Objectives and Key Results — How Agile Organizations Excel with Continuous Goal Management

Objectives und Key Results (OKRs) are a widely discussed topic at the moment. In times of tremendous transformations, the agile goal and performance management system increasingly has the attention of larger corporations and the “German Mittelstand”. Maybe you are already tired and think this is just another business buzzword, but if you look at the great success of the framework, it might be worth looking behind the hype.

Therefore, let’s take a closer look at the underlying principles of the methodology and analyze how it is being applied today. Although a variety of articles and online resources deal with the topic, there is still little discussion about the impact and implications of objective-based management with OKRs in European enterprises. However, before talking about regional peculiarities and our own interpretation of OKRs, I’d like to share some general facts.

For a faster overview you can also have a look at my presentation on Slideshare.

What are Objectives and Key Results?

OKRs are a holistic method for the management of goals and performance on every level of an enterprise. Leading organizations use them to manage fast growth, to optimize alignment and collaboration processes, and to enable employee engagement and transparency in a more agile work context. OKRs connect strategies with operations and results while intentionally promoting the autonomy and self-organization of teams. Moreover, OKRs support a more data-driven goal setting process and help to allocate resources efficiently by focusing on the right metrics. Establishing an OKR goal setting system, which is new and different for most employees, requires management buy-in, persistence and time. However, for more and more organizations it is an important step to position their company as an innovative workplace and an attractive employer.

Defining OKRs follows some simple rules: every Objective has a set of 2–5 Key Results. Thereby, you do not only have an important goal but also a quantification of how you measure your way of getting there. The most successful companies using OKRs regularly define OKRs for every organizational level: for the company, every team and (often not mandatory) every employee. In order to ensure disciplined planning and a focus on the most important activities, the number of Objectives for each unit should not exceed 3–5 and the number of Key Results should be limited to 2–4 per Objective.

Key is to ensure that during the definition of OKRs, all teams and individuals can already participate so that alignment can be achieved within these 2–3 weeks of coordinating priorities. Does the majority of team goals contribute to company goals? Are individual OKRs defined in a way that they contribute to the goals of the team and the enterprise?

While it is often easy to define Objectives, the definition of effective Key Results is usually more demanding. For instance, it might be easy to set the goal of increasing customer retention. However, quantifying this goal with measurable and actionable metrics (not just using the typical KPIs that often difficult to influence directly) is a process, to which you should dedicate time and which only improves by applying the framework over several cycles.

What are the challenges that can be tackled with OKRs?

1. Teams and their members do not know the Objectives the company pursues, what the strategy looks like or what contribution is expected from them.
2. The organization is not aligned with regards to its strategies and goals. Coordination and alignment between teams is lacking.
3. Existing performance management systems do not have an impact on business performance, communication, or engagement.
4. The individual cannot understand their contribution to the achievement of team or company goals and their work’s purpose is not communicated.
5. There is a general lack of transparency (e.g. what „these people of team X“ are working on and if it is relevant for your team.)
6. Employee contribution is not measurable and therefore is not acknowledged.

A brief history of OKRs

Of course, objective-based management is hardly a new idea. Indeed, similar frameworks have been existing for more than 60 years. OKRs unify the advantages of many of these approaches while putting simplicity, agility and usability first. They break down silo mentality and offer benefits to managers and employees alike.

If you want to understand the origins of OKRs, you have to start with the traditional „Management by Objectives“ (MBO) approach developed by Peter Drucker in the 50s. In the 1970s, the today still widespread MBO method was adopted and continued by Andrew Grove, being Intel’s CEO at that time. In his classic of management literature, „High Output Management“, Grove describes his interpretation of MBOs and introduces the term „Objectives and Key Results” for the first time. Over the time, the framework has been more and more tailored to the needs of agile organizations in the Silicon Valley and beyond.

John Doerr, another Silicon Valley legend, became acquainted with OKRs when he worked for Intel and later introduced the method at Google. There, OKRs had their final breakthrough and are deemed as one pillar of Googles’ rapid development to one of the most valuable and successful companies in the world. Starting from Google, OKRs were adopted by more and more firms in the digital economy, such as LinkedIn or Twitter. Starting around 2014, also more and more established enterprises in Europe, such as Zalando, BMW, and Daimler introduced OKRs. These developments illustrate that OKRs might be a buzzword and a hype at the moment, but the underlying principles have been refined and proven for a long time.

Why are OKRs so popular at the moment?

The majority of established enterprises encounters difficulties to operate in an increasingly complex market environment while keeping employees engaged. Accordingly, recent studies show that more than 70% of employees are not full committed at work while only 6% of organizations say they are fully prepared for a new working world.

Simultaneously enterprises, which use state of the art goal management, show that they are 3x more likely among the most successful companies of their industry.

