Are OKRs the New SMART Objectives?
By: David Creelman
Introduction
It’s becoming common to hear about OKRs (Objectives and Key Results) as an approach to performance management. Let’s consider what OKR’s are, how they differ from other approaches to performance management, and how to use them successfully.
The invention of the OKR approach to performance management is credited to Andy Groves, the famed CEO of Intel. The approach was popularized by venture John Doerr whose company was an early investor in Google, Intuit and Amazon. Doerr wrote about OKR in his book Measure What Matters and also discusses them in his article, How VC John Doerr Sets (and Achieves) Goals. He encourages the companies he invests in to adopt the practice.
The essence of OKRs
The essence of OKR is that each employee has
- An objective: A bold statement of what needs to be
(e.g. Create a landing page for employees that inspires, aligns with the brand, and enriches the employee experience.) - Several key results: A handful of measurable, time-bound stretch goals
(e.g. Get proposals from three web design companies by month’s end. Create a trial website by Q3. Get feedback from four focus groups in the following week.)
If “Key Results” sound a lot like SMART goals that’s because they are. OKR leans towards aggressive goals rather than simply “achievable” goals, otherwise, there is no real distinction.
How are OKR different from other approaches to performance management?
There is nothing in the OKR approach that is not found in some other method of performance management. However, OKR advocates are very clear about some essential features and that it is this combination of features that is one of the two keys to their success. These features are:
- An overriding objective as well as specific goals
- Key results are not closely tied to compensation
- OKRs are reviewed quarterly or monthly and can be changed at any time
- OKRs are transparently, shared across the organization
- They are set with both top-down and bottom-up input
An organization may or may not have these features in an otherwise traditional performance management system, in OKR you need all these features.
What’s the other key to success? It’s going through the process with rigor, commitment, persistence and real enthusiasm.
The Unmentionable link to compensation
OKR do not link closely to compensation, however that will lead employees to ask, “If I hit all my key results, and the person beside me misses theirs, do we both get the same raise?” The answer is that it’s a matter of managerial judgement. In most situations the person who achieves their key results will get a higher performance rating than one who doesn’t, however, in some circumstances, there may be very good reasons why an employee missed their key results but is still a high performer. It’s up to the manager to judge.
Having managers apply a great deal of judgement to performance ratings creates its own issues. Organizations that embrace OKR, choose to deal with those issues rather than have the OKR contaminated by a too direct link to pay.
What it takes to be successful with OKRs
OKRs are not an easy solution to performance management. Doerr says “If the leader’s not committed, don’t bother. Don’t even try. Stay with whatever you have.” The case studies of companies that have been successful with OKRs are stories of dynamic companies with inspired leadership like Google, Intuit and the Gates Foundation.
Companies that have adopted OKR always warn that it’s difficult to do well. David Chen, co-founder and Chief Data Office of Nuna warns that you won’t get the system right the first-time round, or the second, or the third. He says, “Don’t get discouraged. Persevere. You need to adapt it and make it our own.”
OKRs are only effective if organizations are truly committed to the concept and persevere even when it’s not working the way they hoped.
Conclusion
Doerr says that OKR’s are “the polar opposite of the conventional management by objectives (MBO) systems” but that’s an exaggeration. Whether we call it OKRs or MBO or performance management, all these approaches try to build clarity for individuals about what they need to achieve and have those individual goals aligned across the organization.
What OKR does is provide one very clear approach to performance management that has been highly successful in some companies. If your company is willing to take this approach seriously, it’s a useful model of performance management.
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