Crash course in OKRs: Google's secret sauce

As the founder and CEO of Perdoo, I was asked to give a talk at the Heureka Founders Conference in Berlin, Germany. In this article, you’ll find an overview of the slides and a summary of the talk. A few edits have been made to make the crash course in Objectives and Key Results more thorough and complete.

Update: Since we published this blog post almost 2 years ago and after helping hundreds of organizations implement OKR, we have learned many new things about Objectives and Key Results. All the new learnings and experiences were included in our eBook "How to write great OKRs". Click the banner below to grab a free copy of the eBook or just keep scrolling down for the blog post. Enjoy reading!

What is OKR?

OKR is a goal management framework and stands for Objectives and Key Results. An Objective tells you where to go; Key Results tell you how to get there. With Initiatives we added a third element. Initiatives are the things you actually do to drive progress on your Key results.

Imagine you sell barbecue grills online. One of your Objectives could be to Boost our revenue. Your Key Results are measurable achievements that will tell you if you have accomplished your Objective. For example, a Key Result could be to Sell 10,000 grills. Initiatives that you think will drive progress on your Key Result could be to Run a Google Adwords campaign or to Attend 5 food exhibitions.

OKR can be different things to different organizations. For startups, it can be a framework for growth. For large, established enterprises it can be a framework for innovation. More on that later.

Goal management is of course not new; in fact, it has been around for decades. At Perdoo, we see OKR as 75 years of best practices in goal management, bundled together in a single framework and made simple. For us this simplicity is a key characteristic of OKR: it’s why it became so popular, and it allows everyone in your organization to participate in it.

Peter Drucker developed a methodology called Management by Objectives or MBO in the early 1950s. The book in which he popularizes the term, The Practice of Management, is worth reading if you like to dive deep into the topic.

When Andrew Grove, who recently passed away, founded Intel together with Gordon Moore and Robert Noyce (officially he was their first hire), he became a careful student of business management. After he became President and later CEO at Intel, he wrote the book High Output Management in which he first coined the term Objective and Key Results. His description is super simple and razor sharp:

“A successful MBO system needs only to answer two questions: Where do I want to go? (The answer provides the Objective.) How will I pace myself to see if I’m getting there? (The answer gives us milestones, or Key Results.)”

John Doerr joined Intel in 1974 where he learned about OKR. He later went on to join KPCB, and after their investment in Google, when Google was only 40 people, he pitched the concept of OKR to the founders Larry Page and Sergey Brin. They were quickly sold on it and still use OKR today, with 60.000 employees.

From Google, OKR spread to many other tech companies, like Twitter, LinkedIn, and Zynga. When Google employees left Google to join other companies, they often brought OKR with them. Today organizations of any size and across all industries have embraced the methodology.

But why do all these organizations all of a sudden have OKRs? What are OKRs? What do they do?

If you have goals, you can work with OKR. As said, OKR is nothing else but a label applied to a wide range of best practices in goal management. The truth is: every organization has goals, whether they realize it or not. The most popular goals are the financial ones and the related sales targets. But there are many others. In fact, every project in your organization will benefit if it is driven by a clear goal or OKR.

OKRs let companies think about how they can break out of the status quo and at the same time provide guidance to achieve a new future. OKR is the missing link between strategy and results. In short: OKRs take your organization from A to B. If you have a big dream, a vision, or, how we call it, an Ultimate Goal for your company, you need OKRs that take you there.

KPIs, on the other hand, measure your business as usual. If your company should keep doing what it already does, all you need is a KPI dashboard to keep track. If you want your Support team to answer every ticket within 30 minutes, you create a KPI for that.

OKR and KPI work perfectly together. Imagine you want to introduce NPS (Net Promoter Score), which is something I’m currently responsible for at Perdoo. Having nothing in place for NPS, I created a simple Objective for Q2 to Know the promoters and detractors among our customers. Now that we have NPS up and running and found it needs to be improved, we created another Objective to get to Make our customers love our product and services; one Key Result is to Have an NPS of +50. You can imagine this is a big Objective to which many people and teams contribute with their Group Objectives and Initiatives, so we made this a Company Objective for Q3. Once we have achieved that Objective, NPS will move to our KPI dashboard to keep track of it. If it drops below +50, we will probably create an Objective again to increase our NPS.

