OKR Framework for Goal Setting and Self-Appraisal

OKR is an excellent tool to setup tangible goals and appraise achieved results.

The Objectives and Key Results (OKR) framework is becoming popular these days. It has been adopted by Intel, Google, LinkedIn and others. It is lightweight, transparent, and supposed to be less biased. Key results make the objectives quantifiable and more tangible.

Source: OKR Template.

Here is the key topics of this article:

• What is OKR? OKR History and key processes.
• Self-Appraisal – Using OKR for employee self-appraisal
• Why OKR? OKR use examples.
• Improving OKR – Not just results but leading factors
• Improving OKR – Linking objectives to the strategy
• OKR vs. BSC – the difference between OKR and Balanced Scorecard frameworks.
• OKR Framework Checklist – The must-have parts of OKR

History of OKR

The idea to manage a business by focusing on tangible objectives is not a new one:

• Back in 1954, Peter Drucker in “The Practice of Management” introduced Management by Objectives (MBO) ¹.
• In the 1970s Intel was exploring OKR practices ². That’s when John Doerr under the leadership of Andy Grove was working with OKR.
• Later, John Doerr introduced OKR to Google’s leadership team ³.

Today, the list of the companies that use OKR includes ⁴ Amazon, Intel, Google, LinkedIn, Oracle, Salesforce.com. But obviously, it is hard to say if the buzzword means the same in different organizations.

What is a Typical OKR System?

The OKR framework is quite flexible. There is no official “manifesto” for OKR and companies are recommended adapting it to their culture. Still, there are some shared features.

• Starting point: OKR is a framework for setting objectives, and measuring outcomes
• Biggest benefit: OKR framework helps to communicate and prioritize objectives
• Objectives are qualitative goals (dreams)
• Key results are quantitative outcomes (metrics)
• There are normally 3-4 objectives, and 3-5 results for each
• OKR system is timebound (normally reported quarterly)
• OKRs are for personal, team, and company level
• OKRs must be public within an organization
• OKR system is not linked to the direct performance review (at least OKR is not the only part of it)

OKR Process

OKR process is relatively lightweight. While the final implementation varies from organization to organization, 4 common steps can be defined.

Employee Self-Assessment with OKR

Can we use OKR to evaluate employees? The answer is “yes” and “no.”

• No, management should not use OKR to evaluate employees
• Yes, employees can use OKR to do self-assessments

What happens if management still wants to use OKR for performance evaluation? Here are some possible scenarios.

Scenario	Expectations	Reality
(A) Managers hard-link OKR to compensation plans	The company will know who contributed the most and will compensate accordingly.	Employees will find a way to game the system. Both the “objectives” and the “results” parts will soon be broken by, for example, focusing on easy to achieve by meaningless goals.
(B) Managers do performance evaluations using the results from OKR	Help employees to do their job better.	Depending on the implementation: if it is another form of non-monetary incentive (for example, reputational reward), then be prepared for scenario (A).
(C) Employees are encouraged to do self-assessments with OKR	Employees will learn from their progress without fear of possible penalties.	Works great for the self-managed teams who practiced OKR. Be sure to prepare a proper cultural base before trying this scenario.

As you can see, self-assessment is the safest scenario as we are replacing monetary and reputational rewards with intrinsic rewards. According to Kenneth Thomas⁵, there are four intrinsic rewards:

• Sense of meaningfulness. In our case, it is provided by the well-formulated mission statement on the Balanced Scorecard.
• Sense of choice. Most goals on the OKR are the products of discussion and are suggested by the employees.
• Sense of competence. The properly selected “key results” are the indicator of high-quality work done.
• Sense of progress. It is perceived by the employee as the change in the values of leading metrics and key results.

How to implement self-assessment in the OKR framework?

• Actually, it’s already there. Look again at the OKR process (specifically at the review part).

Here you have an Employee Self-Assessment Form for OKR Framework.

Step	Description	TODO
1. Basic assessment	Calculate the final score of OKR.	Check key results (lagging indicators) in automation software. Users of BSC Designer can look at the performance scores for the perspectives, goals, and indicators:
2. Root-cause analysis	Why some OKRs were missed? For example, the goal depends on another goal, the goal is no longer relevant, other goals had higher priority, or some skills/knowledge is needed.	Results of analysis: 1. 2. 3. 4. Users of BSC Designer can add the results of root-cause analysis into the initiatives.
3. Action plan	Taking into account the results of the root-case analysis, what can I do better for the next period?	Plan new: Goals Leading and lagging metrics Initiatives Users of BSC Designer can add new goals and initiatives directly via their strategy map.

