How to set OKRs: A practical guide to setting Objectives and Key Results
What is an OKR?
It's important to understand what an OKR is and isn't. That's because they require a mindset shift across the company. The acronym OKR stands for Objectives and Key Results. It’s a goal-setting framework that helps break down company strategy into manageable chucks. It’s a simple approach to create alignment and employee engagement around measurable but ambitious goals. They're used by highly agile and innovative companies looking to maximise employee performance and engagement through transparency and accountability.
The big difference from traditional planning methods like SMART Goals is that they're set quarterly and tracked regularly. Often monthly or, ideally, weekly.
How do OKRs work?
OKRs work by attaching numerical measurements to otherwise qualitative objectives. This means employees can provide raw data which managers can use to gain actionable insights about company productivity. Different objectives can even feed into the same Key Results. This allows you to track contributions across all levels of an organisation.
Depending on your objective, the Key Result you'd use can be very straightforward. For example, your goal may be to expand your company's blog, or grow your customer-base. Good Key Results for these would as simple as the number of articles written or the number of customers gained per week.
But Objectives aren't always so self-explanatory
Your Objective might be to improve the employee experience within your organisation, but how do you quantify that? One way might be to survey employee advocacy and satisfaction in your office both prior to and after the implementation of changes. But remember, you aren't limited to just one Key Result for each Objective. Along with tracking your employee Net Promoter Score (eNPS), it would also help to track things like turnover, sick-days, or the number of employee complaints.
7 benefits when you set OKRs
OKRs helps companies bridge the gap between strategy and execution. They encourage managers and employees to move from an input and behaviour-based approach to instead focus on impact and outcomes.
The benefits of the framework include a better focus on results that matter, increased transparency, and stronger company alignment. The OKR goal-setting framework achieves this by organising employees and the work they do around achieving common objectives.
1. Set OKRs for strategic alignment
OKRs help managers and employees align their efforts with everyone else in a company. This ensures that everyone is moving in the same direction. It also helps staff understand the purpose behind their tasks. Purpose is one of three key motivators so it’s critical in getting the best from your people. Increased alignment also helps improve collaborative working between teams. It also encourages role autonomy and ownership because your people know what their priorities are.
2. Employees see how their contribution feeds into company success
Feeling like our work matters is a huge part of employee engagement. When you can't see the impact of your role, it's easy to become disengaged from it. After all, if your work doesn't make a matter, why bother? Your people can see the direct impact their role has on team and company success. The best way to do this is getting employees to update their own KR progress regularly through their employee check-in.
3. Employees have more autonomy when OKRs are set
OKRs help people focus on what’s important. Employees know which parts of their role contribute to the bigger picture and this help to prioritise the work that has real business impact. If they find that at the end of the week none of their work as contributed to a KR, then they can realign without needing manager input. Having this level of autonomy over your role helps boost engagement. And makes you way more productive.
4. Engaged employees
OKRs give more oversight and alignment which in turn, grows employee engagement. With engagement linked to a host of business benefits including increased productivity and reduced staff turnover, this is a huge benefit.
5. Cultural transparency
The biggest direct impact of OKRs is a shift to transparent goals across the business. With OKR, everyone can see everyone else’s goals, from the bottom of the company to the very top. This helps encourage a more open and honest culture. If you’re not quite ready to move to complete transparency, OKRs can be made private or set to team-only visibility.
6. Multiple Key Results makes your data more robust
Remember, you aren't limited to just one Key Result per Objective. In fact, it can help to have a few different Key Results to give your data more variety. Felipe Castro recommends between two to five Key Results per Objective to maintain focus on things that make the most impact.
7. Business impacts
Research shows that employees with OKRs are more effective that those who use other frameworks. This results in increased performance, increased sales, and even better customer satisfaction scores. That's because everyone is working towards the same high-level Objective. How they get there is up to them.
The anatomy of a great OKR
A great OKR describes what you aspire to do and how you’re going to measure it. OKR is critical to your performance management strategy and are structed like this: I will (Objective) as measured by (Key Results).
An Objective tells you where you’re heading
The Objective in OKR is a qualitative description of what needs to be accomplished. They're high-level goals that multiple teams, if not the whole business, could work towards. An Objective should motivate and challenge the team. Ideally stretching everyone. They need to be memorable, qualitative descriptions of what you want to achieve. They should be short, inspirational, and engaging.
