The Guide to Company Objectives and Key Results (OKRs)

May 30, 2016 - 18 minute read - Posted by

Table of Contents

Where to Start with Company Objectives and Key Results (OKRs)
Why Defining a Company Vision is Important for Setting Objectives and Key Results (OKRs)
Defining a Company Vision for Objectives and Key Results (OKRs)
Defining a Company Mission Statement for Objectives and Key Results (OKRs)
Company-wide Strategic Planning for Objectives and Key Results (OKRs)
The Balanced Scorecard vs. Objectives and Key Results (OKRs)
Organizational Objectives and Key Results (OKRs)
Examples of Company Objectives and Key Results (OKRs)

Where to Start with Company Objectives and Key Results (OKRs)

For leaders to begin setting company objectives and key results (OKRs), it’s important to take a look back at where this whole process starts. The cascading diagram below shows how your vision is linked all the way down to both your annual and quarterly OKRs.

Vision

Mission Statement

Long Term Goals (3-5 years)

Short Term Goals (1 year)

Objectives and Key Results (quarter)

Companies look to objectives and key results (OKRs) at different stages of their lifecycle. When looking at companies in the mature stages of their growth lifecycle, we can easily distinguish their vision, mission statement and long term goals. For these mature companies, converting company visions, missions statements and even annual plans into annual or quarterly objectives and key results (OKRs) is a shorter process as the foundation has already be laid given developed metrics and strategies of success. Companies at earlier stages of their growth lifecycle on the other hand, may fall anywhere in the development stages from defining performance management metrics to building success strategies.

Why Defining a Company Vision is Important for Setting Objectives and Key Results (OKRs)

Objectives and key results (OKRs) have gained popularity due to its focus on execution. Many goal setting methodologies help with the “What” but do not emphasize the “How”. To be able to execute as a company, it is necessary to discover the “Why” factor. It’s important for employees to understand what is driving the company. When a company is able to strongly define why they are doing what we are doing, it then allows for more transparency and insight on what success is and how it can be reached.

Defining a Company Vision for Objectives and Key Results (OKRs)

As mentioned previously, as a leader starting to set company OKRs, you will need to begin with the end in mind. Everything should be directed by what your vision statement describes. A company vision should be easily stated in one sentence describing what your company aspires to be. This is the time to dream big.

Here are some examples of company vision statements to provide you with more contexts:

Disney: To make people happy.

Ikea: To create a better everyday life for the many people.

As you can see, vision statements are aspirational. It’s asking the company and leadership team “Why are we doing what we are doing?”

Company vision is often linked to a Big Hairy Audacious Goal (BHAG) in the tech industry. A term coined by Jim Collins “Built to Last”, BHAG pushes boundaries and challenges the company.

Here are some questions to help narrow down your BHAG in a 3-step process:

  1. What is your core purpose?
  2. What are your core values?
  3. What is your BHAG?

Company vision statements can often times be mistaken as something of a catchy tagline. While a vision statement can sound smart and memorable, like the examples above, but it’s for your team and culture, NOT selling a specific product. Therefore, it’s not necessary to pigeonhole the company vision statement in order to make it sound appealing to everyone else. As vision indicates, a company vision needs to be big and challenging. Sure it might take years achieve the company vision, but at the end of the day, no one said it would be easy.

Defining a Company Mission Statement for Objectives and Key Results (OKRs)

You might be wondering “How does my whole vision translate into my mission statement?” or “What is the difference between my vision and mission?”. Your vision describes the end result of your efforts, but your mission statement details the reason for your company’s existence. Your mission statement is where you outline how your products or services will lead to accomplishing your vision. Let’s revisit our previous examples: Disney and IKEA.

Disney’s vision is “to make people happy”. Here is their mission statement:

The mission of the Walt Disney Company is to be one of the world’s leading producers  and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop creative, innovative and profitable entertainment experiences and related products in the world.

IKEA’s vision is “to create a better everyday life for the many people”. Here is their mission statement:

Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.

One highly recommended exercise for all leaders is the Hedgehog Concept by Jim Collins. The Hedgehog concept is based on an ancient Greek parable that states: “The fox knows many things, but the hedgehog knows one big thing”. To narrow down your mission statement, the Hedgehog concept encourages you to think of 3 main components:

Figure 1 - The Hedgehog Concept

Figure 1 – The Hedgehog Concept

  1. What are you deeply passionate about – This is all about your vision. Ask yourself: “What is the end result of this journey?”
  2. What you can be the best in the world at – Think about your skills, experiences, resources etc. Find out what your talents can contribute to the world.
  3. What drives your economic engine – Pinpoint the main economic denominator that is crucial for your organization. This economic metric should answer the question: “When will the company be on the right track strategically and succeed?”

Company-wide Strategic Planning for Objectives and Key Results (OKRs)

Revisiting the hedgehog concept, it can be used as a starting point for strategically planning to achieve a mission statement as it outlines 3 main categories:

  1. What are you deeply passionate about – This question should help the company focus on what product/service it wants to offer to it’s target audience. Market research can help guide the company to finding product-market fit and identify the industry benchmarks.
  2. What you can be the best in the world at – Take a deeper look at the company’s current resources: knowledge, skills, experience etc. By finding out what the company is best at in the industry, it will allow for the opportunity to set up strategies around internal processes.
  3. What drives your economic engine – Usually, revenue indicators can be narrowed down by finding out what economic metric of success fits your marketplace. Is the company charging per user? Per usage? Per month?

