OKRs: The Simple Idea that Drives 10x Growth
“In this indispensable book, the most important venture capitalist of our era reveals a key to business innovation and success. This crisp and colorful book combines fascinating case studies with insightful personal stories to show how OKRs can add magic to organizations of any size.”
-Walter Isaacson, author of Steve Jobs and Leonardo da Vinci
Measure What Matters shows how to implement the OKR system—Objectives and Key Results—for any team or organization. An Objective is a concrete, action-oriented thing that needs to be achieved; Key Results are the specific, measurable and verifiable steps that will meet the objective. The OKRs system is built on four superpowers. The first is focusing on the handful of initiatives that can make a real difference and deferring the less important ones; this allows leaders to commit to those choices and makes for a successful organization. The second is the ability to align and connect. OKR transparency means that not only are everyone’s goals openly shared, but individuals also link their objectives to the company’s overall game plan, and coordinate with other teams. The third OKR superpower is that they can be tracked; they are driven by data, with periodic check-ins, objective grading, and continuous reassessment. The final OKR superpower is the system’s ability to motivate people to excel by doing more than they had thought possible. Setting conservative goals stymies innovation; setting ambitious ‘stretch’ goals encourages people to go outside their comfort zones.
The OKR system
Google co-founder Larry Page calls OKRs “a simple process that helps drive organizations forward,” and says that “OKRs have helped lead us to 10x growth, many times over.” Objectives and Key Results—OKRs—is a collaborative goal-setting protocol for companies, teams, and individuals; it is a way to surface primary goals, channel efforts, and coordinate.
The OKR system has been adopted most widely in the tech industry, where agility and team work are imperative, but is also found at household names such as Disney and Exxon; at smaller start-ups where having everyone pulling in the same direction is a survival tool; at rapidly-scaling organizations that need a shared language for execution; and in larger enterprises where they function as neon-lit road signs.
An Objective is WHAT is to be achieved: something significant, concrete, action oriented, and (ideally) aspirational. An objective can be long-lived, rolled over for a year or even longer.
Key Results benchmark and monitor HOW we get to the objective: they are specific, time-bound, aggressive yet realistic, and most of all, measurable and verifiable. At the end of a designated time period, typically a quarter, the Key Result is declared fulfilled or not. Key Results can evolve as the work progresses, but once they are all completed, the objective is achieved (and if not, then the OKR was poorly designed).
To put it another way, Objectives are the stuff of inspiration and far horizons. Key Results are metric-driven and earth bound; they are the levers you pull and the marks you hit, to achieve the Objective.
Among experiments in the field of management theory, 90% confirm that productivity is enhanced by well-defined, challenging goals. Alienation saps the bottom line; engaged work groups generate more profit and less attrition. A two-year study by Deloitte found that, to build engagement, the biggest impact comes from “clearly defined goals that are written down and shared freely.” Most effective is when those goals are linked to the team’s broader mission.
In 1999 Google was the 18th search engine to arrive on the web. The company needed to make tough choices, keep its team on track, and measure what mattered; OKRs became the tool that institutionalized the founders’ “think big” ethos, the scaffolding on which Google built seven products with a billion or more users each—Search, Chrome, Android, Maps, YouTube, GooglePlay, and Gmail.
In 2017, for the sixth year in a row, Google topped Fortune magazine’s list of Best Companies to Work For. It is a company rooted in strong and stable leadership, massive technical resources, and a values-based culture of teamwork, transparency, and relentless innovation.
In his landmark 1954 book The Practice of Management Peter Drucker noted that people are more likely to complete a course of action when they helped to choose it. We can see the genesis of OKRs in Drucker’s principle of “management by objectives” or MBOs.
The results were impressive: in companies such as HP, where MBOs were embraced, productivity rose by as much as 56%. But, MBOs also had limitations: centrally-planned goals were slow to trickle down through the hierarchy; they became stagnant without frequent updating; or, they were tied to salaries, so that risk taking ended up being penalized.
