What Is an OKR? The Tool Driving the World’s Most Successful Companies
Large corporations like Google, LinkedIn, and Airbnb use an OKR solution to help them set and push toward goals that are aligned across the entire organization. Intrigued?
This article explains the OKR framework in more detail and why you should consider using it across your organization. We'll define what OKRs are, why companies use them, how to set OKRs, and examples of OKRs in action.
Let’s dive in.
What is an Objective and Key Result (OKR)?
The OKR (Objectives and Key Results) framework is a goal-setting framework businesses use to set goals and track their progress towards them. The term was coined by Andy Grove and popularized by John Doerr in his book Measure What Matters.
The five components of each OKR goal is that they should be:
- Directional: The objective aligns with the business goals of the company.
- Clear: The objective should be easy for everyone to understand.
- Positive: Achieving the objective should result in positive change.
- Challenging: Objectives should be ambitious and hard to achieve.
- Inspiring: Employees should feel motivated by the OKR to achieve more.
How to Use OKRs
OKRs are often used to drive alignment, focus, and accountability within teams, and encourage ambitious goals with measurable results.
Before we dive deeper, let's clarify what we mean by "objectives" and "key results."
- Objectives outline measurable goals that an organization or individual aims to achieve.
- Key Results are specific, quantifiable, and time-bound metrics that measure progress toward objectives.
The OKR framework’s philosophy is that companies achieving 100% of their goals are setting goals that are too easy. The sweet spot for achieving your OKRs should be between 60% and 70%.
When Should You Use OKRs?
Set an OKR when you want to focus your team on an ambitious, quantifiable, and positive goal for the business. For example, say your goal is to reduce employee turnover from 5% to 4%. If your employee turnover rate is 4.3% at the end of the quarter, you’ve completed 70% of your goal (0.7 on the OKR scale). If you achieve a 4% employee turnover rate by quarter end, you should reassess your goal since it may have been too easy to achieve.
What's the Difference Between OKR and KPI?
While OKRs are meant to be high-level goals and benchmarks, KPIs (Key Performance Indicators) are specific metrics used to evaluate the performance of a department or individual against specific goals or targets.
KPIs are typically more focused on ongoing performance measurement and serve as practical benchmarks to gauge success and guide decision-making. For example, managers a direct report's KPIs with them during a performance review, while the organization's leadership steers the various departments of the business to achieve their OKRs.
OKR Examples
OKRs can be set for all departments, including HR, operations, and accounting. Generally, these will look like high-level objectives with several key results that define what success looks like. Here are some examples of OKRs:
OKRs for HR
Here are two OKR examples for HR:
1. Objective: Be the best company to work for in North America
Key results:
- Survey 100% of the org’s people to assess employee engagement, satisfaction, and needs by the end of the quarter.
- Achieve eNPS score 80 by the end of the fiscal year.
- Maintain a yearly employee retention rate of over 90%.
2. Objective: Give team members the opportunity to develop and grow
Key results:
- Find and implement a new learning management system with personalized training capabilities this quarter.
- Ensure team members use 100% training time and budget by the end of the fiscal year.
- Facilitate internal promotions or lateral moves for 15% of employees within the next year.
OKRs for Operations
Here are OKR examples for operations:
1. Objective: Improve production cost efficiency
Key results:
- Increase labor output efficiency by 10% this fiscal year.
- Reduce material acquisition cost by 15% by the end of next year.
- Lower waste output by 20% by Q3.
2. Objective: Optimize working capital invested in inventory
Key results:
- Reduce the value of inventory held by 20% by the end of the year.
- Increase the proportion of fast-moving item A by 10% by Q2.
- Reduce the proportion of slow-moving item B by 15% by Q4.
OKRs for Accounting
1. Objective: Reduce the cost of accounting processes
Key results:
- Reduce the amount spent on outsourcing accounting tasks by 30%
- Reduce the time spent on them by 70% with automation
- Decrease the average cost per accounting transaction by 15%
2. Objective: Manage cash better
Key results:
- Reduce the working capital invested in inventory and accounts receivables by 20%
- Find five new suppliers to increase average accounts payables balance by 20%
- Decrease the average number of days it takes to collect accounts receivable by 20%
Types of OKRs
Not all OKRs serve the same purpose. The type of OKR you use depends on what you hope to achieve with it. Broadly, there are three types of OKR:
1. Committed OKRs
Committed OKRs are goals that everyone on the team agrees should be achieved. These goals are still stretch goals, but within reason.