Many companies rely on strategic planning systems such as the Balanced Scorecard to focus on the goals in different categories. These systems are not meant to replace setting goals that are geared towards execution. They should be seen as a stepping stone towards developing objectives and key results (OKRs).

Balanced Scorecard originated from Kaplan and Norton, created as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give leaders a more “balanced” view of organizational performance. They describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measure tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, supplies, employees, processes, technology and innovation.”

Figure 2 - Balanced Scorecard

Figure 2 – Balanced Scorecard

Traditionally, the Balanced Scorecard is shared primarily with the leadership team and management team. After the financial and non-financial metrics are finalized, the strategic objectives are then shared with the rest of the organization. Notice at this point, that the process is very top-down; the leadership team discusses the main metrics, managers are told what their areas of responsibilities are and how they are going to be measured, and finally managers communicate with employees on what need to get done.

With the many crucial changes affecting the workplace, such as flatter organizational structure and millennials entering the workforce, many companies are finding the top-down process as being archaic. This is where objectives and key results (OKRs) kicks in.

The Balanced Scorecard vs. Objectives and Key Results (OKRs)

Frequently asked question: “I’m currently using Balanced Scorecard. Do I transition to objectives and key results (OKRs)?” The answer is “It depends”. Many companies will use the Balanced Scorecard in combination with objectives and key results (OKRs) in the following way—the leadership team uses the different perspectives of the Balanced Scorecard to finalize their financial and non-financial metrics. Objectives and key results (OKRs) is then used to communicate how all objectives from the organizational level are aligned to the team level OKRs, and eventually to the individual level.

Is there a magic formula to make them work seamlessly together? The answer is “No”. For both Balanced Scorecard and objectives and key results (OKRs), there are no single solutions that fits all. It’s important to take what works the best for the organization into consideration. As mentioned before, the Balanced Scorecard is a great stepping stone to developing your objectives and key results (OKRs). It encourages you to look at the different perspectives of an organization and make sure that you are not missing out on any core aspect of your business. Objectives and key results (OKRs) are beneficial to share with the whole organization on what needs to be executed for everyone to be successful.

Organizational Objectives and Key Results (OKRs)

There are companies who communicate their annual goals in the form of objectives and key results (OKRs). It is common practice for these annual OKRs to be broken down into quarterly objectives for better focus and execution. The company’s overview is represented by organizational outcomes. Outcomes are inspired by the company mission statement and long term goals. Remember that organizational objectives and key results (OKRs) are aspirational. Generally, the company key results will reflect the main metrics that leadership in the organization oversees and is held accountable for.

The biggest mistake leaders make at this stage is developing key results that are tasks. Key results on an organizational level should be indicators of success. Objectives and key results (OKRs) is not about micromanaging every step towards reaching your objectives; it’s about providing the framework of what constitutes success, and allowing teams and individuals to figure out how to work towards the finish line. Best practice for number of key results is around 3-5 per objective. Any individual that ends up with more than 5 might want to take a step back and assess whether the key results are metrics or just tasks to be completed.

One important thing to keep in mind when it comes to organizational objectives and key results (OKRs) is that key results will either be assigned to the owner of the objectives (CEO or member of the leadership team) or be assigned to a department/team. If key results are too narrow from the top, by the time the objectives and key results (OKRs) are cascaded to the individual level, team members will end up with a to-do list.

Screen Shot 2016-05-30 at 10.44.36 AM

Figure 3 – Company OKRs

Think big! Set the appropriate expectations for team members. There are companies who are all for pushing the boundaries. Setting challenging objectives and key results (OKRs) and pushing everyone to go above and beyond is not a bad thing. If that’s the case, make sure the right benchmark is set. Over-challenging objectives and key results (OKRs) tend to be demotivating to many team members as they feel out of reach and unattainable. Therefore, it is important to strike the right balance. Consider all resources, the market situation, and other factors before setting a challenging objectives and key results (OKRs).

Examples of Company Objectives and Key Results (OKRs)

In this section, the categories from the Balanced Scorecards are used in combination to developing organizational objectives and key results (OKRs):

Financial Stewardship

Outcome: Make the company profitable

  • Key Results #1: Increase our MRR (Monthly Recurring Revenue) by 10%
  • Key Results #2: Sustain 98% of our customers through annual subscription renewals
  • Key Results #3: Develop a new competitive tiered pricing structure

Internal Business Process

Outcome: Improve our development process for better product

  • Key Results #1: Reduce our current process from 15 steps to 10 steps
  • Key Results #2: Improve the quality assurance standard
  • Key Results #3: Transfer our front-end development to best version available

People and Culture

Outcome: Our company is rated as the #1 workplace

  • Key Results #1: Improve our NPS score to +90
  • Key Results #2: Maintain healthy retention of employees
  • Key Results #3: Reinforce our brand image in local tech community
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