Learn how to use Objectives and Key Results (OKRs) to grow your business optimally by unifying your teams around common growth goals.
Building a successful business requires many key elements, including the right model, team, product and growth strategy. It goes without saying that you need to ensure your team is focused on measurable, growth-based initiatives which are aligned with the overall strategic direction of the business.
But even assuming you have a strong product, strategy and team, your organization can, due to the way it’s structured and operates, still face challenges and inefficiencies which work against the growth aspirations of your business.
Think about it for a moment: how often do you focus on projects (or observe others on your team focusing on projects) which are either:
• Not directly contributing to the growth of the company?
• Unquantifiable in their relation to growth?
• Inefficient and of low impact?
Poor prioritization and misalignment of this sort are apparent universally in business, and can result in significant losses at companies, from big old dinosaur organizations like government institutions to hyper-growth start-ups like Snapchat.
My point is that, whilst the theory of goal setting, prioritization, measurement and strategic alignment may appear simple to understand, getting individuals (let alone entire organizations) to apply this theory to a set growth strategy is another challenge entirely. This is where OKRs can really help, as they provide your whole organization with a framework for setting measurable goals which contribute to the growth of the business.
Okay, so how can I optimize the operational outputs of my business in order to grow faster?
To build a successful business, your organization needs to operate with ruthless focus on efficient growth, to sustainably scale at a faster rate than your competition.
One way to achieve this is to create a performance-based culture in your business using objectives and key Results (OKRs) which are focused on growth. This increases operational focus and impetus around growth-based initiatives, which in turn minimizes inefficiencies and misalignment that exist within the organization.
Benefits of a growth-based OKR framework:
• Growth project prioritization: Measurable growth-impacting projects are aligned and prioritized by all in your organization.
• Performance-based culture installation: Empowers your team to set measurable, ambitious growth-based goals.
• Sustainable growth cycle creation: This leads to more cash being generated, which can be invested back into growing the business!
"The OKR framework can really help individuals, leaders and organizations to grow, as it provides them with a framework for setting ambitious measurable objectives which bring clarity, alignment and a unified direction to their operation.”
So what do OKRs do?
They align people’s workflow around priorities that matter to your organization, mainly growth. They help to reduce the amount of wasted efforts in a business, by creating an operational culture of ruthless focus and efficiency. Google realized this opportunity early, and OKRs became deeply ingrained into the operational DNA of the business. I found there to be a palpable culture of ambition, transparency, direction and focus at Google whilst working there.
In my opinion, this culture developed, not only from hiring and investing in smart people, but because Google leadership, had also found a way to direct a relatively large number of people, in varying roles and levels, around a set of common organizational goals. The resultant impact was more focus, and hence output and growth, than their competitors!
Today Google, operating under its parent company Alphabet, is using OKRs to organize over 50k full-time employees to generate $12.6 billion annually. Not bad going for a company that is less than two decades old…
I witnessed the power of OKRs first hand
Whilst assisting in the implementation of OKRs at my current business, Vinted, I witnessed just how transformative they can be at a company level. After a re-vamp of the company strategy, and with OKRs installed around growth-based objectives, the business grew really fast. In just one year it went from being reliant on investment rounds to being financially independent, growing company revenues by 5x in 2017 alone, and leading it to finish the year with 14M USD revenues at 70% gross margin.
OKRs need work!
Like most big opportunities out there, I found OKRs to be challenging to install and operate in the business. After speaking to other tech leaders, I realized that other businesses face similar challenges in implementing OKRs, and that my experience could be useful to others, both at a junior and senior level. What follows is my advice on implementing a growth-based OKR framework. It should be relevant to all levels, whether you are a founder looking to incorporate OKRs within your own business, a consultant looking to optimize a clients operations or a more junior level person looking to write OKRs for the very first time. The following topics are covered:
• OKRs origins
• What are OKR’s in practice?
• Why should my business use OKRs?
• A step-by-step guide to the OKR process.
• Tips on how to write OKRs.
• OKR best practices.
• 7 common OKR pitfalls to avoid.
• A final note on optimizing OKRs.
OKRs were originally created at Intel by Andy Grove in the 70s, and pioneered by a number of companies such as LinkedIn and Twitter, and made famous by Google.
You don’t need to be a tech startup to benefit from the OKR system. Today, OKRs are used by thousands of diverse organizations throughout the world, from tech companies like Netflix, to Government organizations like the US Marines. So whatever your business, consider the approach to be relevant to you and your business!
