Ultimate guide: Everything you need to know about OKR

OKR (Objective and Key Results) is a goal-setting system used by Google and other companies. It's a simple approach to creating alignment and commitment around ambitious, measurable goals.

What is its big difference from traditional planning methods?

OKRs are set, tracked, and can be reassessed, typically every quarter. This methodology is a simple process that involves the perspective and creativity of each team.

OKRs exist to create alignment and set the pace for the company. The goal is to make sure everyone is moving in the same direction, with clear priorities, at a steady pace.

The original concept of OKR came from Intel and spread to other Silicon Valley companies. Google adopted OKR in 1999, during its first year. It has supported Google's growth from 40 employees to more than 60,000 today. In addition to Google, other companies use OKRs, such as Spotify, Twitter, LinkedIn, and Airbnb. But the OKR methodology is not only for digital companies. Walmart, Target, The Guardian, Dun and Bradstreet, and ING Bank are also using it.

Understanding the components of OKR

John Doerr is one of the most successful venture capitalists of all time. He started his career at Intel and went on to invest in companies like Google and Amazon. Doerr, who introduced OKR to Google, has a formula for setting goals:

"A correct objective has to describe what's going to be achieved and how it'll be measured.
The keywords here are: 'according to what was measured by' because the measurement is what makes an objective be an objective. Without it, all you have is a wish"

Doerr's formula is the best way to explain the structure of an OKR:

I'll make (objective) according to what was measured by (this group of key results).

So, as the name implies, OKR has two components, the goal, and the key results:

• Objectives are memorable qualitative descriptions of what you want to achieve. These should be short, inspiring, and engaging. A goal should motivate and challenge the team.
• Key results are a set of metrics that measure your progress towards the objective. For each one, there should be a set of 2-5 key results. More than that and no one will remember them.

All key results must be quantitative and measurable. As Marissa Mayer, former vice president of Google said:

"If it doesn't have a number, it's not a key result"

Example:

Now consider a team that wants to increase engagement with a digital service: Goal: Delight our customers

Key results:

- Reduce revenue turnover (cancellation) from X% to Y%.

- Increase Net Promoter Score from X to Y.

- Reasons to change the way of selling.

- Increase unpaid (organic) traffic from X to Y.

- Improve engagement (users completing a full profile) from X to Y.

Once again, having a set of key results helps create a healthy and sustainable OKR. You want to increase weekly visits, but for those visits to be organic, not through an expansion of marketing spend.

Key results are crucial. Especially since they define what we mean by "delighting our customers."

What makes OKRs unique?

Although there is no single way to use OKR, that is, each company or team can adapt and modify it, creating different versions of it, there are some basic concepts that must be taken into account:

• Agile goals. Instead of using static annual planning, OKRs take an agile approach. By using shorter goal cycles, companies can adapt and respond to change.
• Simplicity. Using OKR is simple, and they are easy to understand. Companies that adopt this methodology reduce the time spent setting goals from months to days. As a result, they invest their resources to achieve their goals and not to set them.
• Transparency. The main purpose of OKRs is to create alignment in the organization. To do this, OKRs must be public to all levels of the company. OKRs are generally available on the intranet.
• Nested measures. The OKR methodology understands that strategy and tactics have different tempos. To solve this, you can choose different rhythms:

- A strategic move with longer-term, high-level OKRs for the company (usually annually).

- A tactical measure with short-term OKRs for teams (usually quarterly).

- An operational measure for monitoring results and initiatives (generally weekly).

Two-way goal setting

Instead of using the traditional top-down waterfall model which is time-consuming and adds no value, the OKR methodology uses a market-based approach that goes both bottom-up and top-down simultaneously.

From the company's strategic OKRs, teams can understand how to contribute to the overall strategy. In this process, they can establish around 60% of the tactical OKRs, always in alignment with the objectives of the company.

This model creates commitment and a better understanding of the strategy while making the process simpler and faster.

Ambitious goals:

The philosophy behind OKR is that if the company always reaches 100% of the goals, it means that they are very easy since this methodology aims at bold and ambitious goals.

On the other hand, in addition to stretching goals, OKR believes in allowing the team to set challenging goals for themselves, goals that make the team reconsider course. They work to achieve maximum performance.

