OKRs became popular around 2010.
At the time, many companies in Silicon Valley introduced and implemented the framework.
For example, Google has been using OKR since it was a small company with only 30 employees, and many other large companies such as Microsoft, Amazon, LinkedIn, etc., use OKR to manage employee performance until today.
This article will introduce what OKR is, its pros and cons, and its differences from KPI.
At the end of the article, we interview an expert from a multinational company to share his experience of using OKR.
What is OKR?
The term OKR stands for "Objective and Key Results". OKR contains clear and specific objectives, as well as measurable key results.
OKR is a smart, simple and easy-to-understand management technique that allows companies, organizations and individuals to set clear goals efficiently.
Its specific objectives can prevent members from going in the wrong direction.
OKR also lets all people know: what to pursue and how to do it.
The Formula of OKR
OKRs are often combined with 1 main objective and 3–5 key results. According to John Doerr, OKR can be represented in a simple formula:
I will achieve (this goal), which can be demonstrated by (these results).
For example, if we want to successfully hold a largest event in the industry, it must let more than 70% of customers and manufacturers know about this event, and more than 60% of the participants are willing to take the initiative to leave positive comments.
Objectives are "things to be achieved".
Good objectives have a clear direction and must be set boldly.
- To let the brand be fully recognized by the market within 1 year of its establishment
- To increase the company's revenue by 10 times
Once you find out the objective, you can know the direction of the way forward, and you can clearly answer "why do you choose to implement it like this?"
If you set the right objective, you will know "what to pursue".
Key results are specific and time-bound. They are used to measure the achievement of goals.
Key results should be aggressive but realistic.
When objectives effectively express "what to pursue", key results explain "how to do it".
It should be noted that key results are outcomes, not outputs:
- Outcome: Collect 10 valid leads
- Output: Make 100 calls
According to Perdoo, an OKR management company, OKR actually consists of 3 parts:
- Key results
- Execution plan
Andrew Grove, who is known as the father of OKR, said that no matter how much knowledge you have, it is useless without execution.
The purpose of OKR is to effectively implement the plan, and furthermore, achieve the goal.
What’s the Difference Between OKR and KPI?
The biggest difference between OKR and KPI is:
- OKR is bottom-up, the team sets its own goals, and then discusses with the supervisors to make sure that everyone's goals are consistent with the company's objectives.
- KPI is from top-down, the management sets the goals, assigns to the team, and focuses on the final results.
Peter Durucker, the father of management, once said: "All business activities of an enterprise are ultimately for performance."
The emphasis on objectives has led many companies to measure employee performance by "results", which is the core value of the "key performance indicator (KPI)" we often hear.
However, such a traditional evaluation method has caused more problems within the enterprise.
For example, employees compete openly and secretly in order to "gain recognition", and the promotion standards can easily become bureaucratic.
Thus, many companies start looking for alternatives.
Within the context, OKR has begun to attract the attention of major companies.
As the story described in Durucker’s The Practice of Management:
There were three stonemasons working, and a passers-by asked them what they were doing.
The first stonemason said, "I'm working to support my family and earn a living."
The second stonemason said, "I'm building a house and I'm the best stonemason in the country."
The last stonemason said, "I am building a great church, which will long exist in the world because of our participation."
The "vision" mentioned by the last stonemason is exactly what Durucker advocated: employees need to have a clear "objective" to become their driving force.
Using the traditional method of KPI, employees often don't know what the vision of the company is, instead, they just immerse themselves in completing the assigned tasks.
The OKR framework uses "O" - objectives, and "KR" - key results as internal communication tools, to help everyone understand what the latest goals are.
Steps of Executing OKR
- Set an objective: build brand awareness successfully
- List 3–5 key outcomes:
- Generate 100 customer leads
- Host 3 seminars with 500+ attendees
- 1,000 monthly searches on Google for brand keywords
- Execute the plan:
- Hold several industry seminars
- Paid search marketing
- Publish blog posts
How Can Companies Successfully Implement OKR?
When importing OKR, companies need to answer the following two questions:
- What direction do we hope to lead our company in?
- How do we achieve the above direction by setting quantifiable goals?
When developing OKRs, the first step is to clarify the objective (O) of the company.
These will be general strategic goals that require cooperation among different departments within the company. Furthermore, each department should also have 3-5 smaller objectives (O) respectively, because too many may cause distraction.
As shown in the figure below, each department should have its own OKR.
Objectives should be aggressive and practicable. After setting the objectives, companies can further set the key results that can help achieve the objective.
Below are 10 best practices for implementing OKR, which can be used for reference according to the company's needs:
- Get buy-in from All Participants
- Align Team OKRs with Company Objectives
- Have Leadership Support and an OKR Champion
- Be Transparent about Your OKRs
- Educate and Include Everyone in the OKRs Process
- Begin with a Small Number of Clearly Defined Objectives
- Prioritize Goals over Initiatives
- Let Employees Participate in Setting Their Own OKRs
- Hold a Team OKR Weekly Check-In
- Report Progress Regularly
Common Mistakes Companies Make When Implementing OKR
Businesses should be careful to avoid the following mistakes when using OKRs:
- Too focused on the objectives.
If the objectives are set too narrowly, you and your team can become too focused on pursuing specific numbers and neglect the learning opportunities along the way.
Measure objectives (O) with key results (KRs) and actually observe the gap between them to learn how to really improve the company/team’s performance.
- Failed to identify between "aggressive" and "easy" OKRs.
