Chapter 2. An Extremely Short History of OKRs
Since the rise of “management science” in the 1950s, business leaders have embraced a variety of techniques designed to improve their company’s performance. Peter Drucker introduced Management by Objectives (MBOs), a process during which management and employees define and agree upon objectives and what they need to do to achieve them.
MBOs are the clear forerunner of Objectives and Key Results (OKRs). The idea that a manager would set an objective and then trust his team to accomplish it without micromanaging them was a huge and efficient shift from the more controlling approaches of the industrial age. In many ways, it was the first management philosophy truly aligned with the new information age.
In the early 1980s, SMART goals, developed by George T. Doran, and Key Performance Indicators (KPIs) became popular methods for organizations to set objectives. KPIs introduced metric-validated performance evaluation for companies. There is an old joke in advertising that “Half our advertising is working. I just don’t know which half.” But the rise of the Internet and data science changed all that. Now, it was possible to know what was working and learn what caused those KPIs to grow.
SMART stands for Specific, Measurable, Achievable, Results-focused, and Time-bound. Elements of this approach went into OKRs, particularly results-focused and time-bound.
In 1999, John Doerr introduced the OKRs goal-setting methodology to Google, a model he first learned about at while he was at Intel.
I was first exposed to OKRs at Intel in the 1970s. At the time, 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. 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. I kept my OKRs pinned up in my office and wrote new OKRs every quarter, and the system has stayed with me ever since.
In Grove’s famous management manual High Output Management (Penguin Random House, 1995), he introduces OKRs by answering two simple questions: 1) Where do I want to go? and 2) How will I know I’m getting there? In essence, what are my objectives, and what key results do I need to keep tabs on to make sure I’m making progress? And thus OKRs were born.
From Google and Zynga—companies Doerr both invested in and advised—the OKR goal-setting methodology has spread to LinkedIn, GoPro, Flipboard, Spotify, Box, Paperless Post, Eventbrite, Edmunds.com, Oracle, Sears, Twitter, GE, and more.
What Are OKRs?
The acronym OKR stands for Objective and Key Results. The Objective is qualitative, and the Key Results (most often three) are quantitative. They are used to focus a group or individual on a bold goal. The Objective establishes a goal for a set period of time, usually a quarter. The Key Results indicate whether the Objective has been met by the end of the time.
Your Objective is a single sentence that is:
- Qualitative and inspirational
The Objective is designed to get people jumping out of bed in the morning with excitement. And while CEOs and VCs might jump out of bed in the morning with joy over a three percentgain in conversion, most mere mortals get excited by a sense of meaning and progress. Use the language of your team. If they want to use slang and say “pwn it” or “kill it,” use that wording.
For example, something that is achievable in a month or a quarter. You want it to be a clear sprint toward a goal. If it takes a year, your Objective might be a strategy or maybe even a mission.
- Actionable by the team independently
This is less a problem for startups, but bigger companies often struggle because of interdependence. Your Objective has to be truly yours, and you can’t have the excuse of “Marketing didn’t market it.”
Pusher, a startup using OKRs to accelerate its growth in the API as a service business, writes about its first OKR retrospective (“How We Make OKRs Work”):
We learned things like:
Don’t create objectives that rely on the input of other teams unless you’ve agreed with them that you share priorities.
Don’t create objectives that will require people we haven’t hired yet!
Be realistic about how much time you will have to achieve your goals.
An Objective is like a mission statement, only for a shorter period of time. A great Objective inspires the team, is hard (but not impossible) to do in a set time frame, and can be done by the person or people who have set it, independently.
Here are some good Objectives:
Own the direct-to-business coffee retail market in the South Bay.
Launch an awesome MVP.
Transform Palo Alto’s coupon-using habits.
Close a round that lets us kill it next quarter.
And here are some poor Objectives:
Sales numbers up 30 percent.
Raise a Series B of $5 million.
Why are those bad Objectives bad? Probably because they are actually Key Results.
Key Results take all that inspirational language and quantify it. You create them by asking a couple of simple questions:
How would we know if we met our Objective? What numbers would change?
This forces you to define what you mean by “awesome,” “kill it,” or “pwn.” Does “killing it” mean visitor growth? Revenue? Satisfaction? Or is it a combination of these things?
A company should have about three Key Results for an objective. Key Results can be based on anything you can measure. Here are some examples:
That last one can throw people. It seems hard to measure quality. But with tools like Net Promoter Score (NPS), you can do it. NPS is a number based on a customer’s willingness to recommend a given product to friends and family. (See “The Only Number You Need to Grow”. Harvard Business Review, December 2003.)
If you select your KRs wisely, you can balance forces like growth and performance, or revenue and quality, by making sure you have the potentially opposing forces represented.
