OKRs – The art of aligning a company

Companies seeking to be cutting edge or wanting to navigate a volatile market environment adapt methods to transform their business or parts of it.

When setting up a start-up, Eric Ries preaches it should be in a lean way, and recent innovative products have used a creativity technique dating back to the 1950s known as “Design Thinking.” When developing software, most organizations adopt a SCRUM or DevOps mindset while adhering to the “Agile Manifesto.” Organizations adopt Nexus, SAFe, and LeSS methodologies when scaling, and some also apply Holacracy or reinvent themselves using Frederic Laloux-Style.

Research has shown that most of these methods are successful when used correctly and efficiently and benefit specific business areas. However, many organizations struggle to align their strategy and goals.

What are OKRs, and how do they differ from classical management methods?

Let us first take a brief look back in history. For decades organizations used a management method known as management by objectives, or MBOs, and some still use it. Peter Drucker coined this method in his 1954 book The Practice of Management. He set forth some basic principles when using MBOs, such as objectives should be laid out with employees’ help and be challenging but achievable. Employees receive daily feedback, and the focus is on (financial) rewards rather than punishment. Personal growth and development are emphasized, rather than negativity, for failing to reach objectives. That sounds good so far.

Companies that use MBO-style performance management review their fulfillment on an annual cadence. Following the MBO process, objectives are set together with employees at the beginning of the year and holistically evaluated at year’s end. The goals set in this process tend to be personal, broad, and strategic – they are less focused, less tactical.

The cascading model is a leftover of a command and control mindset from the 80s in which decisions flow from the top and cannot be amended. A top-down goal-setting process can easily take up to 4-6 months. This type of goal setting is not only a massive waste of resources, but it also leaves employees and teams without clear goals or even old goals, creating waste when teams are working towards them for almost half the year. To master the OKR implementation process, the teams should be set in a parallel process in which they define OKRs linked to the organization’s objectives and validated by managers in a bottom-up and top-down approach at the same time.

How do OKRs carry out alignment and unfold their superpowers?

An essential prerequisite for companies, employees, and teams to make faster progress is to have clear goals. These goals are the guardrails for everyone involved as they describe very well WHAT needs to be achieved so that the respective team or person can decide on HOW to achieve it. They also function as protective barriers because, with a precisely defined goal, everything that doesn’t contribute to the end goal is deemed out of scope.

Another important mind shift that comes with the OKR concept is the so-called “stretch goal” principle. When setting stretch goals, you will achieve more than you expected to be possible at first. Stretch goals are ambitious, taking you out of your comfort zone and allowing you to achieve things that may seem too ambitious at first. They also give you the framework in which to operate. Nevertheless, when compiling your OKRs, be careful not to just set stretch goals that cannot be reached, as repeatedly missing them can be demotivating.

Another centerpiece of OKRs is that they do not cascade as MBOs because OKRs understand that strategy and tactics have different natural paces since the latter tend to change much faster. Whereas there is usually a so-called strategical cycle on a company level of 12+ months, the tactical cadence is mainly 3 months or longer.