The US semiconductor manufacturer Intel had outstanding technical leaders at the top in its founders Gordon E. Moore (Moore’s Law) and Robert Noyce. However, the Hungarian immigrant Andy Grove, who joined the company shortly after its foundation, was largely responsible for Intel’s success. In 1997, Grove was named „Man of the Year“ by Time magazine and Intel was one of the most valuable companies in the world at the time. Before Grove took over as CEO of Intel, he was COO for a long time. It is said that even as COO, he was already in charge of Intel’s operations.
Grove designed the management and goal-setting system OKR at Intel. OKR stands for „Objectives and Key Results“. At first glance, the OKR methodology strongly resembles MBO (Management by Objectives) developed by management guru Peter Drucker. For Drucker, companies should not be profit machines exclusively following Taylorism. What was particularly important to him was the respect and trust that should be shown to employees. Through management by objectives, employees should be enabled to participate. Modern companies, such as Hewlett-Packard (“H-P Way”), for example, quickly adapted the methodology in the 1960s. Later, however, Drucker himself realised that MBO was not the big leap to cure management inefficiencies. Targets were set in the companies, but they were delegated from the top far too statically. The goals were then buried in departmental silos or were ultimately just contextless KPIs. Finally, the ambition of these targets was further reduced by linking them to incentives, which in turn encouraged risk-averse behaviour.
In OKR, however, Grove modified the MBO approach significantly (see below) and the application of the methodology was a success story for Intel. But not only for Intel. The former Intel manager John Doerr brought OKR in his role as VC investor to Google and other companies in Silicon Valley, all of them young start-ups at that time. Google founders Page and Brin attribute a large part of Google’s success to OKR. Today OKR is happy to see further expansion in Silicon Valley and not only there. In the meantime, this agile approach is spreading to traditional companies all over the world.
What is OKR
In principle, the methodology can always be applied where the implementation of objectives in the organisation is concerned. These can be for example operational project goals, but OKR is particularly useful in the implementation of strategic goals. OKR has also been conceived for the implementation of strategies in organizations and helped Intel to significantly outperform strategic competitors in the semiconductor market. Especially in the operationalisation of strategies, weaknesses in organisations show up again and again. Today, major changes in the business environment are an accelerating factor. In this so-called VUKA world, which is characterized by volatility, uncertainty, complexity and ambiguity, flexibility, and the ability to innovate are more important than ever. And this is where OKR comes in.
At OKR, concrete and essential objectives are defined for the implementation of the strategy (approx. 3-5 year horizon). The objectives are defined on a quarterly basis, for example, and represent the steps to move the organisation in the desired strategic direction. These objectives should be defined in such a way that they are ambitious, qualitative, scheduled and ultimately realizable by operational teams. In order to ensure that these objectives are not detached from operations, but that they are pursued effectively, the individual objectives are linked to corresponding key results, on the basis of which the achievement of the objectives can be determined. It is important that these results are measurable and quantifiable, achievable, objective, and understandable.
An exemplary objective for a CFO of a company on the path of digital transformation might be to “Make use of digital tools to improve finance processes” with key results being “Implement a RPA prototype in one finance process”, “Reduce finance process cost by 10%” or “Improve forecasting quality by 15% through better use of data”.
Difference to MBO
MBO is primarily a top-down approach that focuses on the „what“, i.e. the direction. This can tend to encourage risk aversion by integrating incentive mechanisms. OKR, on the other hand, focuses on both the „what“ (objectives) and the „how“ (key results) and thus also allows management to quickly adjust direction. Furthermore, OKR does not only work top-down, because in both setting objectives and determining the necessary results, the organisation must be involved in a cascading manner from the group via the division or business unit to the teams, i.e. OKR are also defined at level where operational actions are taken based on strategic objectives. By involving employees in OKR and thus in strategy implementation, the culture of responsibility in the organisation is enhanced and the strategy is no longer a matter for top management alone. Understandably, this also places demand on the change management process when establishing OKR. It should also be noted that there may be a conflict with the personal annual target agreements of the employees, which are oftentimes part of the compensation. This could be remedied by integrating these target agreements in the OKR. However, this could have a counterproductive effect on ambitious goals in the OKR. And it is precisely these ambitiously set goals that are an essential feature of OKR.
OKR is a methodology for agile management
OKR are also not rigid but are determined and adjusted in short cycles (e.g. every three months), which greatly increases the speed of strategy implementation. In contrast to deterministic planning, OKR therefore corresponds more to the idea of continuous learning and permanent adjustment in the direction of strategic goal attainment. OKR are thus an instrument of agile management, as progress is made visible in the short term and the focus is not on ex post oriented analyses of plan/actual deviations. Also, OKR should not be confused with KPIs (Key Performance Indicators). These are objective and standardized measures of performance or business results, whereas OKR aim to achieve ambitious and intrinsically motivated goals.
OKR emphasises essentiality and accountability
A focus on essential and concise goals is crucial. Steve Jobs already said that innovation also means saying „no“ to a thousand other things. That means ideally you have three to five OKRs each, because too many OKRs are more likely to distract from the process and direction. We also warn against excessive perfectionism in the description of objectives. One can discuss specific formulations for hours, without adding real value Especially with innovative strategies in new areas such as digital transformation, for example, speed and entrepreneurial thinking are called for and it often makes sense to uncouple from traditional mechanisms. In addition, the goals in OKR can be adapted again in short cycles.
To create a culture of commitment and accountability for OKR, a crucial element is transparency and the fact that OKR must be openly shared throughout the organisation, from the CEO down to each team or member of the organisation. Thus, OKRs are not an isolated process, but rather a transparent tool for setting and implementing objectives.
Especially in the interface between strategy and operative day-to-day business, problems often arise in business practice. Here OKR is an agile and effective approach to optimisation. OKR has proven itself in successful technology start-ups and is now an accepted control system, which traditional companies can benefit from also Especially when it comes to quickly advancing new strategic ideas or reacting to sudden changes in the environment.
We are happy to discuss the possibility of using OKR in your organisation with you in a first non-binding workshop.
For further information on the use of OKR please contact Andy Draxinger (firstname.lastname@example.org) or Fabian Winckler (email@example.com).