Let’s summarize that in a chart.

Your organization will or should have an Ultimate Goal, a big dream of where you want to be in at least 5 or 10 years in the future.

The great thing about an Ultimate Goal is that it inspires. It makes sure you’ve got all your ducks in a row. However, an Ultimate Goal alone is not yet actionable, so you need Objectives, smaller steps, that take you there.

Together, the Ultimate Goal and Objectives will tell you where to go. Key Results will tell you if you're getting closer. Initiatives will be the things you're doing to get there.

So why do you need OKR?

The most important characteristic of OKRs is that they take you out of the status quo. If you need to build, improve or innovate, if you have a big dream you want to realize, you’ll need OKRs.

You’ll also need people working and collaborating on these OKRs.

Let’s start with people first. People are the key resource for any organization. Performance management, which has become a popular topic in the HR space, is a difficult term when it comes to people. The problem with the word “management” is that it implies control or governability.

People cannot and should not be controlled, and therefore, in my opinion, performance management does not exist. At least not for people. People are not robots.

People’s performance can, however, be influenced. It can be influenced by keeping your team engaged and motivated. This is emphasized in a recent publication of Ipson/Edenred: “As an unpredictable economy changes the rules, employee engagement is at the heart of sustainable performance.”

Let’s zoom in on employee engagement:

According to a Gallup study from 2013, 70% of employees are disengaged and dissatisfied at work. The truth is even worse, only 13% of employees say they are engaged at work.

Apparently, senior leaders are aware of this problem. The Financial Times executes an annual survey amongst 1,000 presidents and CEOs worldwide, asking them what their biggest challenges are for the coming 5 years. Employee engagement has been ranking as a top #5 challenge for already multiple years.

In the US alone, low employee engagement costs companies over $370 billion in lost productivity, each year.

Engagement makes employees become part of something bigger than themselves, which is common advice from happiness gurus for living happier, healthier lives. Employees are happier, more productive, less likely to leave the organization and so on. This is as beneficial for the employee as it is for the employer.

Let’s have a closer look at what employees want and how to engage them.

The graphs speak for themselves:

• 70% of employees want more clarity on goals & strategy
• 67% of employees will be more engaged when their individual goals are aligned with corporate goals
• Transparency is the #1 factor contributing to employee happiness
• 70% of employees want to see how their job contributes to the company strategy
• 50% wants to know better what is expected of them at work

Some of the research findings above might be obvious or already known to you. What’s more important is that OKR tackles all the issues mentioned.

OKR is not only beneficial for leaders, but also for employees. Managers and executives love OKR because it helps them execute their strategy and shape the future of their company. However, OKR also offers tremendous value to employees. The focus on empowering entire organizations, both leaders and employees, is what makes OKR such a powerful framework.

Now let’s look at what OKR will bring to your organization.

OKR brings 3 key things to your company: focus, alignment, and engagement. All 3 are crucial, as big goals are almost never achieved by an individual. You need an entire organization to make them happen.

To foster collaboration in the team you need to provide focus so that everyone knows what the top priorities are. You also need to make these priorities (Ultimate Objective and Company Objectives) transparent. Once everyone knows what is most important, they can make sure that what they will be working on contributes to that. Alignment ensures all activities in the organization contribute to the strategy, something almost every organization that is not using OKR struggles with.

Alignment also allows people to see how they fit into the bigger picture and why they are working on certain things. This is a great way to increase engagement by giving employees a voice and showing them that they have an impact. All in all, alignment is crucial for every organization.

There are also hard facts about what OKR can do for your team, although not many case studies have been made public yet.

Sears Holdings, a US-based leading retailer focused on seamlessly connecting the digital and physical shopping experiences, performed an OKR case study among 20,000 associates. They found that hourly sales increased by 8.5% after the introduction of OKR.

How OKR works

Now that you know what OKR is and what value it can bring to your organization, you probably want to know how it works. The next 4 slides are a good start.

