LEADING WITH GOALS:
HOW TO USE THE OKR MODEL
A successful entrepreneur must know two things:
- Where the business should be in five to ten years
- What is to be done over the next three months
The first point is achieved with a clear vision, a strong mission statement and shared values.
The second point ensures that the vision is broken down into concrete steps and that understandable and achievable objectives are formulated.
THE OKR MODEL
The OKR (Objectives and Key Results) model offers an outstanding goal setting frameset for this very purpose. John Doerr from Kleiner Perkins Caufield Byers, first implemented the model at Google in 1999. In the meantime it has been adopted by a number of businesses such as Twitter and LinkedIn.
The great advantage of this framework is that goals on every operational level can be broken down into goals for a lower level. The company goals thus give you the big picture. Deriving therefrom, the respective departments and their employees have OKRs, which contribute to the Key Results of the superior level. In doing so, tasks over several levels can each be feeding into an overarching objective.
With absolute transparency every employee knows what he or she is working for, and how that contributes to the overarching objectives through the achievement of a specific and concrete goal. This means every employee always has an answer to the "Why?" and can thus take better decisions.
Distributing goals on different levels throughout the company allows for the workload to be effectively compressed throughout the company. Key Results in the higher levels serve as targets for the following levels. That way, the target system is always constructed pyramidal. However, it also leaves room for adjustments and reformulations, as the milestones often have to be transferred between different departments. The company objectives allow the management level to lead the business into the right direction. Team goals set priorities for teams and individual OKRs determine what each employee is responsible for. Thus team goals are not a complete representation of the sum of all the individual employee's objectives, but rather a list of priorities.
HOW TO USE OKRS
The model limits itself to the formulation of a maximum of five objectives, each with four key results. Through the artificial limitation of available goals one is forced to focus on the main objectives when agreeing on targets. No more than five objectives are allowed. If another goal is deemed to be relevant, the prioritization of other issues needs to be discussed and possibly changed.
In a nutshell, the model is based on two key messages:
The objectives (O) are ambitious and feel somewhat uncomfortable
The key results (KR) are quantifiable. They are easily measurable using a percentage to quantify their level of completeness.
The model is completely transparent. Every employee can view all the OKRs of every other employee.
FORMULATING OBJECTIVES AND KEY RESULTS
The goals should be set high so that the achievement sweet spot lies around 75%. If goals are consistently reached with 100% completeness the bar has not been set high enough. If goal achievement is too low, that should be taken into account for the formulation of the next OKRs.
First and foremost, when using this framework, objectives must be defined clearly. Objectives are not to be mistaken for simple headlines, but have to be concrete descriptions of a state to be achieved. The more concrete, the better; always within the frame of the level concerned, of course. However, at this point, goals must not be confused with individual tasks.
In teams, goal setting presupposes a common understanding of an issue. The model is a tremendous aid in developing this understanding. "Going on a summer vacation together" is a desirable goal. It is quite vague though, and just deciding on one out of the suggested destinations can already jeopardize the project. "Crossing the Atlantic in a sailboat together this summer" on the other hand projects an image to the mind of the involved parties, and milestones can be derived immediately. Obviously a sailboat is required, the route has to be determined, etc.
Thus, formulating objectives isn't always easy. Winning a championship, for example, is an ideal, clear-to-understand and achievable goal. However, improving individual processes within the company is more difficult. If the improvement is aimed at a specific problem, the problem can be used as a specification. Processing time of tickets, response time in customer service or reach of a marketing campaign are examples of such specifications. If no clear objective, in the sense of achievement or non-achievement (corresponding to percentage from 0 to 100), can be formulated, the gaugeable Key Results will at least help to describe the target in qualitative and quantitative terms so that concrete progress becomes measurable.
Defining concrete goals goes hand in hand with a concrete definition of success. A project's expected return needs to be valued, in order to determine whether to tackle it at all and why. Therefore, the question about which outcome is actually considered a success arises in advance. So you first decide on a scale for success and failure for each individual key result. That is the only way to retrospectively assess, whether an action's result was above or below expectations. A result without a predetermined scale to rate it inevitably leads to arbitrariness, allowing for its interpretation to go in any direction. For example, five responses on a mailing campaign with 1,000 recipients can be rated as a poor result. However, if the expected outcome and the calculated break even point lie at three answers, then the action can unequivocally be regarded as a success.
The concrete formulation to increase an indicator by the factor x from y% to z% for example, often fails because of the operational measurability of indicators. Firstly, the problem often lies in the identification of suitable indicators. Secondly, the technical collection of necessary data is often difficult and requires considerable effort. But it's worth doing it. The identification of appropriate indicators first and foremost tells you what the driving force behind success is! Knowing and understanding what actually fuels success, lets you exercise a different kind of influence on your success. The technical realization of the measurement often leads to KPIs that are crucial for a metrics-driven control of the company anyway. If one agrees that financial success in the form of sales or profit is always only the derivation of another qualitative success, then it is always worth identifying what constitutes a success and to describe it quantitatively!
The development of common goals works in two ways:
By the team, working from the bottom up, and through the leadership circle, from the top down. As a general rule, 60% of OKRs should be brought from the bottom up. The remaining 40% are the strategic objectives set by the management circle, which controls the fate of the business. This approach ensures that objectives are not imposed from above, and are therefore accepted. Furthermore, the know-how to improve existing products or processes is fed directly from the company's departments into a bigger picture. Nobody knows the products and processes better than the employees themselves.
Once all of the OKR drafts are put on the table, negotiations begin. The manager negotiates with his employees. The employees negotiate with their manager. Departments negotiate with one another. Priorities are agreed upon, always keeping a three-month focus in mind. Overarching goals require a common agreement on priorities so that they can be achieved. The thus generated awareness that achieving one objective often leads to not achieving another one, allows for conscious decisions on priorities in advance.
REVIEW & START OF THE NEXT PERIOD
The retrospective analysis in review provides an evaluation of one’s own goal achievement. This is not considered as an evaluation method for the performance of employees and departments and should not be linked to pay models. Rather, the analysis of the elapsed period provides valuable data to improve processes, thus leading to better planning for the coming quarter.
Despite their limited number, OKRs will undoubtedly not be fully achieved at the end of each quarter. Thus the question arises, whether these goals should be transferred to the next quarter. Invariably, the continuation of previously unachieved goals should only take place if the goal is really important! Otherwise, it should be cancelled without replacement, even if valuable work time had already been invested. It's all about answering the question of whether reaching this goal will make an important contribution to the overall result in the future or not. If, for some reason, a project did not receive sufficient attention in the last quarter, it should be carefully scrutinized. It's better to abandon a bad project midway than to keep wasting valuable resources on completing it. It's about as rewarding as reading a bad book cover to cover.