Objectives and Key Results (OKRs) - lets clarify how they fit with other business models

I have avoided bringing OKRs into my KPI work as it appeared that the OKR practitioners seemed to be marketing as a replacement to KPIs. I thought it was a trend that was going to evaporate in the ether just like a desert mirage.

However, that's not the case. I was playing golf on Sunday and my opponent, when asked, ‘What are you doing?’ mentioned that he's helping government departments turn their KPIs into OKRs. I stopped in my tracks and then realized he was obviously not alone in this confused business world that we work in.

After reading around OKRs I believe they are a useful tool to supplement existing methodologies providing they are used wisely.

Set out in Exhibit 1 are the main methodologies I am familiar with and their relationships. There will be others that you have used that can be added to this diagram.

Exhibit 1 How the business models work together

Notes:

New business: When a new business is set up it becomes absorbed into ‘business as usual’ processes.

‘Business as usual’ appears quite boring to OKR consultants. They argue that OKRs is the main driving force of the business, and they refer to Google and Intel as their case studies. But here lies the flaw. Neither of these two companies ever had to worry about cashflow as they had a bottomless pit of hungry investors dumping their cash with large tipper trucks at their front door. All they had to worry about was growth, growth no matter what. If operations were inefficient, poorly designed, ineffective, it didn't really matter as the bigger goal was market share. However few organisations have this false world to play in, instead capital is a critical and scarce resource and daily operations the lifeblood of cashflow.

Intro Into Objectives and Key Results (OKRs)

OKRs—objectives and key results is essentially a great way to communicate and measure strategy.

Andy Grove, a Silicon Valley legend, when the CEO of Intel corporation was looking for a way to implement Peter Drucker’s ‘management by objectives.’ He boiled the issue down to two fundamental questions (1) where do I want to go (setting objective) and (2) how will I monitor myself to see if I am getting there?. It turns out that these two simple questions launched the OKR movement.

Right at the onset Grove believed that a few extremely well-chosen objectives will send a clear message about what the C-suite has said ‘yes’ to and what they have said ‘no’ to. And that the three to five key results for each objective (result indicators in ‘winning KPI terminology’) needed to be reset quarterly.

This quarterly framework recognized the fast pace of change that was affecting his industry and, of course, now affects all of us.

A well-worded objective is concise (less than ten words), qualitative (no numbers), time-bound (doable in a quarter), inspirational and aesthetically appealing. The objectives should inspire and capture the shared imagination of the organisation’s staff.

"OKRs describe where you want to be, not where you currently are."

“An objective in OKRs, is a concise statement outlining a broad qualitative goal designed to propel the organization forward in a desired direction. Basically, it asks, 'What do we want to do?'”

Let me make this clear if you run your organisation by the OKR methodology alone you are courting disaster as the vagaries of daily operations will be overlooked by management.

Running your business just with OKRs would be like a dairy farmer, who at their peril, forgets to milk their cows.

Outlining the business models to utilise

The other business models to consider include:

Key Performance Indicators

Key performance indicators are a management tool that is misunderstood by many, including most OKR practitioners. Their understanding of performance measures appears to be flawed on a number of levels:

? They consider all measures are KPIs. I have spent over 20 years arguing the case for a clear definition on what are KPIs and what measures are clearly not ‘key’ to the organisation.

? They believe the role of measures is to principally help implement the strategic objectives. Yes, result indicators will help with this, but the principal purpose of performance measures is to help align staff with the critical success factors that operate 24 by 7 on the business’s operations.

? All measures to monitor the introduction of the objectives are called key results and this term cascades down into team OKRs. This will lead teams to think that their KRs are as important as all the other KRs in the organisation which of course, is not the case.

To fully understand what KPIs are and where they fit into the four types of measure that a business has, visit my website and read Chapter 1 on my best selling KPI-book (4th Edition) “The Great Misunderstanding”.

Quarterly Rolling planning

I have been a great supporter of rolling planning ever since I came across Jeremy Hope’s work on ‘beyond budgeting’. Jeremy made it very clear that any annual performance contract, including annual budgeting, was doomed for failure. Visit my website to read The ten reasons why you should stop annual planning.

Any organization that is still using annual planning quite frankly has no right to be in business. They are a dinosaur awaiting extinction. Annual planning and budgeting was a process that was broken from the very start. You can read more about quarterly rolling planning from my website. OKRs fit beautifully with this rolling model approach, and I can see great synergy being obtained by companies who are using rolling planning and budgeting with OKRs.

Blue Ocean Strategy

The genius of the blue ocean strategy work was a framework in which companies could engage ‘all the brains in the game’ to find new uncharted oceans where they will be free from the carnage of the ‘blood-red’ oceans of day-to-day business. I am sure some clever OKR consultants have worked out methods to guide their clients to thinking about appropriate new business objectives which hopefully land the organization into these pristine clear and uncharted waters.

However why would you use another methodology when a bulletproof 1 has already been tried and tested and to many respects flawless. It is sad to report that not one of the OKR references I have chased up and read have ever mentioned the blue ocean strategy methodology. It is as if by not acknowledging Blue Ocean Strategy they are hopeful that it will die a death leaving them a bigger ocean to swim in. Read my free 70 page mini-toolkit ‘Innovation: How to unleash its potential’

Kaizen and agile methodologies

Both these methodologies impact on ‘business as usual’ making it more efficient, more effective and more enjoyable.

Kaizen, as described by Jeffery Liker in ‘The Toyota Way’, and by Masaaki Imai in ‘Gemba Kaizen’ shown how organisations can move towards reaching Toyota’s amazing achievement of 10 innovations, per employee, per year, worldwide.

I have written a mini-toolkit (paper plus E-Templates) on ‘Innovation: How to unleash its potential’.

To follow: The ten rules for a good OKR system that aligns with other desirable business models