Intel and operation crush
At Intel, head of operations and eventual-CEO Andy Grove asked, how do we define and measure output by knowledge workers, and how can we increase it? Applying manufacturing production principles to professional and managerial ranks, Grove went beyond MBOs to develop the OKR system.
Grove emphasized that less is more: a few well-chosen objectives, a limit of 3-5 per cycle, imparts a clear message. He emphasized setting goals from the bottom up; to promote engagement, teams and individuals should create about half of their own OKRs. Do not dictate—collective agreement is essential to goal achievement—and stay flexible: key results can be modified, even discarded, mid-cycle if an objective no longer seems practical or relevant as written. He also emphasized the importance of daring to fail: stretch goals push organizations to new heights. OKRs are a tool, not a weapon or a contract; keep them separate from bonuses to encourage risk taking. Finally, be patient and resolute: it can take four or five cycles to really embrace the OKR system and longer to build ‘goal muscle.’
In late 1979 Intel was facing an existential threat: having successfully led the initial microprocessor revolution, the company was getting beaten by Motorola’s new 68000 chip. Led by Andy Grove, Intel used the OKR system to reboot the company’s priorities in just four weeks. Dubbed Operation Crush, Intel’s battle plan to “crush” Motorola was clear, precise, and fast. Days of brain-storming by senior management culminated in a plan to mobilize the company. The sales force was brought into the loop and eagerly embraced the new strategy. OKRs gave management a tool for rapid implementation, allowing a near-billion-dollar company to turn on a dime. By 1986 Intel’s 8086 microprocessor had captured 85% of the 16-bit market.
The OKRs system is built on four superpowers: focus and commit to priorities; align and connect for teamwork; track for accountability; and stretch for amazing results.
Focus and commit
To measure what matters, start with the question: “What is most important for the next three (or six, or twelve) months?” Focusing on the handful of initiatives that can make a real difference and deferring the less important ones allows leaders to commit to those choices and makes for a successful organization. High-performance organizations focus on the work that is important and are just as clear on what doesn’t matter. OKRs are precision tools that dispel confusion and give the focus needed to win for departments, teams, and individuals.
Leaders must commit, publicly, to OKRs; and must get across the “why” as well as the “what.” Otherwise, flawed goal-setting can lead to disastrous consequences, like Wells Fargo’s drive to open accounts—the ruthless one-dimensional focus on sales targets led to branch managers feeling pressured to open millions of fraudulent accounts. The subsequent consumer banking scandal may have damaged the Wells Fargo brand beyond repair.
In most cases, the ideal number of quarterly OKRs will be between three and five. Too many blurs the focus on what counts. Above all, the objectives must be something significant, something that moves people forward in the here and now. Key results should be succinct, specific, and measurable. A mix of outputs and inputs can also be helpful. Clear-cut time frames intensify focus and commitment; and nothing motives us more than a deadline.
The story of Nuna
Nuna is a health care data platform and analytics company whose founders used OKRs to clarify priorities for the entire organization. Initially, the OKR process didn’t take very well—until the founders realized that they themselves had to show a sustained commitment to their own OKRs, to help their teams to do the same. CEO Jini Kim says. “Until your executives are fully on board, you can’t expect contributors to follow suit.”
Using OKRs to act purposefully on quarterly plans, rather than just reacting to external events, allowed Nuna to expand in just four years from self-insured employers to the massive Medicaid database to a suite of new health plan products. It was able to leap from state-level computing silos to the first system-wide view across the entire Medicaid program. Today, the company is looking to leverage its platform of data to drive analytics and to inform policymakers.
Align and connect
The second OKR system superpower is the ability to align and connect. OKR transparency means that not only are everyone’s goals openly shared, but individuals also link their objectives to the company’s overall game plan, and coordinate with other teams. Connecting each individual to the organization’s success brings meaning to work; deepening people’s sense of ownership fosters engagement and innovation. Research shows that public goals are more likely to be attained than ones that are held private. In a recent survey of 1,000 workers in the U.S., 92% said they would be more motivated to reach their goals if colleagues could see their progress.
