One of the most difficult things for leaders is accurately measuring performance of the team – it’s key for skills development and business success. Many approaches exist, from appraisals and ranking to systems like KPIs, Balanced Scorecards, OKRs and others. The issue is measuring what matters – setting up a system that focuses on what is important for the business to keep people moving in the right direction, while being good for the people being measured.
The Objectives & Key Results (OKR) framework – initially labelled iMBOs, for Intel Management By Objectives (from Peter Drucker’s work) – was introduced by Andy Grove at Intel in the 1970s, and documented in his 1983 book, High Output Management. It was popularised further by one of the world’s most successful venture capitalists & investors, John Doerr, through the companies in which he invested, including Google, and is now used by a number of the world’s leading tech companies, amongst others.
So, what is it that makes OKR such a successful system?
The first step is to define your main objectives: the longer-term goals for your business. This can take the form of a BHAG (Big Hairy Audacious Goal) as the overarching one, with OMGs (Overarching Medium Goals) at, perhaps, a departmental level (depending on the size of your organisation) – remembering that you should only have people working to one OMG at a time to prevent confusion.
Below the OMG, you would then set individual objectives that will move people towards that OMG, and define a number of key results to show how to achieve that objective, preferably with at least one being a stretch goal. The expectation is not that every key result is achieved in each period – many companies have an expectation of achieving around 70% of the goals – as you need them to be challenging if the company is to move forward.
Remember, too, when setting the key results, Peter Drucker’s very important quote, “If you can’t measure it, you can’t improve it.”
For example, you might set the overall objective for a sales department that has been too reliant on new customer sales to be, “Increase recurring revenue” with the following key results for the year ahead:
- Reduce customer churn by 20%
- Increase average orders per customer to 4 per annum
- Increase average order size to ZAR20 000
- Improve customer satisfaction (NPS) score to +40 or better
This has elements of customer satisfaction, focusing on repeat business and on order size that will move the department towards achieving the overall objective. This OKR framework would then be rolled out to each individual sales person, too.
Oh, and if you need convincing of just how valuable satisfied customers are for your business, some of these stats from InfoQuest should help…
Of course, you can set objectives at any level, and for any department, and can set more than one objective for a team or individual, although it’s preferable to keep the number in single digits to ensure things are manageable.
Some even do so at company level, although my preference to avoid confusion in larger organisations is to use a tiered approach of a BHAG, OMGs and then OKRs, with each lower level feeding into the higher one, so that there is clarity on what everyone is aiming for and how they will achieve it.
Properly done, an OKR framework increases employee engagement as everyone can understand how they contribute to the organisation’s success. It can boost cross-functional collaboration, too, where a higher-level objective means different departments/teams need to work together (perhaps to increase customer satisfaction ratings, for example). All of which improve communication and employee satisfaction across the business.
And that’s great for your business results.
#BusinessFitness #Action #Business #CEO #GoalSetting #JobSatisfaction #Leadership #Management #Planning #Strategy #Teams
Some of my other posts that are relevant include:
- You’re Driving, But Does Everyone Know The Destination?
- Looking Back to Look Ahead
- “Success breed complacency. Complacency breeds failure. Only the paranoid survive.” – Andy Grove
- “The best way to predict your future is to create it.” – Abraham Lincoln
- Pointers to a Successful Future for Your Business
- “Success is the sum of small efforts, repeated day-in, and day-out.” – Robert Collier
- 1 Thing That Great Leaders Do
- The Magic of Small Changes for Big Profit Increases
- “Company culture matters. How management chooses to treat its people impacts everything for better or for worse.” – Simon Sinek
- “Lack of direction, not lack of time, is the problem. We all have twenty-four hour days.” – Zig Ziglar
P.S. John Doerr’s new book, Speed & Scale: An Action Plan for Solving Our Climate Crisis Now, uses OKRs by putting forward a 10-objective plan, supported by measurable key results that show how each objective can be achieved.