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by Van Fleisher & Todd Ritchey

Chapter 4 – OKRs

What’s the big deal about OKRs?

Well, one thing is certain, this Laugh or Cry wouldn’t have happened if this company was using them…

We were hired by the VP of a large corporation to assist with cost reduction at one of their food units where they processed onions. The plant GM had led a cost reduction exercise a year earlier and had reduced its costs by half a million dollars. He didn’t believe there was more to go after, but during a brief analysis, we were confident there was another half-million … at least.

 

Our team questioned the line speed of the onions being cooked and it took some time before someone recollected that it might have something to do with a marketing program and the color of the onions.

 

Trying to get information from marketing at headquarters was no easy matter, but we finally got an answer. Marketing had formulated an idea – a year earlier – to cook the onions longer so that they would be more golden in color, and then they could charge their single customer a premium. In anticipation of success and additional revenue, they had the plant adjust the cooking process.

 

Unknown, and uncommunicated to the processing plant, the customer’s response had been short. “We’re talking about burgers, so with ketchup, mustard, pickle, and the bun top, nobody sees the onions. No.”

 

Despite that revelation, the consulting team needed to put continuous pressure on the production teams to increase the line speed. And, by the time the project finished, over a million dollars had been saved, the plant had gone from a seven-month operation to six months and tens of thousands of dollars in energy costs had been avoided.

Most people think of OKRs simply as objectives and key results, but we think they also mean alignment, communication, and engagement. Think of it as the Swiss Army knife of management. Get your OKRs right and you have an excellent chance of success, so let’s get started.

Why OKRs?

In chapter 2, we stated a fact:

At the end of each financial year, 67 to 90% of all companies will fail to achieve their strategic plans.

How can that happen? Why does it continue to happen? 

Let me ask you some additional – and what should be deemed commonsensical questions.

  • Assuming that your company makes a strategic plan at the beginning of the year, how do you track your progress? 
  • How do you track all the activities that drive that progress? 
  • How do you know which activities (and people responsible for them) are succeeding?
  • What is working, what’s not working, and what changes need to be made to achieve your goals?

A good OKR program will answer all of those – and more.

One of the key reasons for the dismal success ratio of annual plans is that many companies, after setting high-level organizational goals at the beginning of the year, forget about them within a month.

As a result:

  • Passive management becomes the norm.
  • It becomes difficult – actually impossible – for leaders to measure and track employees’ progress and goal achievement. 
  • Leaders struggle and often give up trying to understand which teams or individuals are achieving, overachieving, or underachieving. 
  • The alignment of teams and individuals unravels and the notion of cascading their goals up to the company-level goals fades. 
  • People feel disconnected from the bottom up and there is little clarity among workers about how their actions connect to what matters to the organization.

As a common workaround, companies attempt to set goals in PowerPoint or Excel, or Google Docs and then communicate these goals via email. With static approaches like these, goals aren’t available or visible to everyone in real-time, and people can’t connect their work to invisible goals.

Simply put, it’s extremely difficult to build a measurable, predictable, successful, and repeatable business model when working this way.

To combat this, many companies have adopted the OKR goal-setting methodology and OKR tracking techniques.  

Benefits of OKRs

Here are some benefits of working with OKRs:

  • Align and connect your employees to your corporate goals
  • Provide clear direction to every team and individual
  • Increase productivity through focus on goals
  • Track regular progress towards goals
  • Make more effective and informed decisions
  • Achieve measurement, accountability, and transparency
  • Use regular weekly or bi-weekly updates to gain vision and insights
  • See how goal progress aligns with the company’s vision, strategy, and top priorities
  • Be more effective in setting clear and specific goals
  • Manage achievement and execution with greater accountability and transparency
  • Boost individuals’ engagement and empowerment through your goal-setting process
  • Increase insight and transparency across the organization for top-level executives
  • Analyze root causes of why objectives are not achieved
  • Improve resource allocation and management
  • Capture cross-functional dependencies across teams

If some or all of those benefit-bullets sound like some things you’d like to see in your organization, and you’re chomping at the bit to implement them, let’s look in the mirror and be honest with ourselves.

