The Art of the OKR, Redux

 

The original “Art of the OKR” was written in 2014. I returned to it as I began to revise Radical Focus for a second edition (sign up for my mailing list to be notified when it’s out!) Six years is a long time and unsurprisingly a lot has changed. I decided to share the draft of the rewrite (still has to go by copyeditors, etc. ) Enjoy!

While OKRs have been adopted by companies all over the world now, that wasn’t the case when I first encountered them in 2011 at Zynga. Back then, Zynga was a start-up trying to change the world by connecting people through games. I can only speak to the time I worked at Zynga, but while I was there it was one of the fastest growing company in the valley. Like any company, it had its dysfunctions, but I vividly recall how good Zynga was at accomplishing its goals and how it constantly got smarter as an organization. OKRs enabled Zynga to focus many disparate “studios*” on what was really important to the company as a whole, empowered those studios to make their own choices on how to realize that strategy and enriched the company with proprietary information that fueled unprecedented growth.

How did Zynga find OKRs? The framework of what would eventually become Objectives and Key Results came from Intel, where Andy Grove implemented Peter Drucker’s Management by Objective system. John Doerr, former Intel executive and now partner at Kleiner Perkins, evangelized OKRs to all the startups he invested in, including Google and Zynga. Both companies embraced the system and used it to unify and energize their companies. Many more companies have adopted OKRs, such as LinkedIn (who adopted OKRs after I had moved on) and General Assembly (where I taught in 2013.) OKRs have been an effective accelerant to their growth.

Over the last six years I have used OKRs in both my professional and personal life with great results. When I quit Zynga I was burnt out physically and mentally. Today I am a bestselling author and I have my dream job teaching in Stanford’s computer science department. OKRs work if you are a person or a company.

When I first left Zynga, I advised startups. I found again and again start-ups struggled with a painful and potentially deadly lack of focus. Even startups who had found product/market fit found it excruciating to get their employees to all work towards that validated vision. All start-ups are racing against the ticking clock of running out of funding. They have to get the kind of results that open up a VC’s pocketbook before they start to miss payroll. How could I help these start-ups focus on what mattered? I think you know.

OKR stands for Objectives and Key Results. The form of the OKR has been more or less standardized. The Objective is qualitative, and the KRs (most often three) are quantitative. They are used to focus a group or individual around a bold goal. The Objective establishes a goal for a set period of time, usually a quarter. The Key Results tell you if the Objective has been met by the end of that time.

Your Objective is a single sentence that is:

Qualitative and Inspirational
The Objective’s job is to get people jumping out of bed in the morning with excitement. And while CEOs and VCs may jump out of bed in the morning with joy over a 3% gain 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. If they say “delight” and “transform,” that’s the language for that team.

Time Bound
For example, doable in a month, a quarter. You want it to be a clear sprint toward a goal. If it takes a year, your Objective may 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.”

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:

  • Pwn the direct-to-business coffee retail market in the South Bay.
  • Launch an awesome MVP that Delights Product Managers.
  • Transform Palo Alto’s coupon using habits.

and some poor Objectives:

  • Sales numbers up 30%.
  • Double our userbase.
  • 2 Million in revenue

Why are those bad Objectives bad? Probably because they are actually Key Results.

Key Results

Key Results take all that inspirational language and quantify it. You create them by asking a simple question, “How would we know if we met our Objective?” This causes you to define what you mean by “awesome,” “kill it,” or “pwn.” Typically you have three Key Results, but I’ve seen as many as five and as few as one work. Key Results can be based on anything you can measure, including:

  • Growth
  • Engagement
  • Revenue
  • Performance
  • Quality

That last one can throw people. It seems hard to measure quality. But with tools like NPS, it can be done. (NPS = Net Promoter Score, a number based on customer’s willingness to recommend a given product to friends and family. See HBR’s “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.

“Launch an Awesome MVP” might have KRs of:
40% of users come back 2X in one week
Recommendation score of 8
15% conversion

Notice how hard those are?

KRs Should Be Difficult, Not Impossible

OKRs are always stretch goals. Start by asking yourself, “On a scale from 1-10, how confident am I can I can make this goal?” A confidence level of one means “never gonna happen, my friend.” A confidence level of ten means “yeah, gonna nail this one.” It also means you are setting your goals way too low (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 to reach further than anyone has before.

If you only have a 50/50 shot of making this goal, it’s probably the right level of stretch. If you’ve ever done yoga, the instructor encourages you to reach until you feel the stretch but not so far as you feel pain. If you feel pain, you are in danger of injuring yourself. It’s the same with setting goals: set goals too hard and the team may burn out and quit. Set them too easy and the company may become weak and die.

Take a hard look at your key results. 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…” then you are probably setting them correctly. If you look at them and think “we’re doomed,” you’ve set them too hard. If you look them and think, “I can do that with some hard work,” they are too easy.

