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Show notes

Growth is the result of a combination of carefully designed strategies and an organization’s learning processes.

OKR is the perfect tool to facilitate such growth, by bridging the gap between an organization’s strategy and its activities, while fostering learning simultaneously.

We spoke to Philipp Engelhardt, a growth strategist, OKR consultant and founder of scaleon, a management consulting company. We’ll be talking all about growth strategies and OKR. Here’s what we’ll be covering:

  • Intro on growth and growth strategies
  • The difference between strategy and goal setting
  • The relationship between OKR and growth strategies
  • Task completion doesn’t equal goal attainment (outcomes vs. outputs)
  • How OKRs support an organization’s strategy
  • The two schools of OKR: Strategy & HR
  • The importance of tracking OKR and strategy in the same place
  • Using OKR to fit your organization’s needs
  • When OKR is useful for high growth companies

Transcript

Henrik-Jan: Welcome to another episode of Goal Diggers. I’m Henrik, founder, and CEO of Perdoo, an OKR platform focused on growth and strategy execution. I’m today’s host and with me today is Philipp Engelhardt. We’ll be talking today about OKR and growth strategies.

Phillip, could you tell us a bit about yourself and your journey with OKR?

Philipp: Well, first of all, thank you for having me Henrik. So yes, I’m Phillip Engelhardt and the founder of Sclaeon — a consultancy here in Berlin, that is focused on growth strategies and combines the development of growth strategies very closely with actually managing growth. Especially when talking about growth strategies, you should also know how to execute them. That’s one of the specialties of growth strategies.

I encountered fast growth the very first time when I was CFO at Groupon during the hyper growth phase. So Groupon scaled to the first $1 billion in revenue in just two years, that was really strong growth. That’s where my interest in growth, growth strategies, growth management comes from. I also did a PhD at theUniversity of St Gallen, Switzerland on how to manage growth and also published academically on OKRs. So, I hope I can provide some insights also from the more academic perspective on OKR and growth strategies.

Henrik-Jan: Yeah I think that will be really interesting for this podcast. But before we dive into that, could you explain to me like what exactly is growth? Because I think when people think of growth, they all think about growing revenue numbers, month over month, quarter over quarter and so on. But maybe you could shed some more light about how you look at growth, what you think growth is. And then I’d also like to learn more about what a growth strategy is?

Philipp: Actually, that’s a very philosophical question. What is growth? And it’s actually a very essential one as well. So most people, as you said, are thinking growth in terms of revenue growth. Maybe if you’re a young company startup, you know, you’re scaling, you’re thinking in terms of more headcount, so organizational size, but these are rather outcome metrics.

What is ultimately growth? And my answer is that growth results from learning processes within the organization, within people. Not only individual people, also people as a team and as a whole organization. So I always say that growth is learning and there’s an essential insight in that because learning can actually be organized for. Learning can be managed. You cannot manage growth , in terms of revenue, but you can manage the learning within an organization. And that’s also the key difference between a growth strategy and other forms of strategies like, harvesting a position or defending a position. You don’t need learning processes necessarily, or a very one dimensional learning process.

Only growth strategies, really focusing on the learning behind the increasing revenue number. And that’s basically the theoretical concept behind all growth strategies that we develop at Scaleon, with our customers.

Henrik-Jan: It’s really interesting what you said at the start, because I think, your definition of growth for a business is very aligned with how someone would define growth for him or her as a person.

I think when, when someone talks about like I’ve grown a lot as a person, I think that’s also a reflection of them having learned a lot, going through a difficult phase, having overcome certain challenges and have learned from these challenges. So I really like your definition there and I think it’s very different to what, how other people would define growth. So it’s important that we’ve clarified that at the start of the podcast before we dive deeper into that.

Now what’s the relationship between growth, growth, strategies and OKRs. How do you see the two work together?

Philipp: So, OKRs are goals. In order to manage growth, you need a cascade or a sequence of different types of goals in an organization. At the top usually you have something like a mission or a purpose, which is a goal that you chase, but never achieve. The next level is a vision. You can achieve a vision, but it’s long time from now — five to 10 years, usually 10 years from now.

