“So you’re passionate? How passionate? What actions does your passion lead you to do? If the heart doesn’t find perfect rhyme with the head, then your passion means nothing. The OKR framework cultivates the madness, the chemistry contained inside it. It gives us an environment for risk, trust, where failing is not a fireable offense. And when you have that sort of structure and environment, and the right people, magic is around the corner.” — Bono, U2
As a strategy and innovation advisor, I spend a good bit of time working with senior leadership teams, facilitating sessions focused on answering five basic questions:
- What is our winning aspiration?
- Where will we play?
- How will we win?
- What capabilities do we need?
- What management systems are required?
This is the now well-known strategic choice-making framework known as “Playing to Win,” developed by Roger Martin and presented in his book of the same name. Over the past half decade, the framework has taken root in many of the world’s most winning businesses, for the simple reason that it is a simple and effective way grasp a concept that many find either daunting or painful, or both: strategy.
In this view, strategy is defined not so much as an analysis or plan, but rather a cascade of tightly-integrated choices that uniquely positions a player to create sustainable advantage and superior value relative to the competition.
Done right, strategy defined this way at the enterprise level should also cascade down through the organization to divisions, business units, functions, teams, and — ideally — individuals. Having the entire organization conceptually aligned to key choices is a powerful step toward dominating a given playing space.
At some point, though, strategy developers must turn their attention to a sixth and differentiating question: How will we effectively deploy our strategy?
In other words, they must act on their choices.
All too often, I see companies so excited by their shiny new strategy and itching to get going that they immediately dive into projects and workstreams. And all too often, I see the original focus become diluted by the shotgun approach to deployment. That presents a real problem, and leaves leaders scratching their heads wondering what went wrong.
The answer is that in their well-meaning enthusiasm, they left out a basic yet critical step: setting goals that provide measurable milestones and deliver concrete results that enable them to know whether and to what degree their strategy is on course and working. These goals should cascade in the same way as the strategies they support.
Enter the concept of “Objectives and Key Results,” or OKRs. Now a well-known and widely-adopted framework for driving progress, the acronym OKRs was coined by legendary Intel CEO Andy Grove, which he created as a means to propel execution in the mid-1970s in his role as senior engineering manager. OKRs were Grove’s take on Peter Drucker’s “management by objective.” Grove taught OKRs to those in his charge, among them being a young engineer by the name John Doerr, who after five years with Intel would go on to join Kleiner Perkins, a Silicon Valley venture firm which he now chairs.
In his recently released bestselling book Measure What Matters, Doerr writes that Grove explained his simple but effective perspective on management this way: “The two key phrases of the management by objective systems are the objectives and the key results, and they match the two purposes. The objective is the direction. The key results have to be measured, but at the end you can look and without any argument say, ‘Did I do that, or did I not do that?’ Yes. No. Simple. No judgments in it.”
OKRs work quite simply: Objectives are directional statements of intent, the “what.” Each objective is further defined by three to five key results, which are specific and time bound, and thus measurable. Key Results are the “how.” Generally, speaking, OKRs are tied to annual goals, but are set, tracked and reviewed quarterly.
The structure of an OKR is also quite simple:
Key results then cascade down to the next level of the company, become the basis for the objectives of that level. That level then sets their own key results, which become the objectives of the next level down, and so on.
For example, the Chief Designer at ABC company sets quarterly OKRs:
Her key results then become the objectives of the appropriate next level down. For example:
The next level down, perhaps a senior designer, then adopts the design director’s key result as his or her objectives.
Like any good framework, OKRs are accessible and allow for input and interpretation from all parts of the organization, including lower levels and outer edges. But like any technique or method, when taken to an extreme or used in a manner not originally intended, it will fail to produce the desired outcome. In the case of OKRs, the desired outcome is transparent alignment and engagement.
