What is the OKR Methodology?

The OKR is a Goal-oriented management Tool that helps companies achieve their objectives efficiently.

  • Its name is an acronym for “Objectives and Key Results”.

 

Unlike other management Tools, OKR focuses on setting well-defined and measurable Goals.

  • Sometimes, companies use “fuzzy” goals and, in doing so, it is very difficult to assess how the Business is performing.

 

The OKR method makes it simple:

  • Set the Objectives properly and you will be able to move forward faster by looking at the Results you got.

 

But, how can you set Goals properly?

How to write effective OKRs

The Objectives must:

 

1. Be Defined: The Goals should be perfectly defined.

  • They must be so well defined that everyone can remember them.

 

2. Be Measurable: The Goals should be based on numbers.

  • There must be at least one metric for each Goal.

 

3. Depend on you: The Goals shouldn’t rely on external events.

  • They should only depend on the Business performance.

 

4. Be Realistic: The Goals should be achievable.

  • People don’t pursue what they know they can’t achieve.

How to set OKRs – Template.

 

You’ll understand it better with a real example:

OKR example

 

Let’s imagine you own a Disco.

 

One day, you realize that you don’t know where your Business is going.

  • Your income varies a lot depending on the month, season, etc.

 

Therefore, you decide to start using the OKR method.

 

What OKR could you set?

 

  • Have an average quarterly profit greater than 10%.
    • Financial Goal.

 

  • Receive more than 1,000 clients per weekend.
    • Customer Goal.

 

  • Have a growth in clients greater than 5% per month.
    • Process Goal

 

  • Have less than 3 incidents per month (when police is necessary).
    • Innovation Goal.

 

As you can see, these 4 Goals are:

  • Defined and Easy to Understand.
  • Measurable.
  • Depend just on you.
  • Are Realistic (we think).

* We have used the Balanced Scorecard Perspectives to set these Goals.

 

As you may have already guessed, these Objectives, can be presented in different ways:

  • Objective and Different Results you want to achieve.
    • For example: Profitability (Objective) – Margin greater than X% per month, Income greater than Y, etc.
  • Objective and one Result to achieve with a deadline.
    • For example: Be a profitable company (Objective) – To reach 10% profitability before 1 year.
  • Very Ambitious Goal and different Realistic Results you can achieve (a popular formula).
    • For example: Be the leading company (Objective) – Have a market share of 30% by the end of the year, etc.
  • etc.

 

We don’t want to confuse people with Objectives, Results, what is the difference between an Objective and a Result…

 

In our Experience: The simpler, the better.

 

We recommend that each Goal contains the desired Result.

  • This way it is much easier to assess if that Goal has been achieved or not.

 

Now you may be wondering: “Why is this so important?

Why are OKR important?

In case you don’t know, we have worked in Venture Capital for years.

  • Restructuring and Advising companies in extreme economical situations.

 

We can assure you that, the companies with the best results are those with the clearest Objectives.

  • Of course, there are other variables involved

And, on the contrary, the worst performing companies are those that do not know where they are going.

 

Success in Business is closely related to “keep moving forward”.

  • And, to move forward, you need to know where you are and where you want to go.

 

That is why OKR (or any Goal-oriented management method) is so important:

  • Because, by setting your Goals properly, you know where you are, and how you are doing.

Before looking at different OKR examples, we want to clear up a very common confusion:

  • The difference between KPI and OKR.

 

(We know it… There are thousands of acronyms).

Difference between OKR and KPI

 

The difference is simple:

While a KPI is, as its name indicates, a Performance Indicator (Key Performance Indicator)…

  • It is a “passive” descriptive metric: The KPI indicates how you are performing.

 

The OKR is a “proactive” variable: You establish what value you want.

  • Another thing is that you are able to achieve it.

 

Can an OKR be equal to a KPI?

 

They are not the same thing.

  • An OKR could be than a certain KPI reaches some value.

 

It is like comparing “speed” and “being the first in a race“.

  • The “Speed” would be your KPI.
  • Being the first” would be your OKR.

 

For example: Imagine you have a Business and your OKR is to have a 10% profitability.

  • Your profitability can be a KPI (and should be).
  • But your OKR is that it reaches a 10%.

In this example, the OKR is that your KPI reach a certain value (a 10%) but your KPI may never reach it.

Now, let’s see some examples.

OKR examples

Here you have 3 Real Examples of OKR.

 

* Again, in these examples we use the Balanced Scorecard 4 perspectives to set the OKR Goals:

  • Financial.
  • Customer.
  • Process.
  • Innovation

If you are interested about it, visit our “Balanced Scorecard” Page.

 

Let’s begin:

Restaurant - OKR example

 

Now, let’s imagine you own a Restaurant.

 

After 1 year, you realize that you don’t know where your Business is going.

  • Some months you have “cash” and others, you don’t.

Therefore, you decide to start using the OKR methodology.

 

What OKRs you decide to use?

 

  • Monthly average Profitability greater than 5%.
    • Financial Objective.

 

  • Have a Customer satisfaction at least of 4.5 out of 5 (in Tripadvisor).
    • Customer Objective.

 

  • Time to serve less than 5 minutes.
    • Process Objective.

 

  • 20% of clients order a new Menu item.
    • Innovation Objective.

YouTube Channel - OKR example

In this example, let’s imagine that you own a YouTube Channel.

  • Let’s assume you only have 5,000 subscribers (it must be difficult).
  • So, you know how YouTube works.

 

Since you are absolutely determined to become a successful YouTuber, you decide to start using the OKR methodology:

 

What OKRs could you use?

 

  • Increase your Income by 50 dollars per month (approximately an increase in 50.000 pageviews).
    • Financial Objective.

 

  • Improve your engage rate a 2.5% (in absolute terms).
    • Customer Objective.

 

  • Publish 3 videos per week.
    • Process Objective.

 

  • Create a new section every 4 months, with more than 10 videos each.
    • Innovation Objective.

e-Commerce Business - OKR example

 

Now, let’s imagine that you own an e-commerce Business.

  • You buy interesting cheap underrated products, you promote them, and you sell them.

 

Your Business works but, you are having trouble expanding it.

  • Your Income is not enough for you to quit your job.

 

You then decide to start using the OKR method:

 

What OKR you decide to use?

 

  • Earn more than $1,500 per month.
    • Financial Goal.

 

  • 25% of your Customers buy more than 1 item.
    • Customers Goal.

 

  • Increase the suppliers of your products by 20%.
    • Process Objective.

 

  • Offer at least one new product once a week.
    • Innovation Objective.

Summarizing

The Objectives and Key Results method (OKR) is a Goal-oriented management Tool that helps companies achieve their objectives efficiently.

  • It focuses on setting well-defined and measurable Goals.

 

In order to set proper OKR Goals, these Objectives must be:

  • Defined.
  • Measurable.
  • Depend on you.
  • Realistic.

 

Remember: To move forward, you need to know where you are and where you want to go.

  • And, there is nothing better to move forward than having clear Goals.

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