The next step is that you have a strategy that is outlining clear strategic goals for a timeframe of 12 to 36 months, depending on where in your life cycle your company is. Then the next level in most organizations is rather the task level. That’s very surprising. The task level is what am I doing today, tomorrow, next week? Maybe two weeks from now, which is very clear.

In OKRs, which is also a type of goals, is getting between the operational tasks — today, tomorrow, next week. And the grand strategy, 12 , 24, 36 months from now. It’s covering this middle ground and in covering the middle ground OKRs support learning how to achieve the growth strategy.

The middle ground is often missing. OKRs became so popular because they are filling this gap with a very clear and easy concept. Most organizations don’t have that three to four, five, six months of goal setting. That’s the first part. So they fill a gap in the types of organizational goals that an organization should have.

The second essential dimension of the relationship between OKR and growth strategies is that OKRs support learning — learning about how to achieve the growth strategy. What is learning? Learning is: you have a goal, you’re being active and you’re getting feedback. And based on that feedback, you adapt your goal. And this cycle of goal, activity and feedback is beautifully closed in very smart way by OKRs.

So it really supports the learning processes that are necessary to implement the growth strategy and reach the growth objectives.

Henrik-Jan: Yeah, again, I really liked what you mentioned there. I think we take a similar approach with Perdoo and we stopped differentiating between a mission and a vision because we’ve learned that people are just very confused about what these terms mean. But in the end when you ask questions, pretty much every organization has a mission and a vision. It’s just that they sometimes call their vision, the mission or the other way around. So we said, okay, that really shouldn’t matter.

And we said let’s just call it the Ultimate Goal of the organization and combined the two (mission & vision) together so that you can’t mix them up again. But yeah, we also look at the mission and the vision as essentially being a goal. So the way I look at goals is that they bridge the gap between a desired point into the future and today’s reality, right? When you start a business, there’s a problem that you want to solve. So you call that the mission. And you’re essentially saying like, okay, this is where we, or the world is today and this is where we want to be at a future point in time. And then you work your way backwards .

Some organizations started defining a strategy. Although I also see lots of startups skipping that phase and are so focused on learning, which sometimes it’s the learning that will help them figure out what the right strategy should be for their organization. But we see plenty of organizations that don’t have a clear strategy or they are mixing up strategy and something being strategic.

So they set a long-term goal for three years into the future, and then they say that’s our strategy. Although from our point of view, a strategy is really highlighting your differentiators in the market, it’s helping you differentiate yourself from the competition. Which is eternal, right?

So for example, at Perdoo, we focused very strongly on offering the best resources and support, especially because most organizations are new to OKR and oftentimes they do need more than just a software to become successful with it. Which which has also proven why consultancies, like you exist, of course, although you do a lot more than just OKRs. I think that’s also an important difference for organizations to be aware of that you’re not mistaking a long-term goal with that being your strategy.

And then I totally agree, I also see lots of organizations, if they have a strategy in place, then going directly to the task level. Why do you think that is the case? I was always under the impression that it’s quite simple for any individual within an organization to sit down and start thinking, okay, well, do I need to do today? What do I need to do this week? That’s fairly easy. And I also have the impression, although I’m not entirely sure, you tell me if that’s correct or not, that it’s fairly easy to set high level long-term goals. Right? So , you can come up with a mission for your organization. You can come up with a vision for your organization, but it’s that area in between exactly the area that OKR is cover, which is quite hard to say, like, okay, where do we want to be at the end of the quarter? Do you have the same experience or how do you look at that?

Philipp:Yeah, I have exactly the same experience. I think it’s fun to come up with a bold vision. Startup culture is very much encouraging that and that it’s okay. But as I said, it’s not the only type of goal that you should know.

Also strategy, you know, looking 36 months into the future is kind of fun, because you’re envisioning a state of the company in the distant future, but it’s not as near, so that you are really accountable. Or you have to think it, or even can think it through very, very well.

So vision, purpose, strategy, that’s all tapping into the more or less unknown. On the other hand, the operational level today, tomorrow, next week, it’s very much known. For me it’s very clear. I mean, my calendar tells me, what am I doing today? What am I doing tomorrow? But I’m not doing next week. Maybe the next four weeks are basically quite clear. But beyond that, it gets hard.

