The-beginners-guide-to-okr.merged.pdf

The Beginner's Guide to OKR

Felipe Castro

THE BEGINNER'S GUIDE TO

OKR Felipe Castro

The Beginner's Guide to OKR

Felipe Castro

The Beginner’s Guide to OKR Objectives and Key Results Why I wrote this guide? There are several guides to OKR. But they lack the solid foundations that will allow you to start at the beginning and will enable to to successfully adopt OKR. I wrote this guide for first-time OKR users, but in my experience many long-time OKR users also find it valuable. Many of them lack the proper concepts to win with OKR. My advice is that you should read this guide cover-to-cover, as each section builds upon the previous ones. Reading it from start to finish will help you understand how the different OKR building blocks fit together and why OKR has been successfully adopted by great companies such as Google, Spotify, Twitter, Airbnb and LinkedIn. Felipe Castro

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Table of contents What is OKR? What are the benefits of using OKR? Strategic vs. Tactical OKRs: Nested Cadences OKRs do not Cascade Success criteria and types of Key Results How ambitious should your OKRs be? Creating Alignment Tracking Results with the Weekly Check-in A Typical OKR Cycle Why you should separate OKR and compensation Common OKR mistakes What's Next?

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What is OKR? OKR (Objectives and Key Results) is a goal setting system used by Google and other companies. It is a simple approach to create alignment and engagement around measurable and ambitious goals. The big difference from traditional planning methods? OKRs are frequently set, tracked, and re-evaluated – usually quarterly. OKR is a simple, fast-cadence process that engages each team’s perspective and creativity. OKR exists to create alignment and to set the cadence for the organization. The goal is to ensure everyone is going in the same direction, with clear priorities, in a constant rhythm. OKR’s original concept came from Intel and spread to other Silicon Valley companies. Google adopted OKR in 1999, during its first year. It supported Google’s growth from 40 employees to more than 60,000 today. Besides Google, other companies use OKR, including Spotify, Twitter, LinkedIn, and Airbnb. But OKR is not only for digital companies. Walmart, Target, The Guardian, Dun and Bradstreet, and ING Bank are also using OKR.

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Understanding the OKR Components John Doerr is one of the most successful venture capitalists of all time. He started his career at Intel and went on to invest in companies such as Google and Amazon. Doerr, who introduced Google to OKR, has a formula for setting goals:

Doerr’s Goal Formula I will ____________________ as measured by _______________________.

A proper goal has to describe both what you will achieve and how you are going to measure its achievement. The key words here are “as measured by,” since measurement is what makes a goal a goal. Without it, you do not have a goal, all you have is a desire. Doerr’s formula is the best way to explain the structure of an OKR: I will (Objective) as measured by (this set of Key Results). So, as the name implies, OKR has two components, the Objective and the Key Results: Objectives are memorable qualitative descriptions of what you want to achieve. Objectives should be short, inspirational and engaging. An Objective should motivate and challenge the team Key Results are a set of metrics that measure your progress towards the Objective. For each Objective, you should have a set of 2 to 5 Key Results. More than that and no one will remember them.

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All Key Results have to be quantitative and measurable. As Marissa Mayer, a former Google’s Vice President, said:

If it does not have a number, it is not a Key Result.

Example One First of all, we need an Objective. An example might be “Create an Awesome Customer Experience.” This sounds great, but how would you know if the experience is awesome? Remember, without measurement you don’t have a goal. That is why we need Key Results. How can we measure if we are providing an awesome customer experience? Net Promoter Score and Repurchase Rate would be two good options. Do our customers feel so good about dealing with us that they would recommend us and buy again? But measuring NPS and repeat purchases alone can send the wrong message. It might encourage us to make the customer happy at any cost. Therefore, we can include a countermeasure such as Customer Acquisition Cost. We want to make our customers happy while keeping the costs under control.

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The complete example would be: Objective: Create an Awesome Customer Experience Key Results: ➔

Improve Net Promoter Score from X to Y.

➔

Increase Repurchase Rate from X to Y.

➔

Maintain Customer Acquisition cost under Y.

Example Two Now consider a team that wants to increase the engagement with a digital service: Objective: Delight our customers Key Results: ➔

Reduce revenue churn (cancellation) from X% to Y%.

➔

Increase Net Promoter Score from X to Y.

➔

Improve average weekly visits per active user from X to Y.

➔

Increase non-paid (organic) traffic to from X to Y.

➔

Improve engagement (users that complete a full profile) from X to Y.

Once more having a set of Key Results helps create a healthy, sustainable OKR. We want to increase the weekly visits, but we want it to be organic, not through an expansion of marketing spend. Key Results are crucial. Most of all, they define what we mean by “Delight our customers.” A second team or company could use the same Objective with different Key Results. 7

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What’s unique about OKR? There is not a single way to use OKR, each company or team can adapt and tweak it, creating different versions of it. But there are some core concepts: Agile Goals Instead of using annual static planning, OKR takes an agile approach. By using shorter goal cycles, companies can adapt and respond to change. Simplicity Using OKR is straightforward, and the OKRs themselves are easy to understand. Intel’s original model set goals monthly, which required a lightweight process. Companies that adopt OKR reduce the time spent setting goals from months to days. As a result, they invest their resources in achieving their goals and not on setting them. Transparency The primary purpose of OKR is to create alignment in the organization. To do so, OKRs are public to all company levels — everyone has access to everyone else’s OKRs. The CEO’s OKRs usually are available on the Intranet. Nested Cadences OKR understands that strategy and tactics have different natural tempos since the latter tends to change much faster. To solve this, OKR adopts different rhythms:

➔

A strategic cadence with high-level, longer term OKRs for the company (usually annual).

➔

A tactical cadence with shorter term OKRs for the teams (usually quarterly).

➔

An operational cadence for tracking results and initiatives (usually weekly).

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Bidirectional Goal Setting Instead of using the traditional top-down cascading model that takes too much time and does not add value, OKR uses a market-based approach that is simultaneously bottom-up and top-down. From the company’s strategic OKRs, teams can understand how they can contribute to the overall strategy. In this process, around 60% of the tactical OKRs are set by the teams in alignment with the company goals and then contracted with the managers in a bubble-up approach. This model creates engagement and a better understanding of the strategy while making the process simpler and faster. Ambitious Goals The philosophy behind OKR is that if the company is always reaching 100% of the goals, they are too easy. Instead, OKR targets bold, ambitious goals. Besides aspirational objectives, OKR believes in enabling the team to set challenging goals. Goals that make the team rethink the way they work to reach peak performance. Decoupling Rewards Separating OKRs from compensation and promotions is crucial to enable ambitious goals. Employees need to know they will not lose money if they set ambitious goals. It is hard to set ambitious goals when you need the bonus to pay for your kids’ college tuition. OKR is a management tool, not an employee evaluation tool.

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Tips for writing good OKRs For Objectives:

➔

First of all, Objectives should be simple, short and easy to memorize. If you have to stop to breathe while reading your Objective, you are doing it wrong.

➔

Second, Objectives shouldn’t be boring. They can fit the organizational culture and be informal and fun. You can use slangs, internal jokes and even profanity – whatever fits your culture.

For Key Results:

➔

Separate metrics from tasks.

➔

Set few of them. Usually between 2 and 5 per objective.

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What are the benefits of using OKR? The main advantages of using OKR are: Agility Shorter goal cycles enable faster adjustments and better adaptation to change, increasing innovation and reducing risks and waste. Alignment and cross-functional cooperation The use of shared OKRs improves collaboration among different teams, solving interdependencies and unifying competing initiatives. Reduced time for setting goals OKR simplicity makes the goal setting process faster and easier, drastically reducing the time and resources spent on setting goals. Clear communication Transparency and simplicity enable the team to understand the goals and priorities of the organization as well as how each individual can contribute.

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Employee engagement OKR bottom-up approach for goal setting connects the employees with the company’s objectives, increasing engagement. Autonomy and accountability Teams receive a clear direction and are free to choose how to achieve their OKRs. They become responsible for their objectives, with clear success criteria known to the whole company, creating mutual obligations. Focus and discipline The reduced number of goals creates focus in the organization and more disciplined efforts and initiatives. Bolder goals Decoupling OKRs from compensation and using stretch goals, even partially, enable the team to set ambitious, challenging goals.

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Strategic vs. Tactical OKRs: Nested Cadences

It is a common misconception that OKR only works with quarterly cycles, which was the model Google used until 2011. After retaking the CEO role at Google, Larry Page decided to adopt both annual and quarterly OKRs. We can only speculate about what drove Page's decision, but most companies eventually discover that using short-term OKRs can cause teams to miss the big picture and focus only on what they can accomplish in three months. Most mature OKR implementations understand that different goals have different rhythms as tactical goals tend to change much faster than strategic goals. So OKR decouples strategy and tactics by adopting a nested model, as I mentioned in the first section:

➔

A strategic cadence with high-level, longer term OKRs for the company, which are not set in stone. The organization should maintain a continuous conversation about strategy and review the company OKRs as necessary.

➔

A tactical cadence with shorter term OKRs for the teams.

➔

A follow-through cadence with regular check-ins for tracking results along the way. 13

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Think of Strategic OKRs as high-level OKRs that would interest the board of directors - if you chose to show it to them. A pattern I see in successful OKR adoptions is:

➔

Annual strategic OKRs for the company (and sometimes for very large departments and business units).

➔

Quarterly tactical OKRs for the teams, with a mid-quarter review.

➔

Weekly check-ins for tracking results.

Some organizations also set quarterly OKRs for the company, but I would not recommend that in the beginning.

Choosing your OKR Cadence It is important to note that organizations can customize the cadences for their needs. For example, Spotify uses a strategic cycle of six months while its teams set OKRs every six weeks. It is an interesting story since they returned to OKR after trying to create its own approach. Some companies are adopting shorter cadences for OKR, as Salim Ismail, founding executive director of Singularity University, wrote in his book, Exponential Organizations: Many [organizations] are now implementing high-frequency OKRs – that is, a target per week, month or quarter for each individual or team

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Most teams that are trying to set monthly OKRs are using OKR as a to-do list. When teams use OKR to measure value, as we will see in the following sections, the quarterly cadence makes sense since you need time to develop initiatives, measure their impact and iterate. As a general rule, the shorter the cadence, the smaller the OKR-setting overhead needs to be. And the longer the cadence, the lower the business uncertainty needs to be. So to adopt shorter cycles, you have to make sure you have a streamlined process for developing the OKRs in place, or you will be spending too much time setting goals. On the other hand, if your business deals with uncertainty or your market changes too quickly, longer OKR cycles will not help you. If you are starting with OKR, I recommend using a quarterly tactical cadence with a mid-quarter review. That will enable you to learn and adapt your model. Most organizations can work with this cadence.

Start with Unified Cadences In Silicon Valley, some mature companies have distinct cadences for different functions. For example, some companies set annual OKRs for the sales team while using quarterly OKRs for engineering and product teams. I recommend starting with the same cadences for everyone since it reduces complexity. The best approach is to have an incremental rollout, beginning with a simpler model and evolving it as you learn.

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If you want to try to set different cadences inside your organization eventually, you should try to maximize the number of “synchronization opportunities.” For example, having one team use a 4-month cadence while the rest of the company uses three months means teams will only sync once a year which could drastically affect alignment.

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OKRs do not Cascade In traditional organizations, goals cascade. It seems it is just something that they do. Goals start at the top and then cascade down. That is very common. And flawed. What are the characteristics of a cascade (or waterfall)? It’s a top-down, one-way, irreversible flow, with no feedback cycles that ends crashing on the rocks. Everything an agile, innovative organization does not want to be. The cascading model is a residue of a command & control mindset in which decisions simply flow downwards from the top. We have to stop using top-down analogies. Words and images are powerful and help shape the culture of organizations. Although cascading goals is an improvement over the previous approaches, it takes way too much time. As James Harvey wrote:

[The traditional model] is a top-down approach and often takes too long to achieve alignment. Direct reports are often dependent on the completion of their supervisor’s goals before they can begin building their own goal plan.

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I have seen global corporations in which the goal setting process takes 4-6 months. Not only it is a massive waste of resources, but it also leaves employees without clear goals for almost half the year. There has to be a better way.

Bidirectional Goal Setting As Laszlo Bock, Google’s former VP of People Operations wrote in his book Work Rules!:

On the topic of goals, the academic research agrees with your intuition: Having goals improves performance. Spending hours cascading goals up and down the company, however, does not. It takes way too much time and it’s too hard to make sure all the goals line up. We have a market-based approach, where over time our goals all converge, because the top OKRs are known and everyone else’s OKRs are visible. Teams that are grossly out of alignment stand out, and the few major initiatives that touch everyone are easy enough to manage directly. So far, so good!

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That is why I created Castro’s First Rule of OKRs:

OKRs never Cascade.

OKRs Align.

OKRs should be set in a parallel process in which teams define OKRs that are linked to the organization objectives and validated by managers, in a process that is simultaneously bottom-up and top-down. From the company OKRs, the teams can get a clear direction and understand how they can contribute to reaching those OKRs. Each team then defines a set of tactical OKRs for the quarter that contribute to the strategic OKRs and that roughly align with them. Teams’ OKRs don’t have to be 100% aligned with the company’s OKRs since they may also choose to include a local OKR.

Creating Tactical OKRs When creating their Tactical OKRs, each team has to answer two questions:

➔

How can we contribute to the Strategic OKRs?

➔

Which of the Key Results included in the Strategic OKRs may we impact?

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Tactical Key Results can be:

➔

A slice of the company OKR (Ex: The company will sell 100, my team will sell 20).

➔

Hypotheses or bets about how to contribute to the Strategic OKRs (Ex: We will reduce the number of customer complaints because we believe it will increase the repurchase rate).

Teams may have “local” OKRs, but most of the OKRs should contribute to the Strategic OKRs. There is a rule of thumb is that around 60% of the OKRs should be defined by the team, bottom-up, meaning that the managers also have a say on what the OKRs are. In my experience, if you have a healthy environment tracking this percentage is hard. Usually, the team develops a draft for the OKRs and then there is a conversation with the managers. The company may also choose to standardize a few OKRs between similar teams (i.e. every product team has to increase customer engagement).

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Success criteria and types of Key Results What is Success? Every organization, every team, every project needs a clear definition of success. We all need a definition of what it means to be successful. But success means different things to different people. If I asked your team what success looks like for your company, I would probably get one different answer for each team member. When used correctly, OKR helps teams and organizations define shared success criteria. They establish clear, measurable criteria for reaching success. OKR not only makes sure the criteria exist but that those criteria are shared, transparent and communicated to other teams, employees and even outside partners. The shared success criteria concept is critical when setting OKRs. We always have to ask ourselves: are those Key Results describing what success looks like?