Some companies set committed and aspirational OKRs. “Committed” is what you will do and “aspirational” is what you hope you’ll do. This adds complexity to the goal setting process. Throughout the book I’m going to prod you to simplify your OKRs. OKRs work best when they can be held in people’s minds. The more OKR sets you create and the more complex you make them, the more likely it is that the team will not remember them when they have to quickly prioritize one activity over another. Don’t over complicate your goals.

What Makes OKRs Work?

It’s not enough to set OKRs. You have to track them regularly. The OKR cadence is actually what makes OKRs work, more than setting a inspiring objective, and even more than setting your key results as outcomes (though I’ll explain why you want to get that right also in <insert chapter #>.) When people ask me what is the difference between OKRs and SMART goals or other goal setting approaches, I tell them it is the cadence of check-ins. The cadence is what makes the difference between goal setting and goal achieving.

I had to modify the OKR tracking approach from what I did at Zynga. Young startups have a very low tolerance for any meetings, much less daily deep analysis of tactics and metrics. I trimmed the meetings down to two key meetings a week; one to set intentions and one to celebrate progress. This bookended the week with clear reminders of what the company was trying to accomplish.

On Monday, executives hold a discussion around the company OKR status, followed by each team’s confidence and efforts toward moving those numbers, and that worked well. Some companies would add in a metrics analysis of other non-okr metrics and some would have a pipeline discussion. The critical part of the process was constantly revisiting the shared OKRs and discussing— even arguing—about how to make those number move. Continuing to revisit their goals meant that the company could stay focused and make decisions to stay on track when they grew distracted. At the end of the quarter learn from success and failure to make better goals next time.

That leads us to the Friday bragging sessions, one of the most important parts of OKRs for startups. Every company I’ve worked for has had some kind of weekly celebration, some tied with launch, others just because it’s Friday. Then one day, I worked with a startup that didn’t. They were young and it hadn’t yet occurred to them that it was an important bonding ritual. For years I’d heard designers complain about being left out of the Agile ritual of Friday demos, so I thought I’d suggest everyone demo. This was transformative. Business development bragged about new partnerships. Accounting bragged about tax savings. Designers showed off more efficient checkouts flows. Suddenly each team knew what the other team was doing and they gained respect for each other.

OKRs by their very nature force you to push hard and when you try to do things no one has ever done before, often you fail. But if you don’t take chances, you don’t innovate. The Friday celebration of successes was an antidote to the exhaustion that comes from a hard and fierce march across the field of failed experiments. Having a chance to set objectives together and celebrate together makes all the difference to a group.

What makes OKRs Fail?

There are some common errors made by a group when they first try out OKRs. I’ve listed them here, in hopes you can find new and better mistakes to make.

#1 Set & Forget
When people fail to achieve their Objectives, it’s often because they set OKRs at the beginning of the quarter and then forgot about them. In those three months, you are barraged by teammate requests, the CEO sends you articles you should read and incorporate, you get customer complaints… there are always 101 interesting things to spend your time on that do not lead to success. I highly recommend baking your OKRs into your weekly team meetings (if you have them) and your weekly status emails. Adjust your confidence levels every single week. Have discussions about why they are going up or down. If you set and forget you will regret.

#2 Goal-of-the-Week Whiplash
Do not change OKRs halfway through the quarter. If you see you’ve set them badly, suck it up and continue tracking even if you know you are going to do much better or much worse at the key results. You set that objective for a reason, right? Then use that learning to set them better next time. No team gets OKRs perfect the first time. Changing them dilutes focus, and keeping teams focused on the objective is the entire point of the OKRs. Changing them halfway through teaches your team not to take the OKRs seriously.

#3 Too Many OKRs
Save setting an OKR for things that are absolutely critical to the company’s strategic vision. Human memory has limits. In the rush of day-to-day activities, as we are trying to figure out where to spend our time and energy, we need an easy tool to help us prioritize. If you have one OKR set, you only have 4 things to remember and they are nicely chunked into a single big idea.

Imagine Michelle, whose company set five OKR sets. On Monday, as she decides what to work on first, she is trying to remember fifteen top goals (5 Objectives with 3 Key Results.) She then scans the long pipeline of potential projects and tries to connect these tasks with the myriad of results the company is asking for. She is interrupted by a call from customer service. This disrupts her flow and when she gets back, what does she work on? If she doesn’t go back to analyzing what to work on, she probably works on whatever is easiest or whatever she thinks matters. Because you, the leadership team, couldn’t prioritize, your employees are now working on a wide variety of efforts, unable to achieve momentum or impact. Don’t be surprised if, in this morass of emergencies and endless task lists, the thing you depended on happening doesn’t.

Now consider Shane, whose company set a single OKR set: the objective of “Customers value us enough to pay” with the key results of revenue growth, conversation to paid plans and referrals. He’s trying to decide what he should work on next on a busy Monday.

Shane thinks, “well our OKR this quarter is all about converting free users into paid customers.” He looks over the pipeline of projects, and decides to work on the up-sell modules. Customer Service interrupts him with a call, he answers their question, and when he finishes he asks himself, what was I doing? And the answer comes easily.

