Long-term goals are the ultimate destination for a company. Agile goal setting helps you achieve a bigger picture with all your efforts coming together. OKR goal-setting framework helps your teamwork towards the right business metrics. This ultimate guide will help you learn about the OKR method and set your employees in the right direction.
- What is OKR? Definition
- The benefits of OKRs
- What are the Components of an OKR – Objective and key results
- Strategic Vs Tactical OKRs
- What is a cascading OKR?
- How ambitious should your goals be?
- How to ensure that an OKR is aligned with the organization’s goals?
- What is OKR methodology and who created it?
- OKR V/S KPI: What is the difference?
- Principles of setting OKRs
- How to write a good OKR?
- The process of implementing OKR
- OKR framework – Best Practices
- Types of OKR
- Role wise OKR examples
- What are some common OKR mistakes to avoid while implementing them?
- OKR tools and software
- Why should you separate OKRs from compensation?
- How do you grade OKRs?
- OKR Frequently Asked Questions
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What is OKR – Define OKR?
OKR (Objectives and Key Results) is a goal system used by companies such as Google, LinkedIn, Twitter, Spotify, Airbnb and others. It is a simple tool to create alignment and engagement with measurable goals. Also Read: How Balance Scorecard [BSC] Can Unlock Peak Performance For You?
Full-Form and Meaning of an OKR
OKR, which stands for “Objectives and Key Results”, is a collaborative goal-setting system used by teams and individuals to set challenging and ambitious goals with measurable results. These tools are used to communicate what you want to accomplish and what milestones you need to achieve in order to accomplish it.
An OKR works well in organizations for setting goals for the various departments within the company. Even in the absence of organizations, or the leadership teams not using OKRs, they can still work well for achieving your own personal goals at an employee level.
What is an OKR in business?
Setting goals is an important component of every business, as every business wants to achieve something. If you regularly set team or company goals, then you must have heard about the term OKR. While most businesses set goals, only 16% of knowledge workers say that their companies are effective at setting and communicating goals. And as they say, the best way to reach your goals is to adopt a proven goal-setting system. But a lot of organizations often end up doing what is also called ‘set and forget’. This is where OKR comes in. OKRs give you the rhythm to do it over and over again and do the thing that matters to you the most.
Overview of OKRs
OKRs comprise 1 objective (which is an important, strong, clearly stated goal) and 3-5 key results (that are measurable criteria that can be used to track the progress towards the goal). Objectives must be inspirational for individuals and teams that are working towards it.
These are the big, hairy, and audacious goals that the company is striving to achieve. Key results must be measurable, either in terms of percentages or on a scale of 0-100. This helps the leaders, or the decision-makers in the organization, to decide very objectively how the individuals or teams working on the goal are progressing.
History OF OKR
The history of OKRs can be traced back to 1954 when Peter Drucker invented MBO (Management by Objective). In 1968, Andrew Grove, the then CEO of Intel, further developed the concept of MBO into what we know today as the OKR Framework. In 1974, John Doerr joined Intel and attended a course taught by Grove through which he learned the theory of OKR. Doerr joined Kleiner Perkins Caufield & Byers and became an advisor to Google. Doer introduced OKR to Google’s founders Larry Page and Sergey Brin, who then implemented OKR at Google and the company has been using this framework since.
Defining Key Results in an OKR
OKRs help align the teams in the right direction. When used correctly, they help create clear and measurable criteria for success. It is important the success criteria are shared effectively while setting up OKRs. When setting up OKRs, try to find out:
- Do you measure efforts or results?
- Are your OKRs focused on your objectives?
There are 2 types of key results:
- Activity-based key results – Measures the completion of tasks and the activities or delivery of project milestones.
- Value-based key results – Measures the delivery of the value to the organization or customers.
OKRs should be value-based because of these reasons:
- It builds a Results-focused culture in the company
- Completing a task, but not improving, will not count as success – Success is improving something: e.g. customers being more satisfied, sales being higher, or the costs having been reduced. If you do not get anywhere on the stated results, then it is not counted as a success.
- An action plan alone is just a series of hypotheses. We don’t know if our action plan will contribute to the success or add value to the organization or not.
The benefits of OKRs
Provides agility –
The agile goal cycle provides innovation, and adaptability, and reduces risk and waste.
Reduced time for goal setting –
The simplicity of the OKR model makes it easier to set goals, thus reducing the time for goal setting.
Employee engagement –
The bottom-up approach connects employees with their organization and they feel engaged
Accountability and autonomy –
Teams become responsible for their objectives. Clear success criteria known to each team member, create a mutual obligation.
