What is an OKR?
Today’s most successful, fastest-growing companies all practice Management by Objectives (MBOs) for goal-focused, company alignment. Inc. 500 companies (and even some Fortune 100 companies) all use a variety of slightly different models, including Objectives and Key Results (OKRs).
With this business practice, company leaders create Objectives every quarter, implement metrics to measure them, communicate along the way, and then discuss success and missed opportunities.
Table of Contents:
What Is An OKR?
OKRs stands for Objectives and Key Results. It is a framework for defining and tracking business objectives and outcomes.
- Objectives are what the organization or individual wants to accomplish, and are typically qualitative or subjective, ambitious, and time-bound.
- Key Results are concrete, specific, and measurable. They should describe how you will accomplish the Objective and measure whether you are on track, behind, or at risk of not accomplishing an Objective.
OKRs are most effective when they cascade. The company sets an objective and three key results, each business unit sets an objective and three KRs that supports the company, each team sets an O and three KRs that support the business unit.
A Brief OKR History
OKRs were invented at Intel in the 1970s as the company pivoted to create computer processors instead of memory chips. Managers across the various teams used OKRs to prioritize quarterly Objectives for employees that were aligned with greater company goals. By the time the personal computer revolution began, Intel was using OKRs to become one of the world’s largest manufacturers of microprocessors.
Today, Google, LinkedIn, Netflix, Salesforce and most of Silicon Valley use the Management by Objectives model to quantify what they are working on and measure their ability to achieve those goals. It’s how some of the most successful companies establish priorities, plan their work, and measure their progress.
Companies make the biggest mistake when they set traditional, annual, heavyweight, cascading goals that are controlled at the top, rigidly pushed down into every department and then into individual Objectives. In larger organizations, it can take 4 – 5 years to set up goals that cascade through, which is way too slow for the normal pace of business.
15Five removes heavyweight annual goals and replaces them with shorter-term quarterly goals. Company and department objectives are set at the top quarterly or semi-annually and individuals are free to create and align their own Objectives, which saves a ton of time.
Company Objectives are instrumental for prioritizing focus areas, directing attention, and ensuring that everyone is aligned and motivated by contributing to something greater than the self. It may seem like common sense, but many companies are unclear about their top priorities or don’t communicate them, thereby losing out on a valuable opportunity to increase performance, engagement, and motivation. Below we’ll uncover the secret to effective Objective-setting at the company level:
– It All Starts with the CEO. A strong OKR process starts with the CEO, who is responsible for setting the direction of their company. Not only to develop yearly and quarterly Objectives but to be the chief advocate of the company mission, vision, and values. Objectives translate strategy and organizational priorities into team and individual priorities. Company Objectives provide context and direction for employees to align their efforts with team and organizational goals. Every company leader must help employees connect their work to the deeper purpose, and make sure the entire company is informed, aligned, and inspired to focus on what matters most.
We recommend that top leadership set company Objectives first, followed by each nested level department Objectives that support the level above, and then allow team members to align their individual Objectives with the department and company Objectives. 15Five’s Align Objectives feature allows for direction setting and alignment across all levels. Gallup research shows employees who strongly agree that they can link their goals to the organization’s goals are 3.5 times more likely to be engaged.
– Ensure Alignment. Can you name your company’s top three priorities? Only 2% of employees can, even though executives predicted 64% would be able to do so. One reason for this disparity is that many companies set way too many company Objectives making it hard for employees to keep track. Morten Hansen, Berkeley management professor and author of Great at Work, shows that high performing individuals and companies ‘do less and then obsess.’ In other words, business tasks should be reduced to the fewest possible metrics, the fewest goals, the fewest steps, the fewest pieces. Employees and organizations who choose a few key priorities and channel tremendous effort into doing exceptional work in those areas greatly outperform those who overextend themselves. That’s why in 15Five, CEO’s are encouraged to set and prioritize a limited 3 to 5 key priorities and company Objectives.