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Don’t turn your OKRs into a task list Imagine a hamster in its cage, running nonstop on its wheel but never actually moving. Is that how you feel about your company or your team? Lots of work, lots of effort, but never getting anywhere? Who is considered successful in your company? Those who work long hours, not sleeping, working on weekends, or those who deliver actual results? Do you want a team of hamsters – with lots of effort that get you nowhere – or people that produce results? When setting your OKRs, try to evaluate: ➔

Do you measure effort or results?

➔

Are your OKRs focused on your objective or on the means to get there?

There are two basic types of Key Results: 1. Activity-based Key Results Measure the completion of tasks and activities or the delivery of project milestones or deliverables. Examples of Activity-based Key Results are: ➔

Release beta version of the product.

➔

Launch a monetizing tab.

➔

Create a new training program.

➔

Develop a new lead generation campaign.

Activity-based Key Results usually start with verbs such as launch, create, develop, deliver, build, make, implement, define, release, test, prepare and plan.

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2. Value-based Key Results Measure the delivery of value to the organization or its customers. Value-based Key Results measure the outcomes of successful activities. The example Key Results from the first section are all Value-based:

➔

Improve Net Promoter Score from X to Y.

➔

Increase Repurchase Rate from X to Y.

➔

Maintain Customer Acquisition cost under Y.

➔

Reduce revenue churn (cancellation) from X% to Y%.

➔

Increase Net Promoter Score from X to Y.

➔

Improve average weekly visits per active user from X to Y.

➔

Increase non-paid (organic) traffic to from X to Y.

➔

Improve engagement (users that complete a full profile) from X to Y.

The typical structure of a Value-based Key Result is: Increase/Reduce ABC-metric from X to Y Where X is the baseline (where we begin) and Y is the target (what we want to achieve). Using the "from X to Y” model is better than writing a percentual change because it conveys more information. Compare the two options below: A)

Increase NPS by 20%.

B)

Increase NPS from 40 to 48.

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Option A can be confusing since it's hard to tell how ambitious the target is. Are we talking about increasing NPS from 5 to 6 or 40 to 48? Other options for Value-based Key Results can be:

➔

Maintain ABC-metric in X (When we want to sustain one metric).

➔

Reach Y on ABC-metric (When we are doing something new).

A Value-based Key Result does not have to be a measure of the end objective of the company (i.e. revenue, profits or EBITDA), but it can be a component of a metric that has a correlation to generating value. Below is a list of examples of Activity-based Key Results and the equivalent Value-based Key Results. Activity-based Key Results

Create engagement program

Develop 3 new landing pages

Value-cased Key Results ➔

Improve employee engagement from X to Y

➔

Generate Y MQLs (Marketing Qualified Leads). Increase lead conversion from X to Y. Reduce CAC (Customer Acquisition Cost) from X to Y

➔ ➔

➔ Launch new product

➔ ➔

Reach Y Daily Active Users of the free version. Achieve Y% conversion rate from free to paid users. Achieve a Net Promoter Score of Y%. 24

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OKRs should be Value-based As we mentioned before, when used correctly, OKRs define success criteria for an organization. OKRs should determine whether a person or a team achieved success. But to do that, OKRs cannot be based on activities for three main reasons: 1. We want a results-focused culture, and not one focused on tasks. 2. If you did all your tasks and nothing improved, that is not success. Success is improving something: customers are more satisfied, sales are higher, costs have been reduced. If you did all your tasks, but they got you nowhere, that is not success. OKR author and thought leader Christina Wodtke has a great tweet about “success”: Success is not checking a box. Success is having an impact. So in spite of the “Project Management Triangle,” the fact is that delivering a project on time, on scope and on budget is not enough. The project must be delivered successfully – meaning that the objectives that motivated the project in the first place have to be reached.

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3. Your action plan is just a series of hypotheses The Lean Startup methodology taught us that an idea is just a non-validated hypothesis. In the same way, in the real world, we don’t know if our action plan will improve our results or add value to the organization. The action plan is just a hypothesis, so you cannot attach your OKRs to a non-validated bet. When setting OKRs, focus on the destination, not on the means to get there.

Objectives, Key Results, and Initiatives When focusing on Value, we need to separate the OKRs from the activities and tasks that we plan on doing to achieve the OKRs. This leaves us with three components:

➔

Objectives: What we want to achieve.

➔

Key Results: How are we going to measure our progress?

➔

Initiatives: What we are going to do to reach our OKR: projects, tasks or activities.

It is important to understand that we still need to track the delivery of the initiatives. Without them, we will not achieve our OKRs. But initiatives are just bets and have to change if the numbers aren't improving. Delivering an initiative is not enough. We must fulfill it successfully. Nobody works on initiatives as a hobby. Behind every initiative is a desire to improve one or more metrics. So, instead of tracking the delivery of a project, we should measure the indicators that motivated it in the first place.

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Migrating from Activities to Value-based OKRs When teams start with Value-based OKRs, it is common for them to get stuck listing activities as Key Results. To convert those activities into value, think about what would be the consequences of being successful with this task. What would be the desired outcomes? Some teams find this simple tool to be useful to identify the desired results, especially when first dealing with value-based OKRs: If we are successful with (this initiative), we will (Key Result #1) (Key Result #2) (Key Result #3) … Example: If we are successful with the new campaign, we will Increase NPS from 29 to 31% Reduce churn from 3.2 to 2.7%

You can also create an OKR to measure if a high-priority initiative will be delivered successfully: Successfully migrate the platform ➔

Reduce infrastructure costs from X to Y.

➔

Maintain availability during migration in 99,99%.

➔

Maintain revenue of $ X. 27

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How ambitious should your OKRs be? Ambitious goals are so important that Google’s “Ten things we know to be true.” mentions them directly:

We set ourselves goals we know we can’t reach yet because we know that by stretching to meet them we can get further than we expected.

Ambitious goals are also called stretch goals. But what exactly is a stretch goal? The stretching analogy Let’s think about the characteristics of stretching:

➔

While you are stretching, it feels uncomfortable, even slightly painful. Stretching takes you out of your comfort zone;

➔

Stretching may be uncomfortable while doing it, but it makes you feel good afterward; 28

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The whole idea of stretching is to try to reach a place that you know you can’t reach. You have to keep trying to reach your feet even though you know you can’t reach it;

➔

After stretching regularly, you start to reach farther than you could if you haven’t been stretching. You may still not be able to reach your feet, but now you can reach places that you couldn’t reach before;

➔

Although stretching is supposed to feel uncomfortable, you shouldn’t strain a muscle. You should not try to go so far as to harm you. You can try to be as Jean Claude Van Damme but take your time.

How this applies to goal setting? When you think about this analogy, you can say that stretch goals are goals that:

➔

Take you out of your comfort zone;

➔

Make you go after targets that you think you can’t reach (at least not yet);

➔

Make you achieve things you couldn’t do before;

➔

Should be hard but not as hard as to harm (or demotivate) you.

Think of stretch goals as goals that are so hard that make the team rethink the way they work, ask hard questions and have the difficult conversations that have been avoided. Stretch goals make teams wonder how far they can go. In fact, in a meta study of 35 years of empirical research, goal-setting theory pioneers Edwin Locke and Gary Latham found scientific evidence that shows that “the highest or most difficult goals produced the highest levels of effort and performance.”

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As Larry Page wrote in the foreword for How Google Works, making people think big is hard, and bold goals are key:

[Teams] tend to assume that things are impossible, rather than… figuring out what’s actually possible. It’s why we’ve put so much energy into hiring independent thinkers at Google, and setting big goals.

Is 70% the new 100%? In his now classic video presenting OKRs, Rick Klau mentions that: Objectives are ambitious, and should feel somewhat uncomfortable. The “sweet spot” for an OKR grade is .6 — .7; if someone consistently gets 1.0, their OKRs aren’t ambitious enough. If you get 1s, you’re not crushing it, you’re sandbagging. Klau's statement led to some questioning that “if 70% is the accepted result, isn’t 70 the new 100?”. This issue only happens if the team is not stretching. Allowing the 70% as the target would be like only touching your leg without trying to reach your feet  –  i.e. not stretching at all. The whole idea of a stretch goal is to keep trying to reach the 100%, even though you know that most of the time you won’t reach it.

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Moonshots vs. Roofshots The type of OKRs that Klau is describing is called “Moonshots.” In practice, there is also a second type of OKR, the “Roofshots.” The table below explains both: Moonshots

Roofshots

➔

Stretch goals.

➔

Goals that are hard but achievable.

➔

Just beyond the threshold of

➔

Success means achieving 100%.

what seems possible. ➔

Success means achieving 60-70%

Moonshots are a foundational building block of OKR, but they require a lot of organizational maturity. In my experience, moonshots can cause a few issues: They can demotivate the team People like to beat goals. Only achieving 60% of the OKRs can demotivate a lot of them, especially in the beginning. Lack of accountability and commitment Moonshots can be misinterpreted by some, creating a culture in which you don’t have to reach your goals: “Hey, it doesn’t matter. It’s just a stretch goal”. Alignment issues Especially when using activity-based Key Results, moonshots can cause alignment issues between interdependent teams. One team needs something from another but the second one is unable to deliver it since it was a stretch.

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That is why roofshots exist and are used by several teams inside Google, usually mixed with moonshots. One approach I like is setting one moonshot key result per OKR – the others are all roofshots. I strongly recommend that you start by using roofshots only. To develop a results-focused culture, begin by focusing on beating goals. Afterward, when the culture is more mature, you can evolve to moonshots to start questioning how far the organization can go.

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Creating Alignment OKR is first and foremost an alignment tool. But alignment can only happen when teams have structured conversations with each other to set priorities and solve interdependencies. Creating OKRs in isolation, without talking to others, is a widespread mistake. It usually prevents the team from achieving their OKRs by:

●

Setting OKRs that are not feasible, since they are not a priority for the necessary groups;

●

Defining OKRs that are overly optimistic due to the time needed by a third party to deliver a required action (the other party will either take too long or will start it too late to move the needle during the quarter).

To avoid this mistake, OKR uses three different alignment mechanisms: Transparency, Shared OKRs, and 360º Alignment.

Transparency OKRs are visible to all company levels — everyone has access to everyone else’s OKRs and current results. If you have a top-secret Key Result, it may be kept private, but the vast majority of your OKRs should be public. Transparency increases alignment since if one area of the business is not aligned with the others, it can be quickly noticed by the other teams and fixed.

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Shared OKRs Shared OKRs are the most effective tool to create alignment between multiple teams or functions. In a shared OKR, two or more teams share the same OKR, but each team has different initiatives. Instead of splitting a single goal among teams and have them set separate OKRs – which can lead to teams losing sight of the real objective – a single shared OKR is created among the teams. The shared OKR creates a virtual team that meets regularly to sync progress and track results and initiatives for the duration of the shared OKR For example, imagine that a product team wants to launch a new product and needs that the platform team develops new features while the business development team signs content deals with partners. Objective: Successfully launch Acme product Key Results: ➔

Reach 500,000 Daily Active Users of the free version;

➔

Achieve 5% conversion rate from free to paid users;

➔

Achieve a Net Promoter Score of 35%;

➔

Less than 5 critical or blocker bugs reported;

➔

Achieve at least 40% revenue share with 5 of the target content partners.

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Instead of having 3 different goals that could be individually achieved without generating the desired business result, this single OKR is shared between teams. Each team has different initiatives, but they all share the same OKR – the same definition of success. For the duration of this OKR, all three areas that will meet regularly to track progress.

360º Alignment One of the problems of the cascading model is that it is focused on vertical alignment – making sure your goals are aligned with your boss's goals and with her boss's goals – which can create silos. OKR focuses on 360º Alignment - top, down, and sideways - eliminating silos and addressing interdependencies. Teams can solve interdependencies by having structured conversations with each other to create 360º alignment. If a team needs something from another, they can discuss it and set shared OKRs priorities or even delay the initiative for the next quarter.

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Tracking Results with the Weekly Check-in Don’t let your OKRs turn into New Year's resolutions. You have to make them part of the work routine of each team by using the Weekly OKR Check-ins. The Check-in is a short ceremony for tracking results. The idea is not to increase the managerial overhead or to add more meetings but to make existing meetings more productive and even to merge or eliminate some of them. Check-ins should happen every week. Having monthly meetings to track results is intuitive when you have annual goals, but since you are using quarterly OKRs, you should also have more frequent Check-ins. They should be short and limited to one hour or less. I have worked with dozens of executive teams, and they all managed to keep it under one hour - usually around 30 to 40 minutes. Teams check-ins tend to be shorter, with some teams doing 15-minute stand-up Check-ins. Weekly Check-ins are probably the most powerful tool to make OKRs a part of the company culture.

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Having the right mindset during the Check-in is critical:

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Improving OKRs vs. putting out fires: Several teams have regular staff meetings, but they are usually dedicated to putting out fires and not on improving results. The Check-in reverses that: we will begin by measuring our OKRs.

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Focused on improving results and not on giving excuses: The Check-in should be about how we are going to improve our OKRs and not about listing all the explanations for the disappointing results that may eventually occur.

Forget "Scoring" A common approach to OKR includes the practice of scoring, where you give grades to each Key Result at the end of the quarter. Scores usually range between 0 and 1.0, with expected values being around 0.6 and 0.7 in average. My experience is that scoring has several problems:

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By defining OKRs at the beginning of the quarter and scoring them only at the end, you are setting yourself for failure. Without a regular cadence of measurement and follow-through, the numbers will not improve. The Check-ins create that.

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Most teams find the scoring process to be confusing since it can be extremely subjective ("What is a 0.5?").

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If you define the scores in advance, meaning you agree in the beginning of the quarter on what is a 0.3, a 0.7, and so on, you will increase complexity by 3x to 5x. For each Key Result, you will have to set three to five achievement levels, which is not a recipe for simplicity.

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Scoring brings almost no benefits if you are using Value-based Key Results. 37

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That is why my recommendation is: forget scoring. Use Value-based Key Results and just measure them. It will be simpler for the teams, and it will drastically reduce the time spent setting OKRs.

The Check-in Structure I have had the opportunity to coach hundreds of Check-ins. After experimenting with different approaches, I discovered that the best model for the Check-in includes four elements, described in the 2x2 matrix below:

OKR Progress

What changed in the Key Results since the last Check-in?

Confidence Levels

With the information we have today, how confident are we that we will reach each Key Result?

Impediments

Initiatives

What is slowing down

What are we going to do to

the team?

improve results?

