If you have spent time looking for modern-day management practices that would help scale your Lean-Agile efforts, you would have come across OKR — Objectives and Key Results. OKR is an approach that organizations of varying sizes — from start-ups to multinational tech giants like Google, LinkedIn, Intel, Adobe, CNN, and Oracle — use to measure the ongoing health of their processes and align efforts up and down the organizational hierarchy around important improvement opportunities. You might think OKR is a relatively new approach; however, it has been around for decades. The truth of the matter is that scaling Lean-Agile practices requires organizations to evolve the way progress is measured. So instead of focusing only on completion of projects, OKRs help organizations set goals in a trackable manner — tying your project goals to business objectives and measuring the results against the overall objective.
So who really cares about OKRs? Primarily executives. If you are an executive, you should be able to monitor the effectiveness of products and value streams and hold your leaders accountable for the trends of value delivered relative to capacity consumed. You should be able to identify key areas of improvement that will help align local improvement decisions with the larger business strategy. Executives should give product and value stream teams a lot of scope to decide how they can improve their outcomes and this is where OKRs come into the picture, as they will provide key results that require implementation of specific methods and tactics.
For ease, I have split this blog post into two parts. In this post, I will focus on the definition, and the difference between OKR and other management approaches, how do you implement OKRs and what does it mean to make a shift to outcomes thinking. In a second blog, I will focus on how Lean Practices (specifically covering Value Stream Management) and OKR can go hand-in-hand to deliver value to your customers.
What is OKR?
OKR is a management approach that simply aims to track business objectives and their corresponding outcomes. Objectives are what need to be achieved — they are actionable, qualitative and time bound. Key results are verifiable information that helps establish and monitor progress against each objective — they are quantitative, time bound, and help objectives be more actionable. While objectives can be long-lived (for example, you set an objective that needs to be achieved in one year), key results are progress along the way. Remember, OKRs are above to-do lists and project management. They make sure success is measurable and concrete.
In other words, OKRs help to answer these two questions:
- Where do we want to focus our improvement efforts?
- How will we measure whether or not our efforts are generating plausible outcomes?
OKR evolved from MBO
MBO, or management by objectives, is a popular management approach formulated by management consultant Peter Drucker in his 1954 book The Practice of Management as a way to improve organizational performance. In practice, MBO involves defining specific and clear objectives for employees and creating a culture of working towards common organizational goals. Sounds familiar?
From the definition of OKR that I mentioned, you might notice distinct similarities between MBO and OKR. That is because the OKR framework comes from MBO. Historically, it was Andrew Grove at Intel who proposed and implemented OKR in the 70s by building on top of MBO. Eventually, Intel was the first to practice OKR, however, John Doerr, a venture capitalist and author of Measure What Matters who was trained by Grove, moved on and introduced it to Google in 1999. Since then, it has been adopted by companies like LinkedIn, Adobe, Netflix, Oracle, and many more.
Difference between KPIs and OKRs
In the current scenario and with the new normal setting in, it is imperative that businesses rely on measurement of products and value streams. Typically the two metrics are KPIs and OKRs. What is the difference between the two?
Key Performance Indicators, or KPIs, are the things you measure to know whether your product or value stream is healthy and trending well given a level of investment. Like the dashboard of a car, the needles move up and down, but the same gauges are always intact.
In comparison, OKRs would be temporary because you focus on objectives that lead to improvement — using your organization’s collective brainpower on the most important areas of change by setting medium goals in terms of results but delegating the decisions about the best approach to take as close to the work and the customer as possible.
OKR is a simple and easy-to-understand way that organizations practicing Lean and Agile use to set, communicate, and monitor goals on a regular basis. OKRs helps to link organizational and team goals in a hierarchical way to measurable outcomes.
OKRs are most effective when they follow a structure — one objective will have one or more measurable results.
For example, let’s think of a scenario where a health insurance company is unhappy with their average revenue per account, and they want to increase it. The objective: Increase the value of upsells per policy issued by 20% by the end of the year. The measurable key results that will help keep a check on the desired objective could be any of the following: Increase average number of insured per policy by 25%; Decrease average age of new policy holders by 4 years; Decrease time to underwrite policies by 1 week.
Write an OKR with a clear qualitative objective against which there would be quantitative measurable data as key results — a dollar value, number of artifacts or work items, percentages, etc. While creating OKRs for teams or individuals, there is no strict rule around the number of objectives as long as it is all tied up to the larger organizational goal. To be on the safer side, start small and experiment as you move ahead. If you are a large business, you may want to consider starting with three or four objectives with roughly five key results each for every quarter. This can then roll down to individuals and teams.