What OKRs are doing is they combine a certain element of what is known about the next three months with exploring, the areas that are not known so well that I have to define three months from now, so that I really progress.

So you have a interesting balance between what you know, for sure, which is always comfortable. And what you don’t know. And that quite interestingly concentrates in OKRs. And it does so according to very strict principles. And you combine that with strong accountability, because there’s a lot of measurability or at least you can verify the achievement of Key Results well.

So you combine that in OKRs and you’re very much accountable for that and that’s hard for people. I’ve done I don’t know how many thousands of OKR already defined with customers and I always find the same. It’s intellectually hard and it’s sometimes also a little bit scary. Because you’re so accountable for something that it’s not a hundred percent under one’s control.

This is we’ve got to get you into that mindset in order to really benefit from OKR.

Henrik-Jan: Yeah. I recognize that for sure. I mean setting OKRs is absolutely hard or setting good OKRs, but I do find it a really valuable exercise. And you definitely see that you are getting better at it over time.

And I think because that level was missing and because lots of people want to make sure that OKRs are actually not reflecting so much what they need to do. That’s already, like, you already know that, that it’s already on the task level, but are reflecting more like, okay, what are the results that we want to achieve? What are the outcomes that we’re after by doing all these things? And because that level was missing in most organizations, the only measurement of success, I think in the past, was the completion of certain tasks. And as you mentioned, that’s fully within your control. So that’s very safe. You feel very comfortable there.

Whereas with OKRs, the measurement of success is not necessarily the completion of certain tasks or finishing certain projects, but it’s actually a level higher. Instead: why were we working on these tasks? Why did we start these projects? What results were we expecting to achieve by doing that? And have we achieved those results? And then it can be, of course, that you’ve worked for a week on a certain project or a couple of tasks and then you see that as actually not generating desired results, which means that you need to go back and try different things to work on. Which is of course, a lot more challenging than just completing the task. Like you’ve been used to doing that.

But going back to our topic, what requirements does this strategy then need to fulfill in order to support OKRs? Or, I mean, we can also turn that question around, but what requirements do OKRs need to fulfill in order to support a strategy? What’s your take on that?

Philipp: Yeah, that’s actually very important. So there’s two schools on OKR. I called it the Strategic school and HR school, and both are valid. I don’t dismiss any of these schools, but you’ve got to be sure which perspective you’re taking. And the Strategic school is linking OKR to strategy. Considers OKR as a strategic management framework to translate strategy into short-term, three months goals.

While the HR school is rather about managing performance on the employee level. Now that’s two different things.

So OKRs should be obviously conceptualized the first way — as a strategic management framework. In order to really link into strategy OKRs need a brief, precise, easy to understand set of strategic goals that OKRs can pay into . So you can not have the typical McKinsey, 510 slide presentation. You cannot attach OKR to that. You need to really boil it down to strategic goals that OKRs then work into . I always recommend that strategy should be measurable. So we always include core metrics into the strategy that is being pursued over the next 12, 24, 36 months.

And the strategy should be able to be sold like a product into the organization. We have quite a lot of success with thinking of OKR, like a product. You have sell strategy, like product that is being sold into the company. And the last requirement of strategy for OKRs is that the strategy itself needs to be adaptable. Because OKRs provide feedback. It’s not a one way street between strategy and strategy, defining what OKR is supposed to be doing. OKRs also provide feedback to strategy. And if the OKRs provide feedback to strategy in a way that strategy must be adapted, it should be possible and should be possible in an easy way.

So we have a framework that we always use to frame strategy and attach OKRs to it. And mostly we combine the two projects, you know, so we craft growth strategies for our customers and then execute it by introducing OKRs in our client organizations.

Henrik-Jan: Yeah I’m happy that you called out to the two schools of strategy. That’s actually something that I probably should have mentioned at the start of this podcast. There are absolutely two schools off of using OKRs, one for strategy, and one for HR. At Perdoo, we’re focusing on the strategy and strategy execution use case. Of course, there’s tons of OKR tools out there that focus on the HR use case. It’s absolutely a valid space and has a right of existence on its own. It’s just not something that we focus on at Perdoo. And that of course then also has set the scope for this particular podcast, but I’m happy that you’ve, that you’ve called it out and clarified that.

