Book Summary: OKRs From Mission to Metrics

I thoroughly enjoyed reading this short book today, hence decided to share with my linkedin community through this short summary.

I was never a stranger to the concept of OKRs but after reading this book, I realized that I only knew half of story. As someone who is never satisfied from his own work especially when it comes to designing permanence management frameworks, I found answers/solutions to some of the questions/challenges I was facing in this area e.g. how to ensure that objectives are translated into action pans or projects. Time and time again, I have observed line managers struggling with setting individual's objectives in alignment with corporate and departmental strategy by focusing too much on the syntax without contextualizing the objectives based on job level, team dependency, employee motivation and cycle time.

The other challenge I have repeatedly faced is putting too much focus on the individual performance rather than actual results. The core issue is perhaps when we try to integrate Corporate Performance Management with Employee's Performance Management. The realization of this distinction may perhaps open doors for further discussions but I am glad that at least I now know where the problem lies.

The book entails some useful information from defining OKRs, its characteristics, benefits, difference from other systems and monitoring framework. Additionally, the author took the time to explain various theories with regards to goal setting and employee motivation. Last but not the least, the author also shared his opinion on decoupling compensation from performance ratings and using a much broader approach to determine the right compensation.

Definitions & Meanings

An OKR is a set of one Objective and n Key Results

o  The Objective is the business result that needs to be achieved, and should be written in qualitative terms.

o  The Key Results are S.M.A.R.T. (an acronym for specific, measurable, attainable, relevant and time-bound) goals based on specific key performance indicators.

Characteristics of OKRs:

?      Since OKRs belong to cycles, if they don’t have an explicit end date, you must automatically assume that they must be completed before the end of the cycle.

?      Key Results must help “prove” if the Objective was achieved.

?      Bottom-up and Top-Down: Hybrid Model which not only improves employee engagement but also alignment with the strategy.

?      Transparency: OKRs should be made public to so that conflicts OKRs can be promptly identified, discussed, and resolved.

?      Each OKR should result in another OKR or Project or Action Plan

?      An OKRs should track results relative to the person or team that owns them. The relationship between efforts and results is always relative. To illustrate this, let’s think about football. “Running faster” is a result of the “workout” effort, but “running faster” is also an effort to “score more goals.” And “scoring more goals” is an effort to “win the game.”

?      Short cycles and Cadence

Why use OKRs in managing your company:

?      Focus and prioritization

?      Alignment thought organization (mission & vision) and through Time.

?      Motivation: Difficult goals to employee engagement “The value of the goal must be above people's capacity to reach it, in a way that they need to learn and grow in the process of working towards it.

?      Culture: OKRs are a very powerful tool for solidifying a culture of execution and results orientation. Perhaps 9 out of 10 companies have, among their corporate competencies, values, or strategic guidelines, some variation of “results orientation.” But what does “results orientation” mean? A results-oriented professional clearly knows the difference between an effort and a result. As people better understand what the results of their efforts are, they create a culture of fewer politics, less subjectivity, and more, voilá, results orientation!

Why are OKRs Different?

?      They aren’t defined solely top-down: OKRs should be set from both the bottom-up and from the top-down. In practice, employees take a more active role in the process.

?      They’re less directly linked to variable compensation plans, like pay-for-performance bonuses (we’ll talk more about this soon).

?      They’re run in shorter cycles of 3, 4 or 6 months.

?      They’re public by default. That means that confidential OKRs are the exception, and not the rule (goals related to mergers and acquisitions or downsizing plans are some examples of private OKRs).

Goal-setting theory, or GST

According to GST, goals serve three main purposes:

?      Focus: Goals help the company focus effort, attention, and energy on what’s relevant, relative to what’s irrelevant.

?      Effort: Another very important purpose of goals is to increase the level of effort that people exert at work.

?      Persistence: Persistence is probably the trickiest thing to get right when setting goals. The right ones produce high effort input for longer periods of time, but the wrong ones can really wreak havoc: “large negative discrepancies may lead to a withdrawal of effort when individuals are discouraged and perceive low likelihood of future goal attainment”.

Getting Goals Right

When GST researches goal efficacy, a lot of attention is given to how individuals relate to their goals, and especially with regard to hitting and not hitting their goals.

Here’s a list of the main attribution mechanisms, and how these may affect future goal-setting:

?      Internal (self) and external (locus of causality): If I think I’ve hit my goals because of my own competence, I’ll set harder goals in the future; if I think I’ve missed my goals because of my own incompetence, I’ll try to set easier goals in the future.

?      Stable and unstable: If I think the reason I’ve missed my goals isn’t going to change (i.e., the reason, or condition, is stable), I’ll try to set easier goals, whereas if I think the reason I’ve missed my goals was a one-off (i.e., not stable,) I’ll set higher goals.

?      Controllable (under the person’s control) and uncontrollable: “If people believe that causes for failure are controllable, they will probably continue or renew their effort and commitment to their original goal, but be less likely to do so if the cause of a negative discrepancy or failure is perceived to be due to uncontrollable causes.”

?      Linked to higher goals/purpose “When making an internal attribution for goal failure, an individual may be more likely to continue goal pursuit when the goal contributes significantly to a highly valued superordinate goal. The individual may be more likely to revise the goal downward when the goal is tangential to the superordinate goal’s accomplishment”

Compensation

The main difference between OKRs and Fortune 500 goal management is the degree of linkage between goal attainment and employee compensation. When this link is broken, a number of possibilities open up that make goal management much more effective and engaging.