Strategic Goals in an OKR-
Disconnecting OKRs from compensation enables teams to set up ambitious and challenging goals.
- Set goals to drive improvement
- It is a unique framework that encourages individuals to track for accountability and think about how they can contribute to the company’s objective and improve transparency
- Prioritize your weekly plans over other work, eliminating the waste of resources.
- Setting OKRs is an opportunity to get your teams aligned and connected. It helps individuals understand what they are working towards, which leads them to take ownership of their roles in the company.
- OKRs allow businesses to aim for more ambitious goals by staying focused on what is important and aligning everyone towards the same overarching goal.
Components of OKR?
OKR comprises an Objective, which tells you about where to go, and Key Results which are the milestones you will need to achieve to accomplish your objective. Initiatives are all the tasks and projects that will help you achieve your objective. The table explains clearly what are the salient features of Objectives, Key Results, and Initiatives while drafting the OKRs for your organization.
Objective: Think of the objective as a point on a map that sets a clear direction of where to go. For example, “Optimize the Sales funnel to close more deals in less time”.
Key Results: The key results could be considered to be signposts with distance markers that you are likely to pass by on your way to the overall objective. For example, one key result for the above-stated objective could be “Increasing the opportunity win rate from 12% to 20% in the sales funnel”
Initiative: Initiatives are nothing but the description of what you, as an individual or as a team, would do to get to your destination. For example “Launching a new discount model” could be one initiative planned to achieve the key results mentioned above.
A Strategic Vs Tactical OKR
The difference between strategic and tactical OKRs is that while strategic OKRs are the company-wide goals, the tactical OKRs are meant to be a part, or a subset, of it.
Strategic OKRs are the ones set out by the company’s leadership team. They are meant to illustrate the focus of the company as a whole.
Tactical OKRs are the individuals’ teams’ and departments’ own goals that come together to achieve the company-wide goals.
A cascading OKR
Cascading the company-level OKRs down to the individual and team levels is important. It ensures that the various functions within the organization and the respective teams are pulling together in the same direction towards achieving the company targets.
- For successful implementation, align OKRs with the company’s Annual Operating Priorities or Long-term Strategic Priorities.
- Creating team-based OKRs aligned with the company’s priorities results in better team communication and collaboration.
How ambitious should your OKR goals be? (Setting the right OKR)
- Your goals should take you out of your comfort zone
- Makes you go get your target that is otherwise difficult to reach
- Motivates you to achieve something that you have not achieved before
- Should be challenging but at the same time not demotivating
How to ensure that an OKR is aligned with the organization’s goals?
OKR is a management tool used to create alignment in the organization. Creating OKRs individually without team discussion is a mistake one must avoid.
To avoid such mistakes, OKRs should use three mechanisms, namely, transparency, shared OKRs, and 360 degrees alignment.
Transparency – OKRs should be visible at all levels in the company. If one area of business is not aligned, the other teams can notice and improve it.
Shared OKRs – In a shared OKR, two or more teams share the same OKR, but each team has different initiatives. It is one of the most effective tools to create alignment.
360 degrees alignment – OKRs must focus on 360 degrees alignment i.e. top, down, and sideways. This eliminates any silos creation that may happen if OKRs are only cascading downwards.
What is OKR methodology? Who created the OKR methodology?
OKR methodology applies to align teams at an organizational level. The idea behind it is to create a centralized approach so that everyone works towards the same goal. Let’s understand how the OKR methodology works and how to structure it.
Global Annual Objective –
This is the first step in OKR methodology. The global annual objective is what you see yourself as a business over the one-year mark. The global annual objective should be aligned with your company’s vision and mission. It encompasses the achievements that will lead in the right direction and allow the growth and success of your business.
Your company has set a long-term goal for the year. Now the next step is to set multiple smaller objectives that will serve as incremental milestones to work towards a larger objective. You can define quarterly objectives and aim for a maximum of 3-4 goals per quarter. You can brainstorm with your team to come up with multiple objectives and prioritize the most important. These goals should inspire the teams, rather than being metric-centred.
Key Results –
As defined earlier, key results will help you determine if you are going in the right direction. They must contain KPI-based metrics.
Key Actions –
The last step is to assign key actions for each key result. These are the steps that will lead you closer to your key results and ultimately towards the overall goal.
The OKR methodology was created by Andy Grove at Intel. John Doerr learned the OKR methodology through a course taught by Andy Grove at Intel. Since then, many companies use it such as Google, LinkedIn, Netflix. Doerr was the one who crafted the name “OKRs.” He introduced the philosophy to Google’s founders in 1999. Doerr presented a PowerPoint to the young founding team, which included Larry Page, Sergey Brin, Marissa Mayer, Susan Wojcicki, and Salar Kamangar.
