Best Practices for Implementing OKRs (Objectives & Key Results)
Best Practices for Implementing OKRs (Objectives & Key Results)
Best Practices for Implementing OKRs (Objectives & Key Results)
Mark Smith
Mar 29, 2024
OKR
Implementing OKRs (Objectives & Key Results) in an organization can be a powerful way to drive focus, alignment, and performance. However, there are some common pitfalls that companies often fall into when adopting this goal-setting framework. In this article, we'll explore best practices for implementing OKRs effectively, drawing insights from an expert's perspective.
Avoid Cascading OKRs Down the Org Chart
One of the biggest mistakes companies make is to "cascade" OKRs down the organizational hierarchy, as the expert explains:
"The first trap or mistake I see companies make all the time is to make OKRs cascade. What I mean by that is you can think of like you know we have an organizational chart right? So you can think of your org chart like this, and you know just draw a bit of an org chart, and this is often what organizations look like, and then we have the teams down the bottom and multiple teams right. And what we do is we try to make the OKRs fit our organizational chart."
The problem with this approach is that it stifles autonomy, innovation, and agility within the organization. As the expert notes, "There's very little autonomy and empowerment inside this right? We're essentially standing there waiting for the person above us to tell us what our objective and key result is going to be."
Instead of cascading OKRs top-down, the expert recommends a more collaborative approach:
"What we're doing is we're setting up a kind of back and forth. It becomes kind of like ping pongs and yo-yos throughout the organization. Obviously, back up again at the end, I know this is getting messy as a picture, but this is how it works. There's a lot more back and forth."
By allowing teams to propose their own OKRs that align with higher-level objectives, rather than inheriting them from above, organizations can foster greater ownership, adaptability, and innovation at all levels.
Understand the Strategic Context Behind OKRs
OKRs don't exist in a vacuum; they should be grounded in the broader strategic context of the organization. As the expert emphasizes:
"Your OKRs don't exist in a vacuum. They are a representation or a model of your strategy. So how does that work? Well, you need to still have a strategy. Your OKRs can't just be plucked out of the air. They're not something that you just pick right? They need to be informed by data, and they need to be actual strategic choices."
Effective OKRs should be informed by customer data, market research, competitive analysis, and a clear understanding of the organization's strategic priorities. Without this context, teams may end up working towards goals that are disconnected from the broader business objectives.
Balance Customer and Business Impact
When setting OKRs, it's essential to strike a balance between customer impact and business impact. As the expert explains:
"We need to focus in this intersect right? So this intersect is super important. This is where we need to be thinking about both what business impact do we want to have, and then what customer impact outcomes align with that business outcome, and we need to target that."
OKRs that solely focus on internal business metrics, such as revenue or cost reduction, can lead to a myopic view that neglects customer needs and long-term value creation. Conversely, OKRs that solely prioritize customer satisfaction without considering business impact may not be sustainable in the long run.
By aligning OKRs to both customer and business outcomes, organizations can ensure that their efforts are creating value for customers while also driving positive business results.
Measure Leading and Lagging Indicators
When it comes to measuring progress towards OKRs, it's important to consider both leading and lagging indicators. The expert uses a powerful analogy to illustrate this concept:
"The analogy that I often use is let's say we want some lemons to make, I don't know, lemonade, let's just say right? And that's what we ultimately want to have one day. Let's say we decide to plant some seeds right? Planting seeds and turning into a tree where we would be able to harvest lemons is quite a long process."
In this analogy, the lagging indicator is the desired outcome (harvesting lemons), while the leading indicators are the intermediate steps (planting seeds, monitoring growth, etc.) that eventually lead to that outcome.
By measuring both leading and lagging indicators, organizations can gain real-time feedback on their progress while also keeping sight of the ultimate desired outcome. Focusing solely on lagging indicators can lead to long delays in receiving feedback, while neglecting lagging indicators can result in a loss of strategic focus.
Embrace Uncertainty and External Factors
It's important to acknowledge that OKRs, by their very nature, involve uncertainty and external factors that are beyond the organization's control. As the expert notes:
"We don't have full control over it. If I planted lemon seeds and my yard flooded or my farm flooded, and that's just the bad weather event, like I might not have known that was going to happen right? So just because that happened doesn't mean I failed per se right?"
External factors, such as economic conditions, regulatory changes, or natural disasters, can impact an organization's ability to achieve its OKRs. While this doesn't mean that OKRs should be abandoned or treated as optional, it does mean that a degree of flexibility and adaptability is required.
Organizations should foster a culture of continuous learning and improvement, where missed OKRs are viewed as opportunities for reflection and course correction, rather than failures or excuses.
Separate OKRs from Performance Management
Finally, the expert strongly advises against tying OKRs directly to individual performance management or compensation:
"A big anti-pattern and a big no-no is tying your OKRs to people's performance indicators. This becomes very hard or very bad to do because of that reason because we don't have full control over it. You can essentially punish people like 'hey, you're not getting your bonus this year or you know you're not getting promoted because by the way a cyclone came through and destroyed all your lemon trees.' That's not their fault."
When OKRs are tied to individual performance evaluations or compensation, it can create perverse incentives and discourage ambitious goal-setting. Individuals may be tempted to set overly conservative or output-based OKRs, rather than challenging outcome-based goals, in order to protect their performance ratings or bonuses.
Instead, OKRs should be treated as organizational goals that foster collaboration, learning, and continuous improvement. While individual contributions to OKR achievement can be recognized and celebrated, they should be evaluated holistically and with an understanding of the external factors at play.