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During the Check-in, the team goes through each element for each Key Result:

OKR Progress The Check-in starts with data. What is the current measure of that Key Result? What changed since the last Check-in?

Confidence Levels If the OKR progress is the quantitative aspect of the Check-in, the confidence levels bring the qualitative aspect. What is not in the data? For example, is there an important initiative running late or a key client about to cancel? Maybe one of our hypotheses has been invalidated? To set the confidence level, the team has to answer the following question: Considering the information we have today, how confident are we that we will reach each KR? Some companies use a 1 to 10 scale to set the confidence levels, but in my experience, it can be as confusing as scoring the Key Results. I recommend adopting three levels, either using colors (Green, Yellow, Red) or emoticons (Happy, Concerned, Sad).

Confidence Level

Description We expect to reach it. There is a risk we will not reach it, but we believe we can do it. We do not believe we will reach it unless we take a new approach. 39

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Two tips about the confidence levels:

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What matters is the conversation: all members of the team should discuss them. The confidence levels are an excellent alignment technique that will also allow you to assess the engagement of each team member quickly.

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Red (or "sad") does not mean the team should give up. It means the team should change their approach.

Impediments What is slowing the team? Is there an external factor that, if solved, could improve results? For example, does the team need better tools or is an initiative from another team delayed?

Initiatives What are we going to do to improve results? Remember that standing still does not work as the Check-ins are not just about measuring numbers. You have to do something to improve your Key Results. Or, as Donald G. Reinertsen wrote:

If measuring alone solved problems, buying a scale would make you lose weight.

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A Typical OKR Cycle A common OKR cycle would be:

1. At the beginning of the year, the company defines a set of high-level strategic OKRs – preferably with input from the team.

It is important to understand that the high-level strategic OKRs for the organization should not be set by the top executives in isolation, without inputs from the team. In his article titled Should You Build Strategy Like You Build Software?, Keith R. McFarland describes a model to create a more refined and execution-ready strategy:

Since people at many levels of an organization make daily tradeoffs that impact the company’s strategic success, the process needs to be designed to tap into ideas from all corners of the organization  –  more than just the top executives.

2. The executive team then validates the company OKRs, gathering feedback from the team.

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3. Teams develop their Tactical OKRs using the bidirectional approach described above. 4. Teams map interdependencies and ensure alignment with other teams and initiatives. 5. Teams have weekly check-ins to track results and initiatives. 6. For companies using quarterly OKRs, it is common to review the OKRs halfway down the quarter during a mid-term OKR review. 7. At the end of the cycle, you can have a quick retrospective/lessons learned and start over.

The simplest way to conduct a retrospective is the start-stop-continue format. In this model, each team member is asked to identify specific things that the team should: Start doing / Stop doing / Continue doing.

OKRs that haven’t been achieved in the previous cycle are re-evaluated so they can be included in the next quarter or discarded if they are no longer necessary.

Some companies view the Objective as a “vision” that the company and teams will pursue over time, so Objectives may rollover from one quarter to the next. For example, an Objective such as “Delight our Customers” is something that a company could use over several quarters, creating new Key Results at each tactical cycle.

Even some of the Key Results themselves can be the same over time, just changing the targets. Metrics such as Revenue and Net Promoter Score tend to be present in almost all quarters of all companies that I have seen. But the value drivers that each team will use to improve those metrics will change over time.

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Why you should separate OKR and compensation OKR is a management tool, not an employee evaluation tool. As such, a second tenet of the OKR framework is to separate OKRs from compensation and promotions. As Intel’s Andy Grove wrote:

[OKR] 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.

Rick Klau wrote:

OKRs are not synonymous with employee evaluations. OKRs are about the company’s goals and how each employee contributes to those goals. Performance evaluations – which are entirely about evaluating how an employee performed in a given period  –  should be independent of their OKRs. 43

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This approach is very different than the traditional model, which is showing signs of aging. A study by Willis Towers Watson showed that regular pay for performance tools are not effective at driving improved individual performance, nor at rewarding it:

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Only 20% of employers in North America say merit pay is effective at driving higher levels of individual performance at their organization;

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Employers give short-term incentives low marks. Only half say short-term incentives are effective at driving higher levels of individual performance, and even fewer (47%) say that these incentives are effective at differentiating pay based on individual performance.

The tale of two bonuses There once was an organization that had two employees on the same team: Paul and Mary.

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Paul was smart, focused and delivered results. But he was driven by monetary rewards and was always trying to figure out how to make more money.

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Mary was also smart and focused, but she was driven by her achievements. She believed that if she delivered, money would follow.

The organization used a simplified bonus formula, connecting goals to rewards: Bonus paid = ƒ(% of goals achieved * salary grade) This formula means that the size of the bonus was a function of the employee salary grade and the percentage of goals that the employee achieved.

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And then, the following happened:

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Paul achieved 110% of an easy goal that he successfully reduced after several rounds of negotiation with his managers;

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Mary achieved 80% of an ambitious, going way beyond anyone in the company thought was possible. A real moonshot.

Who deserved the higher bonus? Mary, of course. But who got the bigger bonus in the end? Paul. This tale is a classic example of a perverse incentive. Our incentive system is, for all practical purposes, rewarding the inappropriate behavior.

We are all Paul and Mary Everyone has a bit of Paul and Mary inside. Your incentive system should work for real people in real life. And even if you have a team full of Marys, why would you have a system that incentivizes something you do not want to happen? If you want to create a culture in which setting stretch goals is the norm, you should think about dropping the formula-based (or tightly coupled) model for both bonuses and promotions.

What’s the alternative? The alternative is to adopt a system in which the achievement of goals is input to the performance evaluation process, in which bonuses and promotions are defined. In this model compensation and goals are loosely coupled.

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The performance evaluation considers not only the percentage of the goals achieved but also the goals themselves: the difficulty and the impact on the business. Think about it as the Difficulty Score in gymnastics: you get more points for performing routines that are more difficult.

“But this is too subjective” One of the common complaints about this model is that it is “subjective” while the formula-based model is “objective.” The problem is that using a formula at the end of a process does not make it objective. People simply think it is objective because all they can see is a bit of math:

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Several companies around the world use, at least sometimes, spot bonuses or discretionary bonuses to compensate or complement the bonus policy. Both are 100% arbitrary, following subjective rules;

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Calculating the bonus based on who has the best negotiating skills to reduce the goals is “subjective”;

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Project/resource allocation is arbitrary. Sometimes the organization needs somebody to turn around a troubled project, which may hurt his/her bonus in the short run – which is usually compensated by spot bonuses.

As with moonshots, I strongly recommend that you don’t adopt this model in the beginning. Do not change your compensation model before having a stable and mature OKR capability in your organization.

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And how about sales quotas? Sales teams are different since the result is easier to measure. You can attach compensation to a sales quota, but you should avoid any model that rewards employees that negotiate a reduction in the quota.

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Common OKR mistakes Those are the most common mistakes we encounter in OKR implementations, starting with the most basic ones:

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Setting non-measurable Key Results: Remember John Doerr’s formula. Every Key Result has to be measurable.

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Too many OKRs or Key Results: OKR is not a laundry list of everything you do. It is a representation of your top priorities. Less is more here.

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Including tasks as Key Results: A Key Result is not something that you do. It is the successful outcome of what you did.

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Setting OKRs top-down: OKRs do not cascade. Trust your team and help them understand how they can contribute.

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Creating OKRs in silos: Teams have to talk to each other when setting OKRs, otherwise achieving alignment will be impossible.

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“Set it and Forget it”: Don’t treat your OKRs as new year’s resolutions. OKR has to be part of the culture of your organization and has to be tracked at a regular cadence.

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Felipe Castro

Including OKRs in a compensation formula: OKR is not an employee evaluation tool. OKR is a management tool.

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Trying to copy Google blindly: There is not a single way to adopt OKR. Even inside Google different teams use OKR in a variety of ways. Understand the principles involved and adapt your implementation to your organization.

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What's Next? Now that you have read The Beginner's Guide to OKR, there are a few things that you can do:

➔

Send me your questions or comments

I would love to hear from you. You can follow me on Twitter @meetfelipe or email me at [email protected].

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Learn how to customize OKR for your company

OKR is not a one size fits all approach. You should think of it as a set of customizable building blocks that you can leverage to transform how your company uses goals. Download this paper to learn how to adapt the OKR model to your particular context and culture.

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Download more OKR resources

Get OKR templates, cheat sheets and more at my resources page.

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How to leverage OKR if your company is not Google By Felipe Castro, Dan Montgomery, and Daniel Karrer

Companies should approach OKR as a set of customizable building blocks they can leverage to transform their goal setting process OKR (Objectives and Key Results), the Silicon Valley goal setting framework used by Google, Twitter and LinkedIn, is quietly taking over the corporate world driven by the trends of Agile, Lean Startup, Digital Transformation and Continuous Performance Management. Walmart, Target, Schneider Electric, The Guardian, Dun and Bradstreet, Sears, Kroger, and ING Bank are among the enterprises that are known to have implemented or to be experimenting with OKR. Many others are evaluating it. Even if your company is not in a fast-paced environment like software, every industry is facing increasing levels of uncertainty and complexity. OKR is designed to meet that challenge.

What is OKR? Agile enterprises are increasingly adopting a radical new approach for goal setting with the unassuming name of OKR (Objectives and Key Results). Unlike traditional top-down methods of planning, OKR is a simple, fast-cadence, bottomup process that engages each team's perspective and creativity. The big difference from traditional planning methods? OKRs are set, tracked, and reevaluated frequently - usually quarterly. In a typical OKR environment, at least 60% of the goals are set bottom-up, rather than being cascaded down, creating a more engaging environment for the teams setting the goals. OKR has two components:

When presenting OKR to our clients, we usually frame it around a set of provocative questions that challenge the traditional approach to goal setting:

Objectives are a qualitative description of what you want to achieve and should be aspirational, engaging and actionable.

! Why do goals have to be annual?

An example might be "Create an Awesome Customer Experience."

! How can we set goals in days or weeks instead of months? ! Do goals have to be boring? How can we make goals more fun and engaging? ! How can we ensure that our goals deliver actual value to customers? ! Do we have to cascade our goals top-down or can we include a bottom-up component? ! Do all goals have to have the same rhythm? Shouldn't we set shorter tactical goals and longer strategic goals? ! How can we encourage more ambitious goals?

"But we are not Google!" Many companies struggle with how to adapt OKR to their business and context. Google is unique, and some of its cultural traits are very hard to emulate. Not every company is ready for that level of openness and autonomy.

This Objective sounds great, but how would we know in a more precise way that we are creating better Customer Experience? Key Results are a set of 2-5 quantitative metrics you will use to measure your progress towards the Objective. Appropriate Key Results for that objective might be Net Promoter Score and Repurchase Rate. Do our customers feel so good about dealing with us that they would recommend us and buy again? But, measuring NPS and recurring revenue might encourage us to make the customer happy at any cost. So, a countermeasure such as Customer Acquisition Cost might be applied. Objective: Create an Awesome Customer Experience Key Results: • Improve Net Promoter Score from X to Y. • Increase Repurchase Rate from X to Y. • Maintain Customer Acquisition cost under Y.

We propose that OKR should not be seen as a monolithic, one-size fits all, approach, but as a set of customizable building blocks that can be leveraged by non-Silicon Valley companies to transform how they set and manage goals, even without adopting the whole OKR model.

The OKR Capability Model Our proposed framework for leveraging OKR (the OKR Capability Model) begins with the capabilities that each organization is trying to develop with the OKR implementation. Each building block contributes to one of three organizational capabilities: Responsive Rhythm, Engaged Autonomy, and Aligned Ambition. Responsive Rhythm: This capability creates a pace that enables the organization to quickly respond to change by adopting a continuous model for planning, decision making, and tracking results. Using goals gets so simple that they become what they should be: essential management tools, embedded in each team's work routine. Each company's rhythm should match the existing level of uncertainty: organizations in more uncertain environments or striving to be more innovative should set goals more frequently. Responsive Rhythm is the foundation for effective goal setting. Goals need to be straightforward and actionable with rapid feedback. It’s the first thing an enterprise should do before moving on to the other capabilities we will describe below. The building blocks that contribute to this capability are Agile Goals, Simplicity, Tracking Ceremonies, and Nested Cadences. Building Block Agile Goals

Simplicity

Description Instead of using an annual static planning process, OKR uses shorter goal setting cycles, usually quarterly, enabling organizations to quickly respond and adapt to new information or changes in the marketplace. The process is incredibly simple, and the OKRs themselves are clear and easy to understand. Intel’s original model set goals monthly, in a lightweight, straightforward process. This simplicity makes the goal setting process faster and easier, drastically reducing the time and resources spent setting goals. Too many companies suffer from the "Set it and Forget it" problem, where goals are ignored and detached from the real work.

Tracking Ceremonies To avoid that, OKR uses regular Tracking Ceremonies to help teams improve performance and achieve the desired results. Strategy and tactics have different natural tempos, as the latter tends to change much faster. To solve this, OKR adopts different rhythms:

Nested Cadences

! A strategic cadence with high-level, longer term OKRs for the company (usually annual). ! A tactical cadence with shorter term OKRs for the teams (usually quarterly). ! An operational cadence for tracking results and initiatives (usually weekly).

Engaged Autonomy: This capability connects the employees with the organization's strategy while giving them the freedom to decide how they can contribute to it in a way that adds actual value. To enable real autonomy, it is critical to shift from activities toward valuable outcomes - results that add value to the company strategy. i.e. Making your product faster may have no value if it adds cost within a low-cost positioning. Engaged Autonomy allows the team to participate in the strategic conversation, harnessing insights from anywhere within the organization. People don't feel merely accountable for delivering results; they engage with them. They care. The building blocks that contribute to this capability are Engaging Goals, Value-based Goals, Transparency, and Bidirectional Goal Setting. Building Block Engaging Goals

Description Goals are communications tools; they exist to communicate priorities. As such, they should be memorable instead of boring. Objectives should be engaging and fun. They can be informal, using slangs, jokes, and even profanity – whatever fits the company culture. A common goal-setting mistake is to use goals as macro To Do lists, binding the team to a fixed action plan that may or may not work.

Value-based Goals

On the other hand, Value-based OKRs measure the delivery of value to the organization or its customers, creating a culture focused on valuable outcomes instead of outputs. When focusing on Value, teams separate the OKRs from the Initiatives, your initial hypotheses of actions and projects to achieve the Objective that may change over time.

Transparency

OKRs are public to all company levels — everyone has access to everyone else’s OKRs and current results. Instead of using the traditional top-down cascading model that takes too much time and does not add value, OKR uses a market-based approach that is simultaneously bottom-up and top-down.