• The 1st slide will remind you of how successful companies work with OKR.
• The 2nd slide is a timeline that provides guidance for when to do what.
• The 3rd slide is a simple checklist for anyone who has to draft OKRs.
• The 4th slide is a checklist for the ambassador, the person at a company who is responsible for OKR.

Successful companies[/caption]

Perdoo has already been around for more than 2 years. Having worked with hundreds of organizations that are using OKRs, we have gained unique data and insights into what works and what not.

Let's summarize this on 1 slide:

• Connected
  OKRs only, and really only, work if they are transparent and aligned. Transparency is a prerequisite for alignment. If I cannot see what else is being done in my company, if I don’t know my company’s top priorities, I can also not make sure that my activities will contribute to that. Note that according to research from Donald Sull that involved 10.000 respondents and more than 300 organizations, 42% did not know their company’s top #3 goals. That number is even more shocking if you realize the respondents were all people charged with executing the strategy!

Once your OKRs are transparent and aligned, we call them connected. The OKRs are connected, as well as the people working on them.

Professor Amabile of Harvard Business School also found that making your goals transparent increases the likelihood of actually attaining these goals significantly.

• Repeat
  OKRs should be set frequently. A healthy frequency for mature organizations is a quarterly one. Startup companies, like Perdoo, might want to try bi-monthly timeframes as things might evolve quicker for you. At Perdoo we strongly advise against monthly OKRs, as you’ll spend almost more time drafting OKRs then working on them.

Think of it as your organization’s heartbeat. Every quarter everyone takes some time to review and learn from the previous quarter and to think about what they should be working on next. We call this the Executional Heartbeat. If you realize your people will spend the next 3 months working on it, you’ll understand how important it is. Your beat should be too fast (like monthly), it will make people nervous. It shouldn’t be too slow (like annually), it will take out the energy. It should be healthy (like quarters).

• Involve
  Successful companies working with OKR make sure to involve all teams and all employees. Involving everyone reduces wasted efforts, ensure both vertical and horizontal alignment, in-functional and cross-functional. It allows for optimum coordination of all activities. And don’t forget that OKRs also have the power to communicate critical information company-wide. You don’t want anyone to miss out.
• Support
  Successful companies also encourage their people to share their achievement through progress updates. They celebrate even the smallest achievement and stimulate recognition through simple social features like the famous thumbs-up.

Professor Amabile found that “Monitoring progress to achieve a goal increases the likelihood that you will attain the goal.” That same research also found that your chances of success are even higher when you report your progress publicly.

Benjamin Harkin from the University of Sheffield conducted a meta-analysis of 138 studies comprising in total 19,951 participants. They found that prompting participants to monitor their progress increased the likelihood that the participants would achieve that goal. The more frequent the monitoring, the more likely they were to succeed.

We advise you to update progress on your OKRs at least once a week and recognize others.

• Lead
  Last but not least, they take OKR seriously. A common best practice is to appoint an internal champion who is responsible for your OKR program. At Perdoo we call this champion the Ambassador. It is our key point of contact, and our OKR coaches work closely together with them to ensure a successful roll-out and adoption of OKR.

This timeline provides guidance for running an OKR program. What I like about it is that in this timeline you are actually able to see your Executional Heartbeat!

The timeline speaks for itself, and we’ve added a few pro tips (in yellow) of things we see work well at our customers.

To give you a rough overview:

• The Executive Team should brainstorm about next year’s annual Company Objectives (as well as the Company Objectives for Q1, if you work with quarterly Company Objectives).
• For the annual Company Objectives, it is a great idea to solicit input from your employees. Let them submit 1 idea for an Objective and discuss the input in the Executive Team. This ensures buy-in from the organization.
• Once Company Objectives for the year (and quarter) are set and presented to the employees, departmental heads and team leads can define their Group (department and team) Objectives. Also, they should solicit input from their team and make sure their Objectives are aligned with the company.
• Once Group Objectives are defined you can go down to the individual level. Make sure at least 50% of your OKRs are coming from the bottom-up and not everything is dictated top-down. You want to give your employees a voice, crowdsource their knowledge and make sure they’re engaged. We’re not living in the Industrial Age anymore where it was assumed the manager knows everything and is best equipped to make decisions.
• A Mid-Term Review can be done on team-level and is great to see if everyone is still on track. It is also an opportunity for individuals to raise a red flag if they think they won’t make one of their OKRs or to ask for help from team members.
• OKRs should be closed once you stop working on them. And they can also be graded. You can use grading to assess the quality, where progress is purely a quantitative assessment.

