Login to your new FMVA dashboard today.

Objectives and Key Results (OKR)

Formulating, communicating, and monitoring targets and results

What is Objectives and Key Results (OKR)?

Objectives and Key Results (OKR) is a popular leadership framework that involves formulating, communicating, and monitoring targets and results in a company on a regular basis. Abbreviated as OKR, the process links company, team, and personal objectives in a hierarchical manner to the likely outcomes.

 

Objectives and Key Results

 

The key benefits of using the OKR strategy are increased transparency and greater focus and alignment. The OKR framework achieves the benefits by grouping workers and their respective responsibilities around accomplishing similar objectives.

 

Breaking down Objectives and Key Results

An OKR framework consists of three key things: (1) Objective, (2) Key Results, and (3) Initiative. An objective describes the main goal that a company hopes to achieve in the long run while key results are the expected outcomes. Initiatives define the work that needs to be done to achieve the key results.

Apart from the three aspects, OKR also constitutes a set of rules meant to help workers prioritize and measure the results of their work.

In addition, the OKR framework also enables companies to maintain constant and effective communication channels throughout their organization.

 

1. Objective

An objective is simply a description of the long-term goal to be attained. An objective sets a clear path to be undertaken while also providing motivation. The target can be likened to a destination on a map.

 

2. Key Result

A key result is a performance indicator with a starting value and a target value. It measures the progress made by an employee towards achieving the set objectives. A key result can be likened to the distance that one needs to travel to get to his destination.

 

3. Initiative

Initiatives outline the tasks that one must do in order to achieve the target. If the objective is a destination, and a key result is the distance that one must travel, an initiative describes one’s means of transport (how does an individual plan to get to his destination – drive a car or row a boat?)

 

Advantages of Using OKR

 

1. Encourages employees to formulate ambitious goals

Contrary to traditional targets such as the management-by-objectives method, OKR doesn’t involve setting safe and easily attainable targets while expecting 100% accomplishment. Instead, OKR entails setting bold objectives, expecting to achieve at least 60% of them. Even though an individual might not achieve all his goals, the 60% shows significant strides in his performance.

 

2. Compels people to review their progress on a regular basis

Forget the conventional technique of setting annual objectives and evaluating progress at the end of the year. OKRs are assessed and updated on a quarterly basis. Some companies even review their frameworks at the end of each month. Considering how fast-paced the corporate world is today, the more frequently OKRs are reviewed, the better.

 

3. Quantitative in structure

The OKR strategy is purely quantitative. With most objective-setting methods, the focus is on the end goal. However, OKR differs in that it explains what actions the individual needs to take so as to achieve the ultimate goal. The “KR” bit of the framework delves into a detailed process, formulating quantitative results that describe success. In such a way, the OKR technique provides clarity on what success truly looks like and the initiatives that must be undertaken.

 

4. Uses a bottom-up approach

Traditionally, the process of setting objectives has always been a top-down process, whereby the company owner sets objectives for department managers, and the managers set goals for their teams. With the strategy, individuals are at liberty to design their own objectives. The only condition is that the set objectives should align with those of the company. Since everyone is involved in the objective-setting process, they are more committed and assumes greater ownership of the overall goals.

 

How to Prepare a Company for OKR

Before using the OKR framework, there should be a clear understanding of the problem to be solved or, to put it simply, the main objective the company hopes to accomplish.

For a majority of organizations, such an objective relates to executing a work strategy that is understandable, transparent, and measurable. For the framework to work, one individual should be tasked with overseeing the implementation and monitoring of OKRs. The person is known as the “ambassador,” and his job is to ensure that everyone using the framework is trained, committed, and receives ongoing guidance.

OKR is more than a framework; it’s a learning curve that involves a shift in the way people think and how they measure the tasks they do. The strategy shifts the focus from output to measurable outcomes.

 

Key Takeaway

Objectives and Key Results (OKR) is a very popular framework employed by small and large companies. The OKR strategy is founded on the act of setting ambitious objectives that are just beyond the level of what seems attainable. The goals provide a good foundation to obtain remarkable accomplishments in the long-run.

 

More Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Agile Project Management
  • Corporate Performance Management (CPM)
  • Key Performance Indicators (KPIs)
  • Project Sequencing

CFI's Corporate & Business Strategy Course

Learn to perform Strategic Analysis in CFI’s online Business Strategy Course! The comprehensive course covers all the most important topics in corporate strategy!