Learning outcomes

After this session, you should have a solid understanding of

the fundamental principles and components of OKRs,
the differences and relationships between OKRs and other goal-setting frameworks,
the role of OKRs in aligning individual, team, and organizational goals,
the methods for tracking and evaluating progress towards OKRs, and
the impact of OKRs on organizational performance and culture.

Prologue

This class is about OKRs, a concept that helps busy, productive, and innovative teams to focus on implementing their strategy and measure performance. OKRs provide a framework that does not inhibit exploring the new (i.e., emerging), but rather channels it towards accomplishing prioritized goals.

Opening quote

OKRs have helped lead us to 10x growth, many times over. They’ve helped make our crazily bold mission of “organizing the world’s information” perhaps even achievable. They’ve kepts me and the rest of the company on track when it mattered the most. Larry Page, cofounder and former CEO of Google

Foundation

This unit is inspired by and mainly based on the book Measure What Matters by Doerr and Page (2018).

Measure What Matters will transform your approach to setting goals for yourself and your organization. Whether you are in a small start-up, or large global company, John Doerr pushes every leader to think deeply about creating a focused, purpose-driven business environment. Mellody Hobson, president of Ariel Investments

Introduction

History

OKR stands for Objectives and Key Results and is a management method to help companies, teams, and individuals set, measure, and reflect on goals in a structured, meaningful way.

Andrew Grove¹ popularized the concept during his time at Intel in the 1970s (Grove 2015).
During his time at IBM, John Doerr was introduced to the theory of OKR, then called “iMBOs” (“Intel Management by Objectives”) (Doerr and Page 2018).
Working for venture capital firm introduced the idea of OKRs to Google in 1999 (Levy 2021).
OKRs quickly became a central part of Google’s culture as a “management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization.” (Doerr and Page 2018, 7)

Objective

We choose to go to the moon in this decade and do the other things not because they are easy, but because they are hard. Because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we’re willing to accept. John F. Kennedy, 12.09.1962

The objective is the goal, what the company, team, or individual aims to achieve—the what.

Goals express goals and intents,
are aggressive yet realistic,
must be tangible, objective, and unambiguous,
provide clear value, and
must be action-oriented.

Example: Create the lowest carbon footprint in our industry.

Key results

Key results are benchmarks toward the objective—the how

Key results are more earthbound and metric driven, they cover things such as revenue, growth, active users, satisfaction scores, etc.

They state the 3-5 measurable sub-goals that define/reflect goal-achievement
describe outcomes, not activities,
are time-bound (they include specific deadlines),
are black-and-white²,
are relatively challenging³, and
must include evidence of completion⁴.

Example: Pay 100% carbon offset for calculated carbon dioxide emissions.

Examples

Objective: Win the Indy 500 (see Doerr and Page 2018)

Weak key results

Increase lap speed
Reduce pits stop time

Average key results

Increase lap speed by 2 %
Reduce pits stop time by 1 s

Those results are specific and measurable.

Strong key results

Increase lap speed by 2 %
Reduce pits stop time by 1 s
Reduce pit stop errors by 50 %
Practice pit stops 1 hour a day

Those results mix quantitative and qualitative results to ensure that the team does not cross corners to reach the result.

Source: Doerr and Page (2018)

Color coding check-in

Are you making progress and are your key results are challenging enough?

The color coding system has transformed the one foundation board meetings. They’ve sharpened our strategy, our execution, our results. They made us a more effective weapon in the fight agains extreme poverty Bono, singer and founder of the one foundation

Scoring

One way to score is to use a scale of 0 to 100% based on how much of the key result was completed.

71-100% is a green on target: continue.
30-70% is a yellow on target: continue or revise.
0-29% is a red on target: revise or stop.

Options for OKRs

Option #1: Continue: The objective or key result—If everything’s going well and you’re making progress,keep going.
Option #2: Revise: The objective or key result—If changes in your environment or workflow have caused the goal to get off track, update it.
Option #3: Start: A new objective or key result—As conditions change, you may need to add new goals. If you already have five objectives, put one or two on the back burner to make room for the new goal.
Option #4: Stop: An objective or key result—Some goals become irrelevant or impractical. Don’t stubbornly cling to a goal just because you set it. If it no longer serves your larger purpose or thecompany’s, toss it.

OKR implementation

Companies that use this system have OKRs at every tier: Top-line OKRs for the entire company, division OKRs, team OKRs, and individual OKRs.

