Why Highly Successful Companies use the OKR Method

Big companies like Intel, Google, Amazon, Samsung and Spotify all work with the OKR method — a way to connect the organization’s objectives to measurable results. OKRs help you implement changes fast, and it’s ideal for companies in fast-moving industries.

Why Highly Successful Businesses use the OKR Method

“OKR” stands for Objectives and Key Results. The OKR method is a way of working to enforce collaboration between departments and employees. It makes it easier to communicate goals internally, creating one united movement among employees.

The fact that Google uses this method made it famous, but the history of this method goes back a bit further. OKR’s origins come from the “Management by Objectives” method created by Peter Drucker in his book “The Practice of Management.”

Andrew Grove expounded on Drucker’s MbO method and introduced the OKR method in his book “High Output Management.” Grove was able to explain the OKR method in only 5 pages, and brought the method into practice when he founded technology company Intel.

John Doerr introduced the OKR method to Google when he left Intel in 1999, and Google still uses the OKR method today — along with companies like Netflix, Uber, LinkedIn, and Facebook.

Doerr has documented his experience introducing the OKR method at Google in “Measure What Matters,” an interesting read for anyone looking to dive deeper into the subject.

Setting Objectives

The OKR method starts with defining Objectives — the goals that have been set based on mission and vision. In a business setting, Objectives are usually set on a yearly and a quarterly basis. Most companies set two to four yearly objectives and three to four quarterly objectives.

Companies set quarterly objectives so they have a long enough timeframe to make an impact, but short enough to be flexible if the market changes. When formulating objectives for an OKR method in business, there are three fixed criteria:

1. They must give direction

An objective must describe a clear future situation, and not the current one. The objective must give a clear sense of the way to achieve the goal.

2. They must be inspiring

An objective should not describe something that is already in motion; it needs to be something new. The goal of an Objective is that it triggers an emotional response. It’s not bad if an Objective appears scary, intimidating, or odd — it must inspire the organization to take action.

3. They must be understandable

Anyone reading the OKR should be able to understand it — even people who do not work at the company.

Setting Key Results

When the Objectives have been defined, it is time to connect the Key Results. Key Results have a clear link to the Objectives. When setting a Key Result, it’s important to ask yourself whether it influences the Objective.

The Objective is the final destination, and the Key Results are the signposts along the way. Every Objective should end up with two to five Key Results – any more than this can cause a loss of focus among employees. In general, Key Results must meet three criteria:

1. They must be measurable

Key results are always measurable. They have numerical values and a defined outcome. They can be financial figures, percentages, or numeric values. Progress needs to be measured, and progress toward the Objective is observed by looking at the underlying Key Results.

2. They must be ambitious

Ambitious goals create an inspiring environment. Think the “moonshots” used at Google. Moonshots make OKRs ambitious, let employees look at their work differently, and motivate then to go for the highest possible result.

3. They must be influenceable

Key Results shouldn’t be confused with tasks or things to do. They must measure something people can influence when they act — but they can’t be something you can actually control or manipulate.

Example OKR from YouTube

A major company like Google and all its subsidiaries has a massive amount of user data. The biggest challenge is finding the right metrics to analyze. Understanding your business is crucial to finding nuances you can act on to reach your company’s objectives.

For YouTube, user viewing time is the most important metric. The more viewing time per visitor, the more ads you can show, and ads are a fixed percentage of view time.

Objective: Increase average viewing time per user by X %.

Key Results can be defined in different ways. Here are a few examples:

  • Key Result: Increase number of downloads for mobile apps
  • Key Result: Increase clickthrough rate for each search including the keyword “video”
  • Key Result: decrease average video loading time by X%
  • Key Result: Increase viewing time per user to X minutes per day

Some Key Results are to attract more relevant users to the platform. Users who specifically want to see a video will tend to look longer than people who came to the platform by accident. By increasing the number of intentional visitors, the average viewing time should go up.

Lowering the load time per video should ensure longer viewing times, as people tend to have a limited attention span. The faster a video starts, the higher the chances are that a visitor will stay longer.

And there is a Key Result with a very specific target in line with overall the objective. When the Key Result focuses on minutes per day and the objective on average viewing time, you have several metrics from which to gather and analyze data.

Google recommends including aggressive objectives in your goal. If you are continuously hitting your target objectives, you are undershooting your capabilities. Google strives to hit a 70% average completion score on Objectives.

The benefits of OKR

As you would expect with the number of high-profile companies using the OKR method, there are a ton of benefits to using it. Below are five of the most important ones:

1. It’s easier to carry out the strategy and keep the company aligned

The OKR framework shows a clear connection between set goals and a company’s strategy and mission. Because OKRs are created on different levels, the day-to-day activities of individual employees can be linked to overarching strategic goals of the company.

OKRs act as a management framework, connecting individual and team performance back to shared company objectives, so managers know everyone is moving in the same direction.

2. It’s flexible

The OKR method keeps an organization flexible. Quarterly objectives are set and evaluated, and stakeholders can act on changes in the market. A change of course can be made any three-month period. Other methods, which set goals further in the future, do not offer this flexibility.

3. It enhances focus

Most companies are ambitious, and with ambition comes many goals — in the shortest timeframe possible. OKRs bring focus and ensures that ideas are worked out in a structured way.

It also forces companies to prioritize and maybe move some goals to the back burner, encouraging team members to focus on tasks that aid the goals set in that quarter. Because progress is monitored continuously, everyone knows where they are on their road to success, which motivates employees to put in that extra bit of effort.

4. It improves mutual cooperation and empowerment

The OKR method aids in the process of setting targets across multiple departments, which stimulates more contact within the organization — a benefit for the work atmosphere. Employees have a far better awareness about what is going on in other departments within the company.

Increased visibility gives everyone the context they need to make the best decisions and shows employees the impact of their work.

5. Everyone knows what is expected

OKRs help companies communicate strategies in a useful and measurable way. Working with results instead of tasks, the OKR method encourages widespread involvement. Because the entire organization is included, everyone has a better understanding of updates.

OKRs enable an organization to maintain a transparent culture because everyone knows how each team and individual is planning to make an impact.

6. Clear progress measurement

OKRs illustrate how far along individuals, teams, and the overall company are in accomplishing the shared company mission.

7. Accomplish the unexpected

OKRs are meant to be stretched just beyond the threshold of what seems possible so companies can achieve remarkable results.

This article is an excerpt from my book. Interested in reading more?

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