What is OKR?
Setting goals is always challenging, especially when there is a lot of uncertainty. How do you set goals for the next 12 months when your company is growing (or changing) very fast?
Silicon Valley companies solved this problem by adopting OKR (Objectives and Key Results), a goal setting framework originally created by Intel. Google is the most famous case, having adopted OKR in 1999, when it had 40 employees and less than one year.
OKR supported Google’s growth from 40 employees to more than 60,000 today, proving that it can be used by small companies as well as large corporations.
Besides Google, the list of companies using OKR is long: Twitter, LinkedIn, Dropbox, GoPro, Coursera, Eventbrite, among others.
John Doerr is one of the most successful venture capitalists of all time, having invested in Google and Amazon. Doerr, who worked at Intel and introduced Google to OKR, has a formula for setting goals:
Doerr’s Goal Formula
I will ________ as measured by ____________.
A good goal has to mention both what you will achieve and how you are going to measure its achievement. This formula is the best way to explain the structure of an OKR:
I will (Objective) as measured by (this set of Key Results).
Andy Grove, Intel’s former CEO, wrote on his seminal book High Output Management, about Intel’s MBO model, which gave birth to OKR. In the book, Grove describes the two components:
- Where do I want to go? (The Objective)
- How will I pace myself to see if I am getting there? (a set of Key Results)
The book is from 1983 and the OKR model evolved a lot since the original Intel MBO concept. My definition for each component is:
- What we want to achieve.
- Aspirational and engaging – Motivates and challenges the team.
- Memorable – Simple, short and easy to memorize. Shouldn’t be boring.
- Fits the organizational culture – Can be informal and fun. Slangs, internal jokes and even profanity can be used – whatever fits your culture.
- How do we know if we are getting to our Objective.
- Quantitative – Every Key Result should have a number and be measurable.
- Success Criteria that show if we are progressing.
- Metrics (recommended) or milestones.
- Focused – Not a laundry list, usually between 2 and 5 per objective.
As an example, let’s imagine a technology company that wants to increase customer engagement and satisfaction:
Objective: Delight our customers
- Increase average weekly visits to 3.3 per active user.
- Increase non paid (organic) traffic to 80%.
- Reach a Net Promoter Score of 52%.
- Reduce revenue churn to 1%.
- Increase engagement (users that complete a full profile) to 75%.
Note that the Key Results define clearly what do we mean by “Delight our customers”. Another team or company could have the same Objective with completely different Key Results.
Alignment and cadence
OKR exists to create alignment and to set the cadence for the organization. The goal is to make sure everyone is going in the same direction, working with clear priorities, in a constant cadence.
What’s unique about OKR?
There is not a single way to use OKR, each company or team can adapt and tweak it, creating different versions of it. But some core concepts are common.
- Goal agility: Instead of using an annual static planning process, OKR uses shorter goal setting cycles (usually every quarter).
- Simplicity: The process is extremely simple and the OKRs themselves are clear and simple. Intel’s original model used to set MBOs monthly, requiring a lightweight, straightforward process.
- Decoupling strategy and tactics: OKR understands that strategy and tactics have different rhythms, as tactics tend to change much faster than strategy. In order to solve this, OKR adopts a dual cadence:
- A strategic cadence with high-level long-term OKRs for the company;
- A tactical cadence with short-term OKRs for the teams.
- OKRs don’t cascade: Instead of using the traditional top-down cascading model that takes too much time, does not add value and tends to create silos, OKR uses a market-based approach that is simultaneously bottom-up and top-down, creating horizontal alignment among teams and reducing interdependencies.
From the company strategic OKRs, teams are able to receive a clear direction and understand how they can contribute to the overall strategy. In this process, around 60% of the tactical OKRs are set by the teams in alignment with the company goals and then contracted with the managers in a bubble-up approach.
- OKR targets bold, aspirational goals: Besides setting aspirational objectives, OKR believes in enabling the team to set ambitious goals. In order to do that, two concepts are key:
- Stretch goals: Goals that are just beyond the threshold of what seems possible and make the team rethink the way they work to reach maximum performance. The so-called “moonshots” should be set just beyond the threshold of what seems possible and in average you should achieve only 60-70% of them;
- Decoupling goals and compensation: Separating goals from salary and promotions is key so the team may go for hard and aspirational goals. OKR is a management tool, not an employee evaluation tool.
Adopting moonshots and creating a decoupled evaluation model is not easy and requires a higher level of maturity from the organization. That is why you should not adopt them in the begging.
- Transparency: The main objective of OKR is to create alignment in the organization. In order to do so, OKRs are public to all company levels — everyone has access to everyone else’s OKRs. The CEO OKRs usually are available on the Intranet.
- Focus: OKRs exist to set clear priorities and to focus the organization. In order to do that, you have to have few OKRs an decide what you will not focus on.
- Discipline: OKR has to be part of the company culture and the daily routine of each team. Regularly tracking OKRs is key to achieve the desired results.
Building a results-focused culture
If properly used, OKR can be a cultural transformation tool, helping to build a high performance culture that is focused on results. As in any cultural transformation, change does not happen overnight, but in a few months it is possible to change the company’s dynamics, aligning the team and focusing towards the desired results.