2. Aspirational OKRs
Aspirational OKRs are goals you know your team won’t achieve in full during the execution time window. They're designed to encourage the team to push harder.
3. Learning OKRs
Learning OKRs are experimental goals used to explore ideas. They’re assigned when you can’t confidently determine the output and outcomes of an OKR.
Benefits of OKRs
OKRs offer five benefits, as John Doeer explains in his interview with Harvard Business Review. He uses the acronym F.A.C.T.S. for these five benefits:
1. Focus
85% of organizations don’t define key results clearly enough to engage employees at all levels. OKRs help define goals more clearly and make them less overwhelming. Aiming for fewer than ten OKRs during a given cycle (generally a quarter or year) helps ensure each OKR fits in a single line.
2. Alignment
OKRs ensure that every employee's efforts are aligned with the company’s overarching goals. For example, say the company’s goal is to achieve the industry’s highest sales volume. Each relevant team OKR will reflect this goal.
3. Commitment
Bottom-up goals are generally more effective than top-down orders. Employee buy-in is essential for achieving goals because employees that are committed to their goals can achieve them faster. Without commitment, employees are likely to focus on just making enough progress to keep the boss happy.
4. Tracking
Ideally, each key result will have measurable outcomes and be based on a metric to hit in a given timeframe. The best OKR software solutions can help you track key results and reduce manual effort. An OKR tool can also create reports and present data visually for added insights.
5. Stretching
Setting goals a little beyond what is achievable is integral to the OKR framework. As the saying goes, “Shoot for the moon. Even if you miss, you’ll land among the stars.” Even though a goal might not be achievable, striving towards that goal (called a stretch goal) might bring you closer than if you had set a goal that was easy to achieve.
OKR Grading/Scoring
An OKR’s progress is measured on a scale of 0 to 1, which is essentially the percentage of the goal achieved. 1 (or 100%) represents complete goal achievement.
The score in between, say 0.6 or 0.7, shows how much progress has been made. It's like saying, "Hey, we're getting there, but there's still some work to do." This grading helps teams and individuals see what's working, what needs tweaking, and where to focus their efforts to keep moving forward.
How to Set OKRs
It’s hard to write OKRs when you’re starting from scratch, which is why many leaders start with a template. However, the OKRs you set will be unique to each organization depending on the company objectives. Here is how to set OKRs:
Step 1: Identify Your Priorities
What’s next for your company? What goals are you working on? Do you have problems you need to solve to run the business more efficiently?
Answering these questions provides a great starting point. For example, if you didn’t meet your sales quota last year, dig deeper and find out the reasons. Your objective could be to address that reason and increase your sales by 15%.
Step 2: Involve the Team
Make setting OKRs an inclusive process instead of just handing the team a list of OKRs. Get their input on the best ways to achieve a certain objective. Ask them if they can think of other higher-priority objectives than the ones you’re discussing. Encourage them to set stretch goals and why it matters.
Step 3: Quantify the OKR
Quantify each OKR based on benchmarks or historical data. For example, “might be to increase sales by 15% by running hyper targeted sales campaigns. If your historical sales growth or the industry’s average sales growth has been 8% to 10%, 15% might be a good stretch goal.
Step 4: Track Progress
Now that you’ve set and assigned OKRs, you need to monitor the progress. When tracking progress, ask the team if they need help even if they seem to be doing fine. If a team member is struggling, help them determine the problem and navigate it.
Use OKRs for Focused Growth
Organizations use the OKR methodology to focus on what matters most to their growth efforts. These initiatives help employees focus on specific tasks needed to achieve your company’s bigger vision.
Key Takeaways:
- OKRs are ambitious goals intended to align departments and steer them toward positive business outcomes.
- Objectives frame the goal in broad terms, and key results quantify how the organization defines success.
- OKRs are scored between 0 and 1, with results represented in decimals.
- Good OKRs should be difficult to reach—achieving 60-70% of the OKR (a score between 0.6-0.7) is a realistic baseline expectation.
For further guidance on utilizing OKRs, check out our shortlist of the best OKR podcasts and make sure to subscribe to our newsletter.