I’m back after a long hiatus from writing.
We are in planning season at Digit. Like a number of other technology companies, we use OKRs. I was puzzled by the wide range of OKR effectiveness at different companies. My study of the nuances of different approaches led to the conclusions outlined in this note. OKRs are incredibly useful but it takes a long time for OKR usage to become effective. Shortcut your company's learning process by understanding and implementing the following ten ideas. If you find them helpful, drop me a note.
What are OKRs?
OKRs stands for Objectives and Key Results. They capture two things:
Objective: The goal a company wants to achieve ("What")
Key Results: The path to achieving that goal ("How")
OKRs are an invaluable management tool for organizations of all sizes. Used properly, they allow an organization to unlock four superpowers:
Focus and commit to priorities.
Align and connect for teamwork.
Accountability through tracking.
Stretch to achieve the impossible.
[Measure What Matters, John Doerr]
OKRs are a tool. The act of using OKRs does not guarantee Google-like performance, innovation, or market dominance. OKRs are not a strategy, nor do they make up for lack of strategy. OKRs force a company or organization to think rigorously, to hold themselves accountable, to stretch, and to learn and grow. Persistent usage over time guarantees increased focus, alignment, and execution. Here are 10 ideas to use them more effectively 👇🏽
10 Tips for using OKRs effectively
1. Objectives must be Big and Motivating
A great, challenging goal is inspiring. It brings teams together. It ignites that thing in us that led to human spaceflight and exploration of unknown frontiers. Inspirational objectives are critical at the company level, since company OKRs cascade down to teams and individuals. Everyone should feel proud to accomplish their objectives and together achieve a higher goal.
Objective: Win the Super Bowl KR1: Passing attack amasses 300+ yards per game. KR2: Defense allows fewer than 17 points per game. KR3: Special-teams unit ranks in top 3 in punts return coverage.
2. KRs must be measurable
There are three important components of a key result:
The metric by which you will measure progress.
Where you are starting and what the goal is.
When you'll be done. The time is assumed to be end of the execution period (quarter or half) if not mentioned explicitly.
For example, let's say you want to reduce your AWS costs by improving server efficiency.
Objective: Reduce AWS costs. KR: Increase server utilization.
How will we know whether we have achieved our OKR or not? When should we stop working on this or work harder? The OKR could be rephrased to make it clearer:
Objective: Reduce AWS costs from $100 to $80. KR: Increase server utilization from 65% to 80% by the end of the quarter.
3. Use binary KRs sparingly
A binary KR is one that is either done or not done. For example:
Objective: Reduce AWS costs from $100 to $80. KR: Turn on auto-scaling for all services by the end of the quarter.
Binary KRs are measurable — they were either accomplished or not — but usually need to be combined with quality counter-metrics to be effective. More on metrics and counter-metrics below.
Another example of binary KRs are "Ship KRs". They are often used when rolling out new features. Without baseline data, there is no way to measure or predict how a feature will perform. The team can put in work to predict outcomes, but sometimes, it is easier to ship something and see the impact. Ship KRs have their place, use them with caution.
4. All Key Results must have dashboards
The natural consequence of measurability is the scoreboard. Every measurable KR should have an associated dashboard. These need not be fancy — an excel sheet is sufficient to get started.
Some results are only measured fully in retrospect or take a while to get an accurate read. Retention is an example of such a measure — we don't know upfront which user will churn. In such cases, teams should use alternate approaches, such as:
Create a proxy "operational" metric that correlates well with the goal metric. 1-day retention can be used for 30-day retention if we find that the bulk of churned users churn within a day.
Use a forecasted or predicted number as the operational metric. Monitor the predicted metric to keep the error within bounds.
5. Key Results must be exhaustive
Another common trap that leads to a feeling of inadequacy at the end of the quarter is missing an objective despite accomplishing its KRs. Imagine we take on a feature activation goal that ladders to some critical company objective.
Objective: Increase usage of feature X from 100 DAU to 200 DAU. KR1: Improve activation funnel efficiency from 85% to 90% by August 1. KR2: Improve feature X retention from 90% to 95% by September 1.
We get to the end of the quarter, both KRs are green, and feature usage hasn't gone up at all.
What if the lack of feature X had more to do with how you marketed it? If the problem is at the top of the funnel, increasing funnel efficiency is unlikely to achieve the goal.
Missed KRs are abundantly evident in hindsight, but much harder to think of ahead of time. One approach is to ensure that the goal (or the first KR) captures the intended outcome (100 DAU to 200 DAU) and let the team add KRs along the way if enough progress is not being made.