Bidirectional Goal Setting

From the company’s strategic OKRs, teams can understand how they can contribute to the overall strategy. In this process, around 60% of the tactical OKRs are set by the teams in alignment with the company goals and then contracted with the managers in a bubble-up approach. This model creates engagement and a better understanding of the strategy while making the process simpler and faster.

Aligned Ambition: This capability breeds organizational alignment around ambitious goals that create shared success criteria between different teams while ensuring that those goals are healthy and sustainable in the long run. Aligned Ambition catalyzes a culture of organizational reinvention in an environment where bold goals are usual and where the reward structure does not punish ambitious failures. The building blocks that contribute to this capability are Countermeasures, 360 Alignment, Decoupling Rewards, and Moonshots.

Building Block

Description Goals are known to create perverse incentives and harmful side effects (See the paper "Goals Gone Wild").

Countermeasures

360º Alignment

The OKR structure has multiple Key Results per Objective, embedding Countermeasures that address adverse consequences, creating OKRs that are healthy and sustainable. The traditional process focuses on creating vertical alignment: your goals are aligned with your boss's goals and with her boss's goals, which can create silos. OKR's marketplace approach focuses on 360º Alignment - top, down, and sideways - eliminating silos and addressing interdependencies.

Decoupling Rewards

Separating goals from salary and promotions is crucial to incentivize challenging and aspirational goals. If those who reach a lower percentage of their OKRs receive a smaller bonus, no matter how hard it was, we would be in fact penalizing ambitious goals. OKR should be a management tool, not an employee evaluation tool. The philosophy behind Moonshots is that if you are always reaching 100% of your goals, they are too easy.

Moonshots

Instead, OKR targets bold, ambitious goals that are just beyond the threshold of what seems possible and make the team rethink the way they work to reach maximum performance. Moonshots are so important that Google's "Ten things we know to be true." mentions them directly: "We set ourselves goals we know we can’t reach yet because we know that by stretching to meet them we can get further than we expected."

It is important to understand that an organization does not have to adopt all the blocks from a capability. The framework allows you to choose them individually.

How complex is it to adopt each building block? Some building blocks are easier to implement while others may present significant challenges for traditional organizations. We have grouped them in different levels of complexity: Small, Medium, and Large. It is important to understand that the complexity levels are not time estimates, but also incorporate the degree of novelty and uncertainty which creates mental overhead for the team. Although the complexity of each building block may vary depending on the organizational context, those are the levels we have found in many OKR implementations. They are included in this paper as a guideline for companies looking for quick wins in their OKR implementation. Building blocks such as Bidirectional Goals and Transparency may face cultural resistance within hierarchical companies, and their complexity can change a lot depending on the context. The closer

the organizational culture is to the Silicon Valley ethos of openness and autonomy, the simpler their adoption will be. Other elements are easy to understand but hard to master, such as 360 Alignment. Creating a Moonshot culture, where people set truly ambitious goals and without fearing punishment for not reaching them, is such an organizational challenge that it stands on its own. The table below lists the building blocks, capabilities and complexity levels:

Using the OKR Capability Model Each block can be customized both at the company level or at the team or functional level. Not all organizations are the same, and different groups may have different needs. For example: !

Most companies use quarterly OKRs, but some choose different tempos: some companies set OKRs every 30, 45, 120 or 180 days. Different business units may choose different cadences to fit their needs.

!

Although adopting weekly Tracking Ceremonies is highly recommended, some functions find that it is hard to move - or even measure - their Key Results every week. Teams dealing with employee engagement, for example, may want to track results monthly while tracking their initiatives every week.

!

Companies may want more ambitious goals from teams in product or engineering while expecting more predictability from accounting or sales. Instead of Moonshots, those teams focus on "Roofshots," goals that are hard but achievable.

The following scenarios illustrate how companies could customize OKR to their specific needs using the Capability Model: 1. GoalRevamp Corp: Creating a Responsive Rhythm At GoalRevamp Corp., goals were set over months and completely detached from the daily work of the employees. They were seen as yet another mandatory corporate tool that adds no value and is quickly forgotten - the classic "Set it and Forget it" mode. GoalRevamp Corp. decides to develop the Responsive Rhythm capability, by adopting the building blocks Agile Goals, Simplicity, and Tracking Ceremonies. The company chooses to implement Nested Cadences incrementally, starting with a pilot with two project-based tactical OKRs and adding the strategic cadence during the second quarter, after the process was more mature. After examining the other building blocks, the company also decides to adopt Value-based Goals to develop a culture focused on measuring and delivering value. Note: Organizations that are starting to use goals could follow a very similar approach. 2. LowHangingFruit Inc.: Concentrating on the Quick Wins LowHangingFruit Inc. wants to develop the three capabilities, but it prefers incremental implementations since they reduce complexity, add flexibility and deliver value faster. The company opts to concentrate on the quick wins by adopting the building blocks with smaller complexity first: Agile Goals, Simplicity, Tracking Ceremonies, Engaging Goals, Value-based Goals, and Countermeasures. After experimenting with those blocks, LowHangingFruit Inc. will evaluate the implementation of the remainders. 3. ConventionalCorp: Adopting OKR within a Hierarchical Culture ConventionalCorp has a more hierarchical, top-down, culture that traditionally resists openness. Although the executive team wants the benefits of OKR, they feel that they are not ready for a more transparent, bottom-up approach or for changing the compensation model. For now, they decide to adopt all the building blocks except for Transparency, Bidirectional Goal Setting, Decoupling Rewards, and Moonshots, which they will re-evaluate in the future. 4. MorphingCorp: Enabling Engaged Autonomy MorphingCorp is undergoing a Digital Transformation and transitioning its organizational structure towards cross-functional teams. The CEO understands that fostering autonomous teams is critical do becoming an Agile enterprise. The company decides to develop the Engaged Autonomy capability by implementing Engaging Goals, Value-based Goals, Transparency and Bidirectional Goal-setting. They also need to develop the foundational capability Responsive Rhythm and the corresponding building blocks. Note: Examples 3 and 4 could happen inside the same organization. Two of us have worked with a commodities company that wanted a more traditional approach for its manufacturing operations but needed to enable autonomy inside its new ventures and biotech arm. The two approaches could coexist within the same integrated model.

Transform your Goal Process If you want to understand more about the OKR Capability Model and how it could help your organization leverage OKR, please contact us at [email protected].

About the Authors Felipe Castro is the Founder of Lean Performance and the author of the upcoming book Agile Goals with OKR: Using Objectives and Key Results to create Value-Driven teams. Dan Montgomery is the Managing Director of Agile Strategies and the co-author of The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard. Daniel Karrer is a Founder and Managing Partner at EloGroup, a consulting firm specialized in producing high impact transformation for large organizations.

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Table of contents Introduction................................................................................................. 3 Getting the Right Tasks Done..................................................................... 5 Things to know about setting goals.................................................................................. 7

Benefits of Setting OKRs............................................................................. 9 How the ball got rolling: History of OKRs............................................... 11 From Andy Grove to Larry Page and Beyond................................................................ 13

OKRs in Weekdone: A History................................................................... 14 Setting Objectives...................................................................................... 16 Setting Key Results.................................................................................... 19 What are Hierarchical OKRs..................................................................... 22 OKR progress monitoring................................................................................................ 23 Grading and reviewing OKRs........................................................................................... 24

Examples of OKRs...................................................................................... 29 Conclusion.................................................................................................. 31

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Introduction By: Ben Lamorte Objectives and Key Results (OKR) is a critical thinking framework and ongoing discipline that seeks to ensure employees work together, focusing their efforts to make measurable contributions. This is how I’ve defined OKRs and you’ll find an analysis of this definition in the 2016 book on OKRs that I co-wrote with Paul Niven. Paul’s really the author here and I’m really the OKRs coach. So how did a guy like me become an author? Simple answer: I set OKRs. My Key Result was “OKRs book published by a leading publisher such as Random House or Wiley”. It was a major stretch for someone who’s never written a book before. It felt nearly impossible, and I almost gave up after a few months. Then, I decided to publish a white paper as a first step. The next thing I knew, Paul read the white paper and suggested we co-write a book. The rest was history. I’m amazed at the immediate impact OKRs can make in almost any organization. And I see the positive impact all the time, even with larger organizations such as Zalando, eBay, CareerBuilder, and Dun & Bradstreet, and Booking.com. Whether you, your team, or your company deploys OKRs, I expect that you will experience a tremendous increase in focus, engagement, and alignment. When I say OKRs is a critical thinking framework, I mean it’s all about asking questions. Questions like “is this really the right objective?”, “does this key result really reflect achievement of our objective?”, and “what is the intended outcome of that task?” I’ve found it can be easier to just go to work and do your job without asking these questions. However, my mentor, Jeff Walker, asked me “when you go on a hike, do you have

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a destination?” It’s amazing what you can accomplish at work when you pause to define and align on your destination. The OKRs model is a simple way of defining and aligning on your destination at work. And, more and more of us are embracing the OKRs model. Just two years ago, I complained that there were no books covering the topic of OKRs. Today, we have Christina Wodtke’s Radical Focus, Niven & Lamorte’s Objectives and Key Results, and this eBook on OKRs created by the team at Weekdone. While I expect this eBook will answer many of your basic questions about OKRs, I truly hope it inspires you to define and align on your destination at work. And get there! Good Luck, Ben Lamorte Co-author “Objectives and Key Results” http://www.okrs.com/

Step by Step Guide to OKRs

OKRs process helps the company to envision how success looks like. Henry Mason - Managing Director of TrendWatching

Getting the Right Tasks Done Getting the right tasks done. Profit. This is probably the most simplified business model that fits any company. And it seems easy. Well, it isn’t. When you finish this book, you’ll know how to set clear OKRs, like this:

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Figuring out exactly what you have to accomplish is hard for any business. You may have a great idea, an inspiring vision, and an impeccable gut feeling, but that’s not enough. This book is about that: about getting the right tasks done. It’s about setting and communicating the right goals and understanding how to achieve them. It teaches you how to manage a team better and more efficiently. It shows you how to get the maximum out of your team, thus giving a feeling of success. It’s about Objectives and Key Results, better known for their acronym: OKR. What are OKRs: •Set goals - Objectives •Measure progress – Key Results •Share it with co-workers •One direction. Everyone works towards •Aligned hierarchy: –Company - Department - Team Personal •Transparency. Open, clearly communicated teamwork

Step by Step Guide to OKRs

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Things to know about setting goals Objectives and Key Results (OKR) are an increasingly popular methodology for increasing you and your team’s productivity and focus. In simple terms, OKR is an easy process of setting company, team, and personal goals then connecting each goal with 3-4 measurable results. As you achieve those results, the whole objective gets marked done.

In recent years, OKR popularity has increased greatly. We’ve seen companies big and small, from churches to Fortune 500, implementing it with success. As the world becomes increasingly more integrated, OKRs are a simple way to create structure for companies, teams, and individuals. The most surprising aspect of OKRs is that it suits everyone, regardless of their industry or size. Each team can find an optimal way for implementation. Keeping this in mind, it’s always fascinating to learn how successful corporations are using OKRs.

Step by Step Guide to OKRs

Sam, a 30-something year old ex-Silicon Valley founder, was recently hired as a marketing manager for a small company with 100 people working from 3 different offices across the US. He was brought in as things were not looking good. Revenue had been declining for a few years, the marketing team’s morale was low, and the executives felt a breath of fresh air might do the trick. The marketing team was disengaged. Despite their best efforts they hadn’t been able to achieve positive results. What’s more, their salary was tied to revenue which meant their income was declining as well. There were talks of layoffs and everyone was worried about the end-of-year review. Luckily, Sam became a much-needed breath of fresh air for the company. His ideas would change both the team and the company. Of course, nobody said the process was going to be easy. All good things require work and commitment. But in this case it was well worth the struggle. .

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“It makes it easier to align what every individual of the company wants to achieve each quarter” Lyle Stevens, CEO of Mavrck

Benefits of Setting OKRs Importance of having Objectives. •Vision of where you want to get •Prioritization of how to get there •Know what’s expected of you •Guide people towards the right path •Daily focus on most important goals

In every team, department, and company, all workers have a specific role to play. Like gears, these employees work together to keep the machine (the company) running.

Step by Step Guide to OKRs

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But humans are not machines, they won’t work mindlessly. They need to know what they are doing and why they are doing it. Not to mention, how it affects everyone else and the company. If you’re in a leadership position, you probably have a good understanding about why things are as they are in your company. It’s easy to forget that employees, doing their day to day jobs, dealing with all the small mundane tasks, don’t have access to this big picture. The benefits of OKR methodology is just that: to make sure everyone knows what they are expected to do and why. OKRs, on a personal, team. and company level make up a system that shows how everything one person does connects to the work of others. If an employee knows that not meeting his goals makes achievements harder for people in other departments, they will want to try harder. When everyone knows how their work matters, it increases overall engagement, motivation, and determination. It’s a psychological effect: no one wants to be the weakest link, so they’ll try harder. This is a very powerful tool.

Step by Step Guide to OKRs

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OKRs should become more important, the more senior an employee becomes. Jeff Weiner, CEO of LinkedIn

How the ball got rolling: History of OKRs OKR methodology started its climb to popularity when John Doerr introduced OKRs at Google in 1999, but OKR methodology had been championed even earlier by Andy Grove, the late CEO of Intel during the 1970s. Doerr has said: “I remember being intrigued with the idea of having a beacon or north star every quarter, which helped set my priorities. It was also incredibly powerful for me to see Andy’s OKRs, my manager’s OKRs, and the OKRs for my peers. I was quickly able to tie my work directly to the company’s goals. I kept my OKRs pinned up in my office and I wrote new OKRs every quarter, and the system has stayed with me ever since.” The actual birth of OKRs can be traced back to Peter Drucker, one of the first managerial thinkers, who, in the 1950s introduced a system called “Management by Objectives” (MBOs) that called for setting objectives for everyone who works in a company. These goals had to “lay out what contributions a given individual and their unit are expected to make to help other units obtain their objectives.”

Step by Step Guide to OKRs

With his startup background Sam was used to getting results. In the Valley he had developed a mentality of getting things done by being agile and flexible. The key to that, he knew, was setting meaningful and impactful goals to be executed right away. After extensively researching goal setting techniques (using Google search), he ended up with OKR methodology. The question now was, how to implement them on a demoralized team, who still saw him as an outsider?