What are OKRs?
OKRs are an operational framework used to connect the outputs of each individual and team in the organization with the company’s strategic direction. If applied correctly, OKRs can transform an organization’s efficiency and output by aligning them behind common corporate goals — in the present context, growth maximization.
OKRs fundamentally comprise of the following:
Objectives, which outline the direction in which you want to take or what you would like to accomplish. They should be unified throughout the organization from the top and should cascade down throughout the organization, grouping under common goals.
Key results, which should outline how you intend to get there. These are indicators of whether you have been successful in achieving the said objectives. They should be measurable, limited in number (in my experience, ideally no more than 3), have a deadline and be ambitious but achievable. (The personal performance tensions influencing the latter are discussed below).
At Vinted, we created both annual and quarterly OKRs. Annual OKRs are created at the beginning of each year and run for the whole year, whilst they are reported on quarterly. The main use of yearly OKRs is to think big in terms of your objectives and direction, to avoid any tunnel vision emerging when defining your strategy.
Quarterly OKRs are set at the beginning of each quarter and run for the whole quarter. At the end of each quarter, OKRs are scored and then new OKRs are created. At Vinted we utilize quarterly OKRs as our main performance tracker and report on progress weekly.
The power of OKRs
How can OKRs help you and your business grow? Well the short answer is that they provide you with a set of ambitious measurable objectives, which bring clarity, alignment and a singular unified direction to your business. This in turn raises the impact, efficiency and focus of not only you output but that of the entire organization.
OKRs provide the following benefits:
• Transparency: Enables positive communication, collaboration and prioritization between teams.
• Ambition: They enable you to garner an ambitious performance culture.
• Alignment: OKRs align people and teams around common strategic growth goals.
• Measurable: They provide your business, teams and individuals with a measurable framework for tracking progress and success.
A step-by-step guide to implementing OKRs
1. Agree on OKR owners and train them!
Start by deciding who in your organization is going to own OKRs. There is no right or wrong answer to this, but ensure that there is coverage from across the organization. At Google, practically the entire company used them, whereas at Vinted it varied from org-to-org based on level.
Ensure that each OKR owner understands what OKRs are, why they are important, how the process works and how to create growth-based OKRs.
2. Build or buy an OKR document/tracking tool
The next step is to create an accessible document or tool where OKRs will be kept updated. There are three options to consider here:
• Create a google spreadsheet: By far the easiest method is to create a Google spreadsheet similar to this one here, where all the owners’ OKRs will be housed. This works fine for smaller organizations where all the owners’ OKRs will be kept under one document/multiple tabs. At Vinted (a 120 employee company), we still use a Google spreadsheet and it works just great!
• Buy an OKR tool: If you are a larger organization then you might consider buying one of the many dedicated OKR SAAS options (e.g. http://okrsoftware.com/).
• Build your own: At Google, they had built their own internal OKR tool which aligned with the rest of the internal HR system. I wouldn’t recommend this solution unless you are absolutely convinced that your company will work with OKRs in the long term as it’s obviously a complex and more costly solution. A leaner approach is to go with one of the other two options above.
The following template should work for most small-medium sized businesses: https://docs.google.com/spreadsheets/d/1yjVBzW4HyXY6kFDoF_nkUbiBLga0ymEGGcV-NK8f4ls/edit?usp=sharing
3. Create Senior Management OKRs first
Start by drafting the OKRs in the business from the top of your organization, by agreeing on the senior management team OKRs first. These should be agreed between the CEO and the rest of the leadership team and based on the primary objectives required by the company and based upon the latest financial business model.
It’s important that whether you are the CMO, CPO or CFO, your goals cascade down from the CEO and should be either concerned with growing the business or doing something to earn more cash (either by raising additional cash or ideally by making efficiency savings) which can be re-injected into the business to reinvest into growing the business further.
For example, the Head of Customer Support might take ticket resolution, NPS and headcount costs as his three OKRs, as he understands that happy customers mean better retention and, potentially, more growth. And in terms of cost, he knows that controlling headcount costs will ensure better OPEX and earnings.
4. Share the draft OKRs
After you’ve agreed on the top-level draft OKRs, they should be shared with the broader organization. Ask the remainder of the organization to create their own OKRs in a way that aligns and cascades down from their senior line managers (see the cascading OKR structure image above).