Making a transition to outcomes thinking
Now, this is where your role as an executive is key. Adapting and practicing OKR — like any other management practice — is a culture that has to be built over time. To instill OKR, all you need to do is follow a few steps:
- be open and transparent about the objectives and key results
- be ambitious with goals such that they are hard to achieve, yet employees get a feeling that they are working towards improving the business
- the associated work should be complex enough to be able to reach that level of ambitiousness
- have a medium-level time frame — more like quarterly — to differentiate it from the daily goals and business
Now, what do I mean by transitioning to outcomes thinking — you may have to put in a little work to shift the focus from a project-only environment to a business outcome environment. Correct? You know that project-focused thinking, though beneficial for projects, considers units of work as individual and distinct projects — therefore quite siloed from the larger business objectives. Business outcome-focused thinking encourages measurable goals and covers multiple projects. So to implement and practice OKR, you need to get your organization to start thinking about business outcomes — everything they do is for a larger objective.
If and when you want to make that transition, here are a few things you could try:
- Encourage teams to define OKRs that are more business related. That is, the key results should measure something meaningful to the business, rather than something internal to a project.
- Let the teams be more product-oriented so that they are cross disciplined and move away from project thinking.
- Revisit OKRs often. This ensures everyone stays focused on what they set out to achieve.
Why use OKR?
To learn from companies like Google and Intel, which have been practicing OKR for decades, the benefits they seem to have gathered over the years include cultural improvements like accountability, agility, ambition, autonomy, cooperation, engagement, efficiency and focus that ultimately lead to business impacts like increased sales, better product performance, customer satisfaction, and delivering value to end customers.
While you mull over how you can implement OKR, how you’ll benefit from it, what would it take to convince the rest of your company about OKRs, let me give you some more ammunition.
ConnectALL recently announced its ability to incorporate OKRs into its value stream management solution and believes the integration of OKR solutions into the software value stream enables corporations to associate business outcomes with code in production.
I recently spoke to ConnectALL’s VP of Products Andrew Fuqua and here are some interesting answers from him for straightforward questions about OKRs.
Is OKR a strategy or a framework?
Andrew: It is not a framework nor is it a strategy. It is an approach — a management tool like MBO but works better than that.
OKR and value stream management — how do they work together?
Andrew: An OKR is objectives and key results. The objective should be bigger (objective is usually subjective). Key results should be measurable and focused on meeting the objectives. In value stream management, if OKR is a management tool to get everyone onto the same page in terms of vision and objective, the value stream should be tied to a key result and aligned to an OKR. For example, tie epics, features and user stories to the OKR, which leads to traceability across the value stream. Manage the value stream to achieve your OKRs, but OKRs are not about the value stream and the effectiveness of the value stream unless you are a value stream leader in charge of improving the flow.
How do organizations move from traditional thinking (project focused) to outcomes thinking?
Andrew: Manage change. You need to start from the top — come up with a reason for the change and articulate the reason.
What, according to you, would be the ideal way to write an OKR?
Andrew: Objectives need to be qualitative, actionable, ambitious and most of all, have a timeline/deadline. “I will <objective> as measured by <key results>.” Each objective should have three to five measurable results. They should be quantifiable enough to lead to objective grading—using a 0 to 1 grading system. While these results should be difficult enough to challenge you and your team, they should not be impossible to achieve. There are tools but you wouldn’t have to use them. It’s similar to MBOs — break them down from top to bottom and feedback will go from bottom to top. A good OKR will be clear, unambiguous and not stuffy.
Could you give an example of OKR in the software delivery value stream and how ConnectALL can help organizations?
Andrew: OKRs won’t necessarily show up as work items flowing through your value stream. OKRs aren’t about the value stream but the value stream is there for the benefit of your OKRs. Managing your value stream and improving flow through your value stream is for the benefit of your OKRs. This is where I say that the value stream and VSM are misunderstood. Refer to my blog post What Value Stream Management Isn’t to understand why I say this.
If you enjoyed reading this post and have more questions on OKRs, write to us. And don’t miss out on my next blog on Lean Practices (specifically VSM) and OKRs.
Marketing Communication and Content Manager at ConnectALL, responsible for communication and content marketing strategy. For 13 years, I’ve assisted businesses in B2B and B2C industries in integrating content marketing into their marketing plans to achieve their business goals. I specialize in creating and developing content (in-bound and out-bound) across various online and offline channels from websites, blogs, and social media to email marketing and marketing communication collateral.