Why OKR?

OKR framework is not just a way to have a list of things to do. It helps to solve some typical management problems. Here are some common benefits of using OKR framework:

• Understanding priorities. Knowing (and communicating) what matters and what doesn’t
• Focusing efforts. That’s why we limit the number of objectives to 3-4
• Aligning actions with what is important for others (that’s why OKR are public inside the company)
• Unbiased view on the achieved results (that’s why it’s not recommended to connect an OKR system directly to the performance evaluations)

An objective 'Create a perfect website landing page' quantified by three key results (indicators). Source: OKR Template.

Disadvantages of OKR or how to do better OKR

The obvious risks are associated with doing OKR “in a wrong way”:

• Having too many objectives (no focus on what matters)
• Aggressive linking OKR system to the performance evaluation or incentive plan (having biased measurements as a result)
• Building informational silos and keeping OKR private (no way to align with objectives of others)

There are also less obvious disadvantages/risks that I suggest discussing below together with possible ways to improve.

Hack 1. Not Just Key “Results” – How to Consider Leading Factors

The “key results” are lagging by their definition, they help to validate the achievement, but not to quantify the success factors. One might argue that in the context of the objective the key result might be a leading factor as well. That’s correct, and it’s important to have this in mind when discussing key results and later doing the review.

• To have a full picture of why objective was a success/failure, we need to have both – leading factors and lagging results.

Have a look at the “create a perfect website landing page” objective in the example above. One of the key results was “Adjusted bounce rate <= 30%”. That’s an expected result, but how are we supposed to get there?  The bounce rate for the website depends on many factors, for example, a content quality; a content should resonate with the auditory, so in this case it is a good idea to pair “Adjusted bounce rate <= 30%” key result with leading factors:

• Leading factor: analyze website visitor behavior; find 5 topics that are of most interest for the visitors;
• Lagging factor: rewrite content using insights about visitor behavior

Replace 'Objective 1' with your own goal and 'Key result' with the indicators used to quantify the achievement of the objective. Source: OKR Template.

The final OKR might look like this one:

Objective: Create a perfect website landing page! Where “perfect” means:

• Key result 1 (leading) Find 5 topics that are of most interest for the visitors; rewrite content using insights;
• Key result 2 (lagging): Adjusted bounce rate <= 30%

Hack 2. Linking Objectives with a Strategy

During the discussion step, teams were supposed to do their best to come up with objectives that resonate with the company’s strategy. While the challenge of alignment between objectives and strategy is clear, OKR framework doesn’t suggest any explicit way to address this challenge.

A good approach in this case would be to link objectives from OKR system to the objectives from strategy scorecard, like for example K&N Balanced Scorecard.

• A strategy map in this case will work as a first level filter for possible ideas.

The link between OKR and strategy scorecard might be conceptual (“this objective supports that strategic goal!”) or it might be a hard link by the OKRs of various levels (e.g. OKR cascade).

In both cases the use of automation software helps. For example, BSC Designer can visualize a company’s strategic objectives on a strategy map, link the performance of the goal to the specific key results, and cascade OKR if needed.

How to Cascade OKR?

In many examples of OKR, the results are binary. Something like “ABC feature added” with possible scores “yes” or “no.” That works fine on a small scale, but it doesn’t look like an effective approach for some longer-term challenges.

For example, adding new feature in the software is not just about programming according to the new requirements, it’s about analyzing user behavior, understanding how things can be made easier, testing some hypothesis and so on.

In this case, I would suggest supporting “ABC feature added” result with more specific sub-results, like “A/b tests analysis,” “Unambiguous requirements written,” “Unit tests added.”

• This approach will provide an owner of the OKR with a much better action plan.
• Other team members will have a better sense of where they can contribute.

That’s a straightforward way to cascade OKR naturally, especially when automation software is used.

What’s the difference between OKR and Balanced Scorecard frameworks?

From first sight, they might look similar as both frameworks deal with business goals. In reality, the application area of these tools is quite different.

To give a detailed answer to this question, we need to look at the strategic planning process. Let’s analyse five steps of strategic planning process from the viewpoint of applicability of the OKR framework.

Step 1. Definition of Mission, Vision, Values – No Application for OKR

The Balanced Scorecard framework helps to map the mission, vision, values.

• OKR framework is not applicable here.

Step 2. Strategy Formulation – Use OKRs’ Quarterly Results

For the step of strategy formulation (step 2 of strategic planning), we need to come up with the hypothesis that we will later describe (step 3 of strategic planning) and prove during strategy execution (step 5).

