The practice of OKR
Before getting into how to set and use OKRs, we need to solve a common misconception that OKR only works with quarterly cycles since it can prevent organizations from fully achieving OKR’s value.
As we mentioned in the first section, OKR has a dual cadence, separating strategy from tactics and working with each one at a different rhythm:
- A strategic cadence with high-level long-term OKRs for the company;
- A tactical cadence with short-term OKRs for the teams.
It is important to note that the two cadences are not fixed and can be customized for each organization:
- Google uses a strategic cadence of one year and a tactical cadence of 3 months;
- Spotify, who used OKR and now uses a version of Goal Agility called Spotify Rhythm, uses a strategic cadence of 6 months and a tactical cadence of 6 weeks.
Each organization is free to choose the cadences that fit its culture and business model. In fact, Laszlo Bock, Google’s VP of People Operations, said that until Larry Page’s return as CEO in 2011, Google only used quarterly OKRs. After retaking the CEO role, Page decided to use the dual cadence model, with annual and quarterly OKRs for the company.
Other companies are adopting shorter cadences for OKR, as Salim Ismail, founding executive director of Singularity University, wrote in his book, Exponential Organizations:
Many [organizations] are now implementing high-frequency OKRs – that is, a target per week, month or quarter for each individual or team
Even inside the same company, different teams can use OKR in different ways. For example, some Silicon Valley companies work with annual OKRs for the sales teams.
Developing the OKRs
For the purpose of this section, we are going to consider that the company adopted annual strategic OKRs and quarterly tactical OKRs. If you choose to work with different cadences, just replace “annual”, “year”, “quarterly” and “quarter” in the text below.
In the beginning of the year the company defines a set of high-level strategic OKRs – preferably with input from the team.
From the company OKRs the teams are able to get a clear direction and understand how they can contribute to reach those OKRs.
Each team then defines a set of tactical OKRs for the quarter that contribute to the strategic OKRs and that are roughly aligned with them. Teams’ OKRs don’t have to be 100% aligned with the company’s OKRs since they may choose to also include a local OKR.
This happens in a parallel, bubble-up process in which each team contracts the OKRs with the managers, in a system that is simultaneously bottom-up and top-down.
As we will see in the next section, OKRs do not cascade.
The rule of thumb is that around 60% of the OKRs should be defined by the team, bottom-up, meaning that the managers also have a say on what the OKRs are.
In my experience, if you have a healthy environment it is very hard to actually track this percentage. Usually the team develops a draft for the OKRs and then there is a conversation with the managers. The company may also choose to standardize a few OKRs between similar teams (i.e. every product team has to increase customer engagement).
In the beginning of the next quarter, the company and teams will review the results from this cycle and plan the next quarter.
OKRs that haven’t been achieved in the previous cycle are reevaluated so they can be included in the next quarter or discarded if they are no longer necessary.
OKR is first and foremost an alignment tool. But alignment can only happen when teams have structured conversations with each other to set priorities and solve interdependencies.
Creating OKRs in isolation, without talking to others, is a very common mistake. It usually prevents the team from achieving their OKRs by:
- Setting OKRs that are not feasible, since they are not a priority for the necessary teams;
- Defining OKRs that are overly optimistic due to the time needed by third party to deliver a required action (the other party will either take to long or will start it too late to move the needle during the quarter).
In order to avoid this mistake, more mature teams solve interdependencies by having structured conversations with each other to create 360º alignment. If a team needs something from another, they can discuss it and set common priorities or even delay the initiative for the next quarter.
Since OKRs are transparent, if one area of the business is not aligned with the others it can be quickly noticed by the other teams and fixed.
Using shared OKRs to reinforce alignment
In order to reinforce alignment, shared OKRs can be created among different teams, building shared success criteria between them. So instead of splitting a single initiative among teams and have them set separate OKRs – which can lead to teams losing sight of the real objective – a single shared OKR is created among the teams.
For example, imagine that a product team wants to launch a new product and needs that the platform team develops new features while the business development team signs content deals with partners.
Objective: Successfully launch Acme product
- Reach 500,000 Daily Active Users of the free version;
- Achieve 5% conversion rate from free to paid users;
- Achieve a Net Promoter Score of 35%;
- Less than 5 critical or blocker bugs reported;
- Achieve at least 40% revenue share with 5 of the target content partners.
Instead of having 3 different goals that could be individually achieved without generating the desired business result, this single OKR is shared between teams. Each team has different tasks, but the same OKR – the same definition of success.
For the duration of this OKR, a virtual team will be created among the three areas that will meet regularly to track progress.