Revision as of 18:16, 21 February 2021

Every organization has different objectives when carrying out a project, program or portfolio and these objectives have to be aligned throughout the whole organization, involving all levels of an organization is an explicit of the approach. This article will present a collaborative goal-setting tool which allows to set both individual and team challenging goals with measurable results. OKRs, Objectives and Key Results, are how organizations track progress, create alignment and encourage engagement around measurable goals [1].

No one individual – or company – can “do it all”. OKRs are really helpful in the context of goal definition process, and for leaders, they give a lot of visibility into an organization. In case of complex circumstances, the catalogue of objectives consists of different characteristics that are usually of different importance, so it is of great importance to prioritize the different characteristics in the goal definition process [2]. With a select set of OKRs, we can highlight a few things – the vital things – that must get done, as planned and on time [3].

On the other hand, Key Results monitor how we get to the objectives, so they must be measurable and verifiable. At the end of the designated period a regular check and grade of the key results should be done. If an objective is well framed, three to five Key Results will usually be adequate to reach it.

OKRs were created at Intel by Andy Grove and taught to John Doerr by him. Since then, the most innovative and best managed companies in the world have adopted them, such as Google, Netflix, Twitter, Uber, etc.

Big idea

John Doerr, in his first slide at his presentation to Google, defined OKRs as “a management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization” [5]. OKR is the acronym for Objectives and Key Results, and it is based on the principle of breaking down the vision and goals of organizations into concrete objectives and formulating several measurable results [4].

OKR as a planning tool helps the setting and division of objectives from top to bottom through the whole organization, while supporting the adaptation of short-term goals to current needs and ensure usable results in shorter intervals. Usually, OKRs are thought in a timebox of 3 months.

OKRs stand out for its simplicity and are used to track progress, create alignment with the strategic objectives and encourage engagement around measurable goals. For this reason, it is of great importance to apply OKRs through the different levels of an organization, and all of them must have a correlation between them. This methodology gives a solution to many of the usual problems in a company, such as improving the communication between the different departments involved in the project or ensuring the liability and motivation the employees by increasing the company’s transparency.

Objectives: What is to be achieved, no more and no less [5]. By definition, objectives are significant, concrete, action oriented and inspirational.

Key Results: Benchmark and monitor HOW we get to the objective [5]. Key Results are the marks you hit to achieve the goal. Effective KRs are specific and time bound. Most of all, they are measurable and verifiable. Key results typically include hard numbers for one or more gauges: revenue, growth, active users, quality, safety, market share, customer engagement, etc. You either meet a Key Result’s requirements or you don’t; there is no gray area. At the end of the designated period, typically a quarter, the key result is declared fulfilled or not. Where an objective can be long-lived, rolled over for a year or longer, key results evolve as the work progresses. If an objective is well-framed, three to five Key Results will usually be enough to reach it, and once they are all completed, the objective is necessarily achieved. [5, Key Results: Care and Feeding, Chapter 4]

Planning and tracking

It is recommended to set both annual and quarterly objectives and track them with that periodicity. Managers should review all the progresses in each of the OKRs. However, it is also recommended that both the time frame and monitoring are set according to the type of objective, project, urgency, etc., as well as establishing a measurable scale for each Key Result, like for example a scale from 0 to 1.0. When scoring OKRs, it is of great importance to mark what we have achieved and address how we might do it differently next time, as a low score forces reassessment: Is the objective still worth pursuing? If so, what can we change to achieve it? [ThePowerMBA]

Moreover, OKRs do not expire. OKRs are a positive force for more, but they also stop us from persisting in the wrong direction. As in any data-driven system, tremendous value could be gained after the completion of the work from evaluations and analysis. [5, Superpower #3: Track for Accountability, Chapter 10]

How it works?

As aforementioned, OKRs are composed by Objectives and Key Results. The first step is to set the different targets of the organization. There are different objectives for each level, and it is recommended to set more than just one objective. The objectives will define what the organization aims to reach, and they must be aligned with the strategical level. These objectives must be ambitious and challenging, but there is no way of measuring them. Subsequently, as second step, different key results for each objective should be arranged. Every key result allows us to know if we are in the good direction to achieve our goals. The key results can be measured, and it will be easier to focus on achieving the key results than the objectives. [ThePowerMBA]

It is of great importance to align all the OKR in the same organization in cascade from top to bottom. Cascading forges unity, it makes plain that all the project team is in this together. This way we ensure that all the organization contributes to the strategic goals.

Application

The management tool of Objectives and Key Results can be used in many different application scenarios. We have seen their broadest adoption in tech, where agility and teamwork are absolute imperatives. At smaller start-ups, where people absolutely need to be pulling in the same direction, OKRs are a survival tool, and having a structure for their goals give backers a yardstick for success [5].

