A set of clearly-defined company goals is a critical prerequisite to the success of any organization and to the focus of each of the teams within it. A company’s business objectives are particularly significant to product teams, often guiding strategic decisions and product roadmap prioritization in a manner that aligns with both company and customer. While there are many business objective frameworks and performance management models out there, the OKR, or Objectives and Key Results model is arguably one of the best ways to keep everyone (and every product) on target. The format provides a straightforward look at key objectives as well as a transparent and measurable means of tracking progress toward those objectives.
A Brief History of the OKR Model
OKRs didn’t arrive on the scene out of nowhere – the idea evolved from Peter Drucker’s 1954 invention, the MBO (Management By Objective) model. The MBO model has a “black and white” success criteria; objectives are typically set annually or quarterly and you either achieve them, or you don’t. With the MBO performance objective model, “almost there” is one in the same with “not even close.”
Hewlett-Packard was an early adopter of the MBO philosophy and declared it an integral part of The HP Way. “Overall objectives are clearly stated and agreed upon,” Bill Packard explained, “Which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.”
While MBOs were the hot management style for a while, and are still used by many organizations, their fix-everything approach lost traction over time as newer models were developed and introduced. “MBO is just another tool. It is not the great cure for management inefficiency,” Drucker himself conceded in a 2009 Economist article, pointing out, “Management by objectives works if you know the objectives: 90% of the time you don’t.”
Despite the decline in MBO popularity, the concept of working toward clearly-defined objectives hasn’t gone away. Currently, one of the most popular frameworks built on those early MBO practices is the OKR, or Objectives and Key Results model. The framework was first developed and adopted in the 1970s by Intel, providing much-appreciated transparency regarding what everyone at the company was working toward and being measured against, from the CEO on down.
“Intel was transitioning from a memory company to a microprocessor company, and Andy Grove and the management team needed employees to focus on a set of priorities in order to make a successful transition. Creating the OKR system helped tremendously and we all bought into it,” John Doerr said last year in an interview about success with OKRs,
“I remember being intrigued with the idea of having a beacon or north star every quarter, which helped set my priorities. It was also incredibly powerful for me to see Andy’s OKRs, my manager’s OKRs, and the OKRs for my peers. I was quickly able to tie my work directly to the company’s goals.”
Doerr, now a partner at Kleiner Perkins, says he found so much value in the OKR framework that he introduced it to many of the companies he advised, including trendsetting titans like Google. Today, many well-known and respected firms rely on the OKR performance management system, including the likes of LinkedIn, GoPro, Spotify, Box, Oracle, Yahoo!, and Twitter.
Setting Company Objectives and Key Results
In practice, the process of defining OKRs varies from company to company, but it all hinges on the entire organization agreeing on what they should all be working toward and then breaking that down into what their team, and then they themselves should be doing to help accomplish that.
It’s good to note first that there isn’t exactly a right or wrong way to do OKRs. Former Zynga GM, Christina Wodke suggests the real value of OKRs comes from the collaboration required to establish them, “Much of the value in OKRs comes from the conversations on what matters, how it’s measured and what it means for some teams who are often used to working from their own standards.”
With that in mind, the process typically starts with organization-wide OKRs, and then once you’ve defined company OKRs, each team should be able to define its own three objectives that all contribute toward those. Next, individual team members can create their personal objectives that build toward team objectives. Depending on the function of a particular team or individual, it’s quite possible that they may have multiple team- or individual-level objectives that build toward one particular company objective.
Alignment is key, says Wendy Pat Fong of 7Geese, “By aligning your employees’ objectives to your company’s objectives, you are empowering your employees to take ownership of the business as they are held accountable for their individual objectives,” adding, “By creating a clear ‘line of sight’ for your employees, they are more likely to be connected to your organizations and more engaged as they can see how their contributions relate to the bigger picture vision.”
Usually an organization will start the process of by figuring out the three most important things it should strive for over the next quarter (or year), these are its objectives. Some organizations group their quarterly objectives into categories such as “innovation,” “growth,” and “revenue” to ensure that they aren’t focusing entirely on one single area of the business or priority. The objectives themselves are typically brief, aspirational goals that are meant to motivate and inspire–much like a product vision statement or a mission statement, except they are time limited. OKR objectives should reflect the time constraint they are being set for, and if they don’t fit within the quarterly (or annual) OKR model you’ve set out, you may need to make some adjustments. Finally, on their own, objectives are not measurable goals.
After objectives are set, the focus turns to identifying key results for each objective–KRs are your success measures. Each objective can (and probably should) have more than one measurable key result that your organization should strive to meet during the quarter.
Setting Product Team OKRs
Oftentimes, company-level objectives contain a product related OKR, which makes it easy to identify product team level OKRs. If one of your organization’s major objectives for a quarter is “Successfully release X product or feature…” you’re not going to have a very hard time figuring out what your team’s OKRs should include.
However, when there’s not a clear-cut product OKR on the board, you’ll have to take a slightly more involved look at your organization’s OKRs and determine where product will be able to move the needle most–this also means aligning your product roadmap with company OKRs.
