Weekend Reading – A Corporate Operating System: Part 3 – OKRs

“Andy Grove, … told me something that I’ve never forgotten: John, it almost doesn’t matter what you know. It’s execution that’s everything.” – John Doerr, Venture Capitalist

 

Dear all

 A while ago I started to share my ideas about a „corporate operating system,“ which I believe to be essential for companies to become prosperous and resilient. As a quick reminder, the proposed building blocks are:

1. Purpose  -  Know your WHY!
2. Strategy  -  Consciously choose WHAT to do!
3. Objectives and Key Results (OKRs)  -  Stay focused and track outcomes!
4. Evidence-Based Decision-Making  –  Observe and orient!
5. 1st Principles Thinking  –   Resist proxies and processes!
6. Leadership  –   Go beyond managing!
7. Systems Thinking  –   Mind the impact!

Having gone into more detail on „Purpose“ and „Strategy“ in previous posts, this post concerns the 3rd element: OKRs.

I consider OKRs an extension of a company’s strategy, providing organizations with a tangible framework for implementing strategic objectives.

The Gist

TLDR. The full post requires approx. 10 min reading time. In case you’re short on time, here’s the gist:

• OKRs are a more dynamic and empowering form of management by objectives that utilize a tactical cadence, regular check-ins, and qualitative outcomes paired with quantifiable leading indicators.
• OKRs provide an actionable framework for turning strategies into focused action, increasing organizational resilience by providing a near real-time strategy feedback loop.
• Organizations should limit their OKRs to a small number of strategic goals, decreasing per organization unit with each layer while avoiding OKRs for operative performance indicators already covered by dashboards.
• Scaling OKRs is challenging and should focus on aligning the organization to strategic initiatives while linking top and team levels.
• Autonomy is required in OKR implementation, allowing teams to find the best way to achieve objectives while keeping the focus on strategic goals and promoting collaboration
• Problem-based now-next-later roadmaps and continuous discovery activities are better suited for working with OKRs than prescriptive feature/time roadmaps or typical PI plans.
• When implementing OKRs, it is vital to ensure a mission or strategy is in place, objectives are set both top-down and bottom-up, and regular check-ins occur.

What are OKRs

OKRs, or Objectives and Key Results, are a meanwhile popular goal-setting framework organizations use to connect their strategic goals with actions at all company levels. OKRs provide a clear and measurable way to achieve strategic goals, improve team alignment, and enable autonomy in decision-making.

OKRs (Objectives and Key Results) were originally devised as an improvement to Management by Objectives by Andy Grove at INTEL and popularized through their application at Google. Their syntax is simple and consists of only two elements:

Objectives, a qualitative and inspiring goal to be achieved, and Key Results, quantifying the improvement of leading indicators of their achievement.

Consider this simple example:

Objective:

Safety first at our construction site!

Key Results:

1. Increased the percentage of staff wearing hard hats on site from 80% to 100%
2. Increased the percentage of workers wearing protective boots on site from 78% to 100%
3. Increased % of staff having participated in safety training from 55% to 95%

The main improvement to classical management by objectives is apparent: OKRs describe a combination of qualitative outcomes – more safety and fewer injuries at the construction site in our example – and leading quantitative indicators – e.g., the percentage of workers wearing hard hats – that can be managed and are highly likely to lead to the desired outcome. Other than most typical MBOs, they do not prescribe actions to be taken by individuals but rather leave it to a team to find the best way to realize the outcome.

The other significant improvement of OKRs is their tactical cadence. While MBOs have traditionally been set for a year, OKRs are reviewed after a shorter period, typically three months.

In addition, OKRs encourage regular Check-Ins at the team level to discuss progress and adjust measures and tasks to improve the leading indicators linked as Key Results to the Objectives.

OKRs are, therefore, better suited for environments where the measures to achieve an outcome may not be entirely clear at the outset, empowering teams or individuals to seek them and change direction if tactically warranted.

Why are OKRs Relevant for a „Corporate OS“

In our observation, strategies quickly become diluted as they are passed down through different levels of an organization. This lack of focus and alignment can be detrimental, wasting time and resources spent on firefighting and tactical fixes rather than strategic initiatives.