The other thing that I really liked, what you mentioned is connecting OKRs to strategy because I think it solves two important problems within an organization.

First of all, as a leader of a business, when these two are connected, you can all of a sudden see how your organization is planning to implement and execute your strategy, which is something that wasn’t possible before. And which is why we at Perdoo believe why it’s so important that you track your strategy and your OKRs in the same place.

And I think the other advantage is that people in the organization can now better understand and can see the strategy. I totally agree with you that for some organizations strategy is like a 10 page document for one particular strategy that they have, which is something that the organization can never remember.

Often it uses way too complicated language that people don’t understand it. And then there is no point, right? If you set out a strategy that everyone in the organization cannot see or cannot understand, then how in the world can you make sure that they can actually support this their strategy with their daily work and with their OKRs.

But when you bring the two together provided that you have made sure, of course that the strategy is fair and easy to understand and easily accessible. Then people are much better able to decide themselves what OKRs they should or should not be working on. So I think that can increase autonomy within an organization and people are better able to see the bigger picture, and can better see why they are working on certain things. So what higher level goals of the organization and what higher level strategy of the organization that should support, which I think is a big complaint from employees that they just don’t see how their work fits into the bigger picture.

Philipp: Yeah, absolutely. I had a very interesting experience one year ago when the pandemic started with customers that had both these tools at hand. So first is strategy that is really condensed basically on one PowerPoint slide. And executing that strategy with OKRs.

When something hits like a pandemic, then you can change the course of your organization very quickly. First by altering your strategy, moving from a growth strategy, more to an emerging strategy. At least for, let’s say six months or so, and then see. And second, by changing the length of the cycle of the OKRs. Going down from three months to six weeks. That’s basically what a couple of customers did after consulting with me.

And that allows these organizations to shift course, react to big changes like the pandemic, but also smaller changes that are necessary because of a competitor or a new technology or whatsoever, faster. Really put a organization on a different path. However, that’s only possible if an organization is very clear on both the strategy and how to communicate it and how to frame it.

And using OKR as an iterative tool, every cycle, whatever the length is, three months, six weeks, two months, whatever. Yeah, you can, you can play with it.

Henrik-Jan: It’s not always clear to people that they can play with that, right? I think a lot of people read about OKRs in a book and then they just distill all the rules and then that’s how they want to implement it.

And then one of the things that you see, everybody do is set OKRs at the team level, at least on a quarterly basis. But, how often you want to set OKRs, that is really up to how often you want to get that feedback. And how often do you want to decide what you should be focusing on next?

I don’t think many people are aware that OKR is a very flexible framework, that can be totally adjusted to your specific needs of your organization or to special circumstances. As you mentioned, like COVID all of a sudden becoming a problem.

We went through different iterations ourselves. Like we started off with monthly OKRs when we were younger and smaller, just because things were changing so rapidly. So we wanted to get much more rapid feedback. Then we went to six weeks, now we’re at quarterly and maybe at some point we’ll switch back to six weeks, for example, if things change.

So I think it’s very important for people to be aware that you have that flexibility in the OKR framework, and shouldn’t treat it as dogmatic as like, this is how you need to do it, and this is how we need to do it. I often think when people say OKR, wasn’t working out for us, that they’ve taken it too seriously and thought like there’s one way to do it. That’s not working out for us, and therefore throwing it away. Even though there’s so many different approaches to OKR that you can take as an organization.

Philipp: Yeah, absolutely. I mean, we have two types of projects with respect to OKR. One is a new introduction and the other one is fixing OKRs that did not work previously .

There’s a difficulty with OKRs because it sounds so easy. And then you read the book of John Doerr and then you’re inspired. And founders try it out themselves but the devil is really in the detail and understanding all the parameters that can be changed and need to be really customized so that OKRs fit in an organization. And then understanding what other variables to be monitored so that the system, the OKR system actually evolves through the life cycle of a company. That’s not something that you can really read from John Doerr. So although it’s maybe a funny recommendation from a consultancy that also does OKR but I always recommend to at least consult someone that has experience with OKRs. Because as I said, the devil is really in the details and the possibilities that we had just talked about the need to be known in order for OKR to develop their full power.