For example, used only as loose guidelines and narrowly construed as a madlib for stating goals, OKRs are nothing more than a fancy and somewhat intelligent to-do list, unattached to anything that truly matters other than to the individual writing them. On the other hand, taken as a rigid marching orders that don’t allow lower levels to include their own objectives, OKRs will go the way of traditional performance reviews, something most professionals secretly hate and see marginal value in but have to do simply because company policy dictates they must.
Conceptually, OKRs sit between cascading strategies and workstreams/projects.
In my work, I find that OKR workshops are a fast and effective means to develop OKRs one level at a time. To make things go smoothly, I’ve created a shareable wall canvas that works well and allows cross functional small teams to focus on their objectives and key results, and promotes transparency, engagement, and collaboration simultaneously.
Ideally, the outcome of an OKR session should be shared openly, adjusted based on feedback, and fed into an easy-to-use system to track and communicate visual progress toward completion. Such a system does not need to be super sophisticated, or even digital.
The Magic of “Stretch” OKRs
When used correctly, OKRs can produce remarkable transformation that indeed seems like magic. I witnessed as much during my tenure as a strategy advisor to Toyota, which accomplished a seemingly impossible mission in their parts supply chain operation.
A newly-appointed division president set a three-part stretch goal for the $2 billion dollar unit. She believed the organization was good, but could be great. Her objective was to rethink and transform the entire supply chain into what she considered to be world class operation in terms of agility and innovation. She set three key results: reduce operating costs by $100 million, remove $100 million of inventory from the supply chain, and achieve a 50% improvement in customer service ratings by Toyota’s dealers. She stunned her senior leadership team by telling them she wanted these goals met in three years.
To call these stretch goals would be an understatement. They were BHAGs, to use Jim Collins’s well-known acronym for Big, Hairy, Audacious Goals.
Cries of “Impossible!” rang out. (Note: when setting goals meant to drive new thinking, getting people out of the comfort zone is critical. In other words, initial cries of impossibility are generally a good thing.)
But the division president, confident in her senior leadership team, would not compromise. She knew that lowering her ambition would only lead to working harder or longer, not smarter, and certainly not more innovatively. She challenged her team to put their heads together to figure it out.
They did, by working collaboratively and horizontally across functions. Her senior leader arrived at ten objectives that needed to be met in order to accomplish the president’s key results:
- Reduce inventory by 50%
- Decrease backorders by 50%
- Reduce packaging expense by 50%
- Reduce damage by 50%.
- Increase throughput by 25%
- Improve safety/decrease errors by 50%
- Increase space utilization by 25%
- Decrease landfill usage by 25%
- Reduce freight costs by 25%
- Decrease lead time by 40%
Such high bars had never been attempted in the division. But the more aggressive targets actually engaged people’s brains in new ways, forcing them to rethink and redesign processes.
The magic was in a hidden dimension to how the OKRs were set. The ultimate mission of the initiative was to transform the entire supply chain, but there are inherent conflicts existing between and among the various natural functions of any supply chain. The real art of the strategy was in recognizing those tensions, calling attention to them, and capitalizing on them to power new thinking and drive collaboration.
At first glance, the list of ten objectives seems like a simple master wish list. But take a second look. See if you can spot the tension points.
Here’s a hint. Take a look at the first two targets, inventory and backorders. In most supply chains, they’re opposite sides of the same coin. Increase inventory and backorders drop. Decrease inventory and backorders generally rise. So the senior team, brilliantly, yet counterintuitively, paired the two, pitting one against the other in order to generate creative tension.
If you look back at the list above, you’ll see that the ten targets are really five pairs of two conflicting goals. This simple graphic helps visualize the pairings:
Not all of the OKRs were completely met, but the organization came close enough: $90 million taken out of inventory and costs, and nearly 40% improvement in customer service. But that’s the nature of “stretch” OKRs: anything in the 70% completion range and above is considered successful.
Think about it, if you accomplish 100% of your so-called stretch OKRs, how truly stretch were they?
When you’re struggling to deploy what you believe to be a solid strategy, when projects and workstreams seem oddly disconnected to the strategy, consider adopting the objectives and key results framework. The transformation you’re seeking may just be a few simple steps away.