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What is OKR?
OKR stands for Objectives and Key Results. That would make you think that there are only two components to an OKR, but in fact, there are 3:
- An Objective
- Key Results
The Objective tells you where to go. Key Results help you measure progress toward your Objective. And Initiatives are everything you’ll do to achieve your Key Results.
Let’s take a closer look at each of the 3 components in more detail.
What is an Objective?
An Objective describes something that you’d like to achieve in the future. It sets the direction for your organization or team — think of it as a destination on a map.
It’s important that an Objective is easy to understand, memorable, and inspiring. Objectives are a great tool to communicate across the organization what everyone is working on. For that reason, Objectives shouldn’t contain technical jargon, and they also shouldn’t contain a metric.
An example of an Objective would be: Our customers are the happiest they’ve ever been.
What is a Key Result?
Key Results are all the results that need to be achieved in order to get to your Objective. In reality, however, Key Results do two things.
Key Results help specify the Objective
Qualitative Objectives can be a bit ambiguous, so you need Key Results to quantify the Objective and make them specific.
Now imagine your Objective is to “Be a top place to work in the U.S.”. You could measure this in terms of where you rank in Fortune’s 100 top places to work list, eNPS score, number of applicants per job post, or multiple indicators at once. Whatever you mean by “being a top place to work”, the Key Results will make it clear.
Key Results help you measure progress toward your Objective
A Key Result must always contain a metric, including a start and target value.
Think of Key Results as a signpost with a distance marker that shows how close you are to your Objective. So imagine your desired destination — your Objective, is New York. The signposts indicating distance toward your destination are your Key Results.
One important thing to note is that a good Key Result is typically an outcome, not an output. An output quite simply is something you do, such as a task or a project. For example, Make 50 Sales calls would be an output. Whereas, an outcome is a result of what you do. For example, I closed 10 new customers — that’s an outcome.
Given the example Objective provided earlier, a good Key Result would be: Increase our Net Promoter Score (NPS) from 30 to 50.
What is an Initiative?
Initiatives are all the projects and tasks that you’ll work on in order to push progress on your Key Results. Think of it as everything you’ll do in order to get to your destination.
An example of Initiatives could be:
- Squash all high-priority bugs in our product
- Hire 2 new support agents
By now you have a clear understanding of the components of an OKR. But you’re probably wondering what all the fuss is about. Why not just stick to calling these “goals” as we know it? Why complicate things?
How you’re used to working with goals vs. working with OKR
OKR is two things. On the one hand, it’s a framework that contains best practices to help you manage your organization’s goals. On the other hand, it’s a way to formulate those goals.
But first, let’s have a look at how you’re used to managing goals.
Imagine you want to Increase brand awareness for your business. You would then likely set yourself a goal to Acquire 20,000 new leads per month. You’d probably go on to set yourself even more goals such as setting up 10 ad campaigns and writing 5 new blog posts per month.
You end up with this list of goals that all feel equally important and don’t really know where to start. But the only thing that truly matters is to increase brand awareness.
Now if you’d structure these goals as an OKR, you would have much more clarity about what really is important to you. Your Objective would be to Our brand is the talk of the town. Your Key Result would be to Acquire 20,000 new leads per month. Together they form the outcome that you want to achieve. Your Initiatives are the things that you’ll be doing to help you reach that outcome. That could entail setting up 10 ad campaigns, writing 5 new blog posts, or putting up 100 new billboards around the city’s most busy spots.
Makes sense? 😄
Now, before we get any further into the details, let’s go back in history shortly to see where and when OKR came into being.
A brief history of OKR
OKR dates back to 1954 when Peter Drucker invented Management by Objectives, also known as MBO. But then in 1968 Andrew Grove co-founded Intel, and later in 1983 further developed and refined MBO into the OKR framework as we know it today. He’s also known as the “father of OKR”.
In 1974, John Doerr joined Intel and learned the concept of OKR. Doerr went on to join Kleiner Perkins Caufield & Byers — one of the first major investors in Google — and became an adviser to Google in its very early days. Doerr introduced OKR to Google’s founders, Larry Page and Sergey Brin, who then implemented OKR at Google. In fact, Google still works with OKR.
Now that you have a good understanding of what OKR is all about, there’s one important thing I need to point out since many people confuse OKRs for KPIs.
OKR ≠ KPI
OKRs are not the same as KPIs.
OKRs and KPIs are completely different goals with different purposes. They in fact work really well together and there’s great value in tracking them alongside each other.
But first, what’s the difference between the two?
KPI stands for Key Performance Indicator. KPIs are a type of performance measurement aimed at evaluating the success, output, quantity, or quality of an ongoing process or activity. These processes or activities are usually already in place.
OKRs on the other hand provide the missing link between ambition and reality. They help you break the status quo and take you into new, often unknown, territory. If you have a big dream, something that you’d like your organization to achieve in the future, you need OKRs that take you there.
OKRs and KPIs work well together. Let’s imagine your organization is a car and you’re driving that car toward your destination. Your KPIs are what you’ll find on your car’s dashboard, such as the fuel gauge and engine temperature gauge. These are the things you’ll need to constantly watch to ensure your engine isn’t overheating and that you aren’t running out of gas. On the other hand, your OKRs are like your roadmap that guides you toward your destination. These are all temporary goals that will change from time to time. So, once you’ve passed a landmark (toward your destination), you’ll then focus on the next one.
