Getting the Grade: Tracking OKR & Confidence Levels

Time Travel

Photo by Chris Gilbert

Travel back in time with me for a moment. It’s New Year's Eve and you are watching the fireworks in the sky with your friends. You are holding a glass of champagne in your hand and making some promises to your friends.  “This year I’ll quit smoking”, one friend says. Another promises aloud: “I’ll go to the gym more regularly”. You chime in with “I will get out there more, go to networking events”. These are all very nice New Year's resolutions (or goals you might call them any other time of the year), but there is a problem with them.

Let’s use the fitness goal as an example. What will happen in the upcoming months is likely the following: In the first month, your friend will be really committed to going to the gym. She will probably go three times per week. In the second month, she might skip a session here or there. By the time it is March or April, spring is just around the corner and she will give into temptation more and more, joining her friends on the terrace for a glass of wine or two in the sun. She will lose track of her goal and, halfway through the year, she probably won’t show up at the gym anymore at all.

Daily Grind

I frequently see the same problems with businesses. At the beginning of every fiscal year, the management team sets goals. Then at the end of the year, they notice that only a few goals have been met, or worse, none. This also counts for business that do 5 year or 10 year plans as well; without an accountability plan, it will be just more of the same slogging through the workday.

The reason that we can’t seem to ever achieve New Year’s resolutions is because we are too busy getting distracted the whole time. From our mobile phone message alerts, Facebook, Instagram, and even Linkedin to our ever-growing email inboxes. At work, these distractions manifest themselves as typical, standard daily work: meetings, delegating tasks, multitasking, training the new team member, prioritizing which fires to put out first, filing reports and other acceptable “business as usual” tasks.

Don’t get me wrong, the daily tedious work we do is important to do in order to do business, but in order to stay in business, it takes a whole other skill set: Taking the lead rather than constant reacting. This is where OKRs come in. They can guide questions such as: Where do we want to be in X years? How do we get there? What is the plan? What are the Objectives? What are some ways we can identify that we are on track (Key Results)? How often will we check in? What system will we use to measure or keep accountable?

The Enemy

The enemy of taking the lead is called “the whirlwind” or “business as usual”. It pulls at us like a gravitational force. We get distracted by it every time and it prevents us from achieving our goals. It’s totally normal, everybody has a Shiny Object Syndrome (S.O.S) to some extent.

The same is true when companies start with Objective and Key Results (OKRs). With good intentions and motivations, they start to implement them. At the beginning of the year, strategic and tactical goals for the quarter are formulated. For each Objective, perhaps there will be three to four Key Results. Then at the end of the first quarter, management or teams begin to notice that very little or nothing has yet been accomplished. They might continue along this path for another quarter, but most probably will abandon OKRs and switch back to the status quo. I can’t blame them, it is a logical response to the well-meant implementation of a system designed to keep us on track and accountable, but (similar to the gym) without discipline and seeing some motivating results, the desire to continue diminishes amongst the firefighting of “business as usual” and instead is seen as just a waste of time. So, how can we curb these distractions and get back on track?

Getting the Grade

Photo by Ben Mullins

While there are many reasons why OKR implementations fail, a common one is that companies and teams don’t evaluate their OKRs, let alone their OKR process. For this reason, the process of “grading” OKRs is now a quintessential part of growth. Think of it like going back to High School where grades are assigned to our quizzes, tests, essays and group projects (Key Results) and the end of each semester (or in business, per quarter). Some companies grade their KRs mid-quarter. In the end, grading can be seen as a learning tool. There are a number of methods for grading (or scoring) Key Results and the selected methodology of scoring criteria needs to be clearly communicated to the team early on, along with the format of the regular check-ins. The grades you assign indicate how well you have achieved your Key Results. It’s a great way to keep you and your team on track and focused. It also helps to mediate distractions and with prioritizing tasks, too, but it’s not enough. We need a tool to help us learn faster and avoid distractions even more.

Quick Learner

Although there is nothing wrong with the grading technique in general, there is a problem if organizations only use this technique in their OKR toolbox. The problem is that by the time you are at the end of the quarter, you have already been distracted too much by the “whirlwind” and have missed a lot of learning and pivoting opportunities, making it in turn, extra tricky to plan and prepare for the upcoming quarter(s); it’s naive to only learn at the end of each quarter. You want to incorporate a culture of continuous learning to achieve ambitious goals. Going back to the gym scenario, this would look like small, incremental revisions and improvements and making necessary adjustments along the way. Just like slimming down or becoming more toned, it might be hard to notice the small changes, but over time, those small accomplishments add up to big results.