Some companies may even mingle this formula with corporate level goal triggers, which can increase or decrease distribution. In these cases, nobody may earn bonuses if the company doesn’t reach, for example, 70% of the EBITDA goal. Other companies may also factor in team-level compensation, so that the employee is encouraged to cooperate with her teammates while reaching her goals. One of the problems with that is that it can lead to an effect called sandbagging: employees tend to whine to managers and schmooze up to them to negotiate easier goals, so they can have a better chance of reaching them.

What about meritocracy?

The process of allocating money won’t be derived from a simplistic mathematical formula (like if you reach x% of your goal you make y% of salary as bonus,) which encourages sandbagging, unethical behavior, and excessive complexity. Bonuses and other forms of incentives will be derived from manager discretion based on a lot of deep, meaningful discussions, and on the actual results achieved.

Monitoring

? Which OKRs/Projects are off-track

? Why these OKRs/Projects are off-track, and

? Which actions are already under way to get these OKRs/Projects back on track

Why focus only on what’s off-track? Because time is extremely limited, and meetings can quickly become long and boring. Therefore the focus is exclusively on what’s “red.”

Fostering the right culture

A big part of making monitoring, and OKRs in general, work is to foster a constructive, positive environment around these meetings. It’s of the utmost important that those employees who present what’s off-track aren’t condemned or humiliated in public. The idea isn’t to scold people in front of their peers, but to solve real problems and think.

Framework for assessing Progress

Q1. Actions were not executed according to plan, and OKR is off-track:

This one is the easiest. The solution is just to get back to executing the plan, and to figure out why the plan was not carried out in the first place. The manager should also figure out, as discussed in Quadrant 2, why the plan wasn’t execute and treat possible behavioral issues one-onone accordingly.

Q2. Actions were executed according to plan, but the OKR is off-track:

In this case, the hypothesis, and thus the action plan, were wrong. The team has to find out why the plan was wrong in the first place, and adjust it.

Q3. Actions weren’t executed according to plan, and the OKR is on-track:

Here, the main focus of the meeting should be on what caused the OKR to be on-track even though the plan wasn’t executed. It’s great that the OKR is on-track, but the team should understand exactly what factors weren’t factored in in the first place.

Q4. Actions were executed according to plan, and the OKR is on-track:

Even when OKRs are on-track, teams must carefully reflect on their achievements, and assess whether they’re a consequence of the action plan or of exogenous factors. What factors were these? Why were they not foreseen? The team must understand the whys behind each response.

Grading OKRs

1.     Option -1: Google’s Example

?      0.0: No progress made

?      0.3: Little progress made (something achievable with minimal effort)

?      0.5: Reasonable progress (something achievable with considerable effort)

?      0.7: Expected progress (which is achievable with the expected effort; as we discussed earlier, 0.7, or 70%, is “100%” at Google)

?      1.0: Extraordinary progress (more than expected)

Google encourages its employees to preset what these scores represent (in terms of actual results) at the start of the cycle. (E.g. a team that sets an OKR of “reduce page load times on Google search by 10%” may agree upfront with its leadership that a decrease lower than 2% will mean 0.0, or no progress made).

2.     Option-2: Linear mathematical way of grading Key Results

Rating scales don’t have to be the only way to score OKRs. Another way to score them is based on the actual progress that’s been made on the underlying KPIs. If a Key Result was to reduce customer turnover from 10% per month to 5% per month, and actual turnover was 5%, 100% of this Key Result was achieved (of course, if the turnover at the end of the cycle was 10%, 0% progress was achieved, and so on)

Some Key Results can have binary achievements, such as an M&A deal: It was either completed or not completed. But this type of Key Result should be the exception, and not the rule.

Debriefing

Debriefing is where the OKR cycle ends, and a new cycle starts. Its main purpose is to wrap up the scoring of the OKRs and to learn from what happened throughout the cycle.

During the debriefing part of the cycle, the company finalizes its OKRs by inputting the last data on KPIs and getting final achievements. The next phase is having people debrief on what went right and wrong. For each OKR, we suggest everybody presents a simple reflection:

?      Where the results achieved (yes/no)? What went right and what went wrong?

?      Why did these things go right or wrong?

?      What have I learned from this cycle that I’ll take with me and the company?

This can be a simple form to be filled in a performance management application or a couple of slides to be presented to the team (or both). What’s important is that those presenting their debriefings are honest and selfreflective about their performance and their learnings. That’s really what the process is all about

Most common mistakes

1.     Not doing it gradually: OKRs should be implemented gradually:

?      From fewer OKRs towards more OKRs

?      From company goals towards individual goals

?      From shorter iteration cycles (and faster course-correction) towards longer iteration cycles

Solution is Baby steps: You can start with one company-wide Objective and three or four Key Results in a one-month cycle. See how it goes, learn from the process, and repeat. After three months, unfold the OKRs loosely to the teams. Three more monthly cycles. And so on. If the company has incorporated the cadence - the habit - of monitoring its OKRs, you’ve already made a tremendous progress towards more alignment and results-orientation

2.     Setting too many OKRs: Should not exceed 5

3.     “Setting and forgetting”: Goals lose their raison d’être if they aren’t monitored. Accountability is critical: Employees must own their OKRs, and Key Results should be monitored on an ongoing basis. There are a number of reasons for this:

?      In discussing the whys of each goal, the organization learns what works and what doesn’t work.

?      Constant monitoring shows that the organization cares about OKRs

4.     OKRs that are too hard: Ideal goals should be those “you know 80% how to beat. The other 20% will be learned along the way.”

5.     Starting with moonshots: The right way to do this is to set conservative OKRs to begin with. After more maturity is achieved (where the company as a whole reaches 70-80% of targets, people can start having the freedom to set one stretch OKR per cycle, but not more than that.

6.     Goals that are too easy: Alternatively, OKRs can’t be too easy. Research indicates that very easy goals generate low levels of motivation and energy due to their lack of challenge in the eyes of their owners.