5. Align OKRs on a horizontal level
Each OKR owner should ensure that they have aligned their OKRs with other stakeholders with whom they share project results (e.g a Product Manager and a Product Marketing Manager agree key results on product adoption).
6. Sign off OKRs vertically
Each line manager and line report should feedback on each other’s OKRs, to ensure that OKRs cascade, and fall under the same focus areas. This creates vertical alignment throughout the organization and helps to prevent disagreement over prioritization and how ‘stretched’ certain results are.
If this process is done effectively, there should be alignment from the CEO right down to the most junior level in the organization, all stemming from the business model and strategy.
For example, let’s say a CMO has the following OKR:
Objective: Drive sustainable revenue growth in Q4.
• Generate 2M in revenue from paid marketing
• Achieve 12 month payback on all campaign activity
Then the Head of Acquisition, rather than having revenue-based goals, may have adoption and CPA targets:
Objective: Drive sustainable revenue growth in Q4.
• Acquire 40,000 customers with an AOV of €50.
• Achieve average CPA per adoption of €100.
7. Score and set new OKRs
At the end of each quarter the OKRs are scored and then a new set of OKRs are drafted. This process is continuous.
Ensure that your team’s strive to create focused OKRs. This means that they should set 1 to 3 Objectives and 1 to 3 Key Results per objective. This, in my experience, is the “sweet spot.” At Google the guide was to have up to 5 key results, but I found that this led to a lack of focus.
Tips on how to write OKRs
• Your Objectives should be memorable qualitative descriptions of what you want to achieve. Objectives should be short, inspirational and engaging. They should also be ambitious and feel somewhat uncomfortable. They answer the question “Where do I want to go?”.
• Your Key Results are a set of metrics that measure your progress towards an objective. Key Results are quantitative and measurable. They answer the question “How will I know I’m getting there?”.
• When Key Results are directly related to fiscal results: In some businesses it may make sense to have two targets for each key result. At Vinted we set a 0.6 score and a 1.0 score. The 0.6 score is what you confidently think you can achieve (realistic) and the 1.0 is a more stretched goal. This approach enables us to think big, whilst at the same time helping us to improve the accuracy of financial forecasting, by aligning our model closer to the 0.6. Wherever possible we also break these key results down monthly, so that we can report on how we are delivering more frequently.
For example, the Head of Acquisition at Company X may have the following objective:
Increase revenue in the UK by EOQ4:
• 1.0 — Stretch = Oct (+333k), Nov(+400k), Dec(+400k).
• 0.6 — Confident = Oct (+232k), Nov(-235k), Dec(+8k).
However, it’s really up to you to decide whether using two scores (confident and stretch) should be mandatory. Our developers, who don’t work with fiscal OKRs, tend to set just one key result as per the example below:
Increase quality to grow business in key markets
• Reduce open bugs count from 110 to 30
Improve delivery to grow business in key markets
• Reduce release time (after RC) from 6 work days to 3 work days
Some best practices to consider:
Set expectations on how OKRs relate to personal performance
It’s important to establish with the entire organization how OKRs relate to performance. There’s a judgement to be made between accountability where OKRs carry significant weight in personal performance reviews and the other extreme of not relating OKRs to personal performance at all. If OKRs play a pivotal role in personal performance, then key results may be set less ambitiously by the team, for fear of missing them. If, on the other hand, OKRs are not part of personal reviews, then individuals may not take them seriously enough! There’s certainly a balance to be struck, depending on your company culture. In my team at Vinted, I weight goal setting and impact of OKRs around 20% of the overall performance review rating.
When setting their OKRs, it’s important that the leader of the company and his/her management team build their own OKRs based on what’s fundamentally the most important goal to the business, and that the corresponding teams’ OKRs cascade down from this first set of OKRs.
In the majority of cases this will be dictated by the financial goals of the business, but as it cascades down the org, this may not always be the case.
Let’s take a company which is looking for financial independence. The CEO in this case may choose EBITDA, the Finance Director, OPEX, CPO, top-line revenue and MAU and CMO, paid acquisition of members, revenue and Payback.
Following the cascade down the business, the Product Manager might have adoption, revenue and retention-based objectives, whereas a back-end developer might have quality-based objectives to minimize down-time, which could impact on all the above-mentioned OKR owners. Conversely, had the back-end developer chosen sprint completion instead of quality, then revenue could potentially be impacted by downtime issues, thereby negatively impacting the above-mentioned OKRs and the company as a whole.