In today’s fast-paced world, it’s all about how to outperform your competitors in the field of speed of learning. This is, of course, in perfect harmony with the mindset behind Agile. To learn faster, you want to apply rapid feedback loops. Within the OKR framework, these can be achieved with weekly OKR check-ins (in combination with quarterly grading). OKR check-ins are the operating system to achieve your goals. Without them, you decrease the likelihood of achieving your OKRs. One of the elements of OKR check-ins is Confidence Scoring.

Confidence is Key

In comparison to grading Key Results, scoring Confidence in achieving them is even easier. You can use a colour coding system such as Andon System (red, amber, green) or any scale to set the level of confidence that you have in a Key Result. At the beginning of each OKR cycle (typically quarterly) all KRs start at amber (50%). Then on a weekly basis, a (executive) team rates the Confidence they have in each Key Result.

Green indicates: we are sure we are going to make it because the current metrics look good. The needle is moving steadily.

Amber signifies: there is a 50/50 chance we are going to make it. The current metrics are behind. The needle is moving slowly.

Red means: we are way off the mark. The needle hasn’t moved an inch. We need to take serious actions or re-visit our tactics.

With that said, sometimes all the Confidence in the world won’t be an automatic success indicator of a Key Result being achieved. Sometimes things happen that couldn’t have been predicted or avoided. Checking in on a weekly basis (as well as quarterly) can be one of the best uses of your time, not only in terms of accountability, but as a way to forecast for the future, especially when something didn’t go as planned or wasn’t accomplished or fell by the wayside. For a team, with each team member weighing in and giving input, lessons can also be gleaned from these measurable experiences and the team can refocus. Why did we think we were on track and where did it go wrong? How can we prepare for something like this again in the future? What were the important considerations that we missed?

Fast Feedback

If you score your level of Confidence in your Key Results on a weekly basis, you can be certain that you will get a lot more feedback from the system (executive colleagues, business partners and team members) regarding small adjustments, pivoting and learning than you would have with only grading OKRs at the end of the quarter. Weekly scoring of your Confidence on your KRs helps you and your team make better and quicker decisions. It will reflect a plan with milestones and regular check-ins that will not only instill confidence in the progress of KRs, but also put meaning to the “business as usual” work of your team.

Summary

Weekly and Quarterly check-ins will keep Key Results on track
Select the best method of grading Key Results that suit your team
Regular Confidence Scoring can help you pivot in the short-term and forecast for the long-term

Haven’t You Heard?

Check out my talk at the IT Spring Conference to learn more about OKR check-ins and subscribe to my free OKR email course to keep yourself regularly updated, inspired and on track.

IT Spring 2019 - OKR Commitment square

Check out my talk at IT Spring 2019. In this presentation, I talk about how to use OKRs for strategy and how to use a tool called the OKR commitment square to execute your OKR check-ins.

Clarity with a single OKR

“Focus is the thing that makes the difference between excelling and flailing about in mediocrity” ~ Christina Wodtke.

The problem (and it’s a big one…)

Photo by Paul Skorupskas

Research has found that “on average, 95% of a company’s employees are unaware of, or do not understand, its strategy”1, and two-thirds of managers can’t name their company’s priorities2. And if your people don’t understand your strategy, how can they execute it?

As a result, the following are true of too many organisations (you may recognise a few):

• Your OHI3 or similar employee survey results indicate a lack of clear direction;

• Employees say they miss clarity and focus, and don’t know where the company is going;

• Lack of purpose makes employees less motivated;

• There are little or no innovation or learning initiatives going on;

• Repeated change initiatives fail;

• Too many, constantly changing, priority projects distract people from the strategy;

• Too many ad hoc issues and too much firefighting.

But we’ve told them the strategy time and again…

If you’ve had your strategy for some time now, you’ve almost certainly communicated it to employees many times via various different channels. So how the heck can they not know about it, let alone understand it? Why, despite your efforts, do you see so little progress on this front?

Various studies4 suggest that unclear direction and lack of purpose are often major culprits. Worker performance tends to improve when the employer commits to a single strategic goal. Moreover, when each employee is set specific, relatively demanding goals they become more committed to achieving them5.