Henrik-Jan: Yeah and I support that recommendation because I do think that fixing a failed implementation of OKR is a lot harder than doing it right the first time. So, yeah, I also think that’s the reason why it looks so simple. For example, in John Doerr’s book, the examples that he uses a lot is about the football team. Where there are a lot of knowns, right? You know, which battles you’re fighting, you know, the capabilities that you have in your team.

There’s a lot more clarity there than there is in organizations where there is a lot more uncertainty and a football team is I don’t know, about 20 people maybe. Whereas an organizations with 50, 100s or thousands of people setting OKRs across such larger organizations with more people.

I think that becomes a lot more complex because I mean, there are people out there that apply OKRs to their personal life. Whether you set them as OKRs or not doesn’t matter, but I think setting personal goals is fairly easy, right? But when you want to set goals together with a group of people to achieve a set of higher level goals and to help support a strategy, I think that’s where the complexity kicks in.

And that I think is also very risky with a lot of the content being created. Right? Cause if you, right, I mean, I read a lot of content about OKR myself. And I always try to come up with analogies and examples, but I’m also very aware that it’s fairly easy to come up with an example that supports the point that you’re trying to make in an article. And it’s fairly easy to come up with a good list of example OKRs that people can look at. But I think the tricky thing is that every organization and every team is unique and facing different challenges. So even though you have a good list of example OKRs, yeah, it can help inspire people but what you really need to do is to educate them on the thinking process that helps you come up with good OKRs. That’s where the real value is, right? Just copying over an example OKR from another team. I don’t think that’s really going to help you much in the long run. You have that example, right? Give a man a fish and he’s not hungry anymore, teach a man how to fish and then he’ll never be hungry again. I think that logic also applies to OKR. It’s like, you really want to be educating people on how do you identify what are the right things for you to work on next? And I think once you’ve mastered that that’s a massive skill to possess for your personal career as well. Because any organization that you’ll join any other team that you’ll join in the future, if you have someone in your team that is really able to see : these are problems that we should be addressing. And I know how to address these problems from my previous experience. I think that’s, that’s massively valuable for anyone.

Coming back to OKRs and growth. One more question about that. Why and when do you think OKRs are especially useful for high growth companies? So if you are a high growth company, like when is the right time for these companies to introduce OKRs and do you think organizations should start working with OKRs right from the start, or do you think they need to get past a certain point for OKR to become helpful? What’s your take on that?

Philipp: I would always start with introducing OKR very early, as early as possible. Even if you’re just two or three founders use OKRs and will really benefit. As we said, make the cycles shorter because as a startup, you cannot just do goal-setting four times a year, so it got to be shorter, but use it early on. Goals, short term goals are the learning engine among all the management instruments that are out there. It’s really facilitating learning in an organization. It’s doing more benefit to learning than other management instruments, like incentives, organizational structures, KPIs or some more than the growth strategy . So it’s really the learning engine, often the organization.

OKRs are structured in a way so that they foster a culture of learning. Because of the very profound principles that OKRs come with everyone needs to suggest their own OKRs, but everyone else needs to agree. That is a platform for learning together, debate and discussion. And also OKRs are an easy framework, at least at first sight and they are en vogue so to say. And so it’s, quite easy to sell them to your employees. We also have some larger customers, so bigger corporations, and also some companies from German Mittelstand, that want to change their culture in the direction of more learning. And they use OKR to do that.

But most of all, if you are a growing organization and you want to facilitate learning, then you can use OKR like hypothesis of how to drive growth strategies and KPIs associated to it. So you can think of the Objective as a hypothesis of what you want to reach within the timeframe of three months, and then the key results as the validation or falsifications of that hypothesis.

And if your hypothesis driven as a high growth company of how to drive something forward that is important. That is usually being crafted into the growth strategy. Then you are facilitating growth strongly. So there’s a couple of reasons why OKR are especially useful for high growth companies. Because it’s about learning, learning needs to be managed and OKRs manage learning. But it’s not only restricted to high-growth companies of course. And as I said, we have bigger corporations and German mittelstand and startups among our customers. So designed to right way, OKRs can really benefit all of them.

Henrik-Jan: I think this is a good way to end the podcast, so I want to thank you a lot for your time today and sharing your thoughts with our audience, that’s really appreciated. And I’ve learned lots of new things from you today. So thanks again!