The unintended consequences of this popular business methodology
OKRs are the rage in business right now as a goal setting methodology, strategy execution framework, and agile business enabler. In part, the hype is due to the significant business benefits that OKRs help companies achieve, such as improved organizational alignment and increased focus on top priorities, transparency, and business agility, among other benefits. John Doerr’s book, Measure What Matters, advanced the OKR revolution as he revealed the benefits OKRs have brought to Intel, Google, and other top companies. The hype around OKRs has led to more and more companies wanting to adopt them. In addition, well over 100 software companies have sprung up to support goal setting with OKRs, and a large and growing number of consultants and coaches are helping companies effectively implement them. As one of the management consulting firms helping companies implement OKRs, however, we see a dark side to the methodology. Our goal is to highlight the downsides of OKRs and to help identify ways to mitigate them.
OKR Challenges
For those in the OKR space, we hear challenges relating to the implementation of OKRs all the time, such as:
“It takes too much time and overhead to implement OKRs.” “OKRs are just one more thing we need to track and update when our time is already limited.” “There is more confusion created by OKRs, so we abandoned them.” “For all of our effort we put into OKRs, we are not sure we are seeing the business benefits.”
Some OKR challenges relate to the lack of knowledge by business leaders about how to implement them effectively. We wrote about these challenges and ways to mitigate them in our blog post titled, OKR Pitfalls, Failures, and Restarts. We also created an eLearning series to focus on best practices we have seen relating to writing OKRs, the OKR cycle, and effectively implementing OKRs. The far bigger challenges of OKRs, however, relate to how they are integrated within the overall business operating system of a company.
OKRs And Your Business Operating System (BOS)
Before diving into the integration challenges of OKRs into a company’s business operating system (BOS), let’s be clear on what we mean by a business operating system. Our definition of a business operating system is a company-wide collection of business processes, structures, principles, and practices that create sustained organizational results over time. This definition implies a consistent ability to innovate, execute, and operate with agility. In addition, “company-wide” implies the integration of strategic, financial, and operating elements. So where do OKRs fit within a business’s operating system? One way to look at this is related to culture, strategy, and execution. OKRs fit between strategy and execution to align priorities and actions on a regular basis (see diagram below).
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OKRs also support the rhythm of a business with planning and execution cycles from three years (strategic), to one year (operating), to quarterly, weekly, and daily sprint cycles (execution). The goal is to sense trends from internal and external signals, and then to align and optimize the BOS in real time, allowing for rapid and coordinated action.
OKR Unintended Consequences
Systemic and evolutionary approaches to building companies is the way of the future, and goal setting is part of that system. Problems arise, however, when there is a singular focus on OKRs without thought about how they are integrated into a company’s overall BOS. Our belief is that the hyper-focus on a piece of a BOS, such as OKRs, raises questions as to the missing elements that are not addressed. As a result, company leaders at all levels attempt to fill in the missing pieces in the best way they know how, which usually relates to the historical ways they are used to doing things. This impedes progress, and it is clear to most that, “what got you here is unlikely to be the same as what is required to achieve future success.” Although we are fans of OKRs because they do bring tremendous benefits to companies when implemented and integrated well into a company’s BOS, we have seen too many unintended negative consequences of the singular focus on them. Here are the top three unintended consequences we see caused when OKRs are not integrated well into a company’s BOS.
1. Upstream and Downstream Integration Challenges
The first question we ask when we start a customer engagement relating to OKRs is, “What is your strategy and your key strategic thrusts over the next several years?” This is quickly followed by, “What are your measures of success related to these strategic thrusts?” Clearly, OKRs are dependent on having a well thought out strategy and strategic initiatives in place to put it into action. Without this foundation, goal setting with OKRs as a strategic execution tool can lead to more negative than positive outcomes. To mitigate upstream strategy challenges, we work with leadership to gain clarity on a company’s strategic thrusts. This allows us to translate them into highly relevant and valuable OKRs that drive the right actions and results. Once the strategic planning is completed, we ask leaders to roadmap the key success measures quarterly over the course of a year. Ultimately, this roadmap takes the form of a strategic dashboard that is typically reviewed monthly and quarterly.