In an OKR system, even the most junior staff can see everyone’s OKR goals, all the way up to the CEO. This transparency seeds collaboration and cuts the toxic power of suspicion and politicking.
According to the Harvard Business Review, companies will highly aligned employees are more than twice as likely to be top performers. Alignment occurs when managers and employees alike tie their everyday activities to the organization’s vision. But alignment is rare—studies suggest only 7% of employees fully understand the company’s business strategy and what is expected of them to reach the common goals. Global CEOs cite a lack of alignment as the number one obstacle between strategy and execution. Transparent OKRs can deliver that alignment.
At larger organizations in particular, goal-setting tends to cascade downwards from the executives to the rest of the staff. This can lead to a loss of agility, as each level waits for the waterfall to trickle down from above; and a loss of flexibility, as those downstream scramble to keep up with changes coming from on high. Cascading can block input from frontline employees, and it prevents horizontal connections across departmental lines.
To avoid soul-killing ‘over-alignment,’ healthy organizations encourage some goals to emerge from the bottom up. Google has “20% time,” which frees engineers to work on side projects for the equivalent of one day a week. By freeing people to set at least some of their own objectives and almost all of their own key results, this approach encourages innovation. It also helps to bring the perspectives of people in the trenches into the center of the organization.
Connected companies are also quicker companies—when goals are public, a ‘team of teams’ can attack trouble wherever it surfaces.
The story of Intuit
Intuit has made Fortune’s list of the world’s most admired companies for 14 years in a row. Over its history, the company has survived a series of competitive threats by staying one step ahead. The company’s culture of transparency has enabled it to be more openly connected.
A few years ago, Intuit was busy pivoting in several directions at once as it moved to the cloud, which was both exciting and stressful. The chief information officer, Atticus Tysen, introduced OKRs to his direct reports to help the IT department to adapt. The following quarter he rolled out the system to the director level; and the quarter after that, to all 600 IT employees.
Tysen says the key for Intuit to succeed was for all OKRs to be visible throughout the company. For those working outside headquarters, OKRs ended the mystery of what was happening back at HQ, making the company more cohesive. When a new project comes up for discussion, everyone asks how it fits into the OKR template. “OKRs have consolidated our far-flung department,” opening it horizontally across teams.
In the cloud era, OKRs can be particularly effective as horizontal alignment comes naturally. With transparent OKRs, Tysen says, “the data and analytics team could see from the start what our financial systems team had in mind … The teams linked up their objectives in real time, rather than after the fact—a sea change from our historical way of doing things.”
The third OKR system superpower is that they can be tracked. OKRs are driven by data, with periodic check-ins, objective grading, and continuous reassessment. They can be revised as circumstances dictate.
There are three phases to the OKR lifecycle, starting with setting up. Here, the most important thing is to make sure that everyone’s OKRs can be easily found and shared—the system is not truly transparent if nobody sees the goal you shared. There are now a number of robust, cloud-based OKR management software packages available, that allow users to navigate a digital dashboard to create, track, edit, and score their OKRs. Such platforms promote internal networking, drive engagement, and make everyone’s goals more visible. It is also important to make sure that the team deploying it adopts OKRs universally. This may mean appointing one or two OKR ‘shepherds’ to get everyone on board.
The second phase is holding regular mid-cycle check-ins. Writing down a goal increases your odds of attaining it; and monitoring your progress with colleagues increases the odds even more—two integral features of the OKR system. A study in California found that people who recorded their goals and sent weekly progress reports to a friend attained 43% more of their objectives than those who merely thought about their goals.
At each check-in, you have one of four options: continue; update (i.e., modify a Key Result or Objective to respond to changed circumstances); start (i.e., launch a new OKR when the need arises); or stop. When an OKR has outlived its usefulness, drop it—but also reflect on it, asking what you learned that can be applied in the future. An OKR dashboard is a real time means of flagging what needs attention. At Google, the benchmark check-in cycle is monthly, but frequency varies with the business needs of the moment. The most physically dispersed teams check in the most frequently.
