I'm Henrik founder and CEO of Perdoo. A while ago we launched an OKR crash course video
and it was exciting to see how other organizations getting started with OKR.
Since then we've implemented OKR in a lot more organizations ourselves and obviously we've learned a lot, so we
decided to update this video and share our latest learnings with you. So if you're new to OKR or just getting started this video will cover everything you need to know
Let's first have a look at what OKR actually is.
OKRs is two different things, on the one hand it's a way to structure your goals,
and on the other hand it's a framework that contains a bunch of rules and best practices to
help you manage these OKRs in your organization.
Let's first have a look at how you're used to manage goals:
imagine you want to accelerate revenue growth in your organization, you would then set yourself another goal
to generate, for instance, 1 million in revenue from new businesses.
And then, you would go on to set yourself even more goals such as to attend 10 conferences and have 50 sales calls per week.
So now you end up with this list of goals that all feels equally important, but the only thing that truly matters is to accelerate revenue growth.
Now if you would structure these goals as an OKR, you would have much more clarity about what really is important to you.
Your Objective will be to accelerate revenue growth, your Key Result will be to generate 1 million in new biz revenue.
Together, they form the outcome that you want to achieve.
Your initiatives are the things that you'll be doing and that will be to attend 10 conferences and to have 50 sales calls per week.
Now you will probably find that it takes more effort to structure goals as OKRs,
however, this is time well spent since you'll have a lot more clarity about what really is important.
And, that clarity is key if you are collaborating with dozens if not hundreds of people throughout your organization.
Now that we've seen that OKR is essentially just a way to structure your goals and
why it's so important to structure your goals as OKRs, let's have a look at the framework and where it's coming from.
It all started with Management By Objectives (MBO), a concept first introduced by Peter
Drucker in his book the practice of management, which was first published in the early 1950s.
Ever since then, Objectives became a critical part of running a business.
Now that organizations started using Objectives more and more, they learn a lot about what makes a good Objective.
This was neatly summarized by George Doran's S.M.A.R.T. criteria. Based on his S.M.A.R.T. criteria every Objective had
to be specific, measurable, achievable, relevant and time-bound.
Kaplan and Norton developed a framework called the Balanced Scorecard in 1992. The Balanced Scorecard is a great methodology to
set the strategic agenda for the organization but it's limitations are that is not really driving the execution.
Now all these three concepts come together in the framework: OKR, which really
became popular ever since Google implemented it in 1999.
It contains all the learnings of Management By Objectives, it has criteria for how best to structure your Objectives and it bridges the
gap between strategy and execution. So, OKR really is a strategy execution tool.
The true father of OKR is Andy Grove, who co-founded Intel together with Gordon Moore. He published a book in
1983 called High Output Management in which he first coined the term Objectives and Key Results.
He took Peter Drucker's Management By Objectives and further developed it bad and key results to it.
John Doerr, who worked at Intel, learned about OKR directly from Andy Grove.
Later on he left Intel to join KPCB, a well-known investment firm. When KPCB invested in Google John Doerr presented
the concept of OKR to Larry Page and Sergey Brin. They were really excited about it and decided to
start using OKR when they were only 40 people. They still use it today when they are 60,000 people.
From Google, it spread through a lot of other organizations also outside of Silicon Valley and
outside of the technology industry. And, this is why today companies like Perdoo are on the rise
that help organizations become successful through OKR.
Now why should this all matter to you? Time and time again studies find how difficult strategy execution really is.
For instance Kaplan and Norton found in 2005 that 9 out of 10 organizations failed to execute the strategy.
The Donald Sull's research of 2015 that 45 percent of middle managers could not name even one of
their organization's top priorities and these middle managers are essentially responsible for
executing that strategy but apparently they have no clue what that strategy is.
Also, 95 percent of employees doesn't know or doesn't understand their organization's strategy.
How can they make sure that whatever they are doing is actually helping to realize that strategy?
Now, what OKR does for your organization — it helps you become a great place to work, have a clear path to success and
it helps teams consistently hit their goals.
Now, it helps you become a great place to work by granting more autonomy to teams.
You make them responsible for Objectives without dictating to them how they need to realize those Objectives.
Furthermore, you let everybody in the organization see where the organization wants to go and how their work is contributing to them.
It will help you have a clear path to success by having more clarity in what your strategic priorities are and by making
them transparent to the entire organization, that will help everybody focus on what truly matters.
Teams will be able to consistently hit their goals by following a simple structure that is
informed by real data, so that they can ensure they are actually pushing the company forward.
Now that we've seen what the OKR framework is coming from and the value it'll bring to
your organization let's have a closer look at the anatomy of an OKR.
The Objective tells you where to go. Objectives are statements that inspire and set direction.
Now Key Results answer the question: how do I know I'm getting there? They help you specify what you mean by the Objective
and they help you measure progress towards it.
Now initiatives answer the question: what will I do to get there?
Initiatives are all the work that you put in in order to drive progress on your Key Results.
OKRs and initiatives help you differentiate between outcomes and outputs.