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Step by Step Guide to OKRs

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From Andy Grove to Larry Page and Beyond Andy Grove reshaped the MBO system into a simpler form that answers the questions: 1. Where do I want to go? 2. How will I pace myself to get there? He also suggested objectives should be set more frequently, on a quarterly or monthly basis, as the fast-paced world requires constant feedback. He also believed multiple performance management tools should be used in conjunction with OKRs. Finally, he believed OKRs should be stretch goals and achieving them 100 percent should be next to impossible. Having gotten a lot of leadership lessons from Grove, John Doerr introduced the system to Larry Page and Sergey Brin, co-founders of Google. Nowadays, OKRs have been implemented at many companies from LinkedIN and Spotify to smaller SMEs.

Step by Step Guide to OKRs

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Weekdone has helped me to stay connected and keep on collaborating with my team Michele Puccio - Sales Director at Arrow

OKRs in Weekdone: A History 22.01.2013 Weekdone public launch

30.09.2013 Introducing Company and Team Objectives

1.10.2013 Gold Prize in Estonian Design Awards

17.10.2012 Weekdone beta launched

2014

14.11.2013 Weekdone wins Slush pitching contest

6.2014 14.04.2014 Estonian Best Mobile application award Android app launched Estonian Secure Mobile E-service award

2016

1.07.2014 Objectives and Key Results launched

1.2015 Company becomes & stays profitable

10.2016 Weekdone 3 released

2015

3.2015 Apple features Weekdone as "Best of Productivity"

1.10.2013 iOS app launched

2013

11.2013 $200k investment round closed

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The only way to meet you quarterly objectives is to work hard on them every day. Leaders want to constantly know what’s going on in their teams without being inundated with useless information. Weekdone offered PPP progress tracking, “Plans, Progress, Problems”, for that for four years. It is one of the easiest weekly monitoring methodologies imaginable. Weekly status reporting consists of 3 different questions or categories: • Plans. What are you planning? (Future) • Progress. What have you done? (Past) • Problems. What problems are you facing? (Present) Each week, employees answer these questions and a manager can get an overview of what’s going on. Customers had been using Weekdone for their weekly planning for about a year when many of them started asking: could we start using Weekdone to manage long-term objectives as well? It was a great idea and Weekdone incorporated OKR into the app. We can see that combining these two methodologies yielded marvelous results. The interest in OKRs has been rising rapidly over the last year and every week more companies from small three person teams to Fortune 500 companies want to try it. And for a good reason.

I hadn't seen the combination of PPP reporting and OKRs done anywhere else and I really liked the simplicity of how they all merge.

Shawn Rucks, Deverus.

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Weekdone helps to train people to use objectives and key results in the right way. Scott Wolfe Jr., CEO of zlien

Setting Objectives Objective: Set Objectives for other teams

Most companies have some sort of goals, or at least an idea about how to make money. In the OKR framework objectives are much more than that. It takes a lot of thought to set good quarterly objectives. On the one hand, they must be broad, visionary strokes, but they must also be relevant and focused.

Step by Step Guide to OKRs

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Objectives should be qualitative and describe the desired outcome. For example: Understand customer needs. There is no need to have numeric metrics for objectives (you’ll have those with key results, but that we’ll discuss a little later.). You can see examples of different objectives for different teams at the end of this book. The main characteristics of objectives are: • Actionable: Objectives should be goals that a person or a team can execute independently.   • Inspirational: They should excite employees and give them a reason to be excited on Monday morning when going to work. • Time Bound: OKRs should be set quarterly so that people can get them done as fast as possible.

Sam wanted his team to get results fast, so quarterly OKRs were a good fit. He also needed a new way to motivate the team, so he decided that employee goals should not be tied to their salary. It was a tough sell to management, who has always believed money to be a good motivator. Luckily, Sam’s idea prevailed. Sam argued that for the younger workforce, money is not as big of a motivator as most people think. Money is a motivator, of course, but if you pay employees enough, other factors come into play. Besides money, employees also need meaningful tasks that make them excited about their work. Everyone on the team and in management agreed that the purpose of the marketing team was to increase revenue, yet no one

Step by Step Guide to OKRs

really understood why it was declining. To set OKRs, a team meeting was called. OKRs should always be set as a team: not only does it make sure that people can give their input, it ensures that everyone understands the final goal clearly. For the first quarter, they decided to set one company objective: “Understand the company’s revenue and the factors that influence it.” This is a good baseline objective example to help you get started. Notice, the objective itself has no indicators to measure success, yet it is still a goal that everyone can understand. What’s more, it ties directly to the company’s overall goal of increasing revenue.

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Step by Step Guide to OKRs

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If you are using an OKRs based management approach, Weekdone is the best tool I have seen for documenting what the objectives are and keeping them all aligned to each other. Lyle Stevens – co-founder and CEO of Mavrck

Setting Key Results Key results measure how far from reaching your objective you are. It adds metrics to objectives. The easiest way to set Key Results is to follow the SMART model. SMART is a methodology that sets criteria to the tasks you set. The KRs must be Specific, Measurable, Achievable, Relevant, and Timebound. The questions you need to ask for each goal are: • Specific: is the KR well-defined and understandable for everyone? • Measurable: can you measure success or failure? • Achievable: is it realistically possible to do? • Relevant: is this KR important for your objective? • Time-bound: have I clearly established when the goal must be met? For OKRs this time is usually one quarter For the Product team, you can measure percentages of job done; for sales, you can measure their success in dollars or another currency. You can also go binary with the “Done-Not Done” scale.

Step by Step Guide to OKRs

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KEY Result types: •0-100% progress •Any % value or x% to y% change •Euros, dollars •Items, units, articles, people •1-5 or 1-10 grade rating •Milestones, stages, project phases Deliverables, tasks, outcomes

While the objective was inspirational and got people thinking about the right things, the key results needed to give clear directions on what to do and how to do it. Sam decided on 3 KRs for their objective to keep it as simple as possible. Each KR was assigned to a different person in the team so it would be absolutely clear who was responsible for what.

Step by Step Guide to OKRs

The final plan looked like this:

As one can see, all the KRs are easily measurable and give clear instructions for day to day operations. Of course, these are not the only things the marketing team will do. The OKRs don’t list every weekly mundane task that people do. OKR is a shining beacon for guiding everyone in the right direction. It also makes sure, the most important tasks get done as efficiently as possible.

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Step by Step Guide to OKRs

The OKRs definitely help to foster the idea of continuous improvement and pushing longer goals rather than just getting through the workweek.” Andrew Nelson, Exxact Corporation

What are Hierarchical OKRs

To get the best results OKRs should be aligned to one another. Each part of your company must know what’s going on and how each part contributes to the whole. Our belief is that in order to get all the employees in

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Step by Step Guide to OKRs

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your company working as one, they all should share an aligned, hierarchical tree of objectives and key results. The more visible, transparent, and up to date everyday progress is, the better it works. True success only arises if teams do what’s best for the whole company and employees do what’s best for the team. The first question that comes up is: should defining the OKRs happen bottom-up or top-down? There is no wrong or right way in this case. In some case upper management or the CEO outlines the company OKRs first and then asks team managers to set their team goals in accordance with the company ones, followed by personal employee goals based on team ones. In other cases, all employees are asked to come up with suggestions for their next quarter’s activities. In both cases, you come together at the team level to reiterate them and add, delete, or modify some of them. In the end the process moves both ways. You need to go over the company level objectives and personal objectives many times before they work well together. That is all part of the process of setting and aligning goals.

OKR progress monitoring One of the main problems with any sort of goal setting technique is that after a lot of effort has been put into designing and shaping goals, people forget them and only remember them when they are due. OKR methodology addresses this problem with constant monitoring. The progress toward Key Results should be measured weekly to see how much has been done. If a week has passed and you’ve got no progress, there is a problem that should be addressed by the team leader and the person responsible for the goal.

Step by Step Guide to OKRs

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It is crucial that we receive reports that show our OKRs and what progress we make each week to achieve those. I was pleased that this was customized by Weekdone for us. Bianca Courtenay, SnapShot Common mistakes for setting KRs • Over 5 Os or KRs • Listing too small unimportant tasks • KRs not measurable, not numeric • Not understandable to co-workers • Continuous ongoing Q-to-Q goals have no growth • Not challenging enough

Grading and reviewing OKRs OKRs should be reviewed weekly to avoid discovering that you have no results at the end of the quarter. However, and this is important: you should not grade success based on your objectives. The grading goes on at the Key Results level. There are companies who like grading objectives by adding a binary “done-not done” mark on it. This commonly used model states that an objective is done if you complete all the KRs. So if you had 3 KRs and didn’t

Step by Step Guide to OKRs

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hit the mark on one of them, the objective stays at 0. This tends to reduce morale and increase confusion as OKRs are often set very high and the risk of failure with some KRs is not only common but expected. KRs must always be measurable, and you need to figure out that criteria when setting them. With OKRs, it’s important to set them high enough that 100% is uncommon. Getting 100% should be a near-impossible feat that only a few teams accomplish. In general, you should probably set up expectations like this: 100%

70%

30% 0%

It is very common to finish your first quarter with mostly 100% or with mostly zeros, especially if you had no prior experience in setting OKRs. It’s important to remember that OKRs are not a project you run for 3 months. To work well, they must be used constantly and the progress must be improved every quarter. In 3 or 4 quarters, you should have a clear idea on how they work and most of your KRs should fall into the 70% category. Then you’re all set.

Over the next 3 months, Sam started each of their weekly meetings with questions about OKRs. “What did you do last week to make progress?”

Step by Step Guide to OKRs

For the first few weeks, the answers came hesitantly as people hadn’t become used to the system yet, but by month two, everyone was on board. When the quarter ended, the results looked like this:

The results were discussed during a team meeting where people could explain the results. It turned out, that (For KR1) clients were not so keen on answering surveys, even though the person responsible tried to contact them every week. For KR2 and KR3, the mapping process was so extensive that there wasn’t enough time to analyze the results. All in all, Sam was happy with the results and the engagement level of the marketing team had improved considerably, which in turn

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Step by Step Guide to OKRs

meant that, though not shown in the OKRs, the sales numbers had started to improve a little. The data they collected was not only helpful for their team but helped other people working in the company as well. It’s important to understand that everyone in the company is connected, the success and failures of one team directly affect others. Sam understood that some mistakes had been made when setting OKRS: Both KR2 and KR3 should have been split into two separate key results and could have been added under a separate Objective for clarity. It’s better for a KR to have one variable. In that case, the Objective would have looked like this:

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Step by Step Guide to OKRs

As Objective 1 was mostly completed and the hypothetical Objective 2 was left undone, Sam decided to use Objective 2 as one of the Objectives for the next quarter. And their work continues. Over the next year the success of the marketing team convinced the executives to start using OKR methodology throughout the entire company. Sam continued running the marketing team while also helping other managers get started with OKRs. The company improved. The numbers went up and it also became a desired working environment. And they lived happily ever after. Sam was at a disadvantage as there was very few materials available on the methodology. This is a disadvantage that has now been eliminated thanks to many writers and leaders who believe in Objectives and Key Results. Now, everyone can easily do what Sam did.

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Examples of OKRs Example company or sales OKR:

 Increase Q2 recurring revenues KR Increase average subscription size by $500 dollars per month ($0 - $1500) KR Increase the share of monthly subscriptions vs one-time contracts sold to 85% (50% - 85%) KR Increase annual renewals by 50% (0% - 50%)

Example company or HR OKR

 Improve internal employee engagement KR Conduct a monthly “Fun Friday” all-hands meetings with an external motivational speaker (0 - 3 meetings) KR Start using OKR in all 10 teams and 5 departments (0 - 1 done) KR Conduct face to face interviews with 48 employees on their needs. (0 - 48 interviews)

Example Finance OKR

 Improve annual budgeting and business planning KR Submit all 5 budget proposals before 1st of September (0 - 5 submitted) KR Conduct a 4 planning session with each of the 5 division manager before their proposals (0 - 20 sessions) KR Close the final budget by the end of November (0 - 100%)

Example Product Management OKR

 Implement new 360-degree product planning process KR Finish documentation that divides clear roles between sales, marketing, design and development (0 - 100%) KR Decide on and implement the input methods from design and development back into product management (0 - 100%)

Step by Step Guide to OKRs

Example Marketing OKRs

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 Successfully implement the weekly newsletter KR Grow subscriber base at least 5% per every week (0 - 65% increase) KR Increase the CTR% to above industry average of 3.5% (0 - 1 done) KR Finalize the content strategy, key messages and topic structure for the next 6 months (0 - 100%)  Activate user-testing KR Conduct at least 4 face to face testing sessions per month (0 - 12 sessions) KR Receive at least 15 video interviews from Usertesting.com (0 - 15 interviews)

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Conclusion This book has both the basic knowledge and practical examples you need to start implementing Objectives and Key Results in your team.

We hope that your journey to become a goal setting master does not end here. Instead, we wish you many productive quarters of clear Objectives and well set Key Results. To make sure your team has clear goals and a strong synergy, try out Weekdone. Implementing Weekdone is instant. Just sign up for our free trial at weekdone.com, invite your employees and you’re all done. In less than a week, you will get your first structured employee progress report via e-mail from your people, one that you can quickly give feedback on. Go and make your goals a reality.

THE ULTIMATE CHECKLIST Launching Objectives & Key Results Make sure your Objectives fit the criteria below: Quarterly Measurable (Complete/Incomplete is measurable despite not having a number) An Objective is just a statement / headline of WHAT you want to achieve Can be aligned below to or contributed to from below

Set only 3-5 Objectives total You should set only 3-5 objectives per quarter plus keep your Key Results to just 1-3 per Objective. Keep it simple - less is more. If you have too many Objectives or KRs, it becomes too distracting and your team will be running in too many directions to try to hit them.

Ensure the OKR process is 70% bottoms-up Don’t just give objectives and directives to your team but instead start by sharing your top objectives and then ask everyone for what objectives they propose to set for themselves so that your top objectives can be achieved. This way you get the buy-in and your people will be more committed to their objectives. Plus you will have tapped into the collective wisdom of your team rather than merely telling them what to do.

Check on progress every single week without fail This is the most critical step in executing and achieving your OKRs. A great deal happens during the span of a week and there are only 13 weeks each quarter. If the executive or a manager does not check in on the progress weekly and doesn’t know the status or the bottlenecks/obstacles then it is impossible to course correct.

Designate operational vs. aspirational Some objectives can be “operational” and in this case achieving 90%-110% of the KR is an acceptable outcome. But you may also want to have “aspirational” also known as moonshots and then even if you achieve 60%-70% of the KR then you should consider that a win.

Specify the tactics that will achieve each Objective It’s important to plan the tactics you will use to achieve the key result simultaneously as you set your KRs. If you don’t do that then you won’t know which knobs to turn and levers to pull in order to achieve your KRs.

The Definitive Guide to OKRs by Qulture.Rocks How Objectives and Key-Results can help your company build a culture of excellence and achievement. Francisco Souza Homem de Mello ISBN 978-0-9904575-7-2 © 2016 Qulture.Rocks, Inc

To my partners Chris, Fred, Caio, João, and Felipe.

CONTENTS

Contents Introduction . . . . . . . . . . . . . . . . . . . Why set goals . . . . . . . . . . . . . . . .

i ii

TL;DR . . . . . . . . . . . . . . . . . . . . . . .

1

Introduction . . . . . . . . . . . . . . . . . . .

3

A Brief History of OKRs . . . . . . . . . . . .

5

A bit of goal-setting science . . . . . . . . . . 10 OKRs and Hoshin Kanri . . . . . . . . . . . . 15 Results-orientation . . . . . . . . . . . . . . . 16 MBOs x OKRs . . . . . . . . . . . . . . . . . . 18 OKRs and Strategic Planning . . . . . . . . . 22 How goals contribute up . . . . . . . . . . . . 28

The Definitive Guide to OKRs | Qulture.Rocks

CONTENTS

The OKR cadence . . . . . . . . . . . . . . . . 34 Troubleshooting . . . . . . . . . . . . . . . . . 44 The End . . . . . . . . . . . . . . . . . . . . . . 51

The Definitive Guide to OKRs | Qulture.Rocks

Introduction

i

Introduction We at Qulture.Rocks have a big dream: to bring agile, ongoing performance management to each and every company worldwide. We think better performance management practices, that include meaningful goal-setting, constant feedback, and greater alignment and purpose drive engagement, happiness, performance, and more profits and sustainability as a much wanted - byproduct. Agile goal setting is one of the bedrocks of a great ongoing performance management system, and OKRs are but one of a few different ways you can call and organize agile goal setting in your company. After being widely publicized by Google in a number of videos, presentations, and blog posts, the methodology, that was supposedly invented by Andy Grove at Intel and brought to Google by a venture capitalist called John Doerr, has drawn a lot of attention from the management community. So the goal of this book is to explain in detail how OKRs work. There’s a LOT of confusion on how they work and how they should be applied. Pundits and influencers alike are of no help: they frequently cite The Definitive Guide to OKRs | Qulture.Rocks

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Introduction

what is believed by agile goal-setting experts as wrong examples of OKRs. So we felt HR professionals, entrepreneurs, and executives deserved a better source of knowledge on the subject. We truly hope you like it!

Why set goals Well-set goals drive people to produce better results in myriad ways ¹: • they motivate people into achieving better results (what we’d call the “effort” component) • they drive people of expend effort in the right direction, or, in the corporate setting, in alignment with what the company’s strategy (what we’d call the “direction” component) • they increase focus on the activities that have the highest leverage towards the intended results ¹New Developments in Goal Setting and Task Performance, edited by Edwin Locke and Gary Latham, is the most comprehensive piece of science in the effect of goal setting on performance. It’s a meta-study of more than 500 papers and theses on the subject, and will be cited by us extensively. We won’t for time sake, be using formal scientific citation formats, because it’s 2016 and frankly we don’t have time for it.

The Definitive Guide to OKRs | Qulture.Rocks

Introduction

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Note that we’ve mentioned well-set goals. There’re a number of scientifically-proven best practices, which we’ll cover in the present ebook, that should be observed when designing and executing a great goal/OKR practice.

The Definitive Guide to OKRs | Qulture.Rocks

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TL;DR

TL;DR OKRs are an acronym for Objectives and Key Results. Objectives are high-level, qualitative goals. KeyResults are specific, SMART goals that support the Objective. When we say support, we mean Key-Results should include metrics that trully translate Objective accomplishment. Some pundits use a very simple statement: We will achieve ________ as measured by ____, ____, and ________. The first space is filled by your Objective, and the second to fourth are filled by Key-Results. Let’s use an example to illustrate our definition: Objective • Increase the profitability of the company (Since OKRs belong to cycles, if they don’t have a “date” stamp to them, you should automatically assume the goals should be completed before the end of the cycle.) Key Results • Increase revenues by 10% The Definitive Guide to OKRs | Qulture.Rocks

2

TL;DR

• Reduce costs by 3% • Maintain general, and administrative expenses nominally constant As you can see, the Objective is a bold goal, specific, time bound, but still achievable (as opposed to doubling my profit in a month). Key results are the actual targets, as measured by KPIs, that will really acid test Objective achievement. They are what, in MBOs, we know by “goals”. As you can see, I’ve used Andy Grove’s method of KeyResults breakdown: using KRs as milestones for goal achievement. There are other possible approaches. Some people defend that Objectives have to be qualitative, whereas Key-Results have to be quantitative.

The Definitive Guide to OKRs | Qulture.Rocks

Introduction

3

Introduction If we come to think about it, there’s a blurred line that separates a job description, a goal, and standard operating procedures. Job descriptions would be fine by themselves if we substituted humans with robots, and robots were always pre-programmed with job descriptions and a manual of standard operating procedures: they would perform their jobs and responsibilities perfectly, capped only by the machines mechanical/processing limitations. But it turns out there are many tasks we haven’t figured how to program robots to do better than us, yet. We humans are very good at having common sense, and transferring knowledge from one set of applications to another; at figuring out weird patterns; and at coming up with novel solutions to problems. With this set of amazing skills comes also some limitations at performing and sustaining performance at our fullest potential, two problems that are closely related to our - unique? - faculty: volition. That could happen because a lack of challenge (related to our frontal cortex) or a lack of purpose - the “why” of what we’re doing it. If we’re supplied only with job descriptions, The Definitive Guide to OKRs | Qulture.Rocks

Introduction

4

we may forget them, or lose our motivation to perform it at our best. We may even lose track of what “best” means. Goals come in to fill this need. They help us find a sense of purpose when we properly participate in their setting, but also by linking our responsibilities at tasks’ outcomes to greater outcomes, like the success of the group we work in/with; they provide us with a challenge to constantly perform at our best; they provide gratification when we reach them, which reinforces the cycle. OKRs are basically goals: an old staple of business management, rebranded, repurposed, and tweaked to 21st century necessities of companies and professionals.

The Definitive Guide to OKRs | Qulture.Rocks

A Brief History of OKRs

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A Brief History of OKRs OKRs are an old staple of business management, rebranded, repurposed, and tweaked to 21st century necessities of companies and professionals. It all started with the fathers of management, Taylor, Ford, and the sorts, who began facing business like a science. How so? They figured they could measure outcomes, and then formulate hypotheses as to how they could improve these outcomes. The main outcomes back then were productivity, as measured by output per employee. These guys figured out optimum work schedules, break times, and lightning arrangements for factories. They also started streamlining production, adding specialization to the factory floor. These practices all brought incredible, tangible improvements. In the 50s, a fellow named Peter Drucker, who’s believed to be the greatest management guru that ever lived, figured out that adding goals to managers could be a great thing. Not only they had to improve their outcomes, as Taylor and Ford had, but they The Definitive Guide to OKRs | Qulture.Rocks

A Brief History of OKRs

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also had to aim at specific target outcomes from time to time. Drucker called this framework Management by Objectives, or MBO, a concept introduced in his seminal book The Practice of Management. Since the introduction of MBOs, practically every modern Fortune 500 company practices some sort of goal setting. It’s proven to bring better results than not having goals . Some companies set them once a year; some companies set them twice a year. A number of them tie variable compensation to reaching your goals, and another number of them perform some sort of performance review based on these goals and results. The term OKRs was introduced by Andy Grove, a de facto cofounder of Intel (he joined the company on the day of its incorporation, but is not listed as a cofounder,) and its former CEO, in his great management book High Output Management . Grove didn’t bring any transformational insight to MBOs, but spoke about appending key-results to goals, and calling goals objectives. But making key-results an integral part of the MBO process is very important: it brings clarity to how goals can and should be attained, and makes this “how” evident and transparent to everybody. In Grove’s view, key-results had to be chronological milestones that took professionals in the direction of reaching their goals: a one-year goal could be broken The Definitive Guide to OKRs | Qulture.Rocks

A Brief History of OKRs

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down into 12 monthly key-results, or 4 quarterly keyresults. He treated them specifically as “milestones.” That use was attuned to Intel’s 80s reality: a large company, already on the top of its game, looking to translate its strategic planning into actionable goals and milestones for the whole organization. Another Grove tweak to MBOs was his belief that goals (objectives) and key-results had to be set in a bottom-up process, from the employee up, so as to bring buy-in and empowerment to the process. Before that, companies would shove goals down the organization, from the Board to the CEO, down to VPs, and so on. Grove enabled employees to set their goals according to a broad guidance from the company, to be then calibrated with direct managers. Last, but not least, Grove insisted that OKRs be aggressive, meaning – very – hard to achieve, what he called “stretched.” He went further along, and instituted 70% as the new 100%, meaning that achieving 70% of your goals was as good as hitting them, since they were purposely baked very hard . In the late 90s, OKRs spread out to other Silicon Valley companies, through the inspiration of Jon Doerr, a partner of Kleiner Perkins Caufield Byers, one of the world’s foremost venture capital firms. Doerr had worked for Intel under Grove’s leadership, and got The Definitive Guide to OKRs | Qulture.Rocks

A Brief History of OKRs

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acquainted with its use of OKRs, later thinking it could be adapted to other companies of KP’s portfolio. That’s how Google, and later on Zynga, became fierce advocates of OKRs, tweaking the tool to their specific needs. But what made Google’s version of OKRs different from Intel’s? Not much. Google shortened – a lot – the OKR cycle, making it a quarterly process. That means the company, its senior executives, and basically every employee, sets his or hers objectives and corresponding key-results quarterly, a practice more attuned to the incredibly fast-paced reality of web 2.0 technology companies. Google enforced Grove’s position that goals should not be cascaded down the organization in a top-down manner, and greatly expanded upon it, according to Laszlo Bock, its SVP of People Operations: “Having goals improves performance. Spending hours cascading goals up and down the organization, however, does not. It takes way too much time and it’s too hard to make sure all the goals line up. We have a market-based approach, where over time our goals converge, because the top OKRs are known and everyone else’s OKRs are visible. Teams that are grossly out of alignment stand out, and the few major initiatives that touch everyone are easy enough to manage directly.”

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A Brief History of OKRs

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That means at Google, everyone’s OKRs are set by themselves, and made public via its intranet. Google ensures that individual OKRs are aligned with its own through a mix of supervisor oversight, peer pressure, and psychology.

The Definitive Guide to OKRs | Qulture.Rocks

A bit of goal-setting science

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A bit of goal-setting science (Or, the goal of having goals.) Goal-setting has historically been used in the corporate world for two main purposes: • To motivate employees (efficiency) • To assess their performance Let me explain this: HR common sense has always said that goals motivate employees towards achieving better results. Goal achievement, on the other hand, has historically been used as a proxy for performance: if I’ve hit 100% of my goals, it must mean I’m a good performer. But we thought it made sense to briefly review goal-setting theory, or GST. We think HR professionals deserve to have this widespread practice correctly understood with a theoretical basis, because there is more to it than just these two axes of purpose. According to GST, ˆfoo3² goals serve three main pur²MarionEberly,DongLiu,TerenceMitchell,ThomasLee; AttributionsandEmotionsasMediatorsand/orModeratorsintheGoalStrivingProcess The Definitive Guide to OKRs | Qulture.Rocks

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poses: Focus Presuming that goals have been come up with according to the company’s long, medium, and shortterm strategies, according to myriad methodologies like BSC, Hoshin Kanri, etc, goals help the company focus effort, attention, and energy on what’s relevant, relative to what’s not relevant. According to Johnson, Chang, and Lord (2006), “goals direct individuals’ attention to goal-relevant activities and away from goal-irrelevant activities.” It is proven that “individuals cognitively and behaviorally pay more attention to a task that is associated with a goal than to a task that is not.” Effort Another very important purpose of goals is to increase the level of effort that people exert at work. It is also proven that “goals energise and generate effort toward goal accomplishment. The higher the goal, the more the effort exerted.” This is a tricky equation: too hard a goal, and, as you’ll see in a bit, employees get demotivated; too easy a goal, and employees will also get demotivated. In sum, there’s a right amount of hard, which pushes people to challenge themselves, The Definitive Guide to OKRs | Qulture.Rocks

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but within a reasonable chance of achievement, that optimizes performance, which links us to Persistence Persistence is probably the trickiest thing to get right when setting goals: The right ones produce high effort input for longer periods of time, but the wrong ones can really wreak havoc: “large negative discrepancies may lead to a withdrawal of effort when individuals are discouraged and perceive low likelihood of future goal attainment.” (Carver & Scheier, 1998). As we’ll see, there are derivative factors that influence persistence towards goals. Getting goals right When GST researchers goal efficacy, a lot of attention is given to how individuals relate to their goals, and especially, to hitting and not hitting their goals. When there are negative gaps, or when individuals perform below their goals, they seek to attribute the reasons as to why goals haven’t been met (“When individuals face negative goal-performance discrepancies, they will likely consider the reasons why they are behind., which systematically determines their subsequent behaviors.”), and different reasons mean different impacts on how these same individuals take The Definitive Guide to OKRs | Qulture.Rocks

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on their future goals: “attributions therefore are an important motivational mechanism that may explain under what circumstances individuals persist in goal pursuit or adjust their goal levels ˆfoo4³.” Here’s a list of the main attribution mechanisms, and how these may affect future goal-setting: • Internal (self) and external (locus of causality) If I think I’ve hit goals because of my own competency, I’ll set higher goals in the future, whereas if I think I’ve not hit goals because of my own incompetence to do so, I’ll try to set lower goals in the future • Stable and unstable Additionally, if I think the reason I haven’t hit my goals is not going to change (stable), I’ll try to set lower goals, whereas if I think the reason I haven’t hit my goals was a one off, I’ll set higher goals. So if I think it was my lack of effort, it’ll be better than if I think it was my lack of competence, with is more stable.: “when individuals perceive the cause of the failure or negative goal-performance to be stable and this likely to remain the same in the future, they will ³Lowertheirgoals/sandbag The Definitive Guide to OKRs | Qulture.Rocks

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likely expect the outcome (i.e.m failure to reach their goal) to recur.” • Controllable (under the person’s control) and uncontrollable “If people believe that causes for failure are controllable, they will provably continue or renew their effort and commitment to their original goal, but be less likely to do so if the cause of a negative discrepancy or failure is perceived to be due to uncontrollable causes” • Higher goals/purpose “When making an internal attribution for goal failure, an individual may be more likely to continue goal pursuit when the goal contributes significantly to a highly valued superordinate goal. The individual may be more likely to revise the goal downward when the goal is tangential to the superordinate goal’s accomplishment”

The Definitive Guide to OKRs | Qulture.Rocks

OKRs and Hoshin Kanri

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OKRs and Hoshin Kanri We believe that Objectives and Key-Results can be best implemented if used in tandem with many learnings from the Japanese Hoshin Kanri discipline, the strategic planning portion of TQM, or Total Quality Management. Actually, if we dig into Hoshin Kanri studies, we may think we’re reading presentday praise for OKRs. In Hoshin Kanri, • Senior executives set company-wide goals and CEO goals • Goals are then unfolded to the next level down throughout the organization via discussions between the parties involved • The practice is believed to encourage deep and meaningful bottom-up participation in goalsetting

The Definitive Guide to OKRs | Qulture.Rocks

Results-orientation

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Results-orientation Goals should be tied to KPIs whenever possible. KPIs provide the means against which progress towards goals is measured in the organization. KPIs, or KeyPerformance Indicators, can be Lagging and Leading indicators of results. Lagging indicators are easy to measure (e.g., sales, production output, miles, gold medals) but very difficult to influence and manage. Leading indicators, on the other hand, are harder to measure, but can be managed and influenced before they materialize into results (e.g., sales calls, meetings done, prospects opened, hours trained). Whenever possible, goals should focus on results, as opposed to efforts or means to achieving results. Sales are the most intuitive example of a results-oriented KPI to base a goal upon. Therefore, sales teams have an easy time setting results-oriented goals. Even though goals should be generally based on lagging, results indicators, they should be mixed and matched with the right effort-goals (those based on leading indicators) to ensure that the organization The Definitive Guide to OKRs | Qulture.Rocks

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learns how to best achieve goals, and that it remains capable of achieving goals in the future. A great example is profit. Profit may be the ultimate results-oriented KPI on which to base goals upon. But if increasing current year profit is the sole goal of an organization, it runs the risk of, for example, jeopardizing its ability to generate future profits by not balancing this goal with other, effort goals, based on leading KPIs that ensure future sustainability. Therefore, at the top level, your company should mix profitability goals (or sales goals, if you’re a startup) with effort-based goals, such as maintaining a baseline Net Promoter Score with customers.

