed to bringing LinkedIn to a $20 billion market capitalization.

Weiner used OKRs to help employees better connect with the collective mission of the company. Cascading OKRs informed how personnel should spend their days and personal and team OKRs were aligned with the organization. 

Weiner believes working towards ambitious goals, as opposed to having a stated plan, motivates and pushes employees and teams. 

Weiner says OKRs are about “something you want to accomplish over a specific period of time that leans toward a stretch goal rather than a stated plan. It’s something where you want to create greater urgency, greater mindshare.”

Easily achievable objectives create low expectations and usually stall people. He also recognized the importance of regular check-ins and meetings concerning big picture changes and updates. 

OKR vs. KPI

OKRs and KPIs (Key Performance Indicators) might seem similar, but KPIs measure performance. They evaluate the success of a certain initiative or activity. KPIs are less goal-oriented than OKRs, which are more specific and have quantifiable results. 

KPIs are often measured by repeated success in meeting smaller, operational targets and objectives. Sometimes, success is related to the progress made in achieving strategic goals. KPIs vary depending on the department measuring the performance, i.e., finance KPIs will differ from those of the sales department. 

Ultimately, OKRs are about business goals and objectives while KPIs are directly connected to employees’ daily work and performance.

OKR Superpowers & Benefits

In his book, Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs, Doerr discusses the 4 OKR superpowers, (Focus, Alignment, Commitment, Tracking Progress), but in an interview for the Harvard Business Review, he lists these five:

• Focus. It becomes clear because it’s laid out clearly.
• Alignment. Everyone is on the same page – aligned.
• Commitment. All personnel know the goals and can commit to them. 
• Tracking progress. Being able to measure progress makes objectives attainable. 
• Stretching. Setting ambitious goals results in great accomplishments.

The easiest way to remember these? F.A.C.T.S – Focus, Alignment, Commitment, Tracking progress, Stretching. 

Other noted benefits by businesses that employ the OKR methodology include: 

• Goals and objectives are fully understood.
• The bigger picture, the vision, is clear to all.
• There is increased accountability.
• Bold goals encourage teams to push the envelope.
• Heightens employee engagement with company vision.

The Bottom Line

Until Sears Holding Company’s study, there wasn’t any actual research on how or if OKRs affect the bottom line. 

Researchers found that the group that used OKRs increased their average sales by 8.5%. Additionally, the study noted a higher volume of outbound calls in the call center groups that implemented OKRs. There was no increase for the group who did not employ OKRs. 

The study also discovered that groups that consistently used OKRs were 11.5% more likely to improve their performance.

Now there’s research to prove that OKRs contribute to higher revenues and better employee performance. So, while it might seem daunting at first, making the commitment to implementing and using the OKR model literally pays off.