When you started your business you surely had a vision of where you wanted it to be in the future. But at some point, you come to the realization that reaching your initial vision is not as straightforward as you may have thought initially.
Lack of clarity in goals typically happens to most startups or new businesses. It’s especially prevalent when your operation grows quickly. The struggle now becomes finding the best way to organize and manage your team so that you can reach your original vision.
It’s normal to outgrow and there has been a constant evolution in how businesses manage their operations since the industrial revolution. This article will explore the OKR (Objective Key Results) methodology of managing your operations so that you can evaluate if this is the right tool for your business.
A Brief History of OKRs (and Why You Should Use Them)
The development of the OKR methodology is attributed to Andrew Grove who developed it and published in his book High Output Management during his tenure working in Intel during the early 80’s. The whole concept behind the development of this framework was to provide organizations of any size and complexity the ability to empower their employees, regardless of their position in the organization, to reach ambitious objectives in a more effective manner rather than conform their business as usual.
OKR has seen an explosion in popularity and has become the defacto methodology in the technology sector ever since Google adopted it back in 1999. As history has proven, the implementation of OKRs was highly successful for the tech giant and hundreds of organizations have used it since to grow from small businesses to reach the Forbes 500.
To sum up, this methodology is still being used by top businesses around the world, across many industries and quite simply gets amazing results. So if you’re looking for something that works, this methodology has been proven to deliver.
What are OKRs?
The easiest way to look at OKR is as a way to align companies so that they can reach ambitious measurable objectives by obtaining a small amount (usually 3-5) of key results through specific actions. The idea is that OKRs make the process of reaching big goals more tangible for the individuals that are working towards them unlike a strategic plan that can be more abstract and unrelatable.
Defining an objective
An objective in the OKR methodology should be measurable, inspiring, achievable and time bound.
- Measurable: There has to be a quantifiable metric with which you can measure a percentage of completion of the goal. For example, an objective could be to increase revenue by 20% by the end of the 2nd quarter.
- Inspiring: Objectives should not be easy to achieve, they are not designed to maintain your business as usual, they are geared towards aggressive growth.
- Achievable: This means that the goals shouldnt be unrealistic, just that they are on the upper end of what you know your team can achieve.
- Time Bound: OKR goals are typically set and reviewed on a quarterly basis. Longer and shorter timeframes are also used but will depend on each specific scenario.
Defining key results
Key results are used to measure how close you are to reaching your objective. Key results should be quantifiable, non-binary and actionable.
- Quantifiable: There needs to be a way to measure the key results with a concrete number.
- Non-binary: The key results should be measured in a percentage of completion rather than in a goal-completed vs goal-not-completed manner. For example, 73% of completion of a key result is an acceptable key result.
- Actionable: Refers to your team having the ability to reach the goal on its own with the resources it currently has. Procuring additional resources can be a key result, for example in an HR context, but you should stay away from key results that you can’t work on at the moment due to constraints that are out of the teams’ scope.
OKRs in Action
The beauty of the OKR methodology is in its simplicity, however this simplicity can lead to some confusion. Management methodologies are typically seen as complex or laborious. So most business owners or team leaders go with this mindset when implementing OKR and thus end up overcomplicating the process.
Here we’ll go over an example of goals and key results to illustrate how OKRs could work in real life.
Example of an OKR for an ecommerce business
An objective for an ecommerce business could be to increase revenue by 20% during Q2. To do this the Key Results could be to:
- Increase the average order value by 5%
- Increase the conversion rate of the website from 2% to 4%
- Reduce customer returns from 325 quarterly returns to 250
In this scenario the objective is time bound and clearly measurable. The key results are well defined and also measurable. With these in mind, a marketing team could focus on developing upselling promotions at the time of checkout. The customer service team could focus on providing a better post-purchase experience to customers to decrease the amount of returns. The marketing team could also run a series of A/B tests to find additional ways to improve conversions.
What OKRs are Not
Since there are so many organizational management frameworks and techniques in use today, it’s important to be clear on what you should expect and not expect from your implementation of the OKR methodology.
- OKRs are not KPIs: KPIs generally are metrics that are relevant to the business. OKRs are a framework of what needs to be achieved to reach a goal. They are not mutually exclusive and many organizations use them simultaneously.
- OKRs are not a performance management tool: Since the objective set is ambitious, not reaching it can be expected. Thus, not reaching an objective doesn’t mean that your team is performing poorly. For this reason, OKRs shouldnt be used to measure individual or team performance.
Final Thoughts
Implementing OKRs into your business can dramatically change the performance of your organization and change the way you think about what’s possible. To reiterate what’s stated earlier in this article, this methodology works and has a proven track record. However, only you can decide if it’s the right approach for your business, since there are many other alternatives.
If you’re considering implementing OKRs and want to make sure your financial partner can keep track of them, set up a call with our financial experts, we’ll go over how we can tie everything together so you can focus on leading your team to the objectives you set.