Taking KPIs to the next level with OKRs

Ben Lamorte, owner of OKRs.com

Ben Lamorte

As more and more organizations look to improve corporate performance management with best practices such as driver-based planning, introducing leading indicators in addition to lagging indicators, and moving from annual budgeting to rolling forecasts, one model for performance management seems to be making the most impact. The model, Objectives and Key Results (OKRs), continues to grow in popularity as a platform for performance management. I recently interviewed Benchify founder Dan Keegan who noted that “OKRs are used by a majority of start-ups in the UK”. I asked Dan why OKRs are gaining so much traction and he replied with, “How often do you hear people saying I like the goal-setting approach of our company?

How often do you hear people saying like the goal-setting approach of our company?

While best practice methods such as the Balanced Scorecard, Rolling Forecasts, and Driver-Based Planning can be of tremendous value, I constantly find organizations either begin and do not quite implement these approaches or they are valuable only to a select group of executives or staff within the finance team.

But, with OKRs, I consistently find larger groups of employees claiming to do their jobs better because they use OKRs as a platform for performance management.

During my presentations on performance management, I often ask the following question in a group exercise:

Group Exercise: How effective is your current performance management system?
A- Not effective
B- Seems effective to someone, but not me
C- Effective for me

Performance management solution providers are trying to expand usage and adoption of their products across departments and to individual contributors. However, even after surveying dozens of attendees at conferences, I’ve only seen one person respond C.

This person happen to use OKRs while they were working at Zynga and claimed that even though his experience with OKRs was not purely positive, it was the only time he felt that the performance management system was actually designed to help him do his job better rather than simply to create dashboards and reports that looked good in management meetings and board presentations.

Gary Kennedy took OKRs to Oracle in the 1980s, John Doerr introduced OKRs at Google in the 1990s and now hundreds of successful companies including LinkedIn and Twitter use OKRs today.

The OKRs community gives credit to Andy Grove and Intel as the first known use-case of OKRs in the 1980s with key executives coming out of Intel spreading the word on OKRs. Gary Kennedy took OKRs to Oracle in the 1980s, John Doerr introduced OKRs at Google in the 1990s and now hundreds of successful companies including LinkedIn and Twitter use OKRs today.

OKR Origins

As for the origin of OKRs, it should be noted that OKRs are very similar to SMART goals. The first documentation of SMART goals comes in 1981 and is associated with Peter Drucker’s Management by Objectives (MBO) program which emerged in the 1950s. The MBO model is probably the earliest predecessor to OKRs.

The Balanced Scorecard and strategy maps are quite similar to OKRs though these models originated in 1987 and did not gain traction until the 1990s with the publication of the famous book by Kaplan and Norton in 1996, so the OKRs model appears to pre-date the balanced scorecard.

Twitter’s CEO says OKRs are a “…super effective way of communicating context to other teams about what you’re trying to do and what you’re trying to accomplish.”

As you begin to think about how OKRs might fit into your existing approach to performance management, I find it’s useful to think about OKRs as a method for staying aligned and focused by structuring conversations most efficiently drive your business forward. In fact, Dick Costolo, Twitter’s CEO says OKRs are a “…super effective way of communicating context to other teams about what you’re trying to do and what you’re trying to accomplish.”

If you look at OKRs at the company level, you may ask how OKRs differ from KPIs. Quora provides some excellent analysis here. First let’s break down OKR into “O” and “KR”. A KPI is unlikely to be confused with an “O” since O’s are inherently statements that are only measurable by dint of KRs. KPIs often are similar or even identical to a “KR.” To make this clear, let’s introduce a table that differentiates between a KPI and a KR:

KPI and KR Comparison Table
Differentiating FactorKey Performance Indicator (KPI)Key Result (KR)
Must be a metricYesNo
Can be a metricYesYes
Has a completion dateSometimesYes
Fixed updating frequencyYesNo
ControllableSometimesYes
Progress is measurableSometimesAlways

Summary

  • OKRs are a viable best-practice approach to performance management that requires the use of KPIs
  • KPIs can exist without OKRs, but OKRs generally cannot exist without KPIs
  • KPIs andOKRscan becombined to take an integrated driver-based planning approach to performance management resulting in:
    • Better execution (e.g. I get value from my organization’s performance management system – CHOICE C)
    • Metrics-driven culture
    • More engagement (e.g. ‘I like our organization’s goal-setting approach’)

To learn more about OKRs, consider joining the OKRs LinkedIn Group or requesting your free OKRs drafting session with Ben Lamorte.

Comments

  1. While all KRs are measurable, I don’t consider all KRs metrics. KRs tend to take three distinct forms: 1) baseline metric, 2) target metric, and 3) milestone. The first 2 types of KRs will have clearly defined metrics with a unit of measure such as “Close 10 deals in Q4” or “Average 100 visitors/day on our website in Q4.”

    A milestone KR is not a metric. Here’s an example taken from my work with a VP Sales

    KR: “Open a branch office in Australia with at least one full-time staff member at the office during business hours by end of Q4”

    This is a milestone since it cannot be set up as a metric. Note that milestone key results can and should be broken down into smaller steps such as:

    1-Sign lease to secure office space
    2-Hire full time office manager
    3-Translate product pricing to Australian currency
    Etc.

    We can measure progress by documenting which steps are completed. Technically we could think of this as a metric if we weight each box equally and come up with an overall percent complete. However, I still find it useful to distinguish between metric and milestone key results.

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