According to Google research6, who the members of a team are is not the key issue. Instead, they found that their most successful teams shared four key attributes:

• Psychological safety: people felt safe and empowered to take (appropriate) risks;

• Dependability: they could rely on one another to deliver timely, quality work;

• Clarity: goals, roles and execution plans were clear;

• Meaningfulness: people felt they were working on something that was important to them and mattered in some wider or more fundamental sense.

But how do you get to this point? I believe a tool called OKRs (Objectives and Key Results) can help you clarify, focus and communicate your strategy – and if used properly, with amazing results. Giving your people the clear goals, purpose and meaning that will improve company performance. But first we need to go back to the beginning.

What is your strategy, actually?

In my experience, when you ask a leader for their current strategy, responses typically fall into three categories:

• “We don’t have a real strategy” – honest, but hardly reassuring.

• “We’re doing/aiming to do X”. Where ‘X’ can be anything from “move to the public cloud” to “transition to agile” to “launch a new product”. These may be useful things to do, but they’re not a strategy.

• Ten fluffy rambling sentences that no one (including the leader themselves) can quite remember. So no surprise the ‘strategy’ isn’t having the desired impact.

As Porter says, a “competitive strategy is about being different, it means deliberately choosing a different set of activities to deliver a unique mix of value.”7 This also means saying no to a lot of things. In other words:

Business Strategy = Choice

Short and sweet

The best strategy statements fit on a single page. In his book Scaling Up, Verne Harnish suggests several strategy one-pagers. You can also look at Business Model Canvas or Lean Canvas. All cover the basic elements of a strategy:

• Objective

• Scope

• Advantage

So let’s explore each of these a little further.

Define your objective

According to Collis and Rukstad, “it is the single precise objective that will drive the business over the next five years or so”8. In other words, you need to make your strategy tangible: define a clear finish line, which can be defined as an objective. An objective shouldn’t be too easy to reach, nor should it be so hard people feel it’s impossible9. Ideally, you want a 50% chance of achieving it.10

In addition, the objective must be emotionally motivated and trackable. Emotionally motivated because not everybody likes numbers and this helps keep objectives memorable.11 Trackable because you should be able to report progress against the objectives on a weekly basis. This, as we’ll see, is why OKRs are so powerful in defining strategic objectives.

Define the Scope

There are three dimensions to strategy scope: customer or offering, geographical location and vertical integration. In other words, what you want to ‘sell’ to whom; where you want to sell it; and which components of the value chain you will run. You must create boundaries to make it clear to leaders which activities they should, and shouldn’t, be focusing on. A great tool here is a list of No’s. Or you can just explain why you’re not going to do certain other things.12

Apple, for example, clearly targets high-income customers with high-end priced products. The company chose not to offer low-priced products to customers, although it could have increased market share by doing so.

So in the scope part of your strategy statement, define the decisions you have made.

Defining the Advantage

“The essence of strategy is choosing to perform activities differently than rivals do.”  M. Porter.

Defining the advantage is one of the most important aspects of strategy, but many forget to make it explicit. “Clarity about what makes the firm distinctive is what most helps employees understand how they can contribute to successful execution of its strategy.”13

You need to be very specific about which activities you are going to do differently, and find the right ‘fit’. Let’s take Southwest Airlines as an example. Southwest’s competitive edge derives from a whole range of activities, and ensuring these fit and reinforce one another.

The right strategic fit creates a chain that’s as strong as the strongest link.

Ensuring the right strategic fit prevents imitation by creating a chain that’s as strong as the strongest link. A strong strategy ensures Southwest’s activities complement each other to genuinely add economic value. The cost to the company/value to the customer of one activity is lowered/enhanced by how other activities are carried out. In other words, the strategic fit generates competitive edge and increases profitability.

This combination of closely-linked, mutually-enhancing activities make it difficult for competitors to copy you. Such a set of tightly-linked differentiating activities is also called a ‘strategic theme’. For example, in his paper on strategy Porter lists the strategic themes of IKEA as:

• Limited customer service

• Modular furniture design

• Self-selecting by customers

• Low manufacturing costs

One way to identify the strategic activities you should be doing differently or better than your competitors – your strategic fit – is by using an activity mapping tool15 or strategy map16. But even better is to put it on a one-pager as part of your Business Model Canvas (e.g. resources, channels) or Lean Canvas (Unfair advantage).