Application scenario: bracket around several project portfolios

Project, Program and Portfolio Management has become standard in many organizations. It is the classic implementation tool of corporate strategies. The larger the organization and the higher the number of projects and portfolios, the greater the risk of losing clarity. In addition, conflicts of objectives arise between projects. OKRs can use Objectives at the corporate level to ensure a common focus on corporate goals. If entire projects or their milestones are reinterpreted in OKRs, a direct link between the worlds can be established here. In many cases, the formulation of project assignments and milestones is also improved. It becomes easier to understand why the project exists. A functioning OKR cycle in quarters also helps to synchronize projects and portfolios. Because instead of managing a multi-digit number of individual projects, OKRs one level above direct the focus on the really important and value-creating issues [4].

Application scenario: Operationalizing a new strategy

Another ritual in many organizations. Every X years a strategy process takes place. Developed at management level, announced over months and communicated with Big Bang. Nice and certainly important. But what did that mean for ongoing projects? How should the organization move in the direction of the new Vision and how do you determine whether you are actually moving in that direction? Without a tool like OKRs, individual employees often cannot see the impact for themselves and have no idea of their own contribution. In addition, even top management often lacks an idea of the necessary intermediate steps and the alignment between those involved. Once the Objectives have been specified in concrete terms and useful results (Key Results) have been agreed, the necessary discussion begins in the management team and between management and employees. As with the alignment of Project and Portfolio Management, the derivation of corporate objectives from the Vision/Mission, Purpose or Strategy is a key success factor here. Both the management team and the employees must be involved at an early stage. [4]

Application scenario: Efficient post-merger integration

In the case of a merger, rapid and targeted post-merger integration is necessary in order to achieve the desired economic goals. In most cases the entire organization, or at least a large part of it, is affected. Many post-merger integration activities start before, with or after day 1/handover and run in parallel. There are great dependencies between the activities or sub-projects and the complexity is immense. Here, too, OKR-based program planning has proven its worth in order to give the companies involved a new direction as quickly as possible. If the necessary steps are broken down to the employees, advantages such as focusing, prioritization and improved communication support the new company on its way to becoming operational and capable of action again as quickly as possible. This is made possible by the high transparency of OKRs in the company. Before the merger, planning via roadmaps and mid-term goals (MOALS) can support the process. Here too, the concrete formulation of usable Key Results helps to cover the need for communication and expectation management. [4]

These examples show: In addition to the classic areas of application of OKRs with a focus on growth, innovation and change in tech companies, established companies can also benefit from them. This includes in particular the areas

• Realignment of business models

• Linking of project and non-project worlds

• Coordination and focusing on organizations with a very large project portfolio

• Coordination of different project types

Using OKRs, these can be aligned with the company's objectives across the portfolio. The company benefits from better focus, prioritization and communication through the inherent transparency of OKRs. In doing so, companies can use tried and tested methods and, through intelligent combination and consistent implementation, make their organization future-proof. [4]

Benefits of applying OKR

Many of the biggest companies in the world such as Google, Facebook, Zalando are using OKRs, what proves the great benefits they have.

The unmistakable advantages of OKRs, also called the four OKR “superpowers” are focus, align, track, and stretch. [4] [5, Google Meet OKRs]

• Focus on key Objectives. High-performance organizations home in on work that is important and are equally clear and what does not matter. OKRs impel leaders to make hard choices. They are a precision communication tool for departments, teams, and individual contributors. In order to measure what really matters, managers have to begin with questions such as: What is the most important for the next X months? What are our priorities for the coming period? Where should people concentrate their efforts? [5, Chapter 4] By standing firmly behind a few top-line OKRs, they give their teams a compass and a baseline for assessment. As Steve Jobs understood, Innovation means saying no to one thousand things. In most cases, the ideal number of quarterly OKRs will range between three and five, only the ones that really matter should be set. [5, Less is more, Chapter 4]

• Transparency for all parties involved and thus the possibility of mutual assistance. With OKR’s transparency, everyone’s goals are openly shared. Individuals link their objectives to the company’s game plan, identify cross dependencies, and coordinate with other teams. By connecting each contributor to the organization’s success, top-down alignment brings meaning to work. By deepening people’s sense of ownership, bottom-up OKRs foster engagement and innovation. Research shows that public goals are more likely to be attained that goals held in private. In an OKR system, the most junior staff can look at everyone’s goals, and critiques and corrections are out in public view. Contributors can weigh in even in the goal-setting process itself if they consider so. OKR’s transparency knit each individual’s work to team efforts, department projects, and the overall mission. OKRs are the vehicle of choice for vertical alignment. [5, Superpower #2: Align and Connect for Teamwork, Chapter 7]

• Short cycles in which the goal and desired results are reviewed. OKRs are driven by data. They are animated by periodic checking, objective grading, and continuous reassessment. As we track OKRs, there are four options at any point in the cycle: Continue if the goal is still on track, update in case the goal is broken, launch a new OKR whenever the need arises or drop the goal when it has outlived its usefulness. More and more organizations are adopting OKR management software, in which users can navigate a digital dashboard to create, track, edit and score their OKRs. These platforms make everyone’s goal more visible while driving engagement, promote internal networking and, last but not least, save time, money and frustration. [5, Superpower #3: Track for Accountability, Chapter 10]

• So-called stretch goals help an organization to continuously challenge itself. OKRs lead projects to excel by achieving more than what would be thought possible, setting in more creative solutions.