The Definitive Guide to OKRs | Qulture.Rocks

MBOs x OKRs

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MBOs x OKRs OKRs look basically like goals to me. What’s the big fuss about them? Great point. OKRs are no big deal: a tweak to the MBOs framework. Here’re some of the differences between regular goals and OKRs: • Shorter cycles: OKRs are set and reset in shorter cycles, from monthly to quarterly. • More transparency: OKRs are usually public within a company. Since they are less directly tied to compensation (see below), publicizing OKRs is less of a problem. • Bottom-up: OKR are set in a more bottomup way. In MBOs, goals tend to be cascaded down the organization in a formal, rigid matter. Adding every individual goal in the company in thesis adds up to the company’s goals. OKRs are more flexible: employees are encouraged to set their OKRs themselves in alignment with higher goals (like their team’s, or the company’s), and then check them in with their managers. • Moonshots: OKRs are achieved when their 70% hit. So, you ask, 70% is the new 100%? Not really. The Definitive Guide to OKRs | Qulture.Rocks

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MBOs x OKRs

The idea is that if you aim higher, you’ll reach higher. So the % of completion means less than the actual results achieved. • OKRs are less directly linked to compensation: in hard-core meritocratic organizations, goal achievement is basis for variable compensation. If you achieve 100% of goals, you make Y times your monthly/annual salary. (Some companies may even compose this formula with company-wide triggers), that may increase or decrease payout. But that may lead to sandbagging throughout the organization – setting low goals so that you hit them and make your bonus. Therefore, the % of completion doesn’t matter in OKRs, but the actual results achieved. (In MBOs, the quotient (% of completion of a goal) is what matters, or a proxy for results). Criticism Most of the literature available out there about OKRs doesn’t help eager professionals to learn how to implement them. One of the leading companies uses: “Put a man on the moon by the end of next decade” as an example of an Objective. I know, I know. It’s figurative. But it’s also confusing. That’s clearly not an Objective for OKR purposes. It’s not something achievable in a 3-month, or even 1-year cycle. It’s The Definitive Guide to OKRs | Qulture.Rocks

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MBOs x OKRs

more of a multi-year company-wide Objective . What we call a Dream, or a Mission (We’ll get to those very bold, long-term goals in a second, when I introduce you to the concept of a Dream, that’ll turn OKRs into DOKRs). To help achieve this understanding goal, we would kindly suggest you to limit your objectives to the cycle length you prefer to adopt. Start out with shorter cycles, so you can correct, iterate, and learn by doing. Another great source of confusion is that examples tend to mix a number of different taxonomies:

4 OKR Approaches

We believe in the school of thought that defends that Key-Results should be results whenever possible, as opposed to parts of a whole, chronological milestones, or a plan of action. This is what wrong OKRs look like (according to the Results approach): Objective • Learn how to cook the basics by September 1st The Definitive Guide to OKRs | Qulture.Rocks

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Key Results • Buy and read “The 4-Hour Chef” by Tim Ferriss by June • Enroll at a cooking 101 course at the local community center by July • Cook dinner for parents and siblings by August 15th • Ace cooking knife work by September 1st This example is great: if you achieve each of the 4 goals, does it mean you’ve “learned how to cook”? Not necessarily. These Key-Results are tasks, that at best can be thought of being highly correlated to knowing how to cook, but that do not ensure that the Objective was achieved.

The Definitive Guide to OKRs | Qulture.Rocks

OKRs and Strategic Planning

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OKRs and Strategic Planning Even though in today’s ultra fast-paced world multiyear strategic planning may sound ludicrous, a company still has to have a vision of what the future will look like, against which to plan - and steer itself even if that means recalibrating these plans often. In an OKR-using company, we propose a system where OKRs are set in two concurrent cycles: • Yearly OKRs: set at company level, the yearly OKRs are what should be achieved in the current year, to drive the company closer to its long-term vision (Dream, as you’ll see below) • Quarterly OKRs: set at company, team, and sometimes individual levels, the quarterly OKRs are the tactical progress that should be made by the company to drive it closer to its yearly goals

Dreams + OKRs The long-term vision of the company should be simplified into a Dream, which, in Google’s case, means The Definitive Guide to OKRs | Qulture.Rocks

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to “organize the world’s information and make it universally accessible and useful.” This Dream should serve as a guiding star to the company’s most important decisions, and a stepping stone for every cycle of OKR setting, be it yearly or quarterly. Dreams should be, as put by Jim Collins, author of Good to Great, Big, Hairy, and Audacious Goals. They should be very aggressive, tied to the company’s greater purpose. As Jorge Paulo Lemann, a Brazilian entrepreneur, and currently the biggest individual shareholder in companies like Anheuser-Busch InBev, Burger King, and Heinz Kraft, says, “you have to dream very big dreams, because big dreams and small dreams take the same amount of effort.” Google’s Larry Page and Eric Schmidt say the same, as well as Amazon’s Jeff Bezos. Henry Ford’s famous quote goes that way to: had he not thought of making cars a mass-market product, people would still be riding their horses to work.

The Ongoing Unfolding Process Unfolding is the process through which Dreams become Objectives. If you think about it, Objectives stand to Dreams just as Key Results stand to Objectives . If we go on unfolding our first dream from last example, we’ll get the following goal tree, that’s got The Definitive Guide to OKRs | Qulture.Rocks

OKRs and Strategic Planning

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objectives for the next six months: Dream: • Become the largest SaaS company in Latin America Objectives for the Year • Be ready for Series A (a) • Have a top-notch product ready for the large enterprise (b) • Create and iterate a Sales Machine (c) Objectives for the Quarter • Raise a series-seed round (a) • Have a pilot running with at least one large enterprise (b) • Book at least U$ 50k in sales with a hired salesperson (c) Key-Results: • U$ 100k in MRR (a)

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• Generate 200 leads within our Ideal Customer Profile (a) • Create 5 high-quality user success cases (a) • Have all users using mobile website (b) • Put first layer of gamification features to work for engagement testing (b) • Create full suite of notifications/logistics (b) • Implement at least 80% of roadmap-coherent user feedback (b) • Hire first SDR to generate at least 150 leads by quarter-end (c) • Have a proven ICP to reach U$ 1 mio MRR (c) As you can see, each Objective is consistent with the Dream we’ve cascaded, and each Key-Result is consistent with the Objective we’ve cascaded. That’s why I’ve labeled each with a letter (a, b, and c) at the end of every item, to make the relationships more evident. There really isn’t any rocket science to it. On the other hand, I’m sure some sort of OKR method is surely helping Elon Musk and SpaceX find their way to Mars. Another representation of the unfolding process can be viewed in the diagram below:

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DOKR Cascading

Criticism to unfolding OKRs “Having goals improves performance. Spending hours cascading goals up and down the organization, however, does not. It takes way too much time and it’s too hard to make sure all the goals line up. We have a market-based approach, where over time our goals converge, because the top OKRs are known and everyone else’s OKRs are visible. Teams that are grossly out of alignment stand out, and the few major initiatives that touch everyone are easy enough to manage directly.” • Laszlo Bock, VP People Operations, Google Experts preach that there is no need for a rigid, topdown unfolding process to take place in OKRs (as The Definitive Guide to OKRs | Qulture.Rocks

OKRs and Strategic Planning

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opposed to MBOs). They believe having companywide OKRs, as well as upper management OKRs, widely publicized would naturally drive people to align their OKRs to the company’s larger goals, so that time is more efficiently spent in other activities. We at Qulture.Rocks believe that it is optimal to start practicing OKRs in a very relaxed manner (mostly bottom-up) which will, as expected, produce a very wide dispersion of OKR quality across the organization. The second step, as people gain more maturity and comfort with the process, would be to insert topdown cascaded OKRs into the equation, which help educate people as to how their own OKRs should contribute to the company’s goals and greater strategy. Depending on the maturity level of the company, management can then revert back to a more bottom-up OKR setting process as people gain a mature understanding of how their OKRs contribute to the company’s. Anyways, all serious adopters of OKRs we know off do cascade yearly company-wide goals into quarterly company-wide goals, and these into the CEOs and VPs goals, and from VPs down to most of the important teams and squads on the organization.

The Definitive Guide to OKRs | Qulture.Rocks

How goals contribute up

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How goals contribute up Goals can be unfolded in two ways: A and B. Until you’ve reached a point where unfolding is not necessary, it is very important to train employees on how exactly their activities contribute to the company’s goals, and teaching them about A and B-types of contributions really helps in a mathematical sense. A-type unfolding In A-type unfolding, a goal is unfolded down to the next hierarchical level down the organization with the same KPIs and measurements of the original, upper goal. What changes is the amount of the goal that is attributed to each person. An example may help: VP Sales Key-Result for the quarter: U$ 100k in sales • Director Sales 1 Key-Result for the quarter: U$ 50k in sales • Director Sales 2 Key-Result for the quarter: U$ 30k in sales The Definitive Guide to OKRs | Qulture.Rocks

How goals contribute up

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• Director Sales 3 Key-Result for the quarter: U$ 20k in sales As you can see, all second-tier goals (the directors’) add up to the first-tier goal (the VP’s). The KPIs are all the same (sales). So each director has a “direct share” of the VP’s goal. B-type unfolding In B-type unfolding, a goal is broken down into it’s components to the next hierarchical level down the organization with different KPIs and measurements of the original, upper goal. So everything changes. Another example: CEO Key-Result for the quarter: 10 percentage points growth in profit margin • VP Sales Key-Result for the quarter: U$ 100k in sales • VP Marketing Key-Result for the quarter: 5% price increases without negative volume impact • VP Production Key-Result for the quarter: 15% cost reduction in all manufacturing lines • VP Finance Key-Result for the quarter: 5% reduction in financial expenses The Definitive Guide to OKRs | Qulture.Rocks

How goals contribute up

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As you can see, the CEO’s goal was unfolded down to the VP’s, but was broken down to each VP’s area of accountability and responsibility. If all VP’s hit their goals, the CEO will have hit his goal, but they aren’t the same as in the A-type example above. If your people will really understand how their OKRs contribute to the company’s OKRs, strategy, and vision, it is important that they understand, mathematically, or even casuistically, how this happens. It is management’s responsibility to teach people how this happens as the level of OKR maturity of the company grows.

Who should set individual OKRs? This is a very delicate subject. Some OKR coaches, like Felipe Castro, founder of Lean Performance, defend that multi-discipline teams should have only team OKRs, and not individual OKRs, since finding individual accountability/ownership of results and KPIs is very difficult. For example, let’s think about an e-commerce company that has a team composed of designers, engineers, and product managers tackling the e-store’s conversion rates. One of the projects is to reduce the drop-out rates of customers in the shopping cart The Definitive Guide to OKRs | Qulture.Rocks

How goals contribute up

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section. This team’s Objective is clear: Improve conversion rates. One of their key-results will surely be Reduce cart drop-out rates by 5%. How can this team goal be further divided, or unfolded, to the different members of the team? Easy: the designer’s goals is going to be to think of different colors to A/B test buttons. Engineers will then implement these changes. The product manager will talk to customer. Etc. But these are not results. These are tasks, and tasks should not be goals. They aren’t ends. They’re means to an end. Now you know the argument against individual goals in multi-discipline teams. Exercise: Completing the unfolding process You should now start unfolding your dreams into Objectives that you want to accomplish in the next several months. Every dream should be cascaded into 3 to 5 Objectives, that must be, remember, BSMAT (The original acronym is SMART, and stands for Specific, Measurable, Attainable, Relevant, and Temporal. But I think Bold is just as – or even more – important than the others, and must be included. Relevant, to me, is self-evident, so doesn’t deserve a coveted spot at the acronym. And Temporal is weird, so I’ve swapped The Definitive Guide to OKRs | Qulture.Rocks

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it for Time-bound. After spending five minutes trying to come up with a nice-sounding acronym, I gave up. BSMAT it is. If you have a better idea, shoot me an email at [email protected]): • • • • •

Bold Specific Measurable Attainable Time-bound

Now write them down: three to five Objectives that you want to achieve in the next 3 to 12 months, and that, most importantly, will lead you to achieving one of your dreams:

Table 2: Dream>Objective Cascading Worksheet

Now for each Objective, you should break down three to five key results you must achieve in the next few The Definitive Guide to OKRs | Qulture.Rocks

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months, that will lead you, either as milestones or parts of a whole, to achieving your objectives (remember, this table is only an inspiration for you to brainstorm your dreams, objectives, and key-results). I’ll supply a better table for you at the appendix, for complete organization, as well as a Google Sheet available for download:

Table 3: Objective>Key Results Cascading Worksheet

The Definitive Guide to OKRs | Qulture.Rocks

The OKR cadence

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The OKR cadence More important than setting goals are the rituals that form the OKR cadence, or what we’ll call monitoring. Monitoring is where the rubber meets the road. It’s where the benefits of OKRs (enhanced performance, a high delivery bar, more alignment, learning, etc) come to life and produce better company-wide results.

