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What Are OKRs?
OKR stands for objectives and key results. OKRs are a management tool first developed in the 1970s by Andy Grove, former CEO of Intel. OKRs are a way to structure goals and a framework of rules and best practices to manage goals. To place OKRs in scientific management theory history, they follow several key goal-setting trends that all find their origin in Peter Drucker’s Management by Objectives (MBOs). After MBO came setting SMART goals (specific, measurable, achievable, realistic, time-bound), Balanced Scorecards followed and finally OKRs. In the context of OKRs, an objective answers the question “Where do you need to go?” Key results answer the question “How will you know you’re getting there?” Together, your objective and key results make up your outcome.
OKRs Versus KPIs
These are two very different frameworks in goal setting. KPIs (Key Performance Indicators) can be viewed as a subset of OKRs. KPIs are metrics which monitor performance (like turnover percentage as a measure of employee retention) or they can be a metric-growth target (like wanting to reduce turnover in third year employees by 35%).
Each objective set in the OKR framework is generally supported by three to five key results (in which KPIs may be useful but more often they are a measure of what a company needs to improve on). What KPIs fail to provide is an inspiring, audacious objective designed to truly move the business. Often KPIs are used in performance evaluations or are tied to incentive payouts. OKRs are not tied to incentive payouts. OKRs are not designed to be a performance review tool.
KPIs are a set of commitments to the business. They are typically achievable and always expected to be achieved. They represent the “A” in SMART goal setting. OKRs on the other hand are rarely completely achieved, and that is viewed as perfectly OK. The theory suggests that a failed OKR is far more of an achievement than an achieved KPI. This perspective is an indicator of just how big, audacious and inspirational the objectives should be in an OKR framework. OKRs serve to break up goals into smaller chunks and, through the development of initiatives that will drive key results, maximize clarity. Initiatives and key results are often set and reset in the OKR framework with the goal of continuous improvement. With KPIs you either achieve them or you don’t at the end of a period.
Benefits of Using OKRs in Your Organization
OKRs are designed to take a company beyond where it currently is. It is a tool used when the desired outcomes are quantum leaps rather than incremental gains. The tool is a framework that enables management to strive for goals only limited by their imagination. Below we’ll discuss in more detail the most prominent benefits of using OKRs.
- Encourages innovation. Fear of poor marks on a rating review or losing a bonus incentive payout are absent in the OKR framework. This eliminates fear of making errors and promotes trying new ways to achieve results, thus allowing employees to be as creative as possible.
- Fosters intrinsic motivation. Employees are given a real voice in how to achieve objectives. The seemingly impossible comes into view by turning over how objectives will be attained to employees motivated by an inspiring objective. Intrinsic motivation (people doing things because they want to) produces higher success rates than external motivation (people doing things because they are told to). Intrinsic motivation is also critical for innovation.
- Promotes a risk-taking culture. Strategy tells you what to do. Culture tells you what you should do. When failure is OK, even encouraged, in the quest for lofty goals, experimentation flourishes. Silos can break down and cross-team collaboration can thrive because internal competition is eliminated since everyone shares the same objective.
What Makes a Good OKR?
The objective should be big, audacious, inspiring and nearly impossibile (not, however, altogether impossible). Three to five results should support each objective. Remember, this is a goal-setting system that pushes a company to be better, not just a system to push “business as usual.”
Set Inspiring Goals
Executive leadership should align the vision of the company to arrive at lofty goals that will inspire and motivate employees to strive for those goals. Think about game-changing outcomes when formulating goals for your company. OKRs are not about profit (profit is a measurement of something larger). Goals are an outcome, not an output.
Develop Key Results
While the lofty objectives are set by the key executives in the company, the key teams can be brought together to identify the key results and measurable metrics that will confirm the company is headed in the right direction relative to the goal (objective). Once teams identify desired results employees should be brought in throughout the company down to the lowest level possible to determine initiatives or actions that they can take within their roles to achieve key results.
The company should give employees freedom to best determine how they will achieve those key results. In this way, intrinsic motivation becomes the powerhouse for results. When an employee is inspired by something intrinsically rewarding, engagement, and thus productivity, are at their highest levels.
Go very public with the objectives. Ensure that they are introduced by leadership and reflected upon regularly and frequently. They should be a part of quarterly updates, staff meetings, town hall meetings, company newsletters and any other internal communication.
Failure Is OK
This point is a big departure from goal-setting frameworks of the past. With OKRs, the objective is set to be so lofty that even getting close would result in huge leaps for the company. Because failure is not a threat, employees’ behavior isn’t influenced to “game the system” in order to meet goals, which can often have unintended consequences. In fact, absence of some level of failure to hit targets is typically questioned. If all key results are being met 100% then the assumption is that they were too easy to achieve in the first place.
Use Colors To Report Progress
Use a green/yellow/red reporting system to keep all parties aware of the degree to which they are on or off track on their initiatives. Typically, results that are green are 70-100% of target; yellow is 30-70% of target; red is 0-30% of target. Have these visual indicators accessible and visible to as much of the company as possible for maximum effect.
Examples of Effective OKRs
OKRs can guide the company as a whole or they can determine functional areas of improvement within a company. They can vary widely based on where the company is in their growth cycle and where the market is for their industry. Most OKRs are quantitative but they can be qualitative. In both cases the key results should be quantitative. Once these OKRs are in place, teams work to determine the actual initiatives and tasks they take on in order to hit the key results. In turn, the key results will produce the objective as an outcome. Below are some examples of effective OKRs at varying levels and perspectives within a company.
- Become the nation’s largest hotel chain
- Key results: grow number of rooms by 45%; double occupancy in three years; control 50% of the convention business
- Increase revenue by 15% (quantitative objective)
- Key results: open two hotels per quarter; hit monthly revenue goals; increase online sales by 25% by the end of the quarter
- Grow staff engagement (qualitative objective)
- Key results: improve Net Promoter Score by 20% year over year; decrease absenteeism by 40% by the end of next quarter; increase wellness program utilization by 20% every quarter.
Tips for How To Implement OKRs
To use OKRs as an effective tool, implementation must start from the very top.
Tip 1: Gain Personal Buy-In From Leadership
Focus, alignment, commitment and tracking how the company’s limits are stretching are key activities leadership must own.
Tip 2: Establish a Set of Work Sessions
Determine who will set company objectives ensuring all executive leadership contributes. Bring in functional heads and other key resources to help create key results. Cascade the key results down to the work groups responsible for them to create a series of initiatives that can attain those key results.
Tip 3: Determine a Communication Cadence
Decide how often work groups meet to review progress. Decide how often and how the progress will be communicated to the entire company. Remember that this is an all-hands effort.
Tip 4: Celebrate Wins
Be sure there is a social system in place to celebrate successes and nudge others on. Motivation is the engine of success.
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Milly Christmann is a high energy, operationally oriented talent management leader with extensive expertise in human resources, sales management, service and operations. She is recognized for collaborating with leaders to achieve their business goals by unleashing the power of an engaged workforce. By using process improvement, technology and strong, impassioned people skills as well as by attracting, developing and retaining top talent, Ms. Christmann drives change that matters.
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