Why Do We Need OKRs? – We Already Have Goals
How many ways are there – rather: how many do you need – to manage your company's goals? Apparently we all need one more: Objectives and Key Results (OKRs). But why would you want to add this methodology to your arsenal? The reason given most often may not be the one that matters most to you.
Methodologies for setting goals have evolved since the 1950s. Management by Objectives (MBOs) is a framework based on a business’s needs and goals. The aim of MBO objectives is to identify the main goals of employees or teams and prioritize alignment between activity and outcome. MBOs were developed by Peter Drucker in his 1950s book The Practice of Management1 based on a tenet of human nature: a course of action chosen by a group of people is more likely to be seen through. MBOs have enjoyed tremendous popularity with corporations, including Credit-Suisse, Hewlett Packard and Intel.
OKRs evolved from MBOs, offering further clarity by outlining how the company defines success. Developed by Andy Grove and John Doerr in the 1970s, OKRs help teams and organizations reach their goals through identifiable and measurable results. By design, the OKR framework works across teams to create a standard the whole company can adopt. OKRs give purpose to teams and organizations.
The main similarity between the methods is the use of ‘objectives,’ with both frameworks focusing on goal-setting. Both share a belief in the motivating power of setting explicit goals and offer adaptability of format for different departments in a business.
MBOs and OKRs have proven to be successful over the past several decades and been championed by some of tech’s biggest names, but which is the best for your organization? In this post, we’ll dive into the primary differences between MBOs and OKRs to help you understand the right goal management approach for you.
You have a good understanding of the OKR methodology and feel confident to have a discussion on the OKRs for your organization and your team, as measured by:
- You have an idea for 1–3 Objectives for you and your team, with 2–3 Key Results each covering the next few quarters.
- Your Objectives cover the main contribution by all teams or team members reporting to you (note that another 1–3 Objectives for your team will be contributed from your teams or team members).
- You have a few ideas for ambitious Objectives you and your organization want to tackle in the next 18 months, including 2–3 measurable Key Results you can achieve in the next quarter.
Google has demonstrated repeatedly that a few hundred people working in concert can change an entire industry in two years or less (e.g. the search industry with Google Search, the browser industry with Google Chrome, and the entire mobile phone industry with Android). This working in concert is based on the Objectives and Key Results (OKR) methodology. While OKRs were invented at Intel, Google has the most experience implementing them. Properly implemented, OKRs can address problems any larger company faces: • People are working on the wrong things – or several people are working on the same thing • Projects slip due to unacknowledged dependencies
To have the impact Google has, it is crucial that employees and managers make conscious, careful and informed choices about the allocation of time and energy: what do we do and what do we not do? OKRs are simply the manifestation of these choices and the means by which coordination among tens of thousands of employees can be ensured. OKRs define… • … what we spend time and energy on: everything that helps us achieve Objectives and Key Results • … and what we will not spend time and energy on: everything else While this basic concept of OKRs seems straightforward and just project management 1x1, for OKRs to live up to their potential, it is all about the implementation (next section) and writing effective OKRs (Sect. 5).
Properly implemented, OKRs have many benefits, such as:
- Transparency and simplicity: The clear communication enforced by OKRs enables the team to understand the goals and priorities of the organization as well as how each individual can contribute.
- Employee engagement: OKR bi-directional approach for goal setting connects the employees with the company’s objectives, increasing engagement.
- Autonomy and accountability: Teams receive a clear direction and are free to choose how to achieve their OKRs. They become responsible for their objectives, with clear success criteria known to the whole company, creating mutual obligations.
- Focus and discipline: The reduced number of goals creates focus in the organization and disciplines efforts and initiatives.
- Bolder goals: Decoupling OKRs from compensation and using stretch goals, even partially, enable the team to set bolder, challenging goals.
- Efficiency and agility: OKR simplicity makes the goal setting process faster and easier, drastically reducing the time and resources spent on setting goals and at the same time increasing the likelihood of OKRs being kept up to date. Shorter goal cycles enable faster adjustments and better adaptation to change, increasing innovation and reducing risks and waste.
- Alignment and cross-functional cooperation: The use of shared OKRs improves collaboration among different teams, solving interdependencies and unifying competing initiatives.
Focus. Focus is the first benefit of OKRs because when you set OKRs, you are limited in the number of them. There can be more than one objective, but always less than seven. Fewer is better. Every objective should fit on one line. As for key results, you should have no more than five per objective. Because of this inherent necessity to limit the number of things to focus on, OKRs really force upfront choice-making. An OKR cycle should start with the question, What is most important for the next three (or six, or twelve) months? This time-bound query sets OKRs apart from other goal-setting systems because they bring to the surface the handful of initiatives that can make a real, immediate difference while deferring less urgent ones. By standing firmly behind a few top-line OKRs, leaders give their teams a compass and a baseline for assessment.
Alignment. Once top-line objectives are set is when the real work begins. As they shift from planning OKRs to execution, managers, and contributors alike tie their day-to-day activities to the organization’s company-wide vision. The term for this linkage is alignment, and its value cannot be overstated. According to the Harvard Business Review, companies with highly-aligned employees are more than twice as likely to be top performers.
Commitment. After focus and alignment come commitments. Commitments are OKRs that all have agreed will be achieved, and schedules and resources will be adjusted to ensure that they are delivered. Tracking these commitments is done transparently. Each team member must create very clear signals for everyone that they are working towards their OKRs. Whether this is done through a Google Sheet or an OKR software tracking tool like BetterWorks, sharing OKR progress on all-hand slides every single month, or printing them out and posting them all over the office walls to say you now know what you’re striving for and if you’re hitting it or not, it doesn’t matter as long as there is alignment and transparency.
Tracking. Tracking OKRs from output to outcome is why management by objectives is so popular with top-tier companies. Every OKR should be able to be tracked via the metrics established when they were written. And while OKRs don’t require daily tracking, regular check-ups—preferably weekly—are essential to prevent slippage. Having these reference points to grade your current OKRs is the long term magic of them on the individual level. Are you on track to meet this objective or not? Why or why not?
Stretching. “Stretching” is last but not least. As John Doerr says, “Larry Page of Google is the high priest of 10x-ing everything, stretching further. He’ll say, ‘I’d rather have the objective be to go to Mars, and if we fall short, we’ll get to the moon. This is how you make moonshots.’” OKRs inherently push organizations to strive further, to eke out a little more than what they thought was possible.
F.A.C.T.S. is why so many companies use the OKR system. The benefits of focus, alignment, commitment, tracking, and stretching have proven invaluable to so many.
Drucker, Peter, The Practice of Management, Harper, New York, 1954; Heinemann, London, 1955; revised edn, Butterworth-Heinemann, 2007 ↩︎