In 1954 the management concept known as Management by Objectives (MBO) was introduced by Professor Drucker in his book "The practice of management", a classic in this field. MBO involves a process where in both management and employees define and agree upon objectives deemed crucial within a specified timeframe. In the 1970s, Intel was experiencing growth and undergoing reorganization to compete in the emerging market. It was during this time that Intel modified MBO; under the leadership of CEO Andy Grove. Grove associated an objective with what would be known as a "key result". This modification gave rise to the movement of OKRs - Objectives and Key Results. The OKR approach differs in several aspects from the old MBO method. OKRs have introduced a fundamental change in goal development, guiding the organization on how to achieve an objective.
Below are outlined the main changes in transitioning from a management-by-objectives approach to an objectives and key results orientation.
MBO vs. OKR:
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What → What and why
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Annual → Monthly or quarterly
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Private and closed → Public and transparent
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Top-down approach → Bottom-up approach
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Compensation-related → Separate from compensation
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Risk-averse → Aggressive and aspirational
OKRs are a framework of critical thinking and constitute a discipline aimed at ensuring that employees work together, concentrating their efforts to provide measurable contributions that drive the company forward. This model promotes a culture of continuous improvement and maximizes collaboration and alignment within the organization. OKRs should not be considered a list of tasks to be completed, but rather, they identify the most critical company objectives and measure accountability through key quantitative results.
OKRs are a strategic management tool divided into two parts: an objective and the key results linked to it. The objective represents what needs to be achieved, while the key results monitor how the goal is reached.
Objectives:
- Pursued over the months, they should be planned quarterly and be incorporated into an annual plan.
- Should be meaningful, concrete, action-oriented, and motivating.
Key Results:
- They must be simple, time-bound, and realistic.
- Flexible, measuring progress toward the objective achievement.
- Measurable and verifiable through numerical metrics.
Once all the key results have been completed, it can be stated that the objective has been achieved; otherwise, it means that the OKRs were poorly defined from the outset.
The Google case
Google is one of the organizations with extensive experience in implementing OKRs. During its growth, the company has periodically issued guidelines and new models for OKRs. According to Google itself, the implementation of OKRs has been a reason that has made the company one of the most innovative and profitable of our time. OKRs are tools used to plan what people will produce, monitor progress, and coordinate priorities within teams through communication and goal achievement measurement, allowing employees and managers to make informed choices on how to allocate time and energy.
In his book "OKR Revolution" (2019), John Doerr explains how Google believes that writing OKRs is a significant ritual, not imposed from above but seen as a people-oriented tool that can guide work. OKRs built and managed in the wrong way are a waste of time and a meaningless ritual.
OKRs are indeed a motivational management tool that helps clarify to teams what is important, what to optimize, and what compromises to make during daily work. Writing good OKRs is not an easy task but neither it's impossible. Google provides general, yet very helpful, guidelines to assist in creating effective OKRs.
Rules of OKRs
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Select no more than five objectives with no more than four related key results per OKR setting session.
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More than 60% of objectives should come from the bottom up, meaning that frontline operational employees dictate most objectives.
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All OKRs must be chosen and shared by all team members, and no one can impose a top-down objective without consulting other team members.
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OKRs should not be tools for evaluating individual performance.
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An objective is considered useful when it achieves 60-70%, while below 40% is considered not achieved. Achieving 100% of an objective is properly considered a positive sign; it means that the OKRs related to that objective were completed entirely and therefore were not truly ambitious. However, this does not mean that the OKRs were not useful, but most likely there was an error in operational action or the objective was too ambitious or too unambitious for that time.
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Continue to implement OKRs only if they are still useful to the company; otherwise, they can be abandoned.
Google has introduced a color rating scale to assess the degree of achievement of OKRs:
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From 0.0 to 0.3, the rating is red, indicating that the KR has not been achieved.
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From 0.4 to 0.6, the rating is yellow, indicating that the KR has been set correctly and has received a good rating.
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From 0.7 to 1, the rating is green, indicating that the KR has been completed, but it might have been set in a non-challenging manner initially.
The selection of objectives serves as the first line of defense against excessive dispersion of efforts. However, it's important to note that an OKR can be modified or canceled at any point in its cycle; sometimes, the correct key results are discovered weeks or months after an objective has been set. OKRs inherently possess the flexibility to adapt to both business needs and market challenges, making them highly versatile tools. Andy Grove emphasizes in goal definition that the only thing an effective system should provide is focus; keeping the number of objectives low allows for optimal allocation of finite resources.