To do this, employees must know that they will not lose money if they set ambitious goals. It's hard to set ambitious goals when you need the bond to pay for your children's college tuition. Remember, the OKR methodology is a management tool, not a worker evaluation tool.

Tips for writing good OKRs

For objectives:

➔ First of all, the objectives should be simple, short, and easy to memorize. If you have to stop breathing while reading your Objective, you're doing it wrong.

➔ Second, objectives should not be boring. They can fit into the organizational culture while being informal and fun.

For key results:

➔ Separate metrics from tasks.

➔ Set several of them. Generally between 2 and 5 per target.

What are the advantages of using OKR?

The main advantages of using OKR are:

Agility: Shorter goal cycles allow for faster adjustments and better adaptation to change, increasing innovation and reducing risk and waste.

Alignment and cross-functional cooperation: The use of shared OKRs improves collaboration between different teams, resolving interdependencies and unifying competitive initiatives.

Reduced time to set objectives: The simplicity of OKR makes the goal-setting process faster and easier, dramatically reducing the time and resources spent setting them.

Clear communication: Transparency and simplicity allow the team to understand the goals and priorities of the organization and how each individual can contribute.

Employee engagement: OKR's bottom-up approach to goal setting connects employees to the company and goals, thereby increasing engagement.

Autonomy and responsibility: Teams receive clear direction and are free to choose how to achieve their OKRs. By holding yourself accountable to your goals and establishing clear success criteria known to your team, you create mutual obligations.

Focus and discipline: The reduced number of objectives creates a focus in the organization and it is more disciplined; efforts and initiatives increase.

Bolder objectives: Decoupling OKRs from compensation and using objectives that can be stretched out, over time for example, or adapted to changes, either completely or even partially, allow the team to set ambitious and challenging goals.

Strategic OKRs vs. tactical OKRs: nested measures

It is a common misconception that the OKR methodology only works with quarterly cycles, (a model used by Google until 2011). After returning to the CEO role at Google, Larry Page decided to adopt both annual and quarterly OKRs.

Using short-term OKRs can cause teams to lose the big picture and focus only on what they can accomplish in three months.

Most mature OKR implementations understand that different objectives have different rhythms, for example, tactical objectives tend to change much faster than strategic objectives. So this methodology decouples strategy and tactics by adopting a nested model.

Think about the high-level, strategic OKRs that the board cares about. A pattern often seen in successful OKR adoptions is:

- Annual strategic OKRs for the company (and sometimes for very large departments and business units).

- Quarterly tactical OKRs for teams, with a mid-quarter review.

- Weekly logs to track results.

Some organizations also set strategic quarterly OKRs for the company, but we don't recommend this at first.

The OKR methodology is not a cascade method

What are the characteristics of a waterfall? It is an irreversible flow from top to bottom, unidirectional, without feedback loops that ends up blocking. Everything that an agile and innovative organization does not want to be. The waterfall model is a residue of a command and control mentality in which decisions simply flow down from the top.

While cascading goals are an improvement over previously used approaches, they take too long to complete. As James Harvey wrote:

"[The traditional model] is a top-to-down approach and it usually takes too long to achieve alignment. Direct reports usually depend on the achievement of the objectives set by a manager before they can build their  plan of objectives."

There are global corporations where the goal-setting process takes 4-6 months. Not only is this a massive waste of resources, but it also leaves employees without clear goals for nearly half the year.

On the other hand, in the case of OKRs, they line up. They are established in a parallel process in which teams define OKRs that are linked to organizational goals and validated by managers, in a process that is simultaneously bottom-up and top-down.

From the company's OKRs, teams can get clear direction and understand how they can contribute to achieving them. Each team then defines a set of tactical OKRs for the quarter that contribute to and roughly align with the strategic OKRs.

Team OKRs do not have to be 100% aligned with company OKRs, as they can also choose to include a local OKR.

Create tactical OKRs

When creating their tactical OKRs, each team must answer two questions:

- How can we contribute to strategic OKRs?

- Which of the key results included in the strategic OKRs can we impact?

Tactical key results can be:

- A portion of the strategic OKR (Ex: The company will sell 100, my team will sell 20).

- Hypotheses or bets on how to contribute to strategic OKRs (Ex: We will reduce the number of customer complaints because we think it will increase the repurchase rate).

Also, remember that teams can have "local" OKRs, but most must contribute to strategic ones.