Learning from goals The first, most important part of goal monitoring is learning from the goals. It is very important that the organization foster a learning culture for goal and KPI monitoring, so that nobody is afraid of breaking “bad” news, like a below-target leading indicator that may be managed up in time for goal-achievement. In Dean Spitzer’s Transforming Performance Measurement, the author explains: “One of the major reasons why performance measurement is seldom able to deliver on its positive potential is because it is almost never properly “socialised,” that is, built in a positive way into the social fabric of the organization. It is this building of a positive environThe Definitive Guide to OKRs | Qulture.Rocks

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ment for performance measurement that I believe is the missing link between basic, workmanlike performance measurement and the truly transformational kind.” But what’s wrong with the way we currently measure and learn from goals, if we’ve been grown accustomed to gradings and scores in school and sports? Dean Spitzer summaries it neatly: “Why is the attitude toward measurement at work so different - ranging from ambivalence to outright hostility? Because too many people are accustomed to measurement’s negative side, especially the judgment that tends to follow it - too much traditional performance measurement has been seen as ‘the reward for the few, punishment for the many, and a search for the guilty.’” The first part of building this learning culture into your culture is to know the types of cases that will be discussed for learning purposes, and which I’ve reproduced below from Vicente Falconi’s Hoshin Kanri book:

Goal Completion Analysis

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Action Plans Basically, for every goal, there should be an action plan that outlines what will be done, and by whom, in order for that goal to be met. To find out what the action plan is, the team T> must convene, and brainstorm possible solutions to the “problem” at hand, either through 5-Whys, a Fishbone Diagram, or other problem-solving techniques. Once a number of contributing T> causes - and possible attack fronts are found, the team decides on which to tackle based on Pareto’s principle, which 20% of activities will produce 80% of the results required.

The analysis table basically groups goals in two axes: • wether the goal was surpassed, met or not met, and • wether the action plan was executed or not Therefore, we’re able to analyze, basically, if a goal was met or not “on purpose” or by “chance”. Here’s how to handle the 6 possible cases: The Definitive Guide to OKRs | Qulture.Rocks

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• Case 1: Actions were executed according to plan, but goal was not met. In this case, either the plan was wrong, or there was some new variable affecting the problem that appeared after the plan was made. The team has to either learn why the plan was wrong in the first place, or to tweak the plan for the next cycle taking the new variable into account. • Case 2: Actions were not executed according to plan, and goal was not met. It is important to understand why the plan was not executed. If there were impeding factors that were preventing the plan from being executed, the team must understand why these weren’t neutralized with new actions or alternative paths of action. • Case 3: Actions were executed according to plan, and goal was met. Even when goals are met, teams must thoroughly analyze the achievements, and evaluate if they were met in great part because of the action plan, or because of external factors. Which external factors were these? Why weren’t they foreseen? The team must understand the whys behind each answer. • Case 4: Actions were not executed according to plan, and goal was met. Again, it’s important to understand which unforeseen factors contributed to the goal, and why they weren’t The Definitive Guide to OKRs | Qulture.Rocks

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The OKR cadence

foreseen. It’s also important to understand why the action plan was not executed. It will hardly have been a conscious effort to not execute the plan. • Case 5: Actions were executed according to plan, and the goal was surpassed. • Case 6: [][][] Five Whys The Five Whys are a method to get to the root cause of a problem. When people stay at the first layer of a problem (the first “why”) they tend to overlook the real root cause. Therefore, the tool is to ask Why five subsequent times (or as many times as needed) until the final root cause of a problem is found. In our example: Q: Sales fell by 10%. Why? A: Because of the demonstration. Q: Why the demonstration affected sales? A: Because some streets were closed, and our trucks couldn’t reach merchants. Q: Why didn’t we use smaller trucks to deliver goods on that day? A: Because we don’t own them. There! You’ve reached the root cause of the sales drop, which is much more subtle and specific than merely blaming the demonstrations. The Definitive Guide to OKRs | Qulture.Rocks

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The root cause often makes an action plan to solve the problem obvious. In this case, the suggestion is to buy a smaller truck for use during the demonstrations scheduled for the next month. If sales are maintained after the experiment, the company then adopts a new standard: having smaller trucks for those events. The fishbone graph The fishbone graph (also called an Ishikawa Diagram, or Cause-and-Effect diagram) is nothing more than a way to plot possible causes after the Five Whys reasoning, to clear up the thought process of all the involved parties. Let’s plot our example in a fishbone graph:

The Definitive Guide to OKRs | Qulture.Rocks

The OKR cadence

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Figure 14: Fishbone graph application

Mondays: problem-solving meetings Every monday you should gather your team to discuss OKR progress. The idea is to discuss % of attainment of every Key-Result, then discuss the outlook for every Key-Result, then to go over what’s the game plan of critical tasks that will help the team walk toward each Key-Result, and lastly, problem-solve every KeyResult that has a negative outlook. Problem-solving is a critical skill to be dominated, because it creates the right mindset towards a highperformance culture. The idea is to understand what’s The Definitive Guide to OKRs | Qulture.Rocks

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happening, and not point fingers and find blame. So it is very important to not discourage people, by humiliating them or criticizing them, if they publicly aknowledge that a Key-Result is on negative outlook. The right path to be taken is to have the group brainstorm ideas, remove roadblocks, and find solutions that will enhance the person’s or team’s ability to improve the Key-Result’s outlook. This is very similar to Alan Mulally’s working together method. He ensured no messengers were shot at Boeing, so that bad news could flow freely, and problems could be promptly solved with the help of the group. He liked to say you can’t manage a secret. Two powerful tools to guide your team through problem-solving are the 5 Whys, and the Fishbone Diagram:

Fridays: Time to celebrate According to Cristian Wodtke, author of Radical Focus, a book about implementing OKRs as a way to drive, er, radical focus in startups, Fridays should hold a sacred time to celebrate. No problem solving, no KPI monitoring, whatsoever: just celebrating the accomplishments of the week, in a way that really enforces progress. Celebrating, and giving positive reThe Definitive Guide to OKRs | Qulture.Rocks

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The OKR cadence

inforcement, is crucial, and should never be forgotten or overlooked.

Grading OKRs There’s some discussion around how OKRs must be “graded”. The Google approach is to keep it incredibly simple, and grade OKR completion with only 5 possible levels, which are agreed upon by the company as a all-encompassing rule for OKR grading: • 0.0: No progress made • 0.3: Small progress made (what’s accomplishable with minimal effort) • 0.5: Reasonable progress (what’s accomplishable with considerable effort) • 0.7: Expected progress made (what’s accomplishable with expected effort - as we discussed before, 0.7, or 70%, is Google’s 100%) • 1.0: Amazing progress made (more than was expected) This grading scale invites considerable subjectivity, and adds considerable burden on the backs of HR professionals and managers, that have to “calibrate” OKR achievement just like performance reviews. The Definitive Guide to OKRs | Qulture.Rocks

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Another way to grade OKR achievement, a much more precise one, is to measure it based on actual progress made: if the goal was to reduce customer churn from 10% per month to 5% per month, and churn at the end of the cycle was 5%, 100% of the OKR was achieved (of course, if churn at the end of the cycle was 10%, 0% progress was made, and so on, and so forth). An OKR may also be binary, like a partnership deal: the deal was either completed or not, and therefore, the OKR can be either 100% or 0%. If you’re investing in a results-oriented, high-performance culture, monitoring KPIs is a must, and therefore, OKRs should be based on KPIs. That will ease the OKR grading process by a lot.

The Definitive Guide to OKRs | Qulture.Rocks

Troubleshooting

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Troubleshooting OKR efforts fail for a myriad reasons. Here we’ll discuss a number of them, and help you steer away from trouble.

Not doing it gradually OKRs should be implemented gradually: • From less goals to more goals • From company goals to individual goals • From shorter cycles to quarters If you try too many things at once, like unfolding 5 Objectives from the company all the way down to the individuals in an anual cycle, it will most certainly fail. People won’t know what the f%ˆ& it is all about, won’t remember their goals, won’t monitor them, etc etc etc. It is very important that the company get the cadence of goals right. And that means warming up the engines gradually, enforcing the right rituals, and creating habits. Actually, OKRs are an amazing example of a corporate habit. The Definitive Guide to OKRs | Qulture.Rocks

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So start out with one company-wide Objective and three or four key results in a one-month cycle. That’s it. See how it goes, learn from the process, and repeat. After three months, cascade company-wide goals down to teams. Again, one objective per team, cascaded from the company’s goals. Three more monthly cycles. And so on and so forth.

Setting too many OKRs One of the best things about OKRs is that they are conducive of hard focus. By shortening goal-setting cycles, it is possible to reduce the amount of goals being pursued in each cycle, so as to increase focus. The total number of Os + KRs of any single entity should (or dare I say must) not exceed a person’s fingers. More than that, and they won’t even be remembered. And because Objectives are groups goals (Key Results) thematically, there shouldn’t be more than 3 general priorities in an employee’s head at each cycle. Let’s see a practical example of Fred the Product Manager’s OKRs for the 1st quarter of 2016: Objective 1 + Improve engagement across the recurrent billing product

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Key Results + Increase unique page views by 15% + Increase average time spent on each page in 5% Objective 2 + Generate high level of customer satisfaction Key Results + NPS > 8 with > 90% of customers responding Objective 3 + Roll out new features Key Results + Have credit card reconciliation feature rolled out and used by at least 4 customers on a daily basis As you can see, Fred has three things he has to focus on this quarter: • Engagement • Customer satisfaction • New reconciliation feature These priorities are backed by 4 key results, that support them. That’s highly manageable, and highly rememberable without the aid of systems and spreadsheets. As Marcel Telles, former CEO of AmBev (now SAB Miller + Anheuser Busch InBev) says, “goals have to fit in the fingers of one hand”. We’ve extended the number of fingers a bit to fit OKRs :)

The Definitive Guide to OKRs | Qulture.Rocks

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Not monitoring OKRs Goals have absolutely no reason to be if they are not monitored. Accountability is key: employees have to be the owners of their OKRs, and goal attainment should be monitored and discussed on an ongoing basis. There are a number of reasons for that: • By discussing the WHYs of every goal, the organization learns what works and doesn’t work. What good is there in knowing that someone hit his goals, if he or she doesn’t know what specific course of action lead to the results being evaluated? • Constant monitoring shows that the organization cares about the OKRs. Many companies spend time and effort setting OKRs, only to not talk about them until the end of the cycle. If the company’s not monitoring its goals, teams, managers, and employees, will not monitor their goals. So that’s something that has to be lead by example, from the top down. Company-wide OKRs should be monitored at all-hands meetings; team OKRs should be monitored at team meetings. Never skip an OKR monitoring meeting: zero tolerance. Just like it worked for public security in NYC, it will work for your high-performance culture. The Definitive Guide to OKRs | Qulture.Rocks

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OKRs that are either too aggressive or too easy There’s scientific evidence (Locke) that harder goals produce better performance. That’s why there’s a lot of talk about setting stretch goals. Carlos Britto, de CEO of AB InBev, says optimum goals should be “the ones you know 80% how to hit. The other 20% will be learned along the way.” Science also suggest that goals should be achievable. Setting goals that are too hard frustrates people (that have to believe they can reach them). Locke and Latham say: “Nothing breeds success like success. Conversely, nothing causes feelings of despair like perpetual failure. A primary purpose of goal setting is to increase the motivation level of the individual. But goal setting can have precisely the opposite effect, if it produces a yardstick that constantly makes the individual feel inadequate. Consequently, the supervisor must be on the lookout for unrealistic goals and be prepared to change them when necessary.” Too aggressive goals One of the most common mistakes first-time OKR adopting companies make is setting too many stretch The Definitive Guide to OKRs | Qulture.Rocks

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goals to start with. Since many don’t have a firm grasp of KPI levels due to the ever-changing nature of startup companies, they try too err on the aggressive side, by fear of not challenging workers, and lured by “roofshots”, “moonshots”, and the like. Needless to say, goal-setting’s first impression is terrible, OKRs’ image is tarnished, and people start thinking that not hitting goals is the norm, or worse, they drop the practice altogether. The right way to do this is to set conservative OKRs to start with: levels that are not a stretch, but not easy as well, and which OKR owners are highly confident can be achieved. After a few cycles of most goals been met, the company can start slowly stretching goals, in an ongoing fine-tuning process. After a high maturity level is reached with the goalsetting practice (think the company, as a whole, hits 70 to 80% of goals, misses 10%, and surpasses 10% consistently), people should start having the freedom to set one truly stretched goal per cycle, but not really more than that. Google, the world’s most famous OKR practicing company, sends mixed signals in that sense: it preaches, basically, that 70% is the aim (although Google’s VP of People Operations disagrees with us, it essentially sets 70% as the new 100% of achievement). Its leadThe Definitive Guide to OKRs | Qulture.Rocks

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ers believe that systematically setting harder goals (or aiming for 100%) company-wide will yield better overall performance. We think that in practice people will consider 70% the new 100%, and therefore the effect will be neutralized. If it didn’t, as science also suggests, people would become systematically frustrated and would be leaving Google in troves. Too easy goals Alternatively, goals can’t be too easy. Research points that easy goals bring low motivation and energy levels, for the lack of challenge they present workers: “One of the most consistent findings concerning the level of goal difficulty is that when goals are set too low, people often achieve them, but subsequent motivation and energy levels typically flag, and the goals are usually not exceeded by very much.” You can’t set too aggressive goals, but you also can’t set too easy goals. It’s a fine line.

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The End

The End I hope you liked this e-book. It’s an intro: very short, straight to the point, just like every business book should be. John Collison, founder of Stripe, a Silicon Valley company, commented about a book he read – and most business books – “Like most business books, it should be 1/5 the length.” I agree with him, and did just that: cut it to the bone. You can read it in an hour, and take a lot of good stuff on with you. Produce more. Reach your goals. If you are interested in knowing how to apply OKRs or DOKTs at your company, reach out to me at [email protected] or go to http://qulture.rocks. We can help. Qulture.Rocks is passionate and committed to creating high-performance cultures. Why? To help you with performance management, we can get you the software and the wetware (brains) you need to adopt some of the most sophisticated tools and practices available.

The Definitive Guide to OKRs | Qulture.Rocks