Things to avoid when implementing OKR methodology
- Setting too many objectives or key results: Setting too many objectives or key results may end up confusing the teams. It is important that amongst all the metrics that are used to track progress, only the 3-5 key metrics are used to track the progress for OKRs
- Having key results that are not quantitative: Objective and quantified key results will make sure that all teams see the progress in the same way. Qualitative statements about the progress can sometimes camouflage the actual progress or the lack of it.
- Creating objectives that are not time-bound
- Confusing tasks with key results: Tasks are the activities that are carried out. These are the means to an end, and not the end itself.
Advantages of implementing OKR methodology
- It helps in centralizing and focusing on your teamwork, as against the individual deliverables within the organization
- It achieves the organization-level objective in a streamlined way as all teams, and the individuals within the team are pulling in the same direction.
OKR versus KPI: What is the difference?
You must have heard about KPIs (Key Performance Indicators) and the business metrics that reflect performance. On the other hand, OKR is a goal-setting methodology that improves performance and drives change. They may sound similar but focus on different aspects of improving your business’s performance.
A key performance indicator can measure your input, output, and performance numbers that give you a measurable account of how your business is doing.
The difference between these metrics is that KPIs help in assessing the results, while OKRs use these results to define large overall goals. KPIs are measurable metrics in performance management, they can be used as metric tools for the key results of the OKRs.
Technical differences between an OKR and a KPI
- KPIs stay the same for a long time whereas OKRs are agile, they change from quarter to quarter depending on the organization, team, or individual goals.
- OKRs are immune to the effects of perverse incentives because they typically have 3-5 key results
- OKRs support hierarchy, where one objective can support another one. KPIs are flat and are all equally important.
- OKRs communicate the strategy or intent in real-time, whereas KPIs is a static list of performance indicators
- Because OKRs are typically associated with each other, they help avoid the Cobra effect in the execution
Principles of setting an OKR
OKRs should be agile –
OKRs use shorter goal cycles. It breaks down yearly goals into quarterly, monthly, and weekly measurable goals. It allows an organization to quickly respond to an internal or external change and adapt its processes faster.
OKRs should be simple –
OKRs should be simple and not too layered to understand. The purpose of setting OKRs is to simplify an organization’s vision into actionable steps.
Provide transparency and are collaborative –
OKRs should be set up by brainstorming with team members as it allows autonomy for every team member to select the right level of difficulty that pushes them for higher productivity. Brainstorming goals with team members will make it a transparent and collaborative process.
Nested Cadence –
OKRs ensure that all the team efforts and resources are aligned towards a specific goal. It aligns long-term organizational goals with quarterly team goals, which can then be combined with immediate individual weekly OKRs.
OKRs are bi-directional –
Setting organizational goals involves the leadership team. While the team goals are set by individual team members. Around, 60% of goals are set in unity. It also involves market research and 360 degrees of feedback in setting goals.
OKRs are Aspirational –
As we know, OKRs are aspirational, which stretches employees from their comfort zone and pushes them to perform higher than expected. They are a great tool for the continuous growth and expansion of a business.
They should be separated from compensation –
OKRs should be used as a management tool and not as an employee evaluation tool. For aspirational goals, 70-80% achievement is enough for rapid business growth. In such cases, employee compensation depends on 100% goal achievement, which will increase employee stress and decrease morale.
They should be reserved only for high-value goals –
OKRs are aspirational. If your team can achieve the goals without using the team’s bandwidth fully, then you need to set a higher standard. They should directly add value to the business.
How to write a good OKR – With an example
- To start writing good OKRs, you need to determine the areas of improvement or the opportunities to work towards. It is like a mission statement that should be qualitative, not quantitative – That is your objective. A great objective needs to inspire you.
- Under each objective, you need to define 3-5 key results, which are numerical, measurable outcomes that tell you whether you are moving towards your goal. But remember that your key results should never ever be tasks.
- Key results are not the tasks you put in to reach your objective; do not consider them the tasks to check off the list. These are the results you get by putting all the work in place to achieve your overarching goals.
- Acquisition, conversion, and revenue produce good key results
To set up an OKR for a business, here is an example:
Objective: Grow a Business
Key Result Areas:
- Grow revenue to ₹1M
- Hire 5 more employees
- Launch a new product
Now you have a goal in mind and measurable results to track your progress.