Now that we’ve clarified the difference between OKRs and KPIs, it’s time to take a closer look at the purpose of OKR. Why should you adopt OKR for your organization, and what should you be using it for?
Execute strategy with OKR
Following Google’s success with OKR, it’s become a popular goal management framework and has been adopted by millions of organizations worldwide.
A key reason for most organizations to implement OKR is to improve alignment across their organization. They essentially want to make sure everyone is pulling in the same direction and working toward a common goal. But in order for OKR to boost alignment, you first need to get your strategy in place.
Strategy = Ultimate goal + Strategic Pillars
The reality is that every organization has limited resources and is faced with competition. For that reason, strategy becomes critical, and (tough) choices need to be made, such as which battle(s) you want to fight and what winning looks like. The answer is your strategy.
And your strategy consists of two parts: your Ultimate Goal and Strategic Pillars. The Ultimate Goal defines your organization’s ultimate winning aspirations, making clear what the purpose of your business is, for whom your organization is fulfilling that purpose, and when you’ll consider your venture a success.
Once you know your business’ playing field and what winning looks like, the next step is to figure out how you’re going to win. Those how-to-win choices reflect what you’ll do to differentiate yourself in the market.
Those choices will be the pillars that will support your Ultimate Goal. If you decide to change your Ultimate Goal, you’ll have to revisit how to win on that new playing field. Your Ultimate Goal and Strategic Pillars are, therefore, jointly called your “strategy”.
This strategy will serve as the foundation that will inspire all the OKRs (and KPIs) that your organization will be working on. And that’s why it’s so important to track your strategy and goals in the same place: it creates transparency, enabling everyone to see the bigger picture and if what they’re doing is aligned with it.
The OKR rhythm
An OKR program is most successful when it operates on a combination of cadences. These cadences interact with each other to create a rhythm of continuous and focused progress.
If you’re wondering what a cadence is: a cadence quite simply is the frequency with which the organization and its respective teams set and review their OKRs.
Long & short cadences
While your organization’s strategy guides you in everything you do, it needs to be made actionable through OKRs. At the company level, these OKRs are usually annual. At the department- and team level, OKRs are typically quarterly.
Toward the end of a year, executives typically start reviewing the current year’s performance as well as the organization’s strategy. They then define the organization’s key priorities for the next year. These company-level OKRs communicate the 3, 4, or sometimes even 5 bigger themes that the leadership team wants everyone to focus on throughout the next year.
Teams and departments then set shorter-term OKRs that support the higher-level, company-wide priorities.
It’s important to note though that the OKR framework is flexible and forgiving — there’s no one-size-fits-all rule on setting the right combination of cadences for your organization and its teams. Since 94% of organizations work with these annual/quarterly cadences, it offers a safe starting point. From there, you can modify your approach as you learn what works best for you.
Updating progress on your OKRs
Staying on top of OKR progress is the key to success. Our data shows that organizations that update and review their goals’ progress frequently are more likely to achieve their goals than those that don’t.
Therefore, to ensure execution succeeds, it’s important to clearly define the frequency at which people need to update progress on their goals. For quarterly OKRs, it’s a best practice to Check-in on a weekly basis.
An often overlooked part of an OKR program is the process of closing OKRs. As you approach a new quarter and are wrapping up work on the current quarter’s OKRs, it’s important to pause and reflect. It enables you to collect and share your learnings before you start focusing on something new.
And by doing so, you and your teams have enough information to make informed decisions in the future. So don’t forget to allot time at the end of the quarter to take a step back and reflect on your goals.
OKR best practices
That was a lot of information, but we’re almost at the end of it! Before you go, I’d like to sum up the key takeaways from this video, and share a few important best practices, to help you kickstart your journey with OKR.
- When it comes to OKR, less is more. OKRs help you focus on what’s most important right now. So don’t set too many OKRs, and avoid putting everything you’re doing in your OKRs. Don’t be afraid to say no to things that just don’t need to be focused on right now.
- Strategy first, OKR second. If your people don’t understand your organization’s purpose and the field it’s playing in, no amount of well-written OKRs can support your organization in reaching its desired destination.
- Transparency is key. To ensure you’re moving in the right direction you want to involve everyone in your organization. Your people can’t make an impact if they don’t know what they’re working toward and what’s currently happening in the organization. So, make sure your strategy, company, and team goals are visible to everyone.
- OKRs are not the same as KPIs. Instead, they perfectly complement each other. KPIs monitor performance and identify problems and areas for improvement. OKRs solve problems, improve processes, and drive innovation. Tracking them alongside each other not only provides the bigger picture at all times, but you’ll also have all the functioning parts in front of you that your organization, teams, and people need to deliver strategy.
- Create a rhythm for your OKR program. Standardize the process for when you set and close, as well as how often you review and update progress. By doing so everyone knows what’s expected of them and when.
If you’re ready to start working with OKR and put your new knowledge into practice, feel free to sign up for a FREE Perdoo account.