This is a simple checklist that has incorporated the best practices of successful companies. Everyone in your organization can use this checklist to see if their OKRs meet the requirements. You will only need this checklist in the beginning, after having drafted a dozen OKRs you should be fine.

Let’s quickly run through all elements.

An Objective should be:

• Directional
  As mentioned before, Objectives tell you where to go. So make sure the Objective gives direction. Ambitious
• Ambitious
  OKRs stimulate innovative thinking. With only incremental changes people continue to think along the lines of what they’re already doing. If you’re used to selling 1,.000 books a month, setting a target of selling 1,100 won’t encourage you to find new solutions. With a stretch goal of 2,000 books, people will have to explore new paths.
• Aligned
  OKRs are the missing link between strategy and results. With OKRs you want to make sure that activities in the organization support the organization’s strategy. It’s a double-edged sword as this alignment will also boost employee engagement and let you crowdsource the knowledge of your people. Alignment is key, so make sure all Objectives are aligned.
• Time-bound
  Every objective should be limited in time. If you set OKRs on a quarterly basis, the deadline is automatically the end of a quarter. You can also add a due date, should the Objective be due before.

A Key Results should:

• Make the Objective achievable
  Imagine you have achieved all your Key Results, have you then also achieved the Objective? Remember: an Objective tells you where to go, Key Results tell you how to get there.
• Be measurable
  Key Results should be progress-based. At Google, they’ll tell you a Key Result should have a number. This number will allow you to define progress objectively.
• Not a KPI
  A Key Result is not a KPI. KPIs belong on a KPI dashboard and help you keep track of your business as usual. OKRs help you break out of the status quo and drive execution. If this is not clear, have a look again at my NPS example above.
• Not a task/todo
  If your Key Result can be accomplished with a single task, it’s probably not a good Key Result. Remember: Key Results are the results you need to achieve to get to the Objective. On individual you shouldn’t have too many, 3 or 4 Key Results for each Objective should be enough. There can be exceptions (in rare cases, I have 5 or 6 Key Results for an Objective), but if you have more, you might be able to group some of them.

Then there is the simple Rule of Thumb we developed for both Objectives and Key Results: if someone looks at one of them and sees 50% progress, what will it tell that person? You can simply test this by asking a colleague. If he or she has no clue what 50% progress for a specific OKR means, you should probably phrase it better. Imagine you’d like to learn to play the piano. Many people are likely to create an Objective Learn to play the piano. But if that Objective is at 50%, what does it tell me? Nothing. Instead, I can create an Objective which symbolizes that I can play the piano, for instance: Play the Moonlight Sonata at my best friend’s wedding. If progress is now at 50%, people probably have an idea of where I stand, and I can be sure that once I mastered this song so well that I can play it in public, I’ve probably learned to play the piano.

You should also don't have too many. Too many OKRs fragment attention, it means you’re not able to focus on what is really most important right now.

Please note that writing good OKRs is like a muscle you need to train. You might struggle a bit in the beginning, but you’ll quickly improve over time! It’s a great skill to develop which will benefit both your business as well as your private life.

A great way to ensure a steep learning curve in your organization is to let each team review the OKRs of their team members and provide feedback. Not just on whether they have decided to work on the right things, but also to provide feedback on whether the OKR has been drafted correctly.

And here’s a simple checklist for the OKR Ambassador. As said, you should appoint an OKR Ambassador who will be responsible for OKR (and Perdoo) at your organization. This checklist requires no further explanation, as everything has already been addressed above.

This checklist helps the OKR ambassador stay on track.

That was it for the Heureka Founders Conference. As said, if you’d like to know where we will be speaking next, follow us on Twitter: @PerdooHQ and@henrikjanvdpol.