In Work Rules!, Laszlo Bock writes:
It’s important to have both a quality and an efficiency measure, because otherwise engineers could just solve for one at the expense of the other. It’s not enough to give you a perfect result if it takes three minutes. We have to be both relevant and fast.
As an Objective, “Launch an awesome MVP” might have KRs like the following:
Forty percent of users come back two times in one week
Recommendation score of eight
Fifteen percent conversion
Notice how hard those are?
KRs should be difficult, not impossible
OKRs always stretch goals. A great way to do this is to set a confidence level of 5 of 10 on the OKR. By confidence level of 5 out of 10, I mean, “I have confidence I only have a 50/50 shot of making this goal.” A confidence level of one means, “It would take a miracle.”
As you set the KR, you are looking for the sweet spot where you are pushing yourself and your team to do bigger things, yet not making it impossible. I think that sweet spot is when you have a 50/50 shot of failing.
A confidence level of 10 means, “Yeah, gonna nail this one.” It also means you are setting your goals way too low, which is often called sandbagging. In companies where failure is punished, employees quickly learn not to try. If you want to achieve great things, you have to find a way to make it safe for your employees to aim higher and to reach further than anyone has before.
Take a look at your KRs. If you are getting a funny little feeling in the pit of your stomach saying, “We are really going to have to all bring our A game to hit these,” you are probably setting them correctly. If you look at them and think, “We’re doomed,” they’re too hard. If you look them and think, “I can do that with some hard work,” they are too easy.
Why Use OKRs?
My mentor and advisor, Jeff Walker, the guy who introduced me to OKRs, once asked me, “When you go on a hike, do you have a destination?” I paused since I was not sure where Jeff was going with this, so Jeff picked up, “When you hike with your family in the mountains, it’s fine if you like to just walk around and see where you go, but when you’re here at work, you need to be crystal clear about the destination; otherwise, you’re wasting your time, my time, and the time of everyone who works with you.
Your OKRs set the destination for the team so no one wastes their time.
OKRs are adopted by companies for one of three key reasons:
What do we do and what do we not do as a company?
How do we make sure the entire company focuses on what matters most?
Is your team really reaching its potential?
At Duxter, a social network for gamers, the team adopted OKRs to solve a classic startup problem: shiny object syndrome. CEO Adam Lieb writes:
Like all startups we struggle with priorities. Possibly the most used/overused saying at Duxter is “bigger fish to fry.” We had two big “fish problems.” The first was having competing views of which fish we should be frying. Often times, these drastically different views caused conflict and inefficiency.
The second was that our biggest fish seemed to change on a weekly or even daily basis. It became more and more difficult to keep everyone in the company apprised of where their individual focus should be.
Instituting OKRs have helped significantly with both of these problems.
In an interview, Dick Costolo, former Googler and former CEO of Twitter, was asked what he learned from Google that he applied to Twitter. He shared the following:
The thing that I saw at Google that I definitely have applied at Twitter are OKRs—Objectives and Key Results. Those are a great way to help everyone in the company understand what’s important and how you’re going to measure what’s important. It’s essentially a great way to communicate strategy and how you’re going to measure strategy. And that’s how we try to use them. As you grow a company, the single hardest thing to scale is communication. It’s remarkably difficult. OKRs are a great way to make sure everyone understands how you’re going to measure success and strategy.
OKRs are more effective at uniting a company than KPIs because they combine qualitative and quantitative goals. The Objective, which is inspiring, can fire up employees who might be less metrics-oriented, such as design or customer service. The KRs bring the point home for the numbers-driven folks like accounting and sales. Thus, a strong OKR set can unite an entire company around a critical initiative.
From Re:Work, Google’s official guide to OKRs:
Google often sets goals that are just beyond the threshold of what seems possible, sometimes referred to as “stretch goals.” Creating unachievable goals is tricky as it could be seen as setting a team up for failure. However, more often than not, such goals can tend to attract the best people and create the most exciting work environments. Moreover, when aiming high, even failed goals tend to result in substantial advancements.
The key is clearly communicating the nature of stretch goals and what the thresholds for success are. Google likes to set OKRs such that success means achieving 70 percent of the objectives, while fully reaching them is considered extraordinary performance.
Such stretch goals are the building blocks for remarkable achievements in the long term, or “moonshots.”
Because OKRs are always stretch goals, they encourage employees to continually push the envelope. You never know what you are capable of until you shoot for the moon.
That said, this is the trickiest aspect of OKRs. But, while we’re talking about moonshots, let me use a Star Trek metaphor.
Scottie always implored, “The engines can’t take it anymore.” Yet somehow he always pulled a miracle out of his hat and made the engines perform anyway.
