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Introduction to Goals and OKRs
Most organizations use goals in one form or another. Generally, we all are familiar with the purpose of goals. This system is top-down hierarchical, generally annual in nature, and is backward-looking and hence not very effective.
Instead of goal setting, let’s look at OKR. OKRs stand for objectives and key results. It was invented in the 1970s by Dr. Andy Grove, the former CEO of the Intel Corporation. So how does OKR differ from the more traditional, more common approaches to goals?
OKR is not a silver bullet. It does not substitute at any point in time for a strong culture or stronger management. A good business judgment outshines this system but when you have a strong culture and stronger management, this kind of goal system can take a team to the pinnacle.
Origins and Philosophy of OKRs
Andy Grove invented this system, a scalable system for execution, where you’d write down what it is that you want to have accomplished. That’s the objective. It is a scalable system for execution where you write down what it is that you wish to accomplish. That’s the starting point and the objective.
The smart goal-setting system focuses on having goals that are achievable and realistic. What about the element of ambition? What is the relationship between ambition and goals? Larry Page, co-founder of Google puts it best. He says, “I would much prefer that a team set a goal to go to Mars and know that if they fall short, they’re still likely to achieve something extraordinary, like get to the moon.”
Ambition and Risk-Taking in Goal Setting
As organizations grow, they become more conservative, they grow more analytic. When the goals are the basis of promotions or bonuses, organizations tend to become conservative. While it is important that the organization grows, the critical question is whether the organization is willing to be bold, willing to take initiatives. Does the organization have a risk-taking culture? Is it okay within the organization to fail?
Risk-taking may not be acceptable in all kinds of institutions. For example, in a hospital, there are some activities one really does not wish to have experimentation. Would you wish the doctors to be experimenting? Obviously, no. But in other areas of healthcare delivery, there’s a need for innovation.
In other cases, one would expect to achieve 100% of the goals. Anywhere short of that would not be good enough. Here, the goals could be distinguished between aspirational goals, which would be stretched, and committed goals, where the expectation is complete fulfillment.
The Essence of OKRs
OKR is not the only thing to be achieved among all the tasks before an organization and its people. They are a few important things that we are trying to isolate and highlight as they deserve special attention.
To ensure OKR success, it would be great if it is complemented with CFR as suggested by John Doerr, Chairperson of Kleiner, Perkins, Caufield, and Byers. CFRs stand for conversations, feedback, and recognition. And so, the goals clearly lay out what it is we want to have accomplished.
If we think of a team game, a game like cricket, the objective is to make maximum runs and get the other side out in less than that, the key results are indicators like the opening stand, the bowling efficiency, and fielding accuracy. Equally important are the huddles that the team gets into to consider the feedback and to effect course correction along the way. That is what a CFR is or in HR terms, continuous performance management, as compared to doing annual performance reviews.
The Role of Continuous Feedback
The conversations, feedback, and recognition are the very social signals that are important for modern, scalable, structured goal-setting systems. And they’re super important. When an organization starts living and breathing it, it becomes the goalpost.
A lot of companies these days are ditching the annual performance review altogether in favor of more frequent feedback. And this is especially important with millennial workers who need constant feedback. They do not wish to be micromanaged but do wish to know where and how they fit in the big picture.
A commonly seen concept within organizations is pay for performance. It is deeply embedded in how a lot of leaders or managers think about motivation, about execution, about getting things done. The idea is we will set goals for the people. If they achieve 100%, they would be incentivized. If they don’t, they will be penalized in some form.
Benefits of OKRs
The data is really very clear. Organizations, teams, and individuals achieve much higher performance when they have written and developed their own goals when they own those, when those are transparent, and that intrinsic motivation. I have an objective to be healthy. There’s a big difference between my doctor telling me to exercise every day for 30 minutes or me choosing to exercise every day.
The decoupling of the objective from the key results, the what’s from the how’s, and having the individual contributors find their own right answer is powerful. It yields much better results.
Then there are measures, key results like revenue, and sales figures. A key result like revenues or sales can live in an OKR system and also be the basis for a simple set of bonuses. However, if you end up combining the most important things in the company with the bonus payments, you’ll find your organization grows risk-averse and conservative.
For routine activities that people know how to do, about 60% of motivation is extrinsic and 40% is intrinsic. As such, for a sales target kind of measure, the intrinsic-extrinsic motivation is almost 50:50. For activities that require creativity, it’s about 85% intrinsic motivation. As such, for activities needing creativity any kind of over-reliance on extrinsic motivation is a sure-fire way to failure.
Conclusion
OKRs are shaped by our ambitions. OKRs answer the question of what it is I want to have accomplished, and how I’m going to get it done. The crucial thing is to be system-oriented in our solutions and to confront problems, not people.
A rule book can tell you what you can or can’t do. Dov Seidman, CEO of LRN said, in the past, employees just needed to do the next thing right. In other words, follow orders exactly to the letter. But in the world, we are living and competing in we are to ask people to do “the next right thing”, not the next thing right.
OKRs are mechanisms for providing guidance to people without micromanaging, or, without trying to dictate from the top or specify in rule books how you should do everything. And so, what’s really crucial is how and why we set meaningful, audacious goals.
The payoffs of OKRs are phenomenal. They don’t come with most other goal systems. You get exceptional focus; you get a high degree of alignment due to transparency. It also paves the way for an uncommon degree of commitment. The OKRs become a kind of social contract between everyone in the organization, as they declare, I’m going to go after this key result that relates to such and such objective. And then you can track the progress through the process of continual performance measurement.