The fact is that OKRs are not the right fit for every team, and many will fail or abandon the process. In our experience, the primary reasons that OKRs fail are either technical or fundamental. Technical reasons are fixable, though it’s not always easy. Fundamental problems are a sign that an organization should consider an alternative control system.

Technical Pitfalls

Here are some of the technical pitfalls to avoid.

1. Focusing on the Solution instead of the Problem

In Chapter 1 we talked about understanding strengths, weaknesses, and the real issues your organization faces. OKRs are not analytical tools. They are primarily a management control system and collaboration tool. You need to understand your problems and then you can use OKRs to address them. 

2. Missing key data

The basic mechanics of OKRs include setting a qualitative objective (e.g. improve onboarding) and quantitative key results (e.g. increase the number of training sessions by 15%). If a team is data-aware and data-driven, they are much more likely to adopt OKRs. 

Unfortunately, many businesses don’t have widely available and relevant metrics.

For OKRs to be useful, data needs to be:

  • Available to everyone that needs it
  • Up-to-date and easily accessible

If you find your teams using their OKRs as an elaborate to-do list, you are probably data-deprived and heading for OKR abandonment. 

3. “Should” vs “Will.”

If your OKR process is not born out of collaboration, desire, and buy-in, your teams will have a hard time focusing on what’s important. BAU (business as usual) will remain the management control system and OKRs will simply become part of it. 

OKRs can be an effective tool or a framework which helps teams achieve focus and alignment – but the teams need to have the will to succeed.

4. Wrong cadence

The right planning cadence depends on many things. Small startups and fast-growing companies typically move very fast, so quarterly reviews won’t work.   The faster the change, the shorter the cadence, and the shorter the cadence the leaner the sessions. 

Signs of an incorrect cadence is when your teams stop updating their OKRs or report that their OKRs are already obsolete or irrelevant by the time the OKRs are agreed upon and set. If a team is not paying attention to OKRs, the process is already dead – even if not officially. 

5. One size fits all

OKRs have a lot of “best practice” rules but trying to follow them if they don’t make sense, is a quick way to stir resentment. Some examples include: making everyone own OKRs, even when it doesn’t make sense; force aligning everyone’s objectives, insisting everyone has 3 objectives, and so on.

This is fairly typical with new paradigms. When practical knowledge and experience are scarce, people tend to follow the rules blindly, resulting in push-back from the team, and eventually, OKR abandonment.

Most of the time, stepping back and having frank discussions can resolve these issues with simple fixes. 

Sometimes, OKRs simply don’t make sense

Sometimes the strengths of OKRs can become liabilities for some teams, although others can flourish. 

Organizations and particularly teams that are experimenting are not usually a good fit. OKRs are very much about execution, doing something better. So, if it’s unclear what needs to be done and how the success will be measured, OKRs may not be the right tool.

Micromanaged environments are another example of a poor OKR fit – surgical procedures, for example. However, the activities surrounding and supporting the surgical team are perfect. Supply chain, documentation, scheduling, and OR room changeovers are great areas for OKRs.  

“Lifestyle” businesses or those that are profitable and not looking for growth, would not be served well by OKRs. OKRs are about changing the status quo, pushing oneself one step further, and about ambition. If you are running a profitable restaurant and have no desire to turn it into a chain, OKRs are probably not a good option.

The good news is that OKRs are one of the simplest alignment, goal, engagement, and performance management frameworks available. OKRs bring about change and require certain characteristics of the teams that implement them.

So, what’s the best OKR software for your business?

We know that this is a pretty difficult question to answer because we’ve tried a number of them. Having said that, they can all work, it’s mostly just the style and software layout. If you are in an industry that relies on KPIs, make sure the OKR software accommodates them. Workarounds might be painful.

If your business is relatively small and straightforward, we recommend simpler OKR software. If you’re a larger organization and are running a number of 3rd party apps, you’ll want one that has good app connectivity and scalability.

There is a constantly changing list of the best OKRs for your organization available on the internet. Check them out.

