OKRs Are Your Current Hypothesis of Success

My last two articles for TeamFirst were about company values and operating principles. This week finishes the “holy trinity” of company steering tools by diving into OKRs, Objectives and Key Results. If you haven’t read the last two articles, go back and do that first.

As a reminder, this is the TL;DR we’ll be working off of:

Company values = who you hire, reward, and fire

Operating principles = Given left or right, how do you pick? 

OKRs = What is our current theory of success?

What are OKRs?

If this is somehow your first time learning about OKRs, here’s a quick overview. OKRs are goal setting tools used by many companies. First invented by Andrew Grove at Intel back in the 1970s, OKRs have since been adopted by many well-known companies, including Google, LinkedIn, Microsoft, Uber, and Spotify. In the traditional definition, an Objective describes something you want to accomplish and Key Results tell you whether you accomplished it. That's useful, but I think there's a more important way to think about OKRs: an OKR is your company's current hypothesis of success.

But how do OKRs relate to our other two topics, operating principles and company values? Well all three help steer your company where you want it to go. Company values are used to guide your culture via who works at your company, operating principles then equip those employees with the tools they need to make constant and aligned decisions, and finally OKRs are your day-to-day operating tool to be able to make medium-to-long-term bets. 

While company values and operating principles are rarely changed, OKRs often change quarterly. They are the tool you use to align and steer your company while reacting to the latest information you’re learning from the field. An OKR represents a theory or hypothesis. “If we do this and hit these measurable metrics then we will become a better organization.” OKRs can be used for both external and internal goals. Externally you may want to translate your product and expand into Europe as you think that will lead to more revenue. While internally you may want to improve employee satisfaction and increase eNPS scores because you think that will lead to better retention and performance. The point is, OKRs are your latest best ideas for how to improve, but they could be wrong in the end. After all, they’re just your best hypothesis of success. Europe may ultimately be a bust or eNPS may be less correlated to turnover than you thought. But even when you don’t hit your OKRs they should ultimately be designed so that you learn something important from your team’s endeavors so you can set better OKRs in the next round. A bad OKR cycle is not necessarily one where the numbers weren’t achieved. A bad OKR cycle is one where you spent six months and learned nothing.

How often should I set OKRs and how many should I set?

While OKRs are extremely helpful for aligning your company around the latest problems to solve, OKRs don’t come for free. They require time, attention, and resources to plan and design them properly. And because OKRs come with measurable Key Results that need to be tracked throughout the OKR cycle, they require ongoing management and maintenance. This is all time your team could be spending actually solving problems rather than talking about how to solve problems. And in my experience, doing is far more important than talking about doing. So you need to find the balance for where you are in your company’s lifecycle.

Do you find yourself with extra resources or roles in your company dedicated to setting and maintaining goals like OKRs? Then you can probably set many OKRs very often. If instead you are like 99% of companies and strapped for resources – feeling like with all of your fires today you have no time at all for long-term thinking – then maybe start with just setting three six-month company-level OKRs and go from there. Like everything that has been mentioned before this, OKRs when done well should ultimately feel helpful, not burdensome. If they don’t feel helpful or you’re spending too much of your time on them, pull back and do less or none at all. There isn't a universally correct cadence. For a resource-constrained company doing this for the first time, I would rather see three meaningful company-level OKRs every six months than 40 meticulously cascaded quarterly OKRs nobody has time to manage.

After your first successful round of OKRs, judge how you’re feeling and where your current problems are coming from. If your team needs more tactical guidance about what to focus on, or you feel different teams aren't rowing in the same direction, try setting more OKRs in the next round. Or if you feel the OKRs are becoming stale too quickly, try shortening the cycle this time.

Should we “cascade” our OKRs?

Cascading OKRs is when you set top-level company goals. Then you set team/department-level goals that feed into the company goals. Then you set team/personal goals that feed into those department-level goals. In theory it sounds very nice. You already use OKRs to align your company, if you cascade all the goals in your company wouldn't all that alignment stack up until, in the end, you're “ultra aligned”? Unfortunately, life often isn’t that simple.

Imagine one of your department heads is on vacation the week you’re meant to be setting OKRs. Or worse yet, the executives in your company can’t align on what the exact KRs should be for one of your objectives. That means that no one under that group can start their OKR process until the people above them have their OKRs in order. This problem cascades and compounds down the chain so that a one-week goal setting process can turn into a two-month goal setting process where individuals are setting their goals well into the quarter with only a month to deliver them. 

In my belief, cascading goals more often than not adds more overhead and delays than it's worth. If you are part of the 1% of companies that have the available resources to manage a massive goal setting process and discipline that cascading OKRs requires, go for it. But for everyone else I would avoid it. Teams often just need the direction of knowing what the company priorities are to set good goals for themselves. Equip and enable teams to set their own goals, but don’t force them into a rigid cascading structure.

Wrapping up and putting it all together

There comes a certain point in every successful company's lifecycle. You've hired your initial team of excited and eager early employees. There's now enough happening in the business that you can no longer make every final decision yourself. Employees are making decisions you would never make, while growing frustrated because the overall plan still exists mostly inside your head. 

That is the point. 

That is the point where you need to start to take what is in your head and make it available to everyone else.

You know the type of people you want working at your company. What traits they’ll have and need to build the culture you want. Those become company values so that other employees can be on the lookout for those same traits in others. You have a machine in your mind where problems come in and decisions come out. That machine is encoded as operating principles so employees can run that same machine in their own minds. And finally, you know from talking to customers, looking at trends in data, and your own intuition where you all need to go next to become a huge, successful business. Those become your OKRs so employees can ensure their own day-to-day actions are working towards those bigger goals.

As your company grows, your company values, operating principles, and OKR-setting methodology will evolve with it. But you will always have all three to help steer the company to where it needs to go.

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Thanks for reading this series of articles from me! These (strong) opinions are all my own and reasonable minds could differ from the conclusions I came to. But these are the principles we followed at Lattice and that I continue to use in my later businesses. I hope they are helpful for you as well.