There are a lot of frameworks that could help us with this, such as Balanced Scorecard, SWOT, 7-S, Three Horizons, VRIO.

What about OKR? 

OKR is not designed specifically to formulate strategic objectives.

The questions from the discussion step of OKR process (“What matters? What is our strategy? Where we are now? Where do we want to go? How can we get there?”) certainly help to get started. But this is far away from the comprehensive analysis.

Still, the OKR framework can contribute a lot to the strategy formulation step. To achieve this, we need to use the results of regular reviews (step 4 of OKR process). The analysis of successful and failed OKRs help to come up with a better strategy.

• The results of regular OKR reviews are valuable for the next strategy review session.

Step 3. Strategy Description – Use OKR for Lower Levels

All the insights generated by different business frameworks need to be articulated in some way. Depending on the level of abstraction, we can capture some details from the OKR or BSC framework.

• For a high-level strategy, the Balanced Scorecard’s strategy map is an excellent choice
• For the lower (action-oriented) levels, the OKR framework might help to map the ideas (see below for the application of OKR for cascading)

Step 4. Cascading and Alignment – OKR Application Area

In this step, we need to convert the top-level strategic goals into something more specific, something that every employee could contribute to.

• One option is to cascade Balanced Scorecard (e.g. create a local strategy map that would be connected with a top-level strategy map)
• Another, more agile and lightweight option, is to use the OKR framework

The cascaded goals from the strategy map and their indicators will become respectively “Objectives” and “Key Results” of the OKR framework.

Step 5. Execution – OKR Application Area

Similar to the previous step, we have a wide choice of tools to use. We can describe our execution approach via initiatives on the strategy map, or formulate it as an action plan supported by OKRs as it was demonstrated in this article.

OKR vs. BSC: What is a Better Framework?

As it was demonstrated above, the answer to this question depends on where you plan to apply the framework:

• Balanced Scorecard is good for high-level strategic planning (steps 1-5 of strategic planning process). It will provide a solid base for further discussions around strategy.
• OKR framework is a lightweight tool that helps focusing on specific objectives and their execution (steps 4 and 5 of the strategic planning process).

How are OKR and BSC Connected?

Two frameworks are connected by the objectives and by the indicators.

• Where do the OKRs’ objectives come from? Ideally, from the well-thought out strategy (that was described on the Balanced Scorecard strategy map).
• Where do the OKRs’ “key results” come from? Ideally, they are derived from the performance indicators defined for strategic goals on the strategy map.

When we use OKR to execute the strategy (step 5), the insights of regular OKR reviews will be the inputs for the next strategy review cycle (step 2).

OKR in Rapidly Changing Business – Spotify Rhythm Example

Does OKR add value in the case of a rapidly changing business environment, or does it just slow down the business?

Let’s take the Spotify case as an example. They tried the OKR framework and found that they spent more time making OKR work than making business work.

OKR was not really effective for them. How did they come to that conclusion? They looked at the OKR in action and analyzed some key findings:

• [Context] Their top-level goals were changing fast (a natural thing for emerging business domain)
• [Efforts vs. Value] Adjusting OKRs on an individual level became time-consuming, and at the same time, the best achievements on the individual level were not the results of alignment with the top-level OKRs

What was an alternative? In their new Spotify Rhythm approach, they started “focusing on why” instead of “focusing on how.”

• Instead of telling people what to do, they explain key priorities they have (company’s bets) and expect their team to find the best way to do things.

For me, this resonates a lot with a famous quote by Steve Jobs: “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people, so they can tell us what to do.”

Lessons learnt:

• Compare the efforts invested into maintaining framework vs. the value created by the framework.
• Find the framework that resonates with the nature of your business as well as your management style.

Automation Tools for OKR

Here is a road map that I suggest for the implementation of an OKR automation tool:

• Start with a simple grading system that doesn’t require automation tools
• Ensure that OKR are accepted emotionally and practically
• Ensure that OKR are public within the organization
• When the OKR process is well defined, consider using specialized software

BSC Designer software, is an interesting choice in this case, as historically it is strong in managing performance metrics and building strategy maps. OKR framework can be automatized with a native support for leading/lagging metrics (key results), building a map of the objectives, and linking OKR to the strategy scorecards.

OKR Checklist

Finally, here is a checklist for OKR framework. Here you will also find its live version automated with BSC Designer software.

Conclusions

OKR framework is not just another way to quantify goals as it might look like from the first sight:

• It facilitates discussion and communication of the goals and helps to keep teams focused on what’s important;
• The best OKRs are aligned with a company’s strategy; they consider both expected results and leading factors.

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