Don’t set OKRs for everything you do. Save them for critical strategic efforts. If you cannot choose, try sequencing. Are there things you could do first that would make another effort more effective? Should you improve the customer experience before spending a bundle on advertising? And if that doesn’t work, try to narrow them down to as few as possible and rank them by importance.  That way, hopefully, Michelle will at least remember the “number one objective.”

#4 OKRs for Micro-managing
Why do we have open offices? So managers can see people working. Why do we have status meetings and weekly status update emails? So managers can make sure people are working. What happens when a manager tries to control every activity their reports do? The manager is exhausted, the employees are bored, fewer ideas are generated and productivity drops. If you are ready to end this cycle, then OKRs are the right choice for you.
Instead, try setting Objectives and Key Results then stop managing and start leading. Hire A-Players then trust them to figure out better tactics to achieve the company goals than you could have done alone. Hire diverse teams so that you can get ideas you might have never considered. Edward T. Welburn revitalized General Motors when they emerged from bankruptcy, bringing to life iconic cars from the Cutless Supreme to the Chevy Volt, but he couldn’t have done it if his boss was sitting over his shoulder telling him what to do. And he couldn’t have created as many important products for GM if he insisted on designing each one himself. No boss, no matter how terrific, can scale. It takes a great team to make extraordinary products, and a team needs to empowered as well as given an inspiring goal.

#5 Everyone Does OKRs All at Once, All Differently
As OKRs have been adopted by established companies as well as start-ups, I keep getting phone calls that go like this, “We started OKRs last quarter, but it’s gone horribly and now a lot of our team leads are refusing to use them.” The best way to kick off OKRs is slowly with a single team. I will cover that later in the book.

Review of OKR Core Concepts

  • Objectives are a mission for three months (or a year, if you do annual OKRs.) Make them inspirational.
  • Key Results should be outcomes, not tasks. Pick your metrics with care.
  • OKRs are stretch goals with strategic value.
  • Set good goals and trust you teams to figure out how to achieve them.
  • Don’t set OKRs for everything you do. Create an OKR set for the mission-critical thing you are afraid you won’t get done.
  • Track OKRs weekly

What About Everything Else We Have to Do?

OKRs live as part of your management approach, but they are not all of it.

There are things you have to as a business to stay in business that don’t usually make you money. Contracts, taxes, accounting, payroll, and more. You need to do these things to a certain level of quality or the company is in trouble.

There are things you do as a business that are either fully optimized or are in a steady state of continuous improvement. Some of these are flagship products. Microsoft’s Windows, Intuit’s Quickbooks or Intel’s memory chips. You want a team keeping those products good enough to be valuable to customers because they are the company’s cash cows. You evolve them as the customer needs evolve, but you rarely innovate because that kind of disruption is as likely to cost you customers as gain them.
A lot of service departments are like this; they evolve rather than innovate. Engineering, customer service, legal… most of the time they are working just fine. Every so often you may wish to push them to improve, but in healthy company they are in a gentle rhythm of doing good work.

Lets call all of these efforts “operations.” As a manager and you need to monitor them to make sure nothing goes wrong. The metrics you chose to track in order to spot when things are changing are called “Health Metrics” in the OKR framework. I’ll go into these more in a later chapter.

Finally you have opportunities. Opportunities are strategically important but may not always feel urgent. Opportunities are where the future of your business lies. Sometimes an opportunity is a chance to reinvent a cash cow, as Intuit did when they redesigned the online version of Quickbooks to capture a younger market. Sometimes an opportunity is a pivot of a start-up from B2C to B2B**, as we saw with TeeBea. Sometimes an opportunity is when a new feature takes off, like Facebook’s Newsfeed, and you realize you need to invest more time and people to make sure you can capture as much value as possible from that growth. This is the place for OKRs. OKRs take what is important and makes it urgent by committing the company’s time and attention to realizing that opportunity.

OKRs and Health Metrics live side by side on the company’s dashboard. You track both. OKRs are where you push forward to greater growth. Health metrics are the things you protect while you grow.

Get Ready to Fail… BIG!

Let’s be honest: we hate to fail. Everyone in the Silicon Valley gives lip service to failure, but really we still don’t enjoy it. OKRs aren’t about making ourselves feel good about hitting targets. OKRs are about learning what you are really capable of as an organization. If we say, we failed to hit the goals we set, but we had the biggest sales quarter ever, is that a fail? If we say, we failed to get the new product out the door, but discovered that some of production approaches are way out of date and we’re fixing them, is that failure? A “failure” can be a positive indicator of stretching. OKRs are designed to push you to do more than you knew you were capable of, and to learn from experience. If you shoot for the moon, you may not make it the first time you try. But sometimes we get Velcro, Sharpies and Tang along the way.
And after a few good failures, we may even go where no one has gone before.

 

* Studio: A studio is a small, self-contained team focused on building and improving a game. It usually no more than 50 people and ran like a startup, relaying on the parent company only for things like cross promotion and IT.

** These are acronyms for two different kinds of business models. IN B2C, Businesses sell directly to Consumers and in B2B, Business to sell to other Businesses.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.