According to research conducted by software firm Asana, a mere 26% of knowledge workers understand how their work links to the company’s overall goals. Consequently, a study by Leonard and Wilta in 2017 found that teams lacking strategic alignment spend a considerable amount of time, up to 83%, dealing with tactical issues instead of focusing on achieving their strategic objectives. (Our experience working with corporations in Central Europe aligns with this).

In addition, the strategic focus needs to be adjusted regularly in today’s fast-paced business environment. Columbia University professor and strategy scholar Rita McGrath observes: „A new perspective on strategy is emerging. … It embodies the sense that strategies themselves must adapt in an agile manner…“

Regular discussions about where to focus to achieve strategic impact foster strategic agility and are crucial for building organizational resilience. The implementation of the OKR’s tactical cadence facilitates these discussions.

The combination of focused Objectives, their regular review at a tactical cadence, and the continuous discussion about measures and tasks in frequent Check-Ins also create a cohesive strategic narrative across the organization.

OKRs are, therefore, a valuable complement to strategy, as they provide an actionable framework for turning strategies into focused action while providing a feedback loop into the strategy at the same time.

This real-time feedback is faster than traditional reviews of MBOs, which tend to occur annually and do not provide actionable feedback for employees.

Linking OKRs to Execution

As explained above, OKRs – other than most MBOs – are not output- but outcome-focused. What sounds like semantic finickery is best described with the Kellog Foundation Logic Model.

Outputs are the tangible results of applying resources to activities, while outcomes represent these outputs‘ resulting consequences or effects, often through human behavior change. Outcomes ideally contribute to the strategic impact sought.

Going back to our simple example above, The foreperson at the site allocates resources to create and install a sign that mandates the use of hard hats beyond a specific point. In this case, the output is the physical sign, which reminds workers to wear helmets before entering the designated area. The outcome of this measure is a behavior change, the increase in the percentage of workers wearing helmets which causes a measurable reduction in the rate of head injuries at the site. This, in turn, contributes directly to achieving the overall OKR of reducing safety incidents. The impact contributes to the company’s positive image as an employer and, ultimately, profitability.

Alternatively, the foreperson could have placed a security guard to block personnel without helmets from entering the site. This may have an even higher impact on safety but could impact morale and productivity, adversely affecting the ultimate goal, company profitability.

When implementing OKRs, autonomy is required in how objectives are executed, with teams tasked with finding the most effective way to achieve them. This autonomy allows team members to make decisions without constant supervision.

It’s important to note that there is not always an immediately apparent link between desired impacts and the resources or tasks required to achieve them. Instead, teams must use their judgment and creativity to find the best approach for achieving the desired outcomes as, in many contexts, there is no direct causal connection between action, output, and outcome. In these instances, it is a correlation that may even be highly contextual and defy best practices.

By focusing on impacts and providing teams with the flexibility to execute objectives in a way that works best for them, management can maximize the chances of success while promoting innovation and collaboration amongst teams.

Creating Working OKR Sets

There are three areas where we see organizations struggle with OKRs:

– How many OKRs and what to formulate as OKR v daily tasks

– Creating outcome- v output-oriented KRs

– Scaling OKRs across multiple organization layers

How many OKRs

As a general rule for the number of OKRs: keep it small. OKRs are meant to focus an organization on a very limited number of strategic goals. For the same reason, the number of OKRs must decrease with the organization layer. While there may be five OKRs at the top layer, an individual (software) team should typically have at most two, with one relating to domain goals and possibly an additional one relating to some operative improvement. Daily tasks and items already covered by management tools like dashboards or similar should not become OKRs – unless they must be focused on to improve strategically (think Nº of support tickets etc.).

Outcome v Output-Oriented KRs

The biggest struggle with OKRs is formulating Key Results. Key results answer the question, „How do we know we are getting there?“

Key Results should be able to measure progress towards the desired outcome. For instance, in the example above, the foreperson can track the percentage of workers who wear hard hats weekly. If the percentage increases, it indicates that the measure, i.e., putting up a sign, is effective, and no additional or different measures are required. However, if there is no change in the percentage, the foreperson and their team can brainstorm and implement alternatives to achieve the desired outcome.