Geordie would say, “You have five minutes before the engines give out,” and five minutes later the engines would give out. If he knew of a way around it, he’d tell you, but you knew what was going on and could plan for it.
As a captain, do you want someone who likes to be a hero or someone who knows what the company can actually do? I know what kind of captain I’d like to be.
If you tie OKRs to performance reviews and bonuses, employees will always underestimate what they can do. It’s too dangerous to aim high, because what if you are wrong? But if you encourage bold OKRs and then carry out your review based on actual performance, employees are rewarded based on what they do, not how well they lie.
After all, on the way to the moon, sometimes we get Tang, Sharpies, and Velcro. Isn’t that worth rewarding?
Living Your OKRs
Many companies who try OKRs fail, and they blame the system. But no system works if you don’t actually keep to it. Setting a goal at the beginning of a quarter and expecting it to magically be achieved by the end is naïve. It’s important to have a cadence of commitment and celebration.
Scrum is a technique used by engineers to commit to progress and hold each other both accountable and to support each other. Each week an engineer shares what happened last week, explains what shecommits to do in the upcoming week, and points out any blockers that might keep her from her goals. In larger organizations, they hold a “scrum of scrums” to assure that teams are also holding each other accountable for meeting goals. There is no reason multidisciplinary groups can’t do the same.
Each Monday, the team should meet to check in on progress against OKRs, and commit to the tasks that will help the company meet its Objective. I recommend a format with four key quadrants (see Figure 2-1):
- Intention for the week
What are the three to four most important things you must get done this week toward the Objective? Discuss whether these priorities will get you closer to the OKRs.
- Forecast for month
What should your team know is coming up that it can help with or prepare for?
- Status toward OKRs
If you set a confidence of 5 out of 10, has that moved up or down? Have a discussion about why. Are there any blockers endangering your OKRs?
- Health metrics
Pick two things that you want to protect as you strive toward greatness. What can you not afford to mess up? Key relationships with customers? Code stability? Team well-being? Now mark when things start to go sideways and discuss it.
This document is first and last a conversation tool. You want to talk about issues like these:
Do the priorities lead to our hitting our OKRs?
Why is confidence dropping in our ability to make our OKRs? Can anyone help?
Are we prepared for major new efforts? Does Marketing know what Product is up to?
Are we burning out our people or letting hacks become part of the code bases?
When you meet, you could discuss only the four-square (Figure 2-1), or you can use it to provide a status overview and then supplement with other detailed documents covering metrics, a pipeline of projects, or related updates. Each company has a higher or lower tolerance for status meetings.
Try to keep things as simple as possible. Too many status meetings are about team members trying to justify their existence by listing every little thing they’ve done. Trust that your team makes good choices in their everyday lives. Set the tone of the meeting to be about team members helping each other to meet the shared goals to which they all have committed.
Have fewer priorities and shorter updates.
Make time for the conversations. If only a quarter of the time allotted for the Monday meeting is presentations and the rest is discussing next steps, you are doing it right. If you end early, it’s a good sign. Just because you’ve set aside an hour doesn’t mean you have to use it.
Jeff Weiner, CEO of LinkedIn, does things a little differently. He opens his staff meeting with “wins.” Before delving into metrics or the business at hand, he goes around the room and asks each of his direct reports to share one personal victory and one professional achievement from the previous week. This sets up a mood of success and celebration before dicing into hard talks about why one key result or another might be slipping.
Fridays Are for Winners
When teams are aiming high, they fail a lot. Although it’s good to aim high, missing your goals without also seeing how far you’ve come is often depressing. That’s why committing to the Friday wins session is so critical.
In the Friday wins session, teams all demonstrate whatever they can. Engineers show bits of code they’ve got working, and designers show mockups and maps. Every team should share something. Sales can talk about who they’ve closed, Customer Service can talk about customers they’ve rescued, Business Development shares deals. This has several benefits. One, you begin to feel like you are part of a pretty special winning team. Two, the team begins looking forward to having something to share. They seek wins. And lastly, the company begins to appreciate what each discipline is going through and understands what everyone does all day.
Providing beer, wine, cake, or whatever is appropriate to your team on a Friday is also important to making the team feel cared for. If the team is really small and can’t afford anything, you can have a “Friday Wins Jar” to which everyone contributes. But as the team becomes bigger, the company should pay for the celebration nibbles as a signal of support. Consider this: the humans who work on the project are the biggest asset. Shouldn’t you invest in them?
OKRs are great for setting goals, but without a system to achieve them, they are as likely to fail as any other process that is in fashion. Commit to your team, commit to each other, and commit to your shared future. And renew those vows every week.