What are OKRs? Objectives and Key Results explained

OKRs, standing for Objectives and Key Results, are a goal-setting methodology used by firms to establish ambitious, long haul goals. OKRs are also closely linked to another well-known measurement, KPIs, which can lead managers to question the former’s usefulness.

The corporate world is so stuffed full of acronyms that it can be hard to understand the point of OKRs at first glance. Yet, they are especially relevant in today’s difficult economy, helping you set smart growth targets for the years ahead.

There’s a reason that OKRs have stuck around since they were first conceptualised in the 1970s. Successful case studies prove they can be the guiding North Star for industry leaders like Amazon and Google, influencing all of their day-to-day activities.

Below, we’ll explain who should set OKRs, how they should do it, and – importantly – what the team will gain from doing so.

What are OKRs?

OKRs are statements of intent, used by teams and organisations to set challenging, collaborative, and measurable goals. They are a useful method for tying down what the team is going to work on to improve overall business performance.

OKRs consist of two parts: objectives and key results. Objectives describe what you’re trying to accomplish. Here, your language can be more inspirational. Key results should be concrete, however, to give a definitive measurement of how you’ll pull off the objective.

To understand the relationship between OKRs, think of a stool. The seat is your objective; a qualitative statement of what you will achieve. The legs are your key results (KRs). These prop up your objective with measurable and verifiable outcomes. For example:

Objective: Keep the company in growth mode and consistently scale

Key results:

• Keep the YoY revenue growth above 19%
• Reach a 100% customer renewal rate
• Maintain an OPM (Operating Profit Margin) above 15%

OKRs break a lot of the foundational business rules. For example, they are typically not SMART objectives, as they don’t have to necessarily be achievable.

It’s important that OKRs go slightly further than what you think the team will actually be able to reach. Keep them as a bold, aspirational target; like aiming to triple your product offering in two years. 12 months in, you might find you’re short on your target and can adjust, but any progress towards the objective can still be considered a win.

Why use OKRs?

The famed American investor and venture capitalist John Doerr categorises the advantages of OKRs into five ‘superpowers’: focus, alignment, commitment, tracking, and stretching. Otherwise known as the F.A.C.T.S of OKRs.

1. Focus – unlike the tens of KPIs individuals, departments, and organisations can set, OKRs are strictly limited to ensure they do not become distracted by targeting multiple outcomes.
2. Alignment – the ideation period for OKRs provides a useful setting to bring together all members of the business to decide on how these core objectives will align with the company’s overall strategy. That way, you can be confident that your OKRs reflect the most important priorities of the business
3. Commitment – this is a very important ingredient for OKR setting. Senior leadership might agree the OKRs, but the entire team will be responsible for actioning them. Schedules and resources will be adjusted to ensure they are delivered, ensuring buy-in process from employees
4. Tracking – progress towards every objective should be able to be tracked via the metrics established when they were written. This is where KPIs come in handy for OKR, providing a tangible reference point to check that you are on-track or off-course for reaching your established goals
5. Stretching – OKRs let business owners really run their imagination wild. Ambition is welcome. OKRs should provide motivation for organisations to go that extra mile

OKRs vs KPIs

Most organisations are familiar with KPIs, or key performance indicators. These are a metric used to measure progress towards a business objective.

KPIs differ from OKRs in that KPIs are standalone metrics. They can provide granular updates on progress, but they don’t explain what the overall goal is – which is what an OKR is for.

Before KPIs are set, you first need OKRs to map out the destination of the company or team.

It’s best to think of both concepts as complementary, rather than interchangeable. To use a sporting analogy: if the objective is a marathon, your key results would be the finish line and the KPIs would be the mile markers.

Here’s what that might look like for a hypothetical ecommerce business based in the UK:

Who should set OKRs?

Most of the examples we’ve used in this guide refer to company-wide strategising. Typically, the executive or leadership team of an organisation sets the high-level OKRs for the entire company, given their importance for the strategic direction.

That said, OKRs can also sit at divisional, and individual levels. Responsibility for delivery will vary depending on the organisation’s structure and culture. Small teams are more likely to use the former, for example, as they tend to have fewer middle managers to oversee implementation.

