When you’re actively involved in the OKR Programs of dozens of organizations, you’ll start seeing that different organizations struggle with similar problems. One of these problems, in my opinion, is created by Annual OKRs.
I’ve taken a closer look at them and came to the conclusion that many organizations could benefit from removing Annual OKRs. In this blog post I’ll explain why. Do note that the Perdoo software will continue to support Annual OKRs.
Why Mission & Vision and Strategy are great
The raison d’être for any organization is based on a goal: the Mission & Vision. Based on this goal, an organization designs a plan for how to realize the Mission & Vision: the Strategy.
Both the Mission & Vision and the Strategy are long-term Objectives. Therefore, by nature, Mission & Vision and Strategy usually don’t change that frequently. They provide a pretty stable dot on the horizon that everyone can focus on.
Because Mission & Vision and Strategy are long-term Objectives, they serve a very different purpose than a Quarterly Objective. As opposed to Quarterly Objectives, no one needs to be working on them directly. Instead, they provide direction and show everyone what really is important and what not. They also are a critical tool for increasing alignment in your business, since they enable you to verify that your Quarterly OKRs fall within your strategic scope.
Because no one will be working on them directly, they don’t need anyone to “own” them. This is why Mission & Vision and Strategic OKRs are usually owned by “the company” (in large enterprises you can of course apply the same logic to a department or subsidiary).
Why Quarterly OKRs are great
It is very different for Quarterly OKRs. These are operational and tactical goals that need to be worked on directly. As such, Quarterly OKRs should never be owned by an abstract entity like “the company”. Instead, Quarterly OKRs require a group of individuals to own it.
Quarterly OKRs are the most important goals that the people in your organization will be working on: they drive the implementation of your strategy. If people are working on the wrong Quarterly OKRs, your strategy will go nowhere (and you’ll belong to the bottom 90% of organizations that fail to deliver their strategies).
On the other hand, if people are working on Quarterly OKRs that are clearly aligned with the strategy, you’ll be able to make a significant leap forward, every quarter.
The problem with Annual OKRs
Annual OKRs live between the Strategic and the Quarterly OKRs.
They are too short term to provide any meaningful direction. I’ve seen first hand that, when creating Quarterly OKRs, employees are able to come up with better OKRs when they look at the Mission & Vision and Strategy than when they look at Annual OKRs.
On the other hand, Annual OKRs are also too long term for people to actively work on them. It’s simply hard to decide what you need to do today based on an annual goal. This is proven by the fact that most Annual OKRs are owned by such an abstract entity as “the company”.
Another problem with Annual OKRs is that they limit agility. So much can happen within a year’s time, especially in today’s markets. This is why you see so many people ask on the internet if it is ok to change their Annual OKRs throughout the year.
Lastly, and I believe this is the most important argument against Annual OKRs, they take focus away from the Quarterly OKRs. They make the Quarterly OKRs feel less important. You want everyone, including the executives, to focus on the Quarterly OKRs since these are the instruments that will help you implement your strategy.
So why then do so many organizations work with Annual OKRs?
This is a tricky question.
I’ve rarely seen a good, meaningful Annual OKR. Very often an Annual OKR is actually strategic. If I look at the Objective, it clearly is a strategic move and will take several years to implement (see for example my analysis of Snap Inc’s goals for 2019). It’s just that the scope of the Key Results has been reduced so that it is obtainable within a year. Really… what’s the point of that?
Other times Annual OKRs are all about growth, revenue, cashflow, and so on. All these things are better set up as KPIs.
I believe that Annual OKRs are the result of the need to plan for the year. Instead of working with Annual OKRs, I think it is better to use Quarterly OKRs to plan for the year. For example, at the start of 2019 you not only create Quarterly OKRs for Q1, but also Objectives for Q2, Q3 and maybe even Q4 (see also this article). We’ve done this for Sales and Customer Success at the start of 2019 and I found this exercise very helpful. This approach gives everyone an (apparently much needed) idea of what the year could look like, whilst staying agile (you can easily move a Quarterly Objective from Q2 to Q3 if circumstances change).
Lots of organizations intuitively set Annual OKRs. They feel natural since the performance of organizations is usually evaluated on a quarterly and annual basis. The annual performance evaluation, however, is typically based on metrics such as growth, revenue and cashflow. You shouldn’t be using OKRs, but KPIs to manage and track those.
Annual OKRs add little value. They are too long term for employees to start working on, and they are too short term to provide any meaningful direction (like the Mission & Vision and Strategy do).
Because they add little value, Annual OKRs create more problems than they solve. They reduce agility, add an unnecessary level of complexity to your OKR “tree”, and they take focus away from your most important goals: the Quarterly OKRs. When creating Quarterly OKRs you need direction, and that’s exactly what you have your Mission & Vision and Strategy for.
I therefore believe that most organizations would benefit from stop working with Annual OKRs.