The percentage of hard hats worn in this context is a leading indicator (for the degree of safety to be expected), allowing the foreperson and their team to adjust the implementation of measures to achieve the goal.

Although desirable, it is not always feasible to identify leading indicators for every objective. In some instances, we have found it, e.g., necessary to implement a tracking tool beforehand to measure specific indicators. The result of this installation constitutes an output. In such cases, we suggest tracking milestones or even confidence levels for achieving the output.

It is beneficial to find leading indicators as they are open to alternatives for achieving an outcome. However, spending excessive time searching for them does not make sense. A pragmatic set of key results usually consists of a combination of outcomes and outputs.

The following diagram from our OKR training program may be helpful.

Scaling OKRs

Scaling OKRs is a challenging task. The traditional cascading approach, where company Key Results determine department-level Objectives whose Key Results, in turn, determine team-level Objectives, can prove to be time-consuming and difficult to consolidate and align, particularly if there are multiple organization layers. Google explicitly recommends not spending hours on making OKRs cascade. As Google’s former Head of People Operations, Laszlo Bock, explains: “Teams that are grossly out of alignment stand out.”

The concept at the core of OKRs is to align the organization and focus on a limited number of strategic initiatives. For this reason, all OKRs ideally link back to these top-level initiatives.

The most important levels are, in this respect, the top level, where OKRs are derived from the strategy, and the team level, where goals are transformed into measures or product features. The organization’s middle level is about strategy communication and „-translation,“ alignment, and enablement.

A pragmatic approach, therefore, is to ensure that company- or business-unit level OKRs are available and communicated while reiterating the overall strategy 1-2 weeks before the end of the tactical cadence. Teams can then use this information to define their OKR sets for the upcoming cadence. Middle- and team-level management can then collaborate in what we call „OKR Market Places“ to ensure alignment and sharpen OKRs as needed. Mid-level management may subsequently set themselves „enabling“ OKRs in support of the team-level OKRs.

OKRs, PI Plans, Roadmaps, and Product Discovery

OKRs, PI goals, and roadmaps bear the risk of creating parallel – and often conflicting – realities. Prescriptive time/feature roadmaps or typical PI plans don’t work well with OKRs. Even if goals are aligned, most feature-based roadmaps and PI plans are too specific to allow quarterly tactical OKR cadences that rely on continuously adjusting activities and actions to drive Key Result change and outcomes. As – even – Scaled Agile Inc. explains, „The benefits of OKRs will only be realized where planning and delivery are incremental, ensuring the ability to respond to the continuous feedback that OKRs provide.“

Therefore, theme- or problem-based now-next-later roadmaps, coupled with continuous discovery activities, work better in the context of OKRs as Key Results ideally measure leading indicators for desired outcomes – not activities, tasks, or even features to be delivered (see matrix above).

OKR Anti Patterns

When it comes to implementing OKRs, we see numerous challenges arise. However, three anti-patterns seem to be the most prevalent:

Using OKRs without a Mission or Strategy

OKRs are all about aligning execution to the „WHY.“ You have boundless possibilities if your organization’s Mission or strategy is unclear. As a result, focusing the discussion on what will move the organization forward becomes almost impossible.

Setting Objectives Top-Down only

Top-to-bottom cascades of objectives hark back to hierarchical industrial-age organizations. OKRs can supercharge organizations, harnessing the knowledge and the experience of teams by having them determine how they will best contribute to fulfilling the Mission.

Neglecting Regular Check-ins

No matter how inspiring a team’s OKRs are, there will always be any number of distractions. OKRs must be tracked and discussed regularly. Only weekly or „sprintly“ Check-ins ensure this necessary continuity.

Conclusion

Setting goals and focusing on them is crucial to achieving strategic objectives, and the OKR framework provides a structured approach to accomplishing these goals while receiving feedback regularly. However, it’s essential to establish strategic objectives as a foundation and empower teams to make evidence-based decisions.

In closing: implementing OKRs and supporting processes is a significant change for most organizations, so some patience is required until benefits can be realized.

Here are some valuable additional OKR inputs:

Cascading OKRs at scale – How do you avoid the slow waterfall of goals?

Christina Wodtke weighs in on the topic in a draft chapter from her upcoming book.

Click to view!

Have a great summer weekend,

Godehard