The digital transformation increases the pressure on most enterprises. Digitally born companies such as Tesla might be still far from challenging established competitors. However, they understand employees and intelligent performance management system as their most valuable resources and the last true competitive advantage of tomorrow’s markets. The organizational context to develop, learn, and innovate increasingly becomes a key driver of success and one of the few aspects management can actually influence. Established enterprises are still mostly stuck in hierarchic processes and a tayloristic logic where work is centrally delegated and controlled. In order to keep up with today’s competitive landscape, OKRs are used by more and more enterprises as a key instrument to enable a successful digital transformation of their organization.

The benefits of OKRs

Focus and discipline: A limited set of important goals are documented, being precisely and clearly communicated to everyone. Actionable metrics that allow quantifying progress lead to discipline and a more efficient allocation of work.

Coordination and Alignment: Aligning all teams and individuals from the beginning of a quarter increases the overall efficiency and helps reducing conflicts.

Motivation among employees: Every team member understands how goals can be achieved collectively and what is expected from them. Individuals can be engaged in the goal setting process, which increases motivation and commitment alike.

Transparency: OKRs make accomplishments visible and hence promote acknowledgement and recognition. Moreover, it becomes easier to learn from past performance and to iterate and optimize over time.

Successful OKR organizations follow these best practices

If you hear leading experts and organizations talk about what made their OKR system successful, it comes down to the following set of guidelines:

1. Determine internal OKR masters who moderate, support, and take long-term responsibility for the process.
2. Plan with enough time and allow employees to get used to the process. Particularly the definition of good Key Results needs practice. The dedicated time for planning will pay off multiple times during the following cycles.
3. Demand prioritization. A limit of 3–5 OKRs per organizational level and 2–4 Key Results per Objective is non-negotiable.
4. Objectives should give directions and be ambitious and time-bound. Pay special attention to the alignment between different Objectives.
5. Every Key Result needs to be clearly quantifiable, measurable and assigned to one or several people.
6. Key Results are neither tasks nor KPIs: they can target certain KPIs as a result but should not be considered a traditional performance indicator that only indicates success with a certain time lag and without being actionable. Tasks and initiatives have to be derived from Key Results but your OKR system should not become a project management tool.
7. Key Results should correspond with the criteria of S.M.A.R.T. goals and be definite and meaningful.
8. OKRs should be an integral part of your weekly routine. Progress should be ideally updated weekly and OKRs should be part of the agenda in weekly meetings and one-on-one conversations.
9. The buy- in and the support of the executive team are indispensable for a successful introduction and implementation of goal management with OKRs. This also means that communicating and working with OKRs should be publicly promoted.
10. On top, refer your regular feedback for employees (ideally several times per month) to OKRs. Quarterly meetings for performance assessments and feedback are usually disentangled from the actual work of an employee, neglect goals and prohibit a steady development of individuals.
11. OKRs should be transparent and tied to other goals, in particular on team and organization level. As it turned out, goals are more likely to be attained if there are responsibilities and links across team borders.
12. Keep the system flexible for changing contexts. Sometimes it can make sense to adapt or even drop a goal during a quarter.
13. Discuss and reflect OKRs retrospectively. Learn from your performance but do not make bonuses or other incentives directly dependent on the attainment of OKRs. A more detailed explanation will follow in the next paragraph.

OKRs in Europe — what are the differences?

The original OKR approach was clearly born in the context of an Anglo-American management culture. Therefore, many European companies partially adapt OKRs to their cultural context and local data security or employee protection policies.

In order to enable self-organization and to identify synergies, enterprises should foster transparency about the goals and priorities everyone is working on. However, the current progress of an individual on their goals might not necessarily have to be publicly available for everyone. It is important (and possible) to find a working system of rules and guidelines that respects employee privacy and gets the approval of work counsels without weakening the impact of OKRs.

A further aspect many organizations adapt to their company culture is the use of stretch goals. Stretch goals are set so ambitious that it is almost impossible to achieve completion of more than 70%. Particularly in the German-speaking region, these kind of goals can lead to insecurity and demotivation among employees as the local mentality of coping with ambition and failure is usually very different from the USA and other countries. Hence, it might make sense to avoid stretch goals and aim for 100% completion, particularly when starting with OKRs.

Conclusion

In an increasingly complex and digitized economy, agile goal and performance management systems are indispensable. Automatization, an ever increasing pressure to innovate and more flexible working models, require new standards that help enterprise to organize work and foster focus, engagement, accountability, and alignment.

Johannes Mueller, Co-Founder Workpath

Johannes Mueller is a CDTM alumni and co-founder of Workpath. The company develops software and content solutions for agile goal management processes with OKRs.

This article was originally published in Workpath Magazine. If you want to learn more about OKRs, agile leadership and high-performing network organizations, check out the resources.