If the objectives are all highly aggressive, it may let team members lose motivation because goals are too difficult to achieve. It is recommended to combine aggressive OKRs and easy OKRs when planning.
The Origin of OKR
The reason why OKR is widely discussed is that many bigwigs in business have adopted this management method.
The most famous is Google, whose founders, Larry Page and Sergey Brin, heard about the management strategy at the early stage of the company and have adopted it until today.
In 1954. Andrew Grove, a well-known lecturer and senior executive at Intel, invented a management strategy and inspired John Doerr in the team to carry it forward.
John Doerr made good use of the concept of OKR in his best-selling books and company management.
Well-known companies that are invested by him directly or indirectly include international enterprises such as: Amazon, Google, Twitter, etc.
Pros of OKR
John Doerr often uses the F.A.C.T.S slogan to emphasize the benefits of OKRs:
- Focus: OKR effectively avoids resource dispersion and waste, and reduces the possibilities of executing the wrong goals.
- Alignment: Because it is simple, easy to understand and transparent, OKR allows the team to have common goals and fully increase team efficiency
- Commitment: It allows the organization to have a sense of mission and move towards the goal automatically
- Tracking: Teams and organizations can use OKR to track the progress as well as the results, and know early whether to adjust the direction
- Stretching: OKR unleashes the potential of the organization, so they not only perform "daily tasks", but make meaningful changes
Cons of OKR
The following three problems may be encountered during the implementation of OKR:
- Employees don't know how to set OKRs
The difference between OKR and KPI is that OKR gives employees more space to set their own goals and practices, but it requires higher talent quality.
If employees don’t know how to set OKRs, their supervisor has to spend a lot more time on guidance and communication, which is very time-consuming and costly.
- Unclear on conveying the thinking process
OKR does not present the important thinking process in detail.
After O (objectives), it jumps directly to KR (key results).
The non-linear kind of statement will take time for those who fill out the form for the first time.
- Unable to implement thoroughly
Since there are only two layers (O & KR) in OKR, the method to go down to the third layer of "execution" requires additional planning.
Because of this, it may happen that the mid- and high-level supervisors agree with the OKR concept and decide to use OKR, but the employees still use KPI because the concept is too abstract.
As a result, mid-level supervisors will not only have to fill out OKRs, but also deal with employees' KPIs, making it difficult to connect the scoring between the two systems.
- Don't know how to modify OKR
When developing OKRs, employees may encounter the following problems.
- Employees may know how to list a clear O (objective) but are not sure if the KR (key results) extending from the objective are logical.
- Whether using Excel and Word is enough, or is it necessary to buy additional systems to implement OKR?
- How to connect with the current performance scoring system and other worksheets when implementing?
The theory of OKR seems perfect, and it seems that after its implementation, it will make the organization more motivated and have a sense of mission, but is it really that good?
We interviewed a senior executive from an American multinational company to talk about his company's actual experience of implementing OKR.
Q: Your company has implemented OKR for many years. What is the employees’ overall evaluation on OKR?
A: Our company started using OKR from a small company with dozens of people, and now it has grown into a multinational company with tens of thousands of people.
To be honest, OKR did bring us many benefits at the beginning, but when the company grew to a certain size, we started facing many management issues.
The advantage of OKR is that it gives employees a lot of space to grow. For employees with strong motivation and ability, OKR allows them to set goals and pursue results by themselves, rather than being told what to do. This is one of the key driving forces to help start-ups to grow fast.
But now when the organization has more than ten thousand employees, we can clearly see the problems that the OKR system has brought us.
For example, because there is no clear top-down instruction, everyone is doing things according to the general direction, which often leads to duplicate work. The same thing is done by different teams, making everyone spend more time communicating, resulting in inefficiency in the organization.
In addition, as the number of employees gets larger, talent quality varies. Everyone may have a different understanding of OKR. As a result, it takes a lot of time to communicate internally. This is one of our biggest problems.
Q: What do you think is the key to using OKR successfully?
A: I think talent quality is the key. If the quality of employees is not high enough, OKR may even be a disaster.
For example, if you ask the employees to set OKRs by themselves, some employees don’t know how to do it at all, or the objectives they set are unrealistic.
Then the supervisors will have to spend a lot of time communicating. If the employee deviates from the original goal during the implementation process, the supervisors have to guide him back as soon as possible, which increases the management costs.
In addition, although OKR is not completely connected with performance evaluation, it is still one of the basis for evaluating employee performance. Some employees have a small job scope but they will make their own OKRs very complicated for the sake of performance. It's a waste of organizational resources.
Therefore, I would say that in order to successfully implement OKR, talent quality is the key.
Q: What kind of company do you think OKR is more suitable for?
A: This is a very good question. In my opinion, OKR is actually more suitable for Western culture, but not for Eastern culture.
The reason is that Eastern education is more accustomed to top-down instructions. We have been told by teachers and parents what to do but not what we want to do since we were children.
However, OKR emphasizes the independence and autonomy of employees, which is closer to Western education.
I have seen an Asian start-up using OKR, but they can’t use it very well. Later, they used OKR as one of the tools to communicate with employees, to ensure that the goals of employees and the company are consistent. I think this is also very good.
Therefore, my personal opinion is that if it is a start-up company or a small company with strong autonomy and independence, maybe you can try OKR. But if the organization has grown to a large size, employees are also used to doing things according to the instructions of their superiors, then it will be very challenging to use OKR to change the entire corporate culture.
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