By adhering to these best practices, organizations can unlock the full potential of the OKR framework, driving focus, alignment, and performance while fostering a culture of innovation, adaptability, and customer-centricity.
Implementing OKRs (Objectives & Key Results) in an organization can be a powerful way to drive focus, alignment, and performance. However, there are some common pitfalls that companies often fall into when adopting this goal-setting framework. In this article, we'll explore best practices for implementing OKRs effectively, drawing insights from an expert's perspective.
Avoid Cascading OKRs Down the Org Chart
One of the biggest mistakes companies make is to "cascade" OKRs down the organizational hierarchy, as the expert explains:
"The first trap or mistake I see companies make all the time is to make OKRs cascade. What I mean by that is you can think of like you know we have an organizational chart right? So you can think of your org chart like this, and you know just draw a bit of an org chart, and this is often what organizations look like, and then we have the teams down the bottom and multiple teams right. And what we do is we try to make the OKRs fit our organizational chart."
The problem with this approach is that it stifles autonomy, innovation, and agility within the organization. As the expert notes, "There's very little autonomy and empowerment inside this right? We're essentially standing there waiting for the person above us to tell us what our objective and key result is going to be."
Instead of cascading OKRs top-down, the expert recommends a more collaborative approach:
"What we're doing is we're setting up a kind of back and forth. It becomes kind of like ping pongs and yo-yos throughout the organization. Obviously, back up again at the end, I know this is getting messy as a picture, but this is how it works. There's a lot more back and forth."
By allowing teams to propose their own OKRs that align with higher-level objectives, rather than inheriting them from above, organizations can foster greater ownership, adaptability, and innovation at all levels.
Understand the Strategic Context Behind OKRs
OKRs don't exist in a vacuum; they should be grounded in the broader strategic context of the organization. As the expert emphasizes:
"Your OKRs don't exist in a vacuum. They are a representation or a model of your strategy. So how does that work? Well, you need to still have a strategy. Your OKRs can't just be plucked out of the air. They're not something that you just pick right? They need to be informed by data, and they need to be actual strategic choices."
Effective OKRs should be informed by customer data, market research, competitive analysis, and a clear understanding of the organization's strategic priorities. Without this context, teams may end up working towards goals that are disconnected from the broader business objectives.
Balance Customer and Business Impact
When setting OKRs, it's essential to strike a balance between customer impact and business impact. As the expert explains:
"We need to focus in this intersect right? So this intersect is super important. This is where we need to be thinking about both what business impact do we want to have, and then what customer impact outcomes align with that business outcome, and we need to target that."
OKRs that solely focus on internal business metrics, such as revenue or cost reduction, can lead to a myopic view that neglects customer needs and long-term value creation. Conversely, OKRs that solely prioritize customer satisfaction without considering business impact may not be sustainable in the long run.
By aligning OKRs to both customer and business outcomes, organizations can ensure that their efforts are creating value for customers while also driving positive business results.
Measure Leading and Lagging Indicators
When it comes to measuring progress towards OKRs, it's important to consider both leading and lagging indicators. The expert uses a powerful analogy to illustrate this concept:
"The analogy that I often use is let's say we want some lemons to make, I don't know, lemonade, let's just say right? And that's what we ultimately want to have one day. Let's say we decide to plant some seeds right? Planting seeds and turning into a tree where we would be able to harvest lemons is quite a long process."
In this analogy, the lagging indicator is the desired outcome (harvesting lemons), while the leading indicators are the intermediate steps (planting seeds, monitoring growth, etc.) that eventually lead to that outcome.
By measuring both leading and lagging indicators, organizations can gain real-time feedback on their progress while also keeping sight of the ultimate desired outcome. Focusing solely on lagging indicators can lead to long delays in receiving feedback, while neglecting lagging indicators can result in a loss of strategic focus.
Embrace Uncertainty and External Factors
It's important to acknowledge that OKRs, by their very nature, involve uncertainty and external factors that are beyond the organization's control. As the expert notes:
"We don't have full control over it. If I planted lemon seeds and my yard flooded or my farm flooded, and that's just the bad weather event, like I might not have known that was going to happen right? So just because that happened doesn't mean I failed per se right?"
External factors, such as economic conditions, regulatory changes, or natural disasters, can impact an organization's ability to achieve its OKRs. While this doesn't mean that OKRs should be abandoned or treated as optional, it does mean that a degree of flexibility and adaptability is required.
Organizations should foster a culture of continuous learning and improvement, where missed OKRs are viewed as opportunities for reflection and course correction, rather than failures or excuses.
Separate OKRs from Performance Management
Finally, the expert strongly advises against tying OKRs directly to individual performance management or compensation:
"A big anti-pattern and a big no-no is tying your OKRs to people's performance indicators. This becomes very hard or very bad to do because of that reason because we don't have full control over it. You can essentially punish people like 'hey, you're not getting your bonus this year or you know you're not getting promoted because by the way a cyclone came through and destroyed all your lemon trees.' That's not their fault."
When OKRs are tied to individual performance evaluations or compensation, it can create perverse incentives and discourage ambitious goal-setting. Individuals may be tempted to set overly conservative or output-based OKRs, rather than challenging outcome-based goals, in order to protect their performance ratings or bonuses.
Instead, OKRs should be treated as organizational goals that foster collaboration, learning, and continuous improvement. While individual contributions to OKR achievement can be recognized and celebrated, they should be evaluated holistically and with an understanding of the external factors at play.
By adhering to these best practices, organizations can unlock the full potential of the OKR framework, driving focus, alignment, and performance while fostering a culture of innovation, adaptability, and customer-centricity.