An easy way to go about figuring out what your product team’s OKRs should be for a given quarter would be to sit down and examine the key results your company is chasing and then brainstorm all the specific “to-dos” your team could tackle that would help move those numbers.
For some KRs, you’ll likely struggle to find ways your team can make a direct impact. When that’s the case, don’t worry about focusing on those areas–it doesn’t make sense to try and move a number you have little control over. Instead, aim your focus toward the KRs your team finds seemingly endless ways to approach; these goals are the ones you will have the most power to influence. At the OKR-setting stage, the “to-dos” your team comes up with aren’t critical to act on. They’re tools to help you identify opportunities, not actual to-dos. However, it’s wise to hold on to them for later when you look at how well your product roadmap aligns with the OKRs you establish for your team.
Tips for Successful OKRs from the Pros
Set Ambitious “Stretch Goals”
With the Objectives and Key Results approach, nobody gets 100% consistently. Measurement expectation is one of the primary differences between MBOs and OKRs explains Jordan Scott of Xactly:
“When you’re using MBO, you are expected to achieve 100%, if not overachieve. In OKR, if you hit 100% consistently, you are not setting aggressive enough goals,” later noting that “measurements should generally end up in the 60-70% range.”
Much like how a teacher may not give everyone an A grade for doing what is expected of them, the OKR model embraces the non-binary reality of today’s business environment, and the importance of “partial achievement” is paramount to get the most from this model.
So just how high should you set your key result goals? “The ‘sweet spot’ for an OKR grade is .6 – .7; if someone consistently gets 1.0, their OKRs aren’t ambitious enough,” says Rick Klau in a post about how Google sets OKRs, “Low grades shouldn’t be punished; see them as data to help refine the next quarter’s OKRs.”
Make it Clear that OKRs are NOT Equal to Employee Evaluations
While OKRs tell employees what they should be doing, measure how much of it they have accomplished, and provide transparency and visibility to others in the organization, they usually are not utilized directly to evaluate employee performance or compensation.
Pusher, for example, made sure to spell this out upfront in their OKR process:
“There were two key things we needed to make clear:  No-one will be punished for missing targets, [and 2] No-one will be compensated for hitting targets (which might make them less ambitious)”
Separating OKRs from compensation is key, since otherwise employees might set more easily achievable objectives, defeating the “stretch goal” mentality.
“OKRs are not designed to be used as a weapon against your employees,” Angus Davis, CEO of Swipely tells First Round Review, “they are a tool for motivating and aligning people to work together. They increase transparency, accountability and empowerment.”
OKRs Won’t Stifle Creativity…Unless You Let Them
Some might argue that such a seemingly rigid structure for prioritization and measurement might prevent companies from being nimble and exploiting new opportunities.
“An oft argued counterpoint is that OKRs will stunt creativity and the team’s ability to tinker and meander into some great discovery. Defenders of this theory highlight examples of accidental discoveries leading to huge innovations – but this is missing the point,” Kenton Kivetsu wrote in a post on setting meaningful OKRs, adding;
“OKRs don’t preclude accidental discoveries, they simply make sure that in absence of a brilliant accident the team is on track to do something else meaningful.”
Check in on OKR Progress Regularly
You can’t “set and forget” OKRs and expect to be successful. Once a quarter or year’s objectives and key results are set, many companies and teams go through lots of exercises and projects that don’t necessarily impact their day-to-day work in the long run. OKRs are intended to help teams avoid that sandtrap by having relatively short time horizons and easy-to-measure key results. This structure is intended to encourage teams to hold themselves accountable for focusing on their objectives, but sometimes teams manage to forget that OKRs exist for a reason.
“When people fail, it’s often because they set OKRs at the beginning of the quarter, and then forget about them until the end of the quarter,” says Christina Wodke, former GM of Zynga, suggesting teams have regular OKR progress check-ins, “I highly recommend baking your OKRs into your weekly team meetings (if you have them) and your weekly status emails. Adjust your confidence levels every single week. Have discussions about why they are going up or down.”
Wodke isn’t the only one who believes in working OKR updates into your organization’s all-hands meetings. “As we are growing fast and could invest our resources in umpteen number of initiatives, our OKRs are helping our employees stay focused,” RankTab CEO Francisco Ruiz explained in a LinkedIn post on using OKRs for company performance management, “I notice that even my staff meetings are much more efficient, as we start my meetings by reviewing metrics on our OKR dashboards and focus on the important stuff rather than going around the table about what got done.”
The Objectives and Key Results framework is a useful goal setting tool for organizations, teams, and individuals for several reasons including:
- Objectives help guide teams and highlight key focus areas in a straightforward manner, while key results are easy-to-track and check in on regularly
- Company-wide OKRs lay out the major business priorities product teams should align with for a given time period
- Stretch goals and regular progress updates on those goals provide a source of motivation for teams throughout the lifespan of each OKR
- You can’t “fail.” OKRs don’t follow the black and white “pass” or “no pass” performance model of other formats like the MBOs and instead celebrate progress and encourage teams to learn from missed targets
Editor’s Note: This post was originally published in July 2015 and has been updated for accuracy and comprehensiveness