OKR VS ancestor, MBO

In 1954, in his book The Practice of Management, Drucker started developing the principle of MBO, Management by Objectives. It became Andy Grove’s foundation and the genesis of what we now call the OKR [5, The Father of OKRs, Chapter 2]. However, MBO’s limitations arose immediately. MBOs centrally planned the objectives and distribute them down through the hierarchy, they lacked frequent updating and they were tied to salaries and bonuses. The MBO system’s main objective was getting the highest efficiency from the employees, and it was used as an evaluation system to set rewards. Moreover, it was not transparent at all, and employees just followed their leaders. On the other hand, OKRs are focused on aligning the whole organization with the strategic objectives and all employees know the OKRs for all the company.

Limitations

Goal-setting cascade

Cascaded goals corral lower-level employees and guarantee that they are all working on the project’s chief concerns. In moderation, cascading makes an operation more coherent. However, when all objectives are cascaded, the process can degrade into a large, slow-pace exercise, with adverse effects. [5, The Grand Cascade, Chapter 7]

• A loss of agility. Even medium-size projects can have different levels. As everyone waits for the waterfall to trickle down from above, and meetings and reviews come up bit by bit, each goal cycle can take weeks or even months to administer. Implementation is so complex that quarterly OKRs may prove impractical.

• A lack of flexibility. Since it takes so much effort to develop cascaded goals, people are reluctant to revise them mid-cycle. Even minor updated can burden those downstream, who are scrambling to keep their goals aligned. Over time, the system grows onerous to maintain.

• Marginalized contributors. Rigidly cascaded systems tend to dismiss input from frontline employees. In a top-down ecosystem, contributors will hesitate whether to share promising ideas or not.

• One dimensional linkage. While cascading fosters vertical alignment, it is less effective in connecting peers horizontally, across department lines.

Strategy map as an alternative

So, there are many plus points to OKRs. However, there are also some errors that could be fixed by the use of a strategy map:

• OKRs are just list of objectives with their corresponding key results, but they do not reflect on the relationship between different objectives and how one objective might feed into another. However, a strategy map approach shows the relationship between objectives and helps to ensure everyone is moving in the same direction.

• There is a great risk of setting too many OKRs. OKR system has a very simple list format, there’s no structure to adhere to. The possibility of adding limitless objectives can lead to objective overload. As it was mentioned before, with OKR less is more, and it is far better to stick to top priorities only. Whereas a strategy map would only focus attention on the very top strategic priorities [7].

Goal-setting failure

There is a great risk of setting inadequate objectives for a project. The more ambitious the OKR, the greater the risk of overlooking a vital criterion. The severity of this hazard can be perfectly explained with the history of the infamous Ford Pinto.

In 1971, Ford came up with the Pinto, a budget-priced subcompact car. Safety checks were skipped by the product managers in order to meet CEO Lee Iacocca’s demands. This way, the gas tank was placed 15 cm in front of a weak rear bumper. Therefore, the Pinto was a firetrap, and Ford’s engineers knew it. But the company’s heavily marketed, metric-driven goals were enforced by Iacocca. When a crash test revealed that just a one-dollar plastic bumper stopped the puncture of the gas tank, it was thrown out as “extra cost and extra weight”. Pinto’s project plan cited three product objectives: “True Subcompact”, Low Cost of Ownership and “Clear Product Superiority”, but safety was completely neglected.

Hundreds of people died after Pintos were rear-ended. In 1978, Ford was obliged to recall 1.5 million Pintos. The company’s balance sheet and reputation took a justified beating. Putting everything into perspective, it was not a lack of objectives or key results, but a flawed goal-setting process.

Annotated bibliography

[1] Panchadsaram, R., & Prince, S. (2020, September 9). What is an OKR? Definition and examples. What Matters. https://www.whatmatters.com/faqs/okr-meaning-definition-example/

[2] Züst, R., & Troxler, P. (2014). No More Muddling Through: Mastering Complex Projects in Engineering and Management (2006th ed.). Springer.

[3] Doerr, J. (2018). Measure What Matters: OKRs: The Simple Idea that Drives 10x Growth. Portfolio Penguin.