Meet your new best friend: OKRs

So we now have great tools for defining our strategy’s scope and advantage, but what about defining our objective? Many organisations, including Google, Intel and LinkedIn, use OKRs (objectives and key results).

OKRs were developed by Andy Gove in the late 1970s to fill the gap between strategic objectives and execution. They are a powerful way to help you define clear finish lines for your strategy and boil your strategy statement down to a succinct one-pager. Let’s have a look at the key elements:

As discussed, an objective is a short, memorable, qualitative description of what you want to achieve.

Key results are a set of metrics and KPIs that measure your progress towards the objective. Research shows the more specific your goals, the better your organization and teams can perform against them.17

A handy rule of thumb: if you can report on the progress towards your objective in a weekly email, then it’s a well-defined key result. If not, try to learn more about your data and metrics: it takes practice and patience. The following formula can help: From [X] to [Y] by [WHEN], where X = your baseline metric and Y = your goal.

Flowing out of the strategic objective there are likely to be various subordinate goals that can serve as useful metrics to monitor progress, and against which individual employees can be held accountable. But there should always be one strategic OKR: a single clear, overarching objective to drive business operations over a number of years.18

And if OKRs seem the basis of a very simple goal-setting system, don’t worry: they are – and that’s their strength!

Strategic OKRs

An objective and its key results can be used to formulate your strategic objective as a strategic OKR, which shouldn’t have a horizon longer than 5 years, or it becomes too abstract. Here’s a couple of examples of Strategic OKRs:

• Youtube: Reach 1 billion hours watch time per day.

• Google Chrome: 20 million weekly active users by year’s end.19

In both cases, the objectives are ambitious, focused and clear. Every employee at Google Chrome or YouTube will instantly understand the strategic direction. To reach that goal, they needed to say ‘no’ to a lot of things, runs tons of experiments, think outside the box and change certain key activities within their business. With a single OKR, everyone can keep their eye on moving the company towards its single overarching goal. Because a well-formulated Single OKR is compact and easy to communicate to employees, it will create strategic clarity20 and a shared vision within teams. Which, according to McKinsey, has a huge positive impact on organizational health, setting the foundations for a high-performing organization21.

WARNING: OKRs are not KPIs!
A classic pitfall is to use OKRs to monitor your KPIs. The balanced scorecard is a perfect tool to monitor your company’s health or the status of competitive activities, but that is not the same as measuring progress towards a single ultimate objective.

Keep it simple: Define a single objective.

Everything should be made as simple as possible, but not simpler. ~ Albert Einstein

If the beauty of OKRs lies in their simplicity, why do we need OKR experts to integrate them into our daily operations, and why do most OKR implementations fail?

Probably because, despite all the warnings, the single objective the company sets itself still isn’t short, clear and/or simple enough. Clarity is more important than a nuanced and detailed description.

With the best intentions, many leaders and employees also tend to set too many goals22. A radical focus requires one single objective23. Leaders are often shocked the first time I ask them to define a single company objective. Common responses include, “We have too many top priorities” or “It’s a balancing act, we need to focus on both topics”. And there’s always the temptation to try to please multiple stakeholders: shareholders, customers, regulators…

And beware: your single goal shouldn’t be multiple goals in disguise. “We want to grow profitably.” sits on the fence: what’s the priority, growth or profitability? Sales, for example, will need to know when deciding how hard ball to play on price24.

Let’s face it, if your company achieved more than two goals last year, it did well. So let’s do the maths: it is said there is an 80% chance of successfully achieving a single goal. So if you have two goals, that means an 80% x 80% = 64% chance of success. And with three goals it’s an 80% x 80% x 80% = 50% chance of successfully achieving the three goals.

Ask the right questions

With goal-setting initiatives, people often ask the wrong questions. If you ask “What’s the most important goal to focus on?” you’ll get different answers from different departments. Quality, digitalization, customer satisfaction, financial stability…

A good OKR is one that can make a real difference within and across your organization. Ask yourself this: If every other area of our operation remained at its current level of performance, which is the one area where change would have the greatest impact? The right answer to that question can drive the behaviour change crucial to achieving your x10 growth, implementing your new organization model, or exploring new markets or business models.