Common mistakes to avoid while writing an OKR
- Always start by defining an aim for the quarter
- Write at least 2 and a maximum of 5 key results per objective
- Make them ambitious but not impossible
- Do not make KR an activity, it is an outcome of the activities
- Make sure KRs are achievable and you have ideas on how to drive them
- Team action should have a clear impact on key results during the quarter
The process to implement an OKR
OKR Framework – OKR Best Practices
OKR framework involves certain components that support the smooth and successful implementation of the goal-setting process.
Here is a brief description of the company’s vision, purpose, and how they should be implemented.
They are the link between the company’s mission and OKR, usually defined for one year.
All the respective objectives and key results are defined for the full cycle, at all levels of planning.
OKR weekly helps coordinate the objective and key results implementation and supports the self-responsibility of the teams during the cycle. This gives the current status of OKR.
They are used to determine the progress made in an evaluation cycle. The scoring should be consistent with team standards.
Systematic analysis is done during the retrospective. What did the team learn? What should be improved in the next cycle?
As experts, OKR coaches are responsible for the successful implementation of the OKR framework in the company and perform supportive tasks.
Types of OKRs
Committed OKRs Committed OKRs are the goals that all agree need to be achieved. Without them, there is no success. We all need to prioritize everything to make sure this OKR is successful by the end of 90 days.
Aspirational OKRs These goals push us to be fearless. They push us to act differently and put us outside of our comfort zones. They stretch us beyond the usual to make them happen, this is why they are difficult to achieve. The idea is to get behind 100% of ourselves so that we can make around 70% to reach it. This is far better than 10% of an ordinary goal.
Learning OKRs Learning is the most valuable outcome of the OKR cycle in learning OKRs. Start by answering the question that says, “what is the most important thing we are trying to learn in the next 90 days?” if your team is not sure on how to proceed.
We will cover OKR for different roles. These are just a few examples. To get a comprehensive list of many more, click on teh link below!
Annual company level OKR
Scale the company by growing the number of employees
Key result Areas:
- Hire 50 more employees over the next quarter
- Retain 90% of hired employees for the next year
OKR example for company CEO
Increase productivity across the company
Key Result Areas:
- Start tracking employee performance on a regular (weekly) basis
- Try to finish each meeting 10 minutes ahead of schedule so as to not waste time
- Automate 2 manual processes by the end of the quarter (and get people to use the new automated tools)
OKR examples for HR (Human Resources)
Increase employee retention from 70% to 85%
Key result Areas:
- Run an employee satisfaction survey (with minimum 75% participation)
- Organize 2 more training sessions in the month for employee development
- Increase the number of exit interviews by 20%
Marketing OKR example every marketing head (CMO) must track
Increase brand awareness over the next year
Key result areas
- Create a brand image that is in sync across all channels (both digital and print)
- Increase website traffic by 10% quarter on quarter
- Increase social media engagement by 30% over the next year
Finance OKR for a finance lead
Reduce cash burn and also launch budget for the new quarter
Key result areas:
- Organize 2 productive meetings a week (for top management) until the budget is finalized
- Reference the last 4 quarters to plan a new budget better
- Reduce budget approval time by a week
OKR Example for sales
Streamline the sales pipeline over the next quarter
Key result areas:
- Reduce sales cycle by a week
- Increase conversion rate by 5%
- Automate 2 manual processes over the next month
OKR examples for growth
Increase revenue by 10% over the next quarter
Key result areas:
- Increase monthly trial sign-ups by 150
- Increase conversion rate by 10%
- Reduce costs by 5%
OKR examples for Business operation
Shift 45% of the workforce to a work from the home model over the next quarter to increase productivity
Key result areas:
- Conduct a company survey (with a minimum of 75% participation) to understand employee preferences
- Finalize changes (if any) in the compensation model of employees shifting to an online model of work
- Ensure employees have all the required resources (laptop, smartphone, internet access etc.) required to work from home
OKR examples for customer success team
Improve onboarding process for new customers
Key result areas
- Organize training program for customer success team
- Conduct 4 more training sessions a week for new clients
- Increase webinar attendance by 10%
OKR Examples for a startup founder
Grow number of monthly newly acquired customers by 15%
Key result areas:
- Increase brand awareness through increased website traffic
- Grow the number of outbound calls by 10%
- Increase conversion rate by 10%
OKR examples for software engineer
Launch a newer version of the current product over the next quarter
Key result areas:
- Reduce active bugs to only 2 at any given time
- Reduce page load time by a minute
OKR example for CA (Chartered accountants)
Increase business process efficiency over the next quarter
Key result areas:
- Decide on 2 business processes that is manual and can be automated (Such as payroll or HR management)
- Shortlist and then finalize the software to be used to automate these business processes
- Integrate the software into the daily workings of the organization
OKR tools and software
If you are a first-time user of OKRs or starting a new endeavour, it is important to track them, and here are the free tools to help set goals and track them for individuals, teams, or organizations.
