OKRs From a Beyond Budgeting PerspectiveAdded to Business
During the last few years we have witnessed the amazing revival of an almost 50 year old management idea called “Objectives and Key Results” (OKR).
The former Intel CEO Andy Grove introduced the concept in this company in the seventies, as described in his 1983 book “High Output Management”. John Doerr, a former Intel employee, later introduced the concept to a young startup called Google.
Although Google and several others, mainly Silicon Valley companies, has successfully applied OKRs for many years, it was Doerr’s 2018 book “Measure what matters” that turbocharged the concept. Now OKRs are on everybody’s lips, especially in the Agile community.
An OKR has two components
- An Objective, a goal – something we want to achieve
- Key Results, 3-5 clearly defined metrics with targets, and key actions to achieve these
Targets should be so ambitious that meeting them is the exception, not the rule. Commitments involving customers should however always be met. OKR results are not tied to bonuses, and the updating cadence is typically quarterly.
There are several aspects of OKRs that fit well with the Beyond Budgeting principles.
- Ambitious targets. In Beyond Budgeting we recommend the same, although we advocate relative targets where possible.
- No link to bonus. This is a very positive feature, and a prerequisite for avoiding gaming on target levels.
- OKRs are translated throughout the organisation, not cascaded through a top-down command and control approach. This secures involvement and ownership.
- All OKRs are open and visible for everyone, again well in line with Beyond Budgeting.
- OKRs do not operate on a traditional annual rhythm, although a fixed quarterly cadence also has some issues, as discussed below.
There are however other aspects with OKRs that, from a Beyond Budgeting perspective, are more problematic.
- The assumption that everything can and must be measured is an issue. The metric part of a Key Result is very much a KPI, even if that term isn’t used. We must never forget that the “I” in KPI stands for Indicator. They are indicating that we are moving in the right direction, but they are seldom telling us the full truth. They are not called KPT, “Key Performance Truth”. Albert Einstein nailed it with “Not everything that counts can be counted, and not everything that can be counted counts”.
- Targets for everything. Although Key Result targets are set by teams themselves, target setting can still be problematic. If there is uncertainty, how do we know what the right number is? Target setting combined with no judgment, as discussed below, is especially toxic. It is no coincidence that some of the most successful Beyond Budgeting companies don’t set targets. They found better ways of creating direction and motivation, and for providing a basis for performance evaluation.
- No judgement. “The key result has to be measurable. But at the end you can look, and without any arguments: Did I do it or did I not do it? Yes? No? Simple. No judgments in it.”, says Doerr in his book. Although he might be talking more about action completion than about measured results against targets, there seem to be an assumption that judgment is wrong. Beyond Budgeting disagrees. Principle 11 is clear; “Evaluate performance holistically (…), not based on measurement only (…)”. Considering all the information available for us after the fact is key. Headwind or tailwind? How ambitious targets? Sustainability of results?
- A quarterly rhythm is normally much better than an annual one. On the other hand, it is still a fixed rhythm for everyone in the organisation, which might be too frequent for some and the opposite for others. Beyond Budgeting instead recommends to “Organise management processes dynamically around business rhythms and events”.
- I have not seen much in the OKR literature about budgets, probably because most companies using OKRs also have budgets. This is highly problematic, for many reasons. In this context, there will often be conflicts between the direction and the messages coming from the annual budget, compared to those coming from the OKRs. I have experienced the same conflict between budgets and the Balanced Scorecard. When push comes to shove, the budget always wins. One of many benefits of removing the traditional budget is the strong signal it sends of being serious about OKRs – they would now be at the core of the management model.
Some of you might be familiar with “Ambition to Action”, the Beyond Budgeting inspired management model we use in Equinor, the company I work for. Let me finish with a comparison to OKRs. There are some similarities, but also some key differences beyond those described above.
An “Ambition to Action” starts out with a longer-term ambition statement. Both have objectives, although we call our objectives “Strategic Objectives”, and these will have a medium-term horizon. We then continue with Risk; the risks of not achieving these objectives or other risks coming from our business activities. We then divide “Key Results” in two, Actions and Indicators, where Indicators may have targets. For us these are two different things. Actions are there to take us towards our objectives, or mitigate risk, or often both. Indicators shall indicate that we are moving towards our objectives.
Beyond this, we share the same philosophy of translation, transparency and escaping the calendar year straight jacket.
I hope you don’t read this as a refutation of OKRs. It is much better to have them than to have nothing at all. But no concept deserves being positioned as a silver bullet. There is no such thing. Not even Beyond Budgeting! As with most alternative management models, they can be used and misused. I can easily imagine a mechanical OKR implementation being used to reinforce traditional command and control.
A final word of warning. Watch out for an OKR certification. If it arrives (maybe it already has), it is often the beginning of the end, as we have seen too many times before.
This entry was written as part of the Supporting Agile Adoption program, an Agile Alliance initiative dedicated to supporting organizations and their people become more Agile.
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