Three Horizons of OKRs

Classic Silicon Valley OKR mythology tells tales of brave product teams that used OKRs to achieve ambitious goals, from the hypercompetitive world of chip design through the growth of today’s mammoth search and social media platforms. In these cases, the heroes are engineering teams. The big difference from the rest of us? For an engineering team, everything is a project. There’s very little if any “business as usual” (BAU) to attend to.?

As more and more organizations get inspired and embrace OKRs, we discover that not all organizations are like that! What about an organization with a substantial amount of that BAU?

We’ve worked with lots of mature organizations with multiple product and service lines, as well as non profit organizations and universities that tend to have a complex web of multiple stakeholders. It’s not a matter of focusing single mindedly on building a widget that lots of people will buy.?

We find that, in these organizations, OKRs are helpful for some goals, but not all. If OKRs are reserved only for the big moonshots, it leaves many people in the organization with no connection to OKRs, a sense that the “cool kids” get OKRs but, if you’re laboring away in a more operational area, your job is not important. This is a big mistake. That’s the last thing a leader wants to communicate in a talent-constrained economy. And the fact is, keeping the lights on is truly critical.?

For years, I had a Powerpoint slide titled “OKRs are not Business as Usual.” Until enough clients told me that 1) the difference is not that black and white and, more importantly 2) it disses the routine “jobs to be done” that keep the business running.?

McKinsey & Co. introduced a very helpful idea back in 2009 — the Strategy Horizons model — which we’ve tweaked a bit to help us find the balance between what we used to call “business as usual” and OKRs. Many of our clients have found it extremely useful.?

Every organization needs to decide how much energy to put into running the business, growing existing business, and transforming the business. Much of the OKR literature has been focused only on transformation. Transformation is the sexy stuff, but profitability is created by continuing to deliver products and services efficiently and at quality. Can we get some benefit applying OKR concepts to these kinds of results, even if they don't fit the classical definition of OKRs??

Here’s how we’ve adapted the Strategy Horizons model:

Horizon 1: Run — Maintain and defend core business.? Results in this horizon impact current revenue and operations. You could call it “keeping the lights on.” You can describe these with only metrics, what we typically call a Key Performance Indicator. Or you can use the full OKR grammar for a bigger statement that links these “health metrics” to a larger purpose. For example, I worked with a Department of Motor Vehicles whose Objective was to “Maintain acceptable wait times for customers.” The Key Result was “Wait times will be maintained at 15 minutes or less.”. The advantage of using an objective is that it relates the work to the larger purpose of the organization - in this case to provide efficient service to citizens. That helps the people focused on this result internalize the purpose and value of what they are doing.?

Horizon 2: Grow — Nurture and extend emerging business. This could mean starting to sell an existing service in a new geography, or adding features to an existing app. The dynamics of what needs to happen are relatively well understood, even if some continuous improvement and new territory is involved. There’s a moderate level of learning and uncertainty involved within the bounds of a game that’s already been defined (See what I mean by "game" in this context) But, with a sustained focus and commitment, the outcome is relatively predictable. Profits resulting from these “committed” OKRs might not be expected to show up in the current financial year, but seeds are planted for the future.

Horizon 3: Transform — Innovate new business offerings. This is the true ur-territory of OKRs, the unfolding of a new value proposition, associated with higher levels of risk, uncertainty, required teamwork, and learning. Financial results from this may only be realized several years into the future..

One of my clients has developed a management rhythm that integrates strategy, operating plans and routine operations into a single cadence. In weeks 1 & 3 of a month, the leadership team reviews OKRs. Horizon 3 stuff. In weeks 2 & 4, they review progress on the operating plan — Horizon 2 stuff that tends to be framed as service extensions or tackling well understood problems, or hiring more people. In addition, they review KPIs about internal operations and business economics — Horizon 1. Routine operations whose KPIs get outside of defined bounds may be bumped up to Horizon 2 or 3 depending on severity. Moonshot OKRs that settle into a new, higher level of performance get turned back into KPIs.?

This speaks to a larger view of performance, and management of performance data. Whether you call it a KPI or a Key Result, or whether a given metric can move from one category to another, every organization is sitting on a big pool of data (whether well-structured or not). Making sense and use of this data is dependent on filtering it through a unified performance model that integrates running the business, growing it, and transforming it.