Organizations usually buzz with activity, but which outcomes is all that activity intended to achieve.
Imagine you're a surgeon and you perform a technically flawless surgery. That will be an output.
If the outcome still was the patient died, would you consider yourself successful?
Your OKRs are your outcomes and your initiatives are your outputs.
Now let's have a look at a few examples of good OKRs and initiatives. A good Objective could be to conquer the US market or to become an awesome place to work.
Another good Objective could be to make our customers love our support team.
If we zoom in on that latter example, examples of Key Results could be:
A customer satisfaction score of 97%, an average first response time of 1 hour, and an average solution time of 12 hours.
Now Initiatives that you could have to realize that OKR could be to interview 10 support rep
candidates to help you bring down your average response time for instance, to publish an FAQ to
make sure that you get in fewer tickets and people can find answers to their most popular
crushes themselves. As well as, to launch an in-app live chat which will make it a lot easier for
people to connect with you're support team.
A bad Objective would be to triple our valuation price. An objective should not be measurable.
You often read that an Objective should not contain a number and then people try to hide a number
in the word "triple", which obviously means nothing else than times three.
Better than focusing on not adding a number to your Objective will be to make sure that your Objective is simply not measurable.
A bad Key Result will be to close tons of new accounts because Key Results have to be measurable and "tons of" isn't.
People will have different definitions of what "tons of" really means, which means that you have no clarity of expectations.
Capture 100 percent market share is also a bad Key Result.
Key Results can be ambitious but they should not be impossible, and 100 percent market share for most organizations is definitely impossible
and can therefore be demotivating.
A good Objective would be to make so much revenue that we wildly increase our valuation.
Now the Objective isn't measurable but it is inspiring.
A good Key Result will be to close 85 new accounts because now you can actually measure progress towards it.
And capture 30% market share would also be a good Key Result because this is probably ambitious but hopefully not impossible.
Now that you know how to structure an OKR and what a good OKR looks like, let's have a look at how OKR works when you roll it out in your organization.
We recommend you to always start with your Ultimate Objective. That Ultimate Objective will serve as the North
Star for your entire organization.
You can look at your mission and vision to construct your Ultimate Objective. For instance, Walmart's vision is to become the worldwide leader in retailing.
Their mission is to help people save money so that they can live better. Together they would form the
Ultimate Objective to become the worldwide leader in retailing by saving people money so they can live better.
That Ultimate OKR appears at the very top of your OKR hierarchy. An Ultimate OKR usually
lasts for decades and forms the inspiration for your annual company OKRs.
Your annual company OKRs are executed through the group OKRs, that are usually quarterly.
The group OKRs are being realized through the initiatives that you create.
The process that most organisations follow to manage their OKRs is what we call the executional heartbeat.
Leadership defines the company OKRs for the upcoming year, usually in December.
We strongly recommend you to survey every employee in your organization and ask them to suggest one OKR for the next year.
This is a great way to get a feeling of what all the employees believe should be a priority.
Once these company OKRs are known, teams and departments can create their own quarterly OKRs.
And, they usually do so at the beginning of a quarter.
Once they are finalized they can start working on their initiatives.
We strongly recommend you to sit together with your team at least once every two weeks to review progress and stay on top of your OKRs.
This is to ensure that you will consistently hit your goals.
When the quarter has ended it's critical to sit together with your team to reflect on your OKRs of the past quarter by closing them and capturing your learnings.
Once that is done you can create your OKRs for the new quarter.
And this is a process that you continue to follow throughout the year.
The OKR process itself is quite simple, but there's also a set of rules and best practices in the OKR framework
that will help you get the most out of strategy execution and OKR.
However, especially if your organization is new to OKR, these rules can be a bit overwhelming.
Introducing OKR is essentially change management and we recommend you to introduce change gradually.
So here are our recommendations for the best practices that you should get started with.
First of all you need to set them frequently. Company OKRs are usually set annually and teams and department OKRs are usually set quarterly.
You should not have too many OKRs.
OKRs will help you focus on what's most important right now and focus also means that you have to say no to things.
Try to avoid putting everything that you're doing in your OKRs.
Your OKR should be focused on everything that you want to build to change or to innovate.
Then, you have to make sure that your OKRs are transparent. You want to involve everyone in the organization.
That means that everybody should be able to see what the priorities for the company are, as well as for all the different teams and departments.
This transparency is also requirement for alignment — the company OKR should be visible to everybody so that all teams and
departments can make sure that whatever they are focusing on is indeed helping push the company in
the right direction.
Progress needs to be updated regularly.
We recommend at least once every two weeks but better would even be once every week.
Seeing progress taps into a deep human need and professor Amabile from Harvard found that there is a direct correlation between the frequency with which you
update progress and the likelihood that you'll attain that goal.
Lastly, you should appoint an OKR ambassador. The OKR ambassador will be responsible for implementing and managing your OKR program.
Now that you've heard what makes OKR such a powerful tool for strategy execution, I hope you have enough input to get started with OKR.
For more information visit our website on perdoo.com or check out the links in the description of this video.