– Motivate with Purpose. Research from famed professors Richard Ryan and Edward Deci shows the key to intrinsic motivation is autonomy, mastery, and relatedness, and recently Dan Pink added purpose. Company Objectives are important because they provide context, which creates an important line of sight to the higher-level purpose for people’s work. Three strategic company Objectives is all it takes. CEOs can provide context and purpose by setting company Objectives at the beginning of every quarter so the work individuals perform and goals they pursue can align with the purpose and goals of their team and organization.
– The Importance of Collaborative Objectives. Most work today is accomplished by teams and the research support for the benefits of team goals is very strong. When team members can create goals together, and see how their work contributes to the progress of team goals, performance improves. Collaborative Objectives in 15Five enable teams to align and work together to drive company initiatives forward.
Objectives Benefits to CEO’s:
- Goal focused company alignment: align with your leadership team on top priorities and highest leverage activities each quarter
- Fit Objectives into company vision, mission, and values to motivate your company with purpose
- Visibility into company, department and individual progress, wins, and roadblocked areas
Objectives Benefits to The Bottom Line:
- Increase engagement
- Increase performance
- Increase motivation
In 15Five, goals and objectives are one and the same, so when we refer to Objective-setting, our definition includes what many people refer to as goal setting. Classic research shows again and again that goals are extremely effective at increasing motivation and performance in organizations. The majority of 15Five users say they’re 45% more productive at work since using 15Five. When individuals set Objectives, they consciously decide on the goals they want to accomplish and within what timeframe, which steers behavior, energizes, and directs an employee’s attention. This leads to greater effort, which improves performance. However, not all goals are created equal, which is why it’s important to talk about what’s needed for truly effective goal setting:
– Goals Should Be Meaningful. Employees are more motivated to accomplish goals that are personally meaningful. To foster intrinsic motivation in all employees, there should be a convergence of desires where business and personal needs align. When managers and employees create individual Objectives together in 15Five, they can gauge an employee’s personal interest in their Objectives each quarter to ensure high motivation.
– Learning Objectives For Growth & Development. Growth and development is the top driver of engagement. All employees need to have a certain level of training, skills, and experience to accomplish their work, so when employees need to acquire skills, research shows it’s important for them to set learning goals rather than performance goals. In 15Five, employees have the option to create Learning Objectives to prioritize any skills gaps that prohibit them from doing their best work. When it comes to Learning Objectives, specific and challenging goals have a negative effect on performance. Instead, we recommend employees set short term and general “do your best” goals for Learning Objectives. More general learning goals create a learning orientation, the key to personal growth and development.
– The Power of Participation: Set and Align Goals Together. Managers have a huge opportunity to increase employee engagement and motivation by setting goals together with their team members. According to Gallup, 30% of employees strongly agree that their manager involves them in setting their goals at work, and those who strongly agree with this statement are 3.6 times more likely than other employees to be engaged. Science shows employee participation in goal setting is important because people won’t fully commit to goals without a voice in the process. Active participation increases perceived fairness, specifically by having one’s’ voice heard. Employees should set goals with their managers but never fully alone because the most important driver of performance comes from the expectations set by management.
Objectives Benefits to Managers:
- Keep your team focused, inspired, and aligned by providing context and direction and setting top priorities each quarter
- Focus on progress over results, and use goal setting and achievement as learning opportunities
- Improve manager feedback through objective focused management
Gallup research also shows employee productivity increases by 56% on average when managers are involved in helping employees align their goals with the needs of the organization, or overall company purpose. When employees work with their managers to both create Objectives and then align them with the organization’s mission and top priorities, productivity, and engagement soar.
– The Power of Progress Monitoring. Would you believe that goal monitoring is just as important to achievement as goal setting? Research shows that the ability to see the distance from the goal is crucial, so monitoring goal progress is necessary for goal setting to work. Progress monitoring is sprinkled throughout 15Five, both in the weekly Check-in and in the Objectives dashboard, making it incredibly easy to see the distance between the current and desired result for individual, departmental, and company Objectives. Every time an employee completes their 15Five Check-in, they’re prompted to monitor the progress of their Objectives, which is shared publicly with the entire organization.