Avoid the dangers

There are dangers involved in goal-setting25, so OKRs must be used with care. You need product-based metrics to ensure you create an environment where people feel psychologically safe26 so teams can fail without fear. People need to learn a lot on the journey to achieving your ambitious strategy. They need to experiment, and mindsets and behaviour sometimes need to change. And all that means you must provide people with an environment in which they can excel.

Initially, don’t make your OKRs too stretched27. Instead define a few small tactical goals. This will create a sense of victory28 for your teams. Setting a single OKR doesn’t mean neglecting daily operations (or business as usual). When running a marathon, you want to keep an eye on your heartbeat, hydration, pace, etc. Similarly, when working towards your OKR, keep an eye on your organization and teams’ health. If your vital systems start to fail, stop, fix them and only then continue.

Frequent communication a must

Defining your single OKR alone isn’t enough. You must also communicate it as often as you can. Repetition is your best friend here. Use town halls, all-hands, weekly emails and any other channels right for your organisation to ensure the message gets through and sticks. In my experience, a weekly communication cadence works best29.

And don’t just communicate your OKR but also the rationale behind it – its scope and the advantage it will bring. Explain the metrics in your key results and update on progress weekly to all employees: where are we now, where do we want to be. Over and over again. I prefer using a company or team’s whiteboard for this, but I’ll save why that is for another post!

Summary

To grow30 and increase employee engagement; to improve organizational agility; to lift company performance or customer satisfaction… In short, whatever your biggest challenge is today, you need to communicate your purpose, vision and strategy with clarity. With clarity and focus your employees can embrace the strategy, thrive in their work, and deliver what you need of them.

OKRs are a great tool as part of your strategy; but only a tool. And as they say, ‘A fool with a tool is still a fool’. However, use OKRs wisely and you’ll achieve great results. Because once you and your employees ‘get’ it, amazing things start to happen. Like that 10x growth, amazing innovation, happier customers and more engaged employees.

So if you want clarity and focus for your people, don’t wait till your next strategy off-site. Start today with a single OKR as part of your strategy statement and communicate progress weekly.

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Resources

1. The Office of Strategy Management

2. Two thirds of senior managers can’t name their firms’ top priorities

3. OHI

4. Locke and Latham and Pink D, Drive

5. Setting goals with OKRs

6. Google research

7. What is strategy?

8. Can You Say What Your Strategy Is?

9. Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting

10. Wodtke, Introduction into OKRs

11. Tell Employees What You Want Them to Strive for

12. Can You Say What Your Strategy Is?

13. Can You Say What Your Strategy Is?

14. What Is Strategy

15. What Is Strategy

16. Wikipedia: Strategy Map

17. Goal Setting Theory

18. Can you say what your strategy is

19. You’ll have noticed neither example complies with the advice to exclude numbers from your objective, but in a data-driven culture like Google’s people probably like their numbers.

20. Lean Strategy

21. McKinsey on Organisational Health

22. Shah, Friedman, and Kruglanski (2002), DontSetTooMany

23. Wodtke, Radical Focus and one single objective

24. Harvard Business Review https://hbr.org/2008/04/can-you-say-what-your-strategy-is]

25. Goals Gone Wild

26. Westrum, Google

27. HBR

28. sense of victory

29. Leaders Should Strive for Clarity, Not Transparency and Eight Ways to Communicate Your Strategy More Effectively.

30. Want to drive business growth? Instill a sense of shared purpose
    
    
    

How to run a successful OKR Check-In

Last week Perdoo founder Henrik-Jan van der Pol asked me to describe how teams can run a successful OKR check-in.OKR Check-ins are the key ingredient of any successful OKR implementation. But they are hard to do. You need to run them at least weekly, come well prepared and make sure your team members are committed to executing experiments or the tasks in order to move the needle. A typical OKR check-in agenda looks like this:

• (actuals are updated before the check-in starts)

• 1. Review OKRs and set confidence scores

• 2. Account: report on previous commitments

• 3. Plan: make new commitments

• 4. Clear the path: discuss impediments

• 5. Health: discuss the team health

You can read the whole interview here.

Update: the article is now also translated into Russian. Credits to Natalia Gulchevskaya http://okr-academy.ru/kak-provoidit-uspeshnie-sobrania 

Implementing OKRs: vision of 8 OKR-experts

I was asked to contribute to the after-movie of the Amsterdam OKR forum. Check it out.