Everyone in the company creates OKRs.
Individuals and teams are responsible for making sure that their goals help further the company’s objective.
Everyone’s OKRs are visible to everyone else⁵.

This combination of top-down and bottom-up alignment provides the transparency needed for people to connect their goals with those of the company and their peers, increases efficiency and leaves room for innovation.

Step 1: Identitfy the objectives

Start with the company’s biggest priorities. Ask yourself, “What are the most important tasks we need to accomplish in the next three months, the next six months, and the next year?”

Once the organization-level objectives have been set, departments, teams, and individuals identify their own objectives.

About 50% of a tier’s objectives trickle down from the top
Every objective, regardless of whether it’s an individual or department objective, should align with the company’s top objectives
At each tier, tackle no more than 3-5 objectives
Everyone’s objectives need to be public, including the CEO’s

Step 2: Identify the key results

For each objective, ask yourself, “What steps do I need to complete to reach my objective?”

Only 3-5 key results per objective
If more key results are required to reach an objective, the objective is not narrow enough or not framed well
Key results need to be specific, comprehensive, and aligned. Successfully completing the key results must culminate in achieving the objective
Everyone’s key results need to be public
Employees should create most of their own key results, whether the objective comes from the top or not

Step 3: Define OKR cycle length

The organization should operate on the same goal-setting schedule.

For most companies, there are two simultaneous OKR cycles:

Annual cycles are for long-term OKRs
Quarterly cycles are for short-term OKRs that support the longer-term objectives

Quarterly OKR rhythm

OKRs should be conducted quarterly, with a rhythm of check-ins, reviews, and scoring goals, as seen below.

Step 4: Set up tooling and roles

To effectively track OKRs, you need a place to store and share them—use a cloud-based management system⁶.

Designate an “OKR shepherd” (or OKR master) who is in charge of keeping the rest of the team or organization accountable for setting and work hard toward their OKRs.

Step 5: Walk the talk

Check in with employees weekly or monthly

Check progress on key-results and related initiatives
Reassess OKRs, if they are not longer relevant, change or discard them

Score and reflect

Score your performance for each OKR at the end of the cycle
Reflect on how you did and what that means about the goals you set
What will you do differently next quarter?

Repeat the OKR cycle

Be patient with yourself, your colleagues, and your administration—hitting on an effective OKR system takes time.

OKR vs. traditional systems

Traditional management systems

Key question: What’s the goal?
Emphasizes on ticking off
Objectives are private
Alignment is top-down (objectives trickle down from the CEO to frontline employees)
Success of objectives is tied to compensation
System encourages risk-aversion

OKRs

Key questions: What’s the goal, and how will we get there?
Emphasizes ambition
Objectives are public (even those of the CEO)
Alignment is top-down, bottom-up, and horizontal
Usually not linked to promotion and bonuses
System encourages risk-taking (aiming for a risk-taking culture)

OKR superpowers

Focus

If we try to focus on everything, we focus on nothing. Andy Grove, former CEO of intel

Commit to priorities

Top-line objectives must be significant
Keep the number of objectives small
Every time you commit to something, you make yourself unavailable to commit to something else—choose your commitments wisely

Focus on what is necessary

Reflect on what is required to get you to the objective
Clarify your focus by limiting you to 3-5 key results per objective

The most powerful OKRs typically stem from insights outside the C-suite. As Grove (2015) observed, People in the trenches are usually in touch with impending changes early. Salespeople understand shifting customer demands before management does; financial analysts are the earliest to know when the fundamentals of a business change.

A healthy OKR environment strikes a balance between alignment and autonomy, common purpose and creative latitude.

Innovation is located less at the center of an organization than at its edges (Doerr and Page 2018).

The professional employee needs rigorous performance standards and high goals. […] But how he does his work should always be his responsibility and his decision. Drucker (2007)

[T]he subordinate will begin to take a much more restricted view of what is expected of him, showing less initiative in solving his own problems and referring them instead to his [or her] supervisor. […] [T]he output of the organization will consequently be reduced. Grove (2015)

Align and connect

Having goals improves performance. Spending hours cascading goals up and down the company, however, does not. Laszlo Bock, former HR executive at Google

OKRs are public and use both top-down and bottom-up alignment

Let individuals set about 50% of their own goals and most of their key results⁷
For the goals set, clearly show how they relate to the top priorities
Use meetings to reiterate why certain OKRs are important
Encourage cross-departmental OKRs for horizontal alignment and make dependencies explicit

