OKR, which stands for “objectives and key results,” is a common acronym used in businesses, particularly within the tech industry. But what does the term really mean, and how does it differ from traditional goal planning? This guide will walk you through what an OKR is, why they are crucial to the success of any business and how you can implement them within your own organization.
What is an OKR?
An OKR is a goal-setting framework often used by teams and organizations to define goals and track outcomes. OKRs combine an objective, which is a concrete goal set to be accomplished, with specific and measurable key results that are set to monitor achievements and progress. OKRs differ from regular goals in that they are meant to be ambitious and challenging to achieve and they are frequently re-evaluated.
The history of OKRs
The OKR methodology was invented in 1968 by Andy Grove, co-founder and former CEO of Intel. He was inspired by Peter Drucker, who created the workplace philosophy known as Management by Objectives (MBOs) in 1954. Drucker believed that a top-down management style was authoritarian and to truly build high-performing teams, organizations needed to identify common goals and define and measure team responsibilities. Later, Andy Grove upgraded the framework by adding key results to measure and facilitate contributions to the achievement of the company-wide objective. In 1999 Google was founded and adopted the OKR methodology, leading many to believe the OKR methodology contributed to the company’s rapid and long-lasting success.
What is the difference between KPIs and OKRs?
A KPI, or key performance indicator, is a form of performance measurement used by organizations to evaluate team success for a specific objective over a period of time. KPIs provide teams with quantifiable targets to aim for and milestones to achieve. This helps the business continue to move forward with strategic focus. In most organizations, KPIs represent revenue targets or growth metrics and will differ across departments. This is because every business unit contributes to a company differently and will have different ways of measuring success. For example, a KPI for the sales team might be the number of new inbound leads, while the KPI for the HR team could be the retention rate of employees.
On the other hand, OKRs are meant to be big-picture objectives that are further elaborated with the necessary steps it will take a team to achieve them. They are usually unique to every organization and every business unit can either be working towards the same goal or have their own objectives. OKRs are a strategic method for setting and measuring goals, while KPIs are metrics that can exist within that framework.
Why are OKRs used?
Implementing an OKR framework into your organization is beneficial for a number of reasons. First, OKRs help organizations to foster alignment by having a company-wide goal for every team to target and focus their efforts toward. When every business unit has its own objectives, it encourages silos and does not allow for cohesion around a shared mission. A recent study conducted by Asana showed that only 26% of employees have a clear understanding of how their individual work contributes toward company goals. This misalignment can result in a lack of company morale and overall success.
Second, OKRs are a great way to motivate and engage employees. OKRs are meant to be ambitious, short-term goals that run on either a monthly or quarterly basis. This not only gives teams a greater sense of purpose, but also a fixed timeline that encourages them to work efficiently and fail and recover quickly. When a goal is not easily achievable it encourages employees to think bigger, and it will often enable them to reach milestones far beyond what they had previously considered possible.
Another way that OKRs are useful for a business is because they are great learning opportunities. The purpose of an OKR is to single out areas of improvement for the organization. By having an ambitious goal to work toward, teams are able to recognize what ways they need to improve for it to be achieved the next time or instead, readjust their goals. This methodology encourages teams to be more adaptable and hold themselves accountable.
How to create an OKR (with examples)
Typically, an organization should have three to five high-level objectives, followed by three to five key results. OKR cycles are meant to be short-term, so it is important to think of goals that might be challenging to achieve within that timeframe but could still be possible.
An example of company objectives might be:
- Increase recurring revenue
- Improve customer retention rate
- Strengthen company culture
Key results are benchmarks and plans for how the business will achieve the objectives more specifically. They should be quantifiable and time-bound, leaving no room for doubt on whether it was achieved or not. Think of key results as an outcome rather than an output, because they are not tasks on a to-do list but a measurable end product.
In the case of the objective, "improve customer retention rate," some examples of key results might be:
- Achieve a net promoter score (NPS) of 7.5
- Increase weekly returning users to 100,000
- Produce 4 customer case studies per month
- Increase email open rate to 60%
- Reduce customer attrition to 20%
When using an OKR methodology, be sure to monitor your team’s progress along the way. OKRs are not meant to be said once and forgotten. Teams need to have regular follow-ups in order to continuously work towards their goals and reevaluate the objectives and outcomes later.
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