The importance of the 50:50 rule
As a rule of thumb, each person should create their OKRs with at least 50% coming from their own input, rather than from their manager; and should align them with the relevant senior management member’s own OKRs.
Communication of OKR timelines are key
Communicate clear timelines on each phase of the OKR process, to avoid misalignment and inefficiency. For example, at Vinted we try to follow the timeline outlined below:
Q — 14 days: top-management OKRs are introduced and explained.
Q — 10 days: all the teams/individuals draft their OKRs, top-management OKRs are challenged and modified based on feedback.
Q — 1 day: teams’ OKRs are formalized and made public together with the modified top-management OKRs.
Q + 14 days: previous quarter OKRs are reviewed: what has worked? what hasn’t? Lessons shared.
Track and report on OKRs frequently
At Vinted, we have also deeply integrated our OKRs into our tracking and reporting system. Our internal reporting tool, “Looker” is updated by our analysts weekly. This means that the entire company can see how a specific part of the organization is performing on a weekly basis.
Each senior performance leader who impacts on our fiscal results (e.g. product, marketing, CS), meets weekly with the senior management team to discuss performance progress against the quarterly key results. This enables the business to align and address performance.
Review results and pivot
Don’t set new OKRs before rating your OKRs from the previous quarter. Underperformance may demand pivots in the approach or broader strategy. This may appear somewhat obvious, but make sure that you and your teams take time to reflect on performance, so amendments can be made to the approach. OKRs are, after all, there not only to let the company align by common goals, but also to effectively measure whether specific objectives are being achieved.
Nine common OKR pitfalls to avoid
Getting your team to avoid some of these common pitfalls will drastically improve the overall impact of the OKR process:
• Create key results which are measurable, growth-based goals: By far the most common mistake is to set key results which are not measurable and which do not impact on the businesses growth.
• Avoid project-based key results: Try to avoid setting key results which are project-based. For example, ‘completing a strategy’ may lead to better business performance, but should not be considered to be either an objective or a key result as it can only really be measured in a binary fashion (complete/incomplete).
• 3 is the magic number! Limit the number of OKRs to three or less. I often found that my best-performing, most impactful quarters at the Goog followed a well-thought-out, narrowly focused set of personal OKRs. More than 3 OKRs and you start to lose focus and impact.
• Insufficient coverage: Regardless of who you choose to be OKR owners, ensure that there are OKR owners from across the business, at least at the manager level. Incomplete coverage leads to misalignment.
• Inaccessible OKRs do not work: Whether you decide on a tool or a spreadsheet, ensure that each owner’s OKRs are accessible to everyone in the company. Not having a transparent and open reporting solution defeats the purpose of doing OKRs in the first place.
• Build in a performance buffer: Build space between your business model and your OKR results, to encourage your teams to set ambitious OKRs. This will provide you with a degree of safety in terms of performance delivery when setting expectations with your investors.
• Allow time for feedback: Ensure that there is time for feedback on the drafted OKRs. Don’t treat any OKRs drafts as final until you have received feedback from the broader organization. You may find that the key results are too aggressive or too conservative, depending on what other teams can deliver.
• Accountability is key: Avoid OKR owners sharing the same key results. Try to set accountable, independent key results rather than shared goals. If you share OKRs with other stakeholders, you’re liable to either not be able to prove your own impact, or worse still, underperform due to a reliance on others. Although OKRs should cascade under similar objectives from the top to the bottom of the organization, be sure that they are not duplicated from one level to the next.
• OKRs are not a golden bullet for strategic success: They should be considered an approach to optimize the operational direction, efficiency and outputs of the organization when aligned with the strategy. For example, at Vinted we had implemented OKRs long before we saw the benefit. OKRs do not produce the required result in performance alone.
A final note on the optimization of OKRs
Whether you are installing OKRs into the business for the first time or redrafting your own OKRs after a round of feedback, it’s important to realize that getting good at OKRs takes time to get right.
Focus your organization’s efforts on:
• Broad educational documentation on the topic.
• Make your management team the experts and advocates of the process.
• Build OKRs as a key cornerstone of your performance culture.
I still consider myself a student on the topic, so please do share your feedback. It would be much appreciated!
Thanks and good luck 'OKRing'!