The final phase is the wrap-up, which comprises objective scoring, subjective self-assessment, and reflection. A low score begs the question, is the objective still worth pursuing? If so, what can we change to achieve it? On the other hand, if a team or department approaches 100% in its OKR scoring, it probably its sights too low! The key is to set aggressive goals; achieve most of them; accept that there will be some that were not met and reflect thoughtfully on why that may be the case; reflect on what was achieved; and then repeat the cycle. A Harvard Business School study found that learning from direct experience is more effective when coupled with reflection.
The Gates foundation
The Gates Foundation at its launch in 2000 was something wholly new—a $20 billion startup. Within two years it had scaled to the point that it needed a more structured form of goal-setting. The Foundation embraced OKRs to deliver the real-time data needed to wage war against malaria, polio, and HIV. Bill Gates says using the OKR approach with grant reviews allows the team to judge whether a proposal has clear goals and fits the Foundations objectives. People in philanthropy often confuse the mission, which is directional, with the objective, which is the set of concrete steps you’re actually engaged in. “Having a good mission is not enough. You need a concrete objective, and you need to know how you’re going to get there.”
Using OKRs, the Foundation can set an ambitious top-line goal, like eliminating Guinea worm disease, then set quarterly and annual beats for key results, to know whether the resources being used are making progress against the goal. (After a series of grants from the Foundation, programs have reduced the incidence of Guinea worm disease from 75,000 in 2000 to just 22 in 2015.)
The final OKR superpower is the system’s ability to motivate people to excel by doing more than they had thought possible. Setting conservative goals stymies innovation; setting ambitious ‘stretch’ goals encourages people to go outside their comfort zones. It allows people to embrace what Jim Collins calls BHAGs—Big Hairy Audacious Goals. People with hard goals may reach them less often, but they also consistently perform at a higher level than people with easy goals. Stretched workers are more productive and more engaged.
Google divides its OKRs into two categories: committed goals, which are tied to the company’s metrics around product releases, hiring, and customer, and are to be met 100% within a set time frame; and aspirational goals, which are bigger-picture, higher-risk ideas where an average 40% failure rate is to be expected. Aspirational goals draw on all four OKR superpowers—they can only be met by a transparent and connected organization that has focus and commitment, and that tracks progress toward the objective.
Intel’s Operation Crush set the ambitious goal of 2,000 design wins in one year—which required one win per sales person per month, effectively tripling their numbers. At the end of the year, the team had won over 2,300 new accounts and Intel’s future was secured.
At Google, Page expects team members to create products and services that are ten times better than the competition, not just improving on existing systems but reinventing them. Aspirational OKRs are set at 60-70% attainment, meaning that performance is expected to fall short at least 30% of the time. Team members are encouraged to try and fail.
Continuous performance management
Continuous performance management is slowly taking the place of the annual review in HR systems. Ten percent of Fortune 500 companies have ditched the annual review. Adobe discovered that annual reviews were costing the company 80,000 manager hours a year and in 2012 dropped them in favor of continuous performance management. This is the younger sibling of OKRs; combined with the quarterly goals and built-in tracking of OKRs it uses conversations, feedback, and recognition to lift everyone’s achievement.
At Google, OKRs amount to a third or less of performance ratings. More important is feedback from cross-functional teams and most of all context. One-on-one meetings with managers allow for goal setting and reflection; ongoing progress updates; two-way coaching; and light-touch performance reviews.
To reap the full benefit of OKRs, feedback becomes a critical component of continuous performance management, along with continuous recognition from managers and peers that is tied to company goals and strategies.
At Adobe managers, employees, and peers join in multiple check-in conversations a year. These focus on quarterly OKRs, feedback, and career development. The result is more engaged employees who want to stay with the company.
An OKR culture is an accountable culture, transparent and vision-based. The rulebook tells people what they can or can’t do, but the culture of the organization can tell people what they should do. Or, as business philosopher Dov Seidman puts it, “What we choose to measure is a window into our values, and into what we value.”