OKRs and KPIs

Comparing OKRs vs. KPIs is a hot topic you’ll hear in performance management meetings, but it’s an apples and oranges discussion. While there can be overlap, these two concepts are really very different. 

What is a KPI?

Duh! Okay, everyone knows what a KPI is, right? But just in case, and to make it easier to understand OKRs, let’s define them. KPIs, key performance indicators, are used to evaluate performance over time for an organization, individual, program, project, action, etc.

While you may have some outliers, these indicators should usually:

  • Link to strategic objectives
  • Direct where to focus resources
  • Be measurable

Examples include revenue per square foot, sales per employee, attrition rates, calls made, patient wait time, and units made per hour.

Adding quantitative value makes it easier to provide context and compare performance for whatever you’re measuring. Creating qualitative KPIs is possible, but not advisable as it can lead to confusion and subjectivity. 

What is an OKR?

OKR is the acronym for objective and key results—more specifically, an objective is tied to key results. OKR is a strategic framework, and KPIs are measurements that exist within a framework.

OKRs are a simplistic, black-and-white approach that uses specific metrics to track the achievement of a goal. Typically, an organization will have three to five high-level objectives and three to five key results per objective. Key results are numerically graded to obtain a clear performance evaluation for the objective. 

OKRs are:

  • A quantifiable outcome
  • Able to be objectively scored on a 0-1 or 0-100 scale
  • Time-bound
  • Ambitious (if you easily achieve your objective, it wasn’t aggressive enough.

The OKR framework was originally popularized by the tech industry, but it’s now found wherever organizations are heavily focused on growth. Sometimes an organization’s KPIs are the same as the key results used in an OKR framework, and sometimes OKRs and KPIs work side by side.

OKRs represent big-picture goals and targets that are designed to push employees and companies forward. They should be “almost impossible.” The OKR framework is a continual cycle of fast, dynamic growth.

Some general OKR examples include:

  • Objective: Develop autonomous vehicles.
    • Key Result #1: Hire 10 artificial intelligence subject matter experts.
    • Key Result #2: Invest an additional $500 million in research and development.
    • Key Result #3: Roll out prototype by fiscal year-end.
  • Objective: Increase revenue by 30 percent.
    • Key Result #1: Acquire 50 new customers.
    • Key Result #2: Increase marketing leads by 20 percent.
    • Key Result #3: Increase customer retention to 85 percent.

You could also have this scenario:

  • Objective: Develop autonomous vehicles.
    • Key Result #1: Hire 10 artificial intelligence subject matter experts.
      • KPI: Increase interview rate to 6 per day
    • Key Result #2: Invest an additional $500 million in research and development.
    • Key Result #3: Roll out prototype by fiscal year-end.
  • Objective: Increase revenue by 30 percent.
    • Key Result #1: Acquire 50 new customers.
      • KPI: Increase email blasts to 5000 per day.
    • Key Result #2: Increase marketing leads by 20 percent.
    • Key Result #3: Increase customer retention to 85 percent.

OKR Best Practices

  • Start with a few specific objectives so OKRs are easier to implement. You can also keep it simple by starting with enterprise-level OKRs only, and then add levels for departments (and even individuals) as you gain experience and buy-in.
  • Think in the short term. OKR cycles run on a monthly or quarterly basis. So, when you’re creating them, think about the goals you can reach within that time frame that will make a meaningful difference to your company.
  • Make sure that the leadership team is aligned and actively involved with your OKRs. OKRs essentially outline the path your company will take to accomplish its goals. That alignment and engagement should also include the CEO, albeit on a less frequent basis. If your leadership team isn’t bought in, the OKR program, and your strategic plan, will inevitably lead to failure.
  • Consistently use the OKR reporting software for tracking and reporting. 
  • Ensure alignment both vertically and horizontally.

Closing Thoughts

Both OKRs and the tracking of KPI progress are great examples of CSM. Yet, as mentioned above, many organizations lack sufficient data and metrics. Most are missing an effective management control system.

About the Author

Van has worked in over 30 countries helping large companies and small. Author, mentor, board member, CEO, and team leader have been some of his job titles, but his passion is helping businesses succeed through their own employees' efforts.

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