Key Results are how you define success
Key Results are a set of quantitative metrics that measure your progress towards the Objective. A proper Key Result needs to have a number. It could be time, percentage, revenue, binary, etc. Each Objective should have between 2 and 5 Key Results.
An example of how to set an effective OKR
Let's say our Objective is to Create an awesome customer experience. This sounds great, but how would you know if the experience is awesome? And what defines awesome? Remember, without measurement you don’t have a clear goal. That’s why we need Key Results. They define what we mean by “Create an awesome customer experience.”
How do we measure if we’re providing an awesome customer experience? Net Promoter Score (NPS) and Repurchase Rate would be two good options. Do our customers feel so good about dealing with us that they would recommend us and buy again?
But measuring NPS and repeat purchases alone can send the wrong message. It might encourage us to make the customer happy at any cost. Therefore, we can include a counter-measure such as Customer Acquisition Cost. We want to make the right type of customers happy.
Avoid Key Results that focus on effort or input over outcomes. These Key Results examples just won't cut it:
- Collect 5 customer surveys per day
- Make 25 outbound calls a month
- Speak to 12 customers every month
Here's what a great OKR looks like
Objective: Create an Awesome Customer Experience
- Improve Net Promoter Score from 45 to 70 within 6 months.
- Increase Repurchase Rate from 67% to 83% buy the end of quarter 1.
- Maintain Customer Acquisition cost under £850.
If Buzz lightyear had OKRs
Multiple teams can feed into one OKR
A second team could feed into the same Objective but with different Key Results. For example, the product development team could have KRs around product stickiness and usability. That’s how we use OKRs to align purpose across the company.
Don't be afraid to use stretch goals
A stretch goal is an objective that's especially ambitious. By stretching, you push yourself a little further each time. Until you can eventually achieve things that once seemed nigh impossible. Stretch goals push you and your team to re-evaluate the way you work in order to find effective solutions. According to Felipe Castro, stretch goals should have an average completion rate of around 70%. If your team is consistently achieving 100% on all their goals, then it's likely they aren't to stretching and re-evaluating.
How to set a great OKR
So, you understand the theory. You’re down with the structure, all you need now is the actual help on building a great OKR, right? Here goes:
Understand the brief
Before you start using OKRs it’s important to have a clear understanding of the challenge you want it to solve. And the benefits you expect it to bring. For most, OKRs offer a transparent and clear way translate company objectives into bite-size chucks in a way that’s clear to all employees. But is also transparent and measurable.
Make someone responsible
OKR is a framework. But it’s also a steep learning process. When you move from SMART goals (or not goals) it often involves a fundamental shift in how people think about and measure the work they do. Moving away from a focus on input and effort to a focus on outcomes. That’s why it’s important for OKRs to have an owner. Their role is to ensure that everyone using OKRs is properly trained, engaged, and has ongoing help and guidance when they need it.
Align OKRs, don’t cascade
Set top down and bottom up OKRs. Encourage employees to set and own their own OKRs so that they feel motivated to achieve them. They can be mapped to team, department, or company Objectives. And should deliver strategic value and not business as usual activities or outputs.
Find the right cadence
OKRs are usually created on 2 cadences
- A strategic cadence with high-level, longer term OKRs for the company (usually annual).
- A tactical cadence with shorter term OKRs for departments and teams (usually quarterly).
Company Objectives are typically set annually whereas individuals and teams set their OKRs quarterly. This nested approach takes account of the fact that while strategic objectives rarely change quickly, tactical objectives can shift frequently.
However, companies are free to customise the cadence so that it best suits their own needs. For example, Spotify uses a cycle of 6 months for company objectives while its teams set OKRs every six weeks. It’s all about finding the cadence for you.
10 takeaway tips for setting a great OKR
How to set OKR Objectives
- Objectives need to be aspirational and memorable
- Use jargon-free language everyone understands
- Create Objectives that fit your company culture
- 5 Objectives maximum, or you’ll lose focus
- Follow the annual OKR cycle process
How to set OKR Key Results
- Set between 2 and 5 KRs per Objective
- Focus on metrics and results (outcomes) not tasks and effort (inputs)
- Set quantitative metrics for each Key Result
- Key Results are stretch targets. 70% completion is typical and encourages higher performance
- Review KRs often so your people aren’t working on outdated priorities.
And finally, use an OKR software tool that connects your employee performance and engagement for a holistic and much more effective process.
Want to know more about how OKRs can help you align strategy and employee performance? Grab a copy of our latest best practice guide: How to set OKRs that actually work 👇