How to Avoid Misusing OKRs and KPIs

Key Results (KRs) and Key Performance Indicators (KPIs) for performance management of non-manufacturing activities have existed for a short 40 years or so. Until the introduction of the Balanced Scorecard (BSC) in 1992 by Kaplan and Norton, companies largely assessed performance by financial metrics. The BSC introduced the notion of including process, customer, and learning metrics along with the financial. It quickly gained traction as the standard for leadership dashboards across companies and business units. In 1999, John Doerr introduced the concept of OKRs (Objectives and Key Results) into the general business vernacular with his book Measure What Matters. The Google management team embraced OKRs early, giving the approach a tremendous boost as Google became a market darling.

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The business arena is one in which publicized successful practices are quickly and furiously imitated and rapidly assume the mantle of “must-dos”, with an equal rise in consulting services to help explain exactly how you must do them. Key Results and Key Performance Indicators are no exception. However, using KRs and KPIs without assessing how they will be interpreted, how they will be acted upon, and the “goodness” of information available to create the measure can result in detrimental outcomes.

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Here are the three general rules to follow to avoid KR/KPI pitfalls.

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Align to Strategy

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As a management team, you have invested a significant amount of time charting your strategy. If your execution OKRs are not aligned to your strategy, then your organization’s energy will be focused on the wrong direction. While this may seem a very obvious, an article published in the MIT Sloan Management Review titled No One Knows Your Strategy - Not Even Your Top Leaders revealed that only 28% of executives could list three of their company’s strategic priorities. It gets worse as you go further down in the organization.? Ensure your strategic themes and priorities are clearly at the forefront when designing your objectives.

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Respect Goodhart’s Law

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Charles Goodhart ?is a British economist who is best known for his axiom “Once a measure becomes a target, it ceases to become a measure.” One common manifestation of this is in customer support. If you set a target for how quickly a support ticket is closed, what happens? Some good things may happen, but a lot of bad things happen too, like focus on ticket closure at the cost of customer satisfaction. Brett Knowles has a great blog on his site on Goodhart’s Law and some techniques to address this titled Goodhart's Law - An Obsession with Numbers Can Sink Your Strategy. The key recommendation is to focus on “outcomes” when defining key results. In the example above, the desired outcome is not to have the shortest time to ticket closure, but to have a customer who is happy with the support experience. This may be better reflected in a customer satisfaction or net promoter score. The temptation is to “surrogate”, as Knowles says, a more easily available metric like time to ticket closure, but this can lead to undesirable outcomes.

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Honestly Assess Your Organization’s Maturity

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There are a several organizational maturity models, and almost all reflect the levels at which an organization clearly understands everything it does (processes, systems, people), and how effective its internal mechanisms are at driving continuous improvement. Highly mature organizations tend have well developed practices of measurement and improvement. The people are familiar and well trained in continuous improvement practices, and good data with a high degree of hygiene is easily available. The least mature organizations have less defined processes, operate in a more ad hoc manner when it comes to improvement, and are less likely to have clean data sources as a result. You do not have to be at a Level 4 or Level 5 maturity to effectively use OKRs and KPIs. However, an organization that is less mature should absolutely limit the number of OKRs to allow the organization to get familiar with the “measure and improve” motion. Excessive OKRs and KPIs (more than 2-3) can confuse and demotivate employees in less mature organizations, even if you have a management team that has significant previous experience with OKRs. Err on the side of less. The lowest common denominator here should always be the organization’s collective capability.

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Final Thoughts

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No one understands your organization and your business context better than you do. As such, external guides can be a useful starting point and guide, but they are not a substitute for your own intimate knowledge of your business and your people. If your OKR/KPI model aligns to your strategy, focuses on outcomes, and considers your current organizational maturity, you will be on firm footing to help the organization move forward.