OKR, MbO, KPI – WTF?

Objec­tives & Key Results, or OKR for short, orig­i­nat­ed in the 1970s under Andy Grove at Intel, who described it in his book “High Out­put Man­age­ment” (Grove, 1983). How­ev­er, OKR came into fash­ion when John Doerr intro­duced this type of goal set­ting in 1999 at Google, where it is still con­sis­tent­ly — and quite suc­cess­ful­ly — applied today (Doerr, 2018). At first glance, OKR seems decep­tive­ly sim­ple and there­fore car­ries a sig­nif­i­cant risk of being mis­in­ter­pret­ed and mis­ap­plied — espe­cial­ly in large orga­ni­za­tions that are tra­di­tion­al­ly mon­i­tored and man­aged with many key per­for­mance indi­ca­tors (KPI).

Fun­da­men­tal­ly, OKRs help to align an orga­ni­za­tion and its peo­ple towards com­mon goals. Thus, this method has the same goal as its old­er and big­ger broth­er, “Man­age­ment by Objec­tives” (MbO), which, by the way, car­ried the title “Man­age­ment by Objec­tives and Self-Con­trol” in the orig­i­nal work of Peter F. Druck­er from 1954 (Druck­er & Macia­riel­lo, 2008, p. 258) and only over time was uni­lat­er­al­ly muti­lat­ed into man­age­ment by objec­tives. The suc­cess­ful align­ment of large orga­ni­za­tions has always been a chal­lenge and remains so more than ever in the agile and, thus, more self-orga­niz­ing orga­ni­za­tions of today and tomor­row. The dif­fer­ences between MbO, as ini­tial­ly described by Peter F. Druck­er, and OKR are rather styl­is­tic. How­ev­er, since MbO in prac­tice has often degen­er­at­ed into impos­ing annu­al goals top-down with cor­re­spond­ing mon­e­tary incen­tives to “moti­vate” peo­ple, it helps to take up the orig­i­nal­ly promis­ing approach­es again in a new and more agile form through OKR.

We have a strate­gic plan. It’s called doing things.

Herb Kelle­her

Essen­tial­ly, OKRs pro­vide answers to two ques­tions: “Where do we want to go?” (= the Objec­tive) and “How do we get there?” (= sev­er­al key results to that Objec­tive). At this time of year, a wide­spread exam­ple is the New Year’s res­o­lu­tion to lose weight. Appro­pri­ate Key Results for this could be “Exer­cise three times a week for at least 30 min­utes” or even “Find a group of like-mind­ed peo­ple and have a meet­ing once a week.”

OKRs help to imple­ment a strat­e­gy. They describe exclu­sive­ly changes and inno­va­tions; they do not and should not depict day-to-day busi­ness. Key per­for­mance indi­ca­tors (KPIs), process­es, and work instruc­tions exist to help with this. A super­mar­ket might have this KPI, among oth­ers: “Queue at the check­out is no longer than three cus­tomers.” If the line gets longer than three cus­tomers, a cor­re­spond­ing work instruc­tion (or com­mon sense) reg­u­lates how to coun­ter­act this, for exam­ple, by open­ing anoth­er check­out. All of this is day-to-day busi­ness. Sup­pose this super­mar­ket becomes trendy, and the queues at all three exist­ing check­outs are reg­u­lar­ly too long. This “prob­lem” then can lead to a new Objec­tive in the next quar­ter (in the sim­plest case: “Build a new check­out”) for which the cor­re­spond­ing Key Results describe the path (for exam­ple: “Build a tem­po­rary check­out” and “Com­mis­sion an archi­tect to car­ry out the modification”).

KPIs thus mea­sure the health and per­for­mance of the orga­ni­za­tion and can give rise to Objec­tives with cor­re­spond­ing Key Results (if prof­it declines over sev­er­al quar­ters, one should, for instance, con­sid­er a change in prod­uct strat­e­gy). These objec­tives will then have a tar­get­ed effect on the respec­tive KPIs (the new prod­uct increas­es prof­it or the reduc­tion of the port­fo­lio reduces costs). By no means, how­ev­er, do OKRs need to cov­er all of the orga­ni­za­tion’s KPIs because, hope­ful­ly, the orga­ni­za­tion is not in such a des­o­late state that it is burn­ing at every corner.

Even though Objec­tives affect KPIs, and it is some­times sug­gest­ed that the job of Key Results is to make mea­sur­able the more qual­i­ta­tive Objec­tive, it is usu­al­ly not enough to use the KPIs or the desired change in the KPIs as Key Results. As a rule, KPIs rep­re­sent the past (e.g., sales, prof­it), so they are more of a ret­ro­spec­tive (ex-post) view or, at best, a snap­shot. How­ev­er, good Key Results are always for­ward-look­ing (ex-ante); they describe mile­stones or lead­ing indi­ca­tors that make achiev­ing the objec­tive more likely.

References

Doerr, J. (2018). Mea­sure what mat­ters: How Google, Bono, and the Gates Foun­da­tion rock the world with OKRs. Portfolio/Penguin.

Druck­er, P. F., & Macia­riel­lo, J. A. (2008). Man­age­ment (Rev. ed). Collins.

Grove, A. S. (1983). High out­put man­age­ment. Ran­dom House.