Large corporations like Google, LinkedIn, and Airbnb use the OKR framework to help them set and push toward goals that are aligned across the business. Intrigued?
This article explains the OKR framework in more detail and why you should consider using it across your organization. We’ll cover:
Let’s dive in.
What is an OKR?
The OKR (Objectives and Key Results) framework is a goal-setting methodology businesses use to set goals and track their progress towards them. The objective part is the overarching individual business goal e.g. reduce employee turnover. The key results are the actions that need to take place to achieve the goal e.g. send out employee engagement surveys with 100% completion.
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%.
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.
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.
Setting such ambitious company goals that are difficult to achieve is an integral part of Google’s philosophy:
"We set ourselves goals that we know we can’t reach yet, because we know that by stretching to meet them we can get further than we expected."
Types of OKRs
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.
They should be achievable for the team since they’re critical to the team and company’s success.
A committed OKR is the highest order OKR. Teams might even consider delaying working on other OKRs to achieve committed OKRs within time.
2. Aspirational OKRs
Aspirational OKRs are goals you know your team won’t achieve in full during the execution time window.
However, they encourage the team to push harder. If the team achieves 60% to 70% progress, it’s a success. These goals stay on the team’s OKR list for multiple execution periods until they’re achieved in full.
The team and the company benefit in several ways by assigning aspirational OKRs. It gets the team outside of their comfort zone and tests their capabilities.
On the other hand, organizations achieve their goals faster because achieving 70% of an audacious goal is far better than achieving a 100% of a mediocre goal.
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.
Essentially, you have a theory that X might lead to Y. To prove this hypothesis, you assign a learning OKR where a team explores ideas. At the end of the execution period, the team reports the findings.
These findings can provide insights into what the output might be so you can confirm your theory’s validity. These insights inform the OKRs for the next period—you can reassign them as learning OKRs if you need more insights or convert them into committed or aspirational OKRs.
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:
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. This way, each team member can focus on a few specific tasks.
Determining the OKRs starts with thinking about your goals over the next quarter and year. The near-term approach forces you to prioritize the most impactful goals and defer ones that aren’t urgent.
A study by LSA Global reveals that highly aligned companies can grow their revenue 58% faster and be 72% more profitable. Aligned companies also beat unaligned companies on multiple fronts like employee engagement, customer satisfaction and retention, and leadership.
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 department’s OKR will reflect this goal.
The marketing leader’s OKR could be to generate 15% more leads through focused marketing campaigns. The sales manager’s OKR could be to improve conversion by 5% by reengineering the sales process for improved customer experience. Collectively, OKRs help align everyone’s efforts so the company can achieve the highest sales volume in its industry.
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.
Managers assign OKRs but, for the most part, employees come up with them. Each employee must set their own OKR, which requires analysis and introspection. Since employees set their own goals, the IKEA effect makes them more committed to the OKRs.
Ideally, each key result will be based on a metric to hit. 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.
Tracking company OKRs tells you how far the company has achieved its goals while tracking individual OKRs allows you to monitor progress and guide employees when needed.
Monitoring an OKR’s outcome is an ongoing process. You don’t necessarily need to measure the outcomes every day. However, looking at the team’s progress weekly can help address potential roadblocks early on.
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.”
It’s the same idea. An OKR example for an HR manager might be reducing the cost per hire by 25%. Even though it might not be achievable, striving towards that goal (called a stretch goal) might bring you closer to 25% than simply setting a goal to reduce cost per hire by 15%.
However, be careful when setting stretch goals. It’s easy to go overboard and set too many. As the author of The Stretch Goal Paradox explains:
"Our research suggests that though the use of stretch goals is quite common, successful use is not. And many executives set far too many stretch goals. In the past five years, for example, Tesla failed to meet more than 20 of founder Elon Musk’s ambitious projections and missed half of them by nearly a year, according to the Wall Street Journal."
Consider the current business scenario, threats, and risks before you set stretch goals. It’s good to push for more than what’s achievable. However, consistent failure to achieve practically impossible goals can harm employee morale.
How to Set OKRs?
It’s hard to write those first few OKRs. When you put pen to paper, you don’t know where to start, but being methodical makes the job easier. 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%.
When setting OKRs, make sure they’re aligned with the company’s goals. Alignment ties output to outcomes. It ensures that employees have complete clarity on how their work helps the business achieve its goals.
Step 2: Involve the Team
Setting OKRs from the top down sends the message that everyone should just follow the corporate’s orders. Most people don’t like taking orders, making them disengaged.
Make setting OKRs an inclusive process instead of just handing the team a list of OKRs. The team is more connected to daily tasks and can provide deeper insights into goals to prioritize and the strategy to achieve them.
Get their inputs on what’s a good way 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
Once you have a list of objectives, you need a basis to measure goal achievement. You can measure how far you’ve achieved objectives with quantified key results.
Measuring goals helps you identify teammates that are struggling and could use help. You’ll be able to identify bottlenecks earlier and address them so you can continue making progress.
Nolan Hout, VP of Marketing at Unlock OKR and OKR aficionado, told us in our podcast on OKRs:
"The key result should not be something like creating a landing page. There’s no purpose behind that. So you have to ask yourself, what is the purpose of this landing page?
Is it to generate leads? Okay, how will the landing page generate leads? Maybe it’s going to have a high conversion rate. Okay, cool. So then the key result should be to have a landing page that converts, you know, 370 leads or it converts at 7%."
You can quantify an 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.
Another point Nola adds is to make the overarching goal as memorable aspirational as possible e.g. “fuel the sales team for Lightspeed trajectory of growth in Q3.”
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.
OKRs can be set for all departments, including HR, operations, and accounting. 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
- Survey 100% employees to assess engagement, satisfaction and needs
- Achieve eNPS score 80
2. Objective: Give team members the opportunity to develop and grow
- Find and implement a new learning management system with personalized training capabilities
- Ensure team members use 100% training time and budget
OKRs for Operations
Here are OKR examples for operations:
1. Objective: Improve production cost efficiency
- Increase labor output efficiency by 10%
- Reduce material acquisition cost by 15%
2. Objective: Optimize working capital invested in inventory
- Reduce the value of inventory held by 20%
- Increase the proportion of fast-moving item A by 10%
- Reduce the proportion of slow-moving item B by 15%
OKRs for Accounting
1. Objective: Reduce the cost of accounting processes
- Reduce the amount spent on outsourcing accounting tasks by 30%
- Reduce the time spent on them by 70% with automation
2. Objective: Manage cash better
- Reduce the working capital invested in inventory and accounts receivables by 20%
- Find five new suppliers to increase average accounts payables balance by 20%
Use OKRs for Focused Growth
Organizations use the OKR methodology to focus on what matters most to their growth efforts. It helps employees focus on specific tasks needed to achieve your company’s bigger vision.
However, OKR isn’t the only goal-setting framework. Companies across the globe use various methodologies to achieve their goals.
For example, you might consider learning more about management by objectives (MBO) and the SMART goals framework.