Naturally, department heads are best placed to set OKRs for their respective areas. The head of sales will have a better understanding of what revenue targets to set than the head of accounting, for example.

Nonetheless, individuals and smaller teams should still be encouraged to set OKRs that relate to their department. Setting OKRs will ideally be a collaborative process. While leaders may guide and initiate the process, it’s important to involve employees to keep them engaged and foster accountability. This is to assist with meeting one of the key F.A.C.T.S of OKRs: alignment.

The OKRs set by leaders, departments, and individuals should complement each other to ensure that everyone is working towards a common purpose.

Similarly, OKRs also should not be set in stone. Regular evaluations should be pencilled in on a quarterly basis to assess progress and make any adjustments. This allows organisations to adapt to changing circumstances and priorities.

How to structure an OKR

OKRs have the potential to be very complicated. After all, you’re laying out a bold strategy that will influence the company for at least several months.

The challenge lies in making OKRs as clear, inspiring, and easy to rally around as possible. Otherwise, communicating the work required to reach your KRs and overall objective will be much harder.

Muddying the waters with complex descriptions, presentations, and jargon may also make it more difficult for employees to feel accountable for its success or failure.

If possible, try to limit your OKR to one sentence. State your objective, followed by three key results you want to clinch.

For example: “We will become the best PR agency to work at by targeting reduced employee turnover rate, adding employee development programs, and implementing flexible working arrangements.”

What time period should an OKR cover?

Effective OKRs require long-term thinking. They’re typically used to set quarterly goals, but can also be used for annual planning.

As a general rule, businesses should have no more than three OKRs at a time. Otherwise, you’ll risk jeopardising the focus that OKRs bring to the organisation. Each OKR should have two or three associated key results to outline what success would look like.

This allows for enough time to make progress towards the goals, but also allows for flexibility if things change.

OKR mistakes to avoid

By now, you should have an idea of how crucial OKRs can be to developing a business strategy. Let’s dig into the most common OKR mistakes (and the best ways to avoid them):

1. Rushing the process – You’re setting an ambition that will shape their department or organisation for the next quarter. Rushing through the process will doubtless result in vague objectives, which can lead to confusion among team members.

Take the time to understand the impact the OKR will have on the business, and ascertain this is definitely where you want to put your resources into. OKRs are most effective when they are clear, specific, and aligned with the organisation’s overall goals and the company mission.

2. Going it alone – Teamwork is the most underrated ingredient of the OKR framework. Every set of OKRs should incorporate feedback from multiple levels in the firm, and undergo several checks and drafts from various stakeholders, to make sure everyone has bought into the target.

3. Not thinking big enough – OKRs are about making change. That means setting an objective that stretches you to your best limits, not just striving for business as usual.

An example of a stretch OKR would be to launch an app that reaches number one on the Apple App Store in six months time. It’s an ambitious and difficult goal, but certainly still possible.

4. Being impatient – OKRs are useful for taking an ambitious, long-term perspective on business outcomes. Nonetheless, some managers mistakenly pursue OKRs to focus on quick wins, which can lead to teams feeling demotivated and burned out.

Triumph takes time. Make sure you plot in a reasonable length of time to action OKRs, to give them the space and time to succeed.

5. Ignoring key results – it’s easy to get distracted by objectives. But don’t ignore key results. If you’re thinking sky-high about a dream SMART objective, KRs are crucial to bring you back to Earth and visualise how you’ll actually get there.

Conclusion

OKRs are a tried-and-true method for charting ambitious, long-term objectives. However, effective OKR setting is all about striking a balance.

Teams must take care to not be audacious, but also not overly cautious. Rushing through the OKR-setting process can lead to a host of issues, from unclear objectives to unrealistic expectations.

If you’re just learning about OKRs, now is the time to take the correct steps. In periods of economic uncertainty, it’s crucial for businesses to prioritise their efforts wisely and set clear objectives and key results targeting survival and recovery.

Done well, OKRs will keep your company, team, or employees sticking to the five OKR superpowers: focused, aligned, committed, tracking, and stretched towards your strategic goals.