Track for accountability

In God we trust; all others must bring data. W. Edwards Deming, American engineer, statistician, professor, and author

OKRs are always measurable: Scores help you track your progress, indicate when you need to double down on a particular goal, or when you should revise or abandon it

Use objective scoring, subjective self-assessment, and reflection

Assign an objective score (e.g., average the completion rates of its key results)
Balance objective scores with self-assessments (i.e., tell the whole story)
Learn from your experiences (e.g., what facilitators, roadblocks, takeaways)

Stretch for amazing

The biggest risk of all is not taking one. Mellody Hobson, chairwoman of Starbucks, and former chairwoman of DreamWorks

OKRs should be a mix of committed OKRs, objectives that must be met for the company to function and thrive, and aspirational OKRs, objectives that make you feel a little uncomfortable because you’re unsure you can attain them. These kinds of OKRs stretch the entire company to achieve more than anyone thought possible, a key feature of innovative companies.

Committed: A goal that will be achieved. Resources and schedules should be adjusted to make sure they get done. You either achieved it or you didn’t.
Stretch OKR: Ambitious goals with no clear path to get there. They may roll over from quarter to quarter, or year to year, and sometimes even be reassigned to different teams. Reaching 100% of an aspirational OKR is rare, expect a score between 40% and 60%.

Continuous performance management

Talking can transform minds, which can transform behaviors, which can transform institutions. Sheryl Sandberg, former Co-CEO of Meta

OKRs enable the implementation of an continuous performance management system built on CFRs:

C onversations: exchange between manager and contributor aimed to thrive performance
F eedback: bidirectional networked communication among peers to evaluate progress and guide future improvement
R ecognition: expression of appreciation from peers and managers for small and large contributions toward goals

Conversations

Conversations happen weekly or monthly, in both formal and informal environments and concern five main topic areas (but you don’t need to cover all of them in one conversation):

Reflecting on past goals and setting new ones.
Updates on OKR progress, problem-solving if necessary.
Coaching to guide the employee in his or her thinking about the OKR approach, and encourage the employee to offer feedback to help you, the manager, do your job better.
Professional development by working with the employee to develop the necessary skills, knowledge, and mindset to succeed at the company.
“Lightweight” performance reviews by discussing what the employee has accomplished since yourlast meeting, and view this progress within the context of the company’s priorities and needs.

Feedback

In order to improve, employees need to know how they’re doing—often, they don’t have enough distance from their work and performance to make this call themselves.

You can elicit and guide feedback in one-on-one meetings with these questions:

Employee: Do you have any feedback on how I could improve my performance, make more progress toward my goals, or set more ambitious OKRs?
Manager: What do you need from me to succeed?

Recognition

Recognition should be both private and public and focused on actions.

There are many ways to establish a “high-recognition” culture:

Introduce a peer-to-peer recognition system. E.g., introduce Whoops-a-Daisy & the Killer Whale
Focus on actions and results. Instead of honoring an Employee of the Month, honor an Achievement of the Month. Celebrate people for what they do, particularly when they complete OKRs that contribute to company goals or they demonstrate company values.
Link recognition to the company’s goals. When you have a particular, company-wide OKR you’re trying to push, focus recognition on the people who are helping the company make progress toward it.

You need a culture that high-fives small and innovative ideas. Jeff Bezos, founder, executive chairman, and former president and CEO of Amazon

OKRs and CRF build a positive culture

OKRs and CFRs help to align teams to work toward a handful of common, meaningful objectives (OKR) and to unit them through lightweight, goal-oriented communications (CFR). More specifically, google found that standout performance correlated to following characteristics (Rozokovsky 2015), which are forstered by OKRs and CFRs:

Structure & clarity⁸, psychological safety⁹, meaning of work¹⁰, mdependability¹¹ & impact of work¹².

Critical reflection

Opening quote

Goals may cause systematic problems in organizations due to narrowed focus, increased risk taking, unethical behavior, inhibited learning, decreased cooperation, and decreased intrinsic motivation. Use care when applying goals in your organization. Ordóñez et al. (2009, 14)