1. Google Docs or Google sheets
Since OKRs were created by this company, it is not surprising that they provide free tools to track them. It is one of the simplest ways to assign and track company goals. But using Google Docs or sheets is helpful only for individuals. If you are rolling out OKRs for larger organizations, there are other paid tools available to do so.
2. “Measure What Matters” OKR Starter Kit by John Doerr & Coda
Coda wants to bring the digital document experience to the next level and “combines the flexibility of a doc with the structure and depth of a spreadsheet.” Docs in Coda can be as powerful as an app, so it complements any team or any company and their unique ways of working.
3. Pen or Printer & Paper
Before the internet, pen or printer and paper were used to track goals and are still used. People used to write goals on paper and stick them all over the walls. You can also use a pen or printer & paper for yourself or your company.
What are some common OKR mistakes to avoid while implementing them?
There are some mistakes that we should avoid while implementing OKRs:
Setting non-measurable Key Results – key results represent the milestones you want to achieve while focusing on the objective. These will determine if you are going in the right direction, therefore measuring them is important, or else they will become subjective.
So many OKRs or Key Results – Key results are your top priorities, not a to-do list. Less is more here.
Setting OKRs top-down – Trust your team and help them understand OKRs.
Creating OKRs in silos – You can achieve alignment as a team when you talk to each other when setting up OKRs
Tasks are not Key Results – Key results are the milestones you want to achieve, not the tasks you put in daily.
Set and forget – OKRs should be tracked regularly. You should include OKRs as part of your organization’s culture.
Including OKRs in compensation – OKR is a management tool, not an employee evaluation tool, it should not be used to evaluate compensation for employees.
OKRs and Compensation – Connected or independent?
As Andy Grove wrote: It is not a legal document upon which to base a performance review but should be just one input used to determine how well an individual is doing. An organization had two employees on the same team: Rohit and Rahul.
- Besides being smart and focused, Rohit delivered results. But he was driven by monetary rewards, and he was always trying to make more money.
- Rahul was also smart and focused, but his accomplishments inspired him. His belief was that if he delivered, money would follow.
Goals were connected to rewards through a simplified bonus formula:
Bonus paid = ƒ(% of goals achieved * salary grade)
Therefore, the bonus amount was determined by the employee’s salary grade and the percentage of goals achieved. And then, the following happened:
- After several rounds of negotiation with his managers, Rohit achieved 110% of an easy goal;
- Rahul achieved 80% of an ambitious goal, far exceeding what anyone had expected.
Who deserved the higher bonus? Rahul, of course. But who got the bigger bonus in the end? Rohit.
OKR Scoring – How do you grade OKRs?
You grade an OKR on a scale of 0.0 to 1.0, where 1.0 means complete and increments along the scale represent the level of completion. You grade key results individually and average the scores to grade OKRs.
Companies can grade an OKR in the cadence period, which refers to the time that you work on key results which is usually a quarter. Many companies review an OKR weekly and others do it mid-term. Routing grading helps you track the progress of key results and determine when to complete them.
It also helps in understanding which items you could not complete. You can assign final grades at the end of each quarter, the earlier the better so that you can plan for the next quarter and reset for the existing ones that you have not completed.
OKR Frequently Answered Questions
OKRs are very effective because they break down objectives into smaller steps. They are also clearly defined, making it easier for employees and their managers to track progress.
OKRs help companies align their goals and focus on the big picture.
OKRs have become one of the most popular frameworks for teams looking to plan and measure the success of their work. You should use OKRs to get results that are aligned with your company’s vision and mission.
OKRs are a popular tool for companies to set strategies and hold their teams accountable for business outcomes.
Be very clear when defining key results. Make sure they are quantifiable. When Key Results are measurable, it’s effortless for the team to see their progress and whether the objective has been achieved. Key Results should be outcome-focused, instead of tasks.
A maximum of 5 OKRs per team per quarter. This is a maximum, not a minimum–it’s perfectly appropriate to have only 2-3 OKRs.
When John Doerr introduced the goal and performance management method Objectives and Key Results (OKR) to Google in 1999, the company was less than a year old and employed 40 people. Google still uses OKRs today with around 70,000 employees.
OKR is the perfect tool to translate your organization’s long-term strategy into short-term goals for teams and individuals. OKR, therefore, is a critical tool for CEOs and executives to help them deliver their strategies and accelerate growth
Objectives should ideally have 3-5 Key Results Areas