Sometimes less is more. The OKR method requires answers to just two basic questions to aid managers in grasping and keeping an eye on the essentials and convincing thousands of employees to join them on the journey. Yet there are a number of misunderstandings when it comes to actually implementing the method. Detecon expert Philipp Schett explains.
Even in Germany, ignoring it has become almost impossible: OKRs, the management method from Silicon Valley. Three letters that stand for “Objectives and Key Results.” The Handelsblatt reports that OKR meet-ups are springing up in Berlin, Cologne, and Munich, and the number of searches for the term on Google has increased fourfold in only a short time. As with every new method, expectations are high – stoked by the belief that OKRs are the secret to Intel’s success. Twitter and Facebook also make use of this method, Bill Gates has introduced OKRs to combat devastating diseases, and Bono employs it to save lives in Africa. (FN: Source: John Doerr, “Measure What Matters. OKRs: The Simple Idea that Drives 10x Growth”, 2017).
Why has a method that has been in use for decades suddenly become so popular at this particular time? The answer is frighteningly simple: because it helps companies to keep an eye on the essentials.
Permanent change and growing organizational complexity in conjunction with slow processes and hierarchies that are often inefficient make it difficult to distinguish between what is essential and what is incidental. Yet managers must communicate with loosely associated teams that are often located in different regions and operating in various time zones about increasingly complex interrelationships. A method that under such circumstances supports the stringent implementation of a strategy and involves all employees instead of dictating what is to be done top-down quickly triggers enthusiasm.
We share this enthusiasm. Like any other tool, however, OKRs can be counterproductive if not used correctly. So far, there is no generally accepted standard for implementation. We repeatedly encounter a number of misunderstandings – and we want to clarify them here.
1. Managers can control their organization top-down with OKRs.
OKRs create transparency. This tempts many managers to use them as a “reporting tool” to monitor employee performance. The main benefit of OKRs, however, is that they provide context. This is why we unhesitatingly recommend the implementation of OKRs at team level as teams are prompted to work together to achieve the goals they have set for themselves. Their actions are still coordinated with the rest of the organization, but are not dictated by the supervisor. Ideally, managers employ OKRs to create a culture that focuses on results rather than tasks. Clearly, even if all tasks have been completed, but there have not been any improvements, there is no success. Inspiring and ambitious objectives, on the other hand, create a setting in which high-performing employees can thrive. By involving all employees in the strategy implementation process, OKRs create traction for each team and help to align everyone with the company’s goals.
What are OKRs, anyway?
OKRs were introduced in the 1980s by Andy Grove, former CEO of Intel. He had a major issue at that time in getting Intel’s latest generation of CPUs onto the market. His concerns prompted him to develop the OKR methodology as a derivative of Peter Drucker’s established “Management by Objectives” paradigm with the aim of promoting transparency within the company, creating absolute clarity, and aligning employees with the company goal of making the CPU generation the market leader. So the legend that Google invented OKRs is a common misconception – still, Google has contributed greatly to making the method popular.
Andy Grove always emphasized that OKRs are essentially based on these two questions:
“[...] Where should I go? The answer determines the objective [...]. How do I set off on this road, and how do I determine whether I’m making any progress? The key results answer this question.”
Objectives are goals that are stated in the most inspiring form possible and clearly point out the direction that is to be taken. Objectives are often longer-lived than key results, so they can skip two or three quarters. The key results, on the other hand, should be reviewed every quarter – they measure the progress that has been made, taking the objectives as the yardstick. Tasks, initiatives, and projects are downstream of the key results – they lead us to our goal.
Andy Grove's statements date back to the first generation of OKRs, which focused on aligning flexibility, clarity, and bottom-up organization with strategic priorities and making performance measurable. OKRs as defined today still contain the core features, but the focus has shifted from “subjective self-assessments” of progress to “hard” metrics collected from digital platforms.
2. OKRs are simple: objectives are qualitative, key results are quantitative.
A methodology comprising two building blocks is not rocket science. Such simplicity causes many companies to underestimate the effort and transformation involved in its implementation. Even though the structure of the methodology is indeed simple, it initiates a change from a culture that measures output (“creation of a new sales document”) to a culture that measures results across departmental boundaries (“number of sales based on the sales document”). Moreover, coming up with truly measurable key results is no easy matter if experience is lacking. When hundreds of teams with thousands of OKRs must be coordinated, a strong team that can coordinate the OKR program, manage internal communications, train executives, and provide regular updates to the executive sponsor must be in charge during the first 12 months. We train internal coaches in our clients’ operations who are then qualified to help teams long-term with the definition of their OKRs.
3. OKRs – at our company, that’s HR’s responsibility.
The point of using OKRs is to communicate and implement a company’s strategy effectively and efficiently. However, HR departments have generally not received a mandate of such broad scope that they are able to make decisions about the company’s strategic policies. HR can and should support this process, e.g., with its experience in internal communications. The ideal solution is the creation of a cross-departmental team consisting of HR, strategy, IT, and representatives from the business departments. From our point of view, however, unconditional commitment from an executive champion is equally indispensable if OKR initiatives are to establish a position from which they can generate their impact to the full.
4. Everything the company does should be reflected in OKRs.
Attempting to use OKRs to control day-to-day business is a typical mistake that we often observe during implementation. An essential prerequisite is the confidence in employees that they can take care of the day-to-day (operating) business. OKRs serve to manage solely the company’s strategic initiatives.
5. If we set high goals for ourselves, we jeopardize our bonus.
One of the most important points when introducing OKRs is that they must not be linked to a merit-based bonus. Since key results are inherently ambitious and are supposed to set their sights on the best possible result, they are not suitable for assessing an employee’s annual performance.
6. We update our targets once every quarter.
As is true of any plan, it is usually not the creation of the plan itself that leads to success. Teams must regularly review where they stand on their road to achievement of their OKRs. Only if they do so will managers be able to exploit the transparency of OKRs to identify quickly and remove any stumbling blocks for teams. The most successful companies are the ones who update their OKRs at least once a week and make them the core element of their team meetings.
OKRs are an important tool in the management toolbox
So OKRs emphasize focus, clarity, transparency, and result orientation rather than control to advance the company’s success. However, no management method in the world will ever change an organization if the basic requirements for success are not already in place: management’s confidence in the performance capability of employees and the willingness and motivation of employees to make a commitment on their part to the implementation of strategic priorities. That is why we believe OKRs should be a part of your management toolbox!