Questions to consider

Questions to ask before setting goals (Ordóñez et al. 2009, 13)
Question to ask before setting goals	Why is this important to ask?	Possible remediation
Are the goals too specific?	Narrow goals can blind people to important aspects of a problem.	Be sure that goals are comprehensive and include all of the critical components for firm success (e.g., quantity and quality).
Are the goals too challenging?	What will happen if goals are not met? How will individual employees and outcomes be evaluated? Will failure harm motivation and self-efficacy?	Provide skills and training to enable employees to reach goals. Avoid harsh punishment for failure to reach a goal.
Who sets the goals?	People will become more committed to goals they help to set. At the same time, people may be tempted to set easy-to-reach goals.	Allow transparency in the goal-setting process and involve more than one person or unit.
Is the time horizon appropriate?	Short-term goals may harm long-term performance.	Be sure that short-term efforts to reach a goal do not harm investment in long-term outcomes.
How might goals influence risk taking?	Unmet goals may induce risk taking.	Be sure to articulate acceptable levels of risk.
How might goals motivate unethical behavior?	Goals narrow focus. Employees with goals are less likely to recognize ethical issues, and more likely to rationalize their unethical behavior.	Multiple safeguards may be necessary to ensure ethical behavior while attaining goals (e.g., leaders as exemplars of ethical behavior, making the costs of cheating far greater than the benefit, strong oversight).
Can goals be idiosyncratically tailored for individual abilities and circumstances while preserving fairness?	Individual differences may make standardized goals inappropriate, yet unequal goals may be unfair.	If possible, strive to set goals that use common standards and account for individual variation.
How will goals influence organizational culture?	Individual goals may harm cooperation and corrode organizational culture.	If cooperation is essential, consider setting team-based rather than individual goals.Think carefully about the values that the specific, challenging goals convey.
Are individuals intrinsically motivated?	Goal setting can harm intrinsic motivation.	Assess intrinsic motivation and avoid setting goals when intrinsic motivation is high.
What type of goal (performance or learning) is most appropriate given the ultimate objectives of the organization?	By focusing on performance goals, employees may fail to search for better strategies and fail to learn.	In complex, changing environments, learning goals may be more effective than performance goals.

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

Reflect how OKRs align with the insights gained regarding the schools of strategy (e.g., design and planning schools vs. learning school and/or power school) as well as regarding strategy formation (e.g., the balance between planned and emergent strategy).
In what ways can OKRs help an organization transition between different strategies or support distinct phases of organizational evolutions (i.e., perioods of convergence vs. periods of frame-breaking change)?
How do OKRs enable organizations to manage environmental uncertainty and to adapt to changes in their external environment?
How do OKRs support Mintzberg (1978) apporaches/patterns of strategy formation (i.e., entrepreneurial, adaptive, planning, and logical incrementalism)?
How can OKRs can bridge gaps between different levels and departments within an organization?
Compare and contrast the use of OKRs with other performance management tools discussed in the upcoming unit.
How can OKRs contribute to the overall strategic management process in an organization?

Literature

Doerr, J., and L. Page. 2018. Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. Penguin Publishing Group.

Drucker, P. F. 2007. The Practice of Management. Classic Drucker Collection. Butterworth-Heinemann.

Grove, A. S. 2015. High Output Management. Knopf Doubleday Publishing Group.

Levy, S. 2021. In the Plex: How Google Thinks, Works, and Shapes Our Lives. Simon & Schuster.

Mintzberg, Henry. 1978. “Patterns in Strategy Formation.” Management Science 24 (9): 934–48.

Ordóñez, Lisa D, Maurice E Schweitzer, Adam D Galinsky, and Max H Bazerman. 2009. “Goals Gone Wild: The Systematic Side Effects of Overprescribing Goal Setting.” Academy of Management Perspectives 23 (1): 6–16.

Rozokovsky, Julia. 2015. “The Five Keys to a Successful Google Team.” 2015. https://rework.withgoogle.com/blog/five-keys-to-a-successful-google-team/.

Footnotes

Former CEO of Intel, who has transformed Intel from a manufacturer of memory chips into the world’s dominant producer of microprocessors.↩︎
One either succeed in achieving a key result, or don’t↩︎
If a key result seems easy, it, or the objective, may not be ambitious enough↩︎
Data need to be available, credible, and easily discoverable↩︎
If anyone’s OKRs aren’t aligned with the top-line OKRs, it’s obvious.↩︎
For instance: Ally, Culture Amp, Asana, Weekdone or shared documents↩︎
People who choose their goals take more responsibility toward getting themselves there.↩︎
Are goals, roles, and execution plans on our team clear?↩︎
Can we take risks on this team without feeling insecure or embarrassed?↩︎
Are we working on something that is personally important for each of us?↩︎
Can we count on each other to do high-quality work on time?↩︎
Do we fundamentally believe that the work we’re doing matters?↩︎