Beyond Numbers: Avoiding the McNamara Fallacy in OKR Success"

Setting and tracking OKRs (Objectives and Key Results) can sometimes fall into a trap known as the McNamara fallacy. Named after Robert McNamara, this fallacy is all about making decisions based only on numbers and ignoring everything else.

I like to call this a KPI trap as well. Most of us defer to the metrics that we have always used or can be easily tracked. We don't recognize that with changing consumer behavior, technology leaps, and rapid transformations to our ways of working....the measures that we've gotten used to, may not serve us all that well.

Here’s how it happens, why it’s a problem, and how to avoid it with well-written OKRs:

What is the McNamara Fallacy?

The McNamara fallacy goes through four steps:

1. Measure what’s easy to measure: This means focusing on things like sales numbers or website hits because they’re simple to track.
2. Ignore what’s hard to measure: Things like employee happiness or customer loyalty get overlooked because they’re tricky to quantify.
3. Assume the hard-to-measure stuff isn’t important: If it’s not easily measured, it must not matter, right? Wrong!!
4. Conclude that the hard-to-measure stuff doesn’t exist: Ultimately, you might end up pretending these important factors don’t even exist, which is a big mistake.

Examples of the McNamara Fallacy in Action

Focusing Only on Sales Numbers:

• Example: A company sets an OKR to increase sales by 20%. They track sales figures closely but ignore customer feedback.
• Problem: Sales might go up in the short term, but customers could be unhappy with the service, leading to a long-term decline.

Ignoring Employee Well-being:

• Example: An organization sets an OKR to improve productivity by 15%. They measure output per employee but ignore signs of burnout and dissatisfaction.
• Problem: While productivity might increase initially, employee turnover could rise, hurting the company in the long run.

Prioritizing Website Traffic:

• Example: A marketing team sets an OKR to boost website traffic by 30%. They focus on clicks and visits but don’t measure user engagement or satisfaction.
• Problem: High traffic numbers might look good, but if users are not finding value, they won’t convert to customers.

How Well-Written OKRs Can Mitigate the McNamara Fallacy

Include Qualitative Goals: e.g. Instead of just setting an OKR to increase sales by 20%, add a key result to improve customer sales NPS scores by 10%. A ambitious, inspiring qualitative objective helps teams in focussing on the 'what else'

Use Mixed Methods: e.g. For an OKR to improve productivity, include key results like “conduct quarterly employee satisfaction surveys and achieve an average rating of 4 out of 5.” Have a KR that shows a change in behavior or feeling vs. only seen as a number.

Acknowledge Metric Limitations: e.g. An OKR to boost website traffic could include key results like “increase the average time spent on site by 15%” and “achieve a user satisfaction score of 8 out of 10 in surveys.” Similarly high sales numbers might suggest success, but they don’t show underlying issues like declining customer satisfaction or increasing returns. Hence OKR rituals where learnings are shared and discussed are more important than the setting itself. Remember metrics might reflect only the surface-level performance, ignoring deeper problems.

Think Long-Term: e.g. Instead of just focusing on short-term sales growth, an OKR might include “develop a customer loyalty program and increase repeat purchases by 25% over the next year.” Don't let the short cycles for OKRs fool you into thinking that it's about short-term results. OKRs are about breaking long-term transformative moon shots into short-term goals. You don't compromise a long-term ambition for a short-term 'win', especially if that win takes you the worng track.

Involve Different Perspectives: e.g.: When setting OKRs, involve team members from various departments to get a well-rounded view. An OKR for product development could include input from sales, customer service, and R&D.

The McNamara fallacy is a big pitfall when setting and tracking OKRs. By balancing numbers with qualitative insights, you can avoid this trap and create more effective and comprehensive strategies. Well-written OKRs that incorporate both quantitative and qualitative elements ensure a fuller picture of progress and success, leading to sustainable growth and resilience. Remember, it’s not just about what you can measure easily—it’s about recognizing and valuing the whole picture.

OKRs help organizations succeed! Period! But it's the collective enthusiasm and energy of the people that help in making OKRs happen. This energy is dependent on how well the movers and shakers understand business strategy.

Reach out to Kenneth Paul Lewis, here on LinkedIn or write to him at [email protected] to coach your organization's leaders on strategy and OKRs.

Visit us at https://atlaslearning.in/okrs/ to learn more!

Atlas OKRs is a part of Atlas Learning Pvt Ltd which is one of the world's leading management and leadership consulting organizations. Kenneth Lewis is India's and Asia's first OKR coach and consultant responsible for helping companies such as Colgate, Poonawala, SWIFT, Hamilton, Inmobi, and hundreds of other organizations implement OKRs.