OKR (alternatively OKRs) is an acronym for Objectives and Key Results. OKR is a goal-setting framework used by organizations, teams, and individuals to define measurable goals and track their results.
OKR Methodology Overview
OKRs consist of an objective, a clearly defined goal, and key results, which measure progress towards achieving the defined goal. In addition to being clearly defined, concrete, and significant, objectives should also be inspiring for the organizations, teams, and individuals that work towards them. Additionally, objectives can be supported by initiatives, which are plans and activities to achieve the key results. The clear measurement of key results is essential and it is done either on a scale or with numerical values. The precise values assist decision-makers in determining whether those involved in working toward the key result have succeeded or not.
Who Created the OKR Methodology?
The OKR methodology was created by Andrew Grove during his work in Intel as a way to set goals, measure progress, and maintain focus on the most important objectives. It was developed as an alternative to traditional management practices such as annual budgets, long-term plans, and departmental performance reviews. In 1983, Andrew Grove documented OKR in his book High Output Management.
John Doerr, at the time a salesperson for Intel, attended a course by Grove at Intel where he learned about OKRs. In 1999, Doerr worked for venture capital firm Kleiner Perkins when he introduced OKRs to Google. As a result, OKRs became a part of the culture of Google as a "management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization."
As an outcome-driven framework, the OKR framework helped Sergey Brin and Larry Page to take Google to new heights, and ever since, many companies have learned to utilize the OKR’s principles.
What Are the Components of OKR?
The two main components of OKR are Objectives and Key Results. However, you must separate the OKRs from the activities and tasks you intend to complete to reach them. This leaves us with a third component - Initiatives.
The written statement for OKR is as follows:
"I will (Objective - what you want to achieve?) as measured by (Key Results - how are you going to measure our progress?) and supported by Initiatives."
Image credit: What Matters
1. What Is an Objective in OKR?
An objective is a specific, measurable and achievable goal that an individual or team wants to accomplish. Objectives are set by the individual or team to be achieved in a certain period of time. They are based on the company's plans and strategies, as well as the individual’s skillsets and strengths. Objectives should be challenging but attainable so that they can be mastered with hard work. Objectives should also align with the company's strategic goals and their execution should contribute to achieving them.
2. What Are the Key Results in OKR?
Key results are the way to measure and monitor an objective’s progress. It is an OKR component that has been set and agreed upon. Key results will be used to determine if the goal (objective) has been accomplished. The key result should be as specific as possible. It might be a number of sales, number of new customers, or number of completed tasks.
3. What Are Initiatives in OKR?
The initiatives answer one specific question - what you are going to do to reach your OKRs - projects, tasks, or activities? Initiatives support objectives, which are plans and activities to achieve the key results.
What Are Success Criteria in OKR?
Every organization, team, or project needs a clear definition of success. Using OKRs correctly enables teams and organizations to set standard success criteria. They define measurable objectives for achieving success. A critical part of OKR is ensuring that criteria for success are not only present but shared and transparent to the entire organization and partners. When setting OKRs, the shared success criteria concept is crucial. Every time you review your Key Results, you must ask yourselves: do these Key Results describe what success looks like?
What Are the Types of Key Results?
When creating your OKRs, try to assess:
- If you are measuring efforts or results?
- What's the focus of your OKRs? Is it the objectives, or are you focused on the means to get there?
These two questions lead us to the two main types of key results - activity-based key results and value-based key results.
1. Activity-based Key Results
Activity-based key results measure the accomplishment of tasks and initiatives or the completion of project deliverables or milestones. Activity-based key results typically start with verbs such as prepare, plan, launch, create, test, develop, release, define, deliver, make, build, and implement.
Examples of Activity-based Key Results
- Create a new SEO campaign.
- Launch the beta version of the app.
- Plan a new training program.
- Develop a new feature for social media sharing.
2. Value-based Key Results
Value-based key results measure the value delivered to the customers and the organization. They measure the results of successful activities. The structure of a value-based key result is Increase/Reduce a particular metric from X to Y. X is the starting point, and Y is what you want to achieve
Using the model “change from X to Y” is a better representation than using a percentual change as it gives more quantifiable information on what exactly you want to achieve.
- Increase organic traffic conversion rate from trials to customers by 35%.
- Increase organic traffic conversion rate from trials to customers from 100 to 135.
The second sentence tells us a lot more about how ambitious the target is.
Examples of Value-based Key Results:
- Keep new customer acquisition cost under Y.
- Improve Net Promoter Score from X to Y.
- Reduce our product’s revenue churn from X to Y.
It is not necessary that a value-based key result measures the company's end objective, such as revenue, but it can be an element of a metric correlated to generating value.
Below you can see a list of examples comparing activity-based key results and value-based key results.
|Activity-based Key Results||Value-based Key Results|
Develop a new landing page.
Increase lead conversion from X to Y.
Launch a new product feature.
Increase the usage of the fourth most used feature from X to Y.
Implement a new way for our customers to report a problem.
Improve Net Promoter Score from X to Y.
When used correctly, OKRs define success criteria for an organization. OKRs should determine whether a person or a team achieved success. They should be value-based for one main reason - you should strive to create a results-focused culture, rather than one focused on tasks, because even if you finish all the tasks, if nothing has improved, then that is not success.
What OKRs Cadence Should Organizations Use?
A common misconception is that OKR only works with quarter-to-quarter cycles, which was Google's model until 2011. Larry Page adopted quarterly and annual OKRs after becoming Google's CEO.
Different objectives tend to change faster than strategic goals, which is why most mature OKR implementations understand that objectives have different rhythms. Each organization may set its own OKR cadence, but there are some models adopted by the majority of organizations using OKRs.
- A strategic cadence with high-level and long-term OKRs for the organization.
- A tactical cadence with short-term OKRs for the teams.
- A follow-through cadence with periodic check-ins to monitor progress.
What Are the Main OKR Benefits?
You already know that the main benefits of OKRs are that they help in setting company goals and making sure that these goals are achieved in a measurable manner. Apart from that, we have made a list of the key OKR benefits for an organization.
- Agility. Shorter goal cycles allow for faster adjustments and improved adaptability to change, resulting in greater innovation and reduced risks and waste.
- Engaged employees. When people are engaged with a purpose, they achieve remarkable results. OKR enables everyone to see the bigger picture.
- Reduced time for setting goals. Setting goals with OKRs is faster and easier, resulting in significant time and resource savings.
- Cross-functional cooperation and strategic alignment. OKR enables managers and employees to align all their efforts, ensuring that everyone is working together.
- Clear communication. Transparency and simplicity are key for team members to understand the organization's goals and priorities and how they can contribute to their execution.
- Focused execution. OKR allows you to prioritize only the work that has the most impact on your business.
- Teams receive clear directions and can choose how to achieve their OKRs. As a result, they become responsible for their goals, with clear success criteria known to the entire company, establishing mutual obligations.
How to Set OKR Goals?
The question is "how ambitious should your OKRs be?". Ambitious goals are also called stretch goals in OKR. They should take you out of your comfort zone but shouldn’t be as hard as to harm or demotivate your team.
Envision stretch goals as objectives so difficult that they force the team to rethink their approach, ask difficult questions, and engage in difficult conversations they have avoided. Such goals make teams wonder just how far they can push themselves.
The stretch goals are also called Moonshots. There is another type of OKRs called Rooftops.
Moonshots vs. Rooftops OKRs
- Moonshots OKRs are slightly beyond the reach of what appears possible, and success means achieving 60-70%.
- Rooftops OKRs are hard goals but attainable, and success means achieving 100%.
Moonshots are the foundational building block of OKR, but they can easily demotivate the team. Achieving only 60% of your OKRs can be demoralizing at first.
This is where roofshots come into the picture - they should be mixed with moonshots. One of the best approaches is to set one moonshot key result per OKR, and the rest must be roofshots.
At the beginning of your OKR journey, start with roofshots only. Focus on beating your goals to develop a results-oriented culture. When the culture matures, you can move on to moonshots to start asking how far the organization can go.
The OKR Process: How Do You Start an OKR Plan?
Without a good OKR process, a good OKR framework is of little use. Key Results and Objectives should be actionable. When defining your OKRs, your team should also have some ideas on how to accomplish them.
A simple OKR plan cycle would include the following actions.
- The company sets high-level strategic OKRs at the start of every year. Top executives should not set strategic OKRs in isolation without the team's input.
- The executive team then gathers feedback from the company's employees on the OKRs.
- Teams develop their OKRs using the bi-directional approach (not in isolation).
- The team maps out interdependencies and ensures alignment with other teams and initiatives.
- The teams track their results and actions through weekly check-ins.
- It is standard for companies who use quarterly OKRs to evaluate them about halfway through a quarter.
- At the end of the OKR plan cycle, you can hold a retrospective. The start-stop-continue format is the easiest way to perform a retrospective. As part of this model, each team member identifies what the team should: Do/Stop/Continue doing.
What Are the Common OKR Mistakes?
Learning how to write OKRs takes practice and time. OKRs should include feedback from within the organization and go through multiple rounds of revisions.
This is a list of the most common OKR mistakes.
- Too many Objectives or Key Results.
- Expecting quick results.
- Starting with too challenging Objectives.
- Not communicating and not checking often enough.
- Setting OKRs top-down only.
Too Many Objectives or Key Results
The purpose of OKRs is not to replace To-Do lists. For each department, it is best to have 3-5 objectives and 3-5 key results.
Expecting Quick Results
OKRs require time to implement, get used to, and refine. Remain patient with the process and do not give up before you are ready.
Starting with too Challenging Objectives
There are two main types of Objectives - moonshots and rooftops. Starting with only moonshots could demoralize your team. Start with rooftops the first 2-3 cycles, then change to moonshots after that to give your team a chance to get used to the methodology.
Not Communicating and Not Checking Often Enough Your OKRs
It's not about setting them and forgetting them. OKRs document should be easily accessible to your team. Regularly check in with your team and grade middle OKRs to stay on track and resolve any challenges as soon as possible.
Setting OKRs Top-down Only
At least 50% of OKRs should be set by each team and member. OKRs are not meant to be used as a method of setting goals behind closed doors. The process should be collaborative, and your teammates should determine how they can contribute independently.
How Do You Grade OKRs?
When it comes to grading OKRs, Andy Grove uses a simple "yes" or "no" approach. Were your OKRs met? Were they not? It's common for organizations to grade OKRs based on a "Red, Yellow, Green" system, where red means "we failed," yellow means "we made progress," and green means "we met our goals."
Using a percentage scale (0.0 - 1.0), Google grades each Key Result with a number at the end of the cycle. The key results are averaged to determine the overall score for that Objective.
OKR Criticism and Why OKR Fails?
Usually, OKRs are set at the organization, team, and individual levels, which creates a criticism that this causes a waterfall approach, which OKRs aim to avoid.
Implementing OKRs fails for a number of reasons, including no strong business case for using them, lack of data, poor decision-making, or the mechanics of the process is applied without context (just hype).
What Are the Similar Frameworks to OKR?
Some similar to OKRs strategic planning frameworks are Objectives, Goals, Strategies, and Measures (OGSM) and Hoshin Kanri's X-Matrix. OKRs overlap with other performance management frameworks such as KPI and the balanced scorecard.
What’s the difference between OKRs and KPIs?
A KPI is a business-performance indicator, while an OKR is a method of setting goals for improving performance and driving change.
Thus, KPIs provide you with information about what you have to analyze to create the baseline for your OKRs. OKRs and KPIs are both measurable and reflect the performance of the team.
What’s the difference between OKR and MBO?
Objective and Key Results (OKRs) evolved from Management by Objectives (MBOs). Both OKR and MBO are frameworks for setting strategic goals. The main difference between the two frameworks is that while MBOs goal-setting focus on the what (objective), the OKRs goal-setting goes beyond by including a way to measure progress (objective + initiatives and tasks).