To increase performance and motivation, managers should focus on goal progress over results. Although this may sound counterintuitive to the results-driven manager, the research is clear: progress monitoring will greatly increase motivation and a focus on results only can lead to cultures of unhealthy internal competition. Alan Colquitt, author of Next Generation Performance Management, recommends that companies focus on enabling achievement and performance instead of measuring and evaluating it. Goal transparency and a focus on progress are two key research-backed features that increase motivation and the likelihood of goal achievement.
– Objective Setting Should Be Lightweight and Flexible. According to Alan Colquitt, Objectives should be flexible enough so employees can freely adjust, revise, or even abandon what they’re doing as their work evolves and as priorities change. Research from Kuvass, Buch & Dysvik, all academics in the field of organizational psychology, demonstrated a link between lower work performance and people seeing their goals as unmovable and non-negotiable. This can be managed in 15Five through regular communication, adjustment, and re-framing of goals, as well as allowing individuals the chance to provide an explanation as to why set goals could not be achieved, perhaps due to changing circumstances. In 15Five, employees can easily edit their Objectives and Key Results and provide a comment to their manager to provide context behind the change.
Objectives in 15Five are unique as they blend a tried and true business practice with leading social science research to drive engagement and performance. However, standalone Objectives tracking is insufficient for strong results and Objectives are just one part of the larger 15Five system. All features in 15Five work together to help companies achieve both high performance and also bring out the best in their people. To learn more about how Objectives work together with other features in the 15Five system, check out the research behind our award winning 15Five Check-in and Best-Self Review.
Objectives Benefits to Team Members:
- Feel more purpose by aligning individual goals to company goals to see how individual work drives company goals forward
- Visibility into company priorities, updates, and changes that impact individual work
- Identify skills gaps and create learning goals to keep growth and development front and center
The OKR Process
– The company sets 3-5 objectives for the year and for each quarter.
– Each team sets 3-5 objectives that are aligned with the ones leadership sets for the company.
– Employees work with managers to set 3-5 objectives and corresponding key results that are aligned with team and company objectives.
Objectives and Key Results Examples
OKR Example 1
O: Launch new SMB product
- KR: Product design completed by January 15
- KR: 15 beta customer case studies by March 1
- KR: Sales deck, training materials, and all product assets by March 20
OKR Example 2
O: Delight our current customers
- KR: Net Promoter Score of 50 or better
- KR: Customer churn rate less than 2%
- KR: 50 new online customer reviews
Objectives intentionally appear in three separate yet interconnected parts of 15Five and work with other features to drive performance and engagement.
Objectives in the 15Five Check-in. Objectives are included in the Check-in to keep them top of mind every week and allow employees to update the progress on Key Results throughout a set timeframe. We also include Objectives at the top of the weekly Check-in so managers know what employees are working on and to provide context during 1-on-1s.
Gallup shows that only 34% of employees strongly agree that their manager knows of the projects or tasks they’re currently working on. When managers keep track of goals and key performance projects and milestones, the feedback they provide improves. In the Check-in, managers move beyond results, and through the use of questions, blend qualitative feedback into the OKR process. During 1-on-1s managers obtain deeper insight into their team members’ work and the factors that influence or hinder progress.
Objectives as Resources in the Best-Self Review. Employees complete the 15Five Check-in every week, so when quarterly or semi-annual reviews come around, all of their progress over time lives in one place. This reduces recency bias (i.e. we give far more weight and credence to our recent memories) and ensures a more objective and fair assessment of performance and feedback.
Many people ask: Should compensation be tied to performance reviews? While this is a complex topic, the simple answer is no. Tying these conversations can be demotivating and can lead to perceived unfairness. Most of all, it makes it difficult to think about the real issue at hand, which is performance.
15Five’s Unique OKR Practice Is Inspired By Leading Social Science Research
To guide our OKR philosophy and design, we turned to science for answers. We critically examined academic research on all topics related to performance management including performance reviews, goal-setting, one-on-one meetings, employee recognition, and employee feedback. We leveraged trustworthy research from The Center for Evidence-Based Management, (CEBMa). CEBMa is known for critically appraising research to ensure insights are pulled from the most trustworthy sources. We extracted actionable insights from various scientific disciplines and built that research-backed wisdom into 15Five.
Using this evidence-based approach, our product decisions are based on data rather than dangerous half-truths and recycled best practices.