At the end of the day, implementing OKRs is about improving outcomes, performance, and financial results. This does not happen without clear upstream and downstream foundations and capabilities in place. The focus on upstream and downstream capabilities, however, is rarely addressed during OKR implementations. Instead, there is a hyper-focus on the process of setting, writing, and cascading strategic goals. Our recommendation is to look at OKRs within the context of end-to-end strategy execution.
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2. Side-To-Side Integration Challenges
A second unintended consequence of the hyper focus on OKRs is the lack of “side-to-side integration.” OKRs have often been interpreted as goal setting for strategic priorities only. However, in an integrated BOS this creates myriad challenges. This siloed focus results in gaps that lead to logical questions such as: “How do we account for day-to-day work?”, “As we cascade OKRs to front line levels within the organization, more of the work is day-to-day work, so how far should we cascade?”, and “Do we need a separate software system to track OKRs from our existing execution systems?” Leaders with systems thinking intuitively know that implementing OKRs as a siloed strategic tool makes no sense. Without integrating strategic “OKR priorities” with day-to-day “operational priorities,” it is impossible for individuals to easily determine their overall daily, weekly, or monthly focus. It is also impossible to plan resources effectively or to align actions. It becomes challenging to integrate OKRs into weekly and monthly meetings. You get the idea. It creates unnecessary, disintegrated work. Without integrating strategic and operational goals within one system, it also creates confusion about instrumenting the business with the right scorecards and dashboards. Questions that arise here include: What is the difference between KPIs and OKRs given they are both leading indicators? How do I integrate OKRs into my corporate or departmental scorecards? Should I present our company OKRs to my board along with my financial and operational metrics? To mitigate side-to-side integration challenges, we believe that strategic and operational priorities, dashboards and scorecards, as well as planning and execution cycles, should integrate strategic, operational, and financial elements.
3. Planning and Execution Cycle Integration Challenges
One of the great benefits of OKRs is that they, by design, support shorter planning and execution cycles than the traditional annual planning cycle. This leads to greater agility because as internal and external changes occur, companies can more rapidly and effectively react to them. The lack of integrated strategic, operational, and financial planning and execution cycles, however, creates other unintended consequences. We would argue that it is inadvisable to plan for strategic growth without simultaneously planning for the traditional, historical business. In fact, whenever there is a new innovation initiative at a company, integrated planning is required. It is a capacity problem. When new innovative, strategic initiatives move from planning to execution, new capacity in the form of additional people and/or investments is required. This capacity either comes from reallocating resources from the existing business, or adding new, additional capacity. Either way it is inadvisable to separate the strategic from the operational planning. The approach we help companies deploy is to conduct planning in an integrated manner looking out three years (strategic cycle), then one year (annual planning cycle), then quarterly or monthly (alignment cycle), and finally daily/weekly (execution cycle).
Each of these cycles involve financial elements (typically budgets), operating elements (typically KPIs), and strategic elements (typically OKRs). (See diagram.) Goal setting and alignment with OKRs occur as part of each of these cycles. It is a horizontal element as part of each of the planning and execution cycles. When this integrated planning and execution is done well, it most often leads to positive outcomes to operational and financial performance.
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Our Prediction
We are starting to see OKRs become integrated not only as part of a more comprehensive BOS, but also in the technologies that support a BOS. Data visualization tools used for scorecards and dashboards are integrating financial, operational, and strategic measures. HR systems used to manage individual goals are starting to integrate OKR functionality into goal setting and performance reviews. Execution and project management software, like Asana, are integrating OKRs into their software. As a result, our prediction is that OKR-only systems will become less common in the future, and the winners will be the software and service companies that provide OKRs as part of a more holistic BOS system. We believe this will happen quickly, so the industry needs to be prepared for massive change and, in preparation, develop their strategies and OKRs for this inevitable future.
About The Author
Joe Ottinger is a co-founder of OKR Advisors, a training and management consulting firm helping companies achieve the promise of business agility now. Prior to OKR Advisors, Joe was a co-founder of Kotter International along with Harvard Business School Professor John Kotter. Joe has published books and articles about OKRs, business agility, innovation, change, and leadership, which have appeared in Forbes, Chief Executive Magazine, The Financial Times, Worth Magazine, and Stanford's Center for Social Innovation.