6. Pair Metrics with Counter-Metrics
There is natural pressure and temptation to achieve progress at all costs. There have been innumerable examples in the corporate world, with Enron and Wells Fargo being the most recent, where the drive to achieve a particular outcome, such as "Open more accounts," compromised the company's core values.
To guard against such adverse outcomes, you can pair metrics with counter-metrics. For example, Wells Fargo could have paired "number of active accounts" with defensive metrics such as "each account must be active," "each account must have a certain balance," "no more than X accounts per person in a week."
In product-feature land, there is a natural pairing of growth-based KRs and quality-based KRs.
KR1: Feature X will have 100 users by the end of the quarter. KR2: 7-day retention for Feature X will be 90%. KR3: P0 and P1 bugs will be closed within a day.
7. Distinguish between Committed and Aspirational OKRs
OKRs are scored on a scale of 0.0 to 1.0. What's a "good" score? Many tech organizations believe the answer is 0.7, based directly on Google's scoring approach [whatmatters.org — how to grade OKRs]
However, the Google scoring system applies to Aspirational OKRs — typically Big, Hairy, Audacious Goals that you don't know how to hit. You know it's going to be hard, and you're likely to fall short. But if you don't reach for the moon, you're never going to get there. The purpose of aspirational OKRs is to stretch you, to motivate you to solve more significant problems and to think differently.
In contrast, some OKRs are expected to be delivered in full. Doerr calls these Committed OKRs. For the business to succeed, for cross-functional teams to depend on each other, these goals must be achieved in full. You are pushing for complete success, not setting aspirational visions. The expected score for these OKRs is 1.0, with low variance.
Distinguishing between committed and aspirational OKRs is essential. If a team biases too much toward commitment, they may not stretch enough. If you go all aspirational, you may not hit any goal. Leadership must make deliberate choices about how their company should think about their OKR bias.
My current personal leaning is to bias toward committed OKRs for nearly everything, with one or two aspirational OKRs for things that are truly game-changing.
8. Cascade OKRs up, down, and laterally
High functioning organizations speak the language of OKRs. When you depend on another team to hit your goal, you should expect to see that dependency in the other team's OKRs. If you don't, your likelihood of failure has increased significantly.
Similarly, company Key Results often become Objectives for organizations within the company. Organization Key Results become Objectives for individual teams.
OKRs can also cascade upward. For example, a team could discover that they have no way of hitting their goals, given their level of staffing. They refuse to take on the OKR, which in turn changes the OKRs above them, and so on.
This cascade of OKRs through the organization is a critical step of aligning the entire company. While it may sound chaotic in theory, the company or organization should quiesce in a week or two.
9. Personal OKRs are powerful. Use them to accelerate your career
Company and Team OKRs drive organizational alignment and focus. You can create your personal OKRs too. While some will inevitably be congruent with your team's OKRs, there could be others that are about making progress in your career or growing as an individual. Personal OKRs clarify your priorities with your manager and your peers. They hold you accountable for accomplishing what you set out to do.
I think of Personal OKRs as writing my self-review, six months ahead of time. I have been creating personal OKRs, putting them into a document, and sharing them with my manager for about six years. They have helped me be clear with my manager about what constitutes success and failure, what is paramount in their minds, and keeps me accountable for making progress. I strongly recommend doing Personal OKRs and taking charge of your career.
When writing personal OKRs, you must focus on outcomes, not activities. This trap is avoided at the team and company level by making all KRs measurable. However, when looking at personal OKRs, we start using language like "Participate in interviewing" or "Be a part of X team." Consider rephrasing into outcomes instead, such as "Hire 3 engineers by the end of quarter" or "Conduct an average of 1 interview per week."
10. Prefer a small number of tightly focused OKRs to a long list
OKRs should add focus. A large number of OKRs, whether individual or team, imply a lack of focus. When push comes to shove, which OKR is going to drop? Don't bother adding OKR priorities — that is simply a bandaid over the root cause: you have too many OKRs.
OKRs should also represent commitment. Picking one OKR means that we cannot do something else. In your OKR discussions, you could include a list of things you chose not to do to illustrate an effort to add focus.
Bonus: Effective OKR usage takes years
If you're getting started with OKRs, know that your initial implementation will suck. You may have too many, or they may not be measurable, chaos may reign as OKRs cascade across the organization. Know that there is no pinnacle of OKR usage — Google struggles with them as much as a series-A startup. Their struggles are different, and they've had more than two decades to get it right. But keep at it and make your version of OKRs better over time. Be patient.
This note is a combination of practical experience from a decade of practicing OKRs and Goals at Google and Facebook, and reading through three books: