Despite the popularity of OKRs, if you’ve worked on goal setting most likely you have experienced how they can go wrong. You’re not alone. Leaders and employees at every company that I’ve worked with, often share their frustrations on OKRs.
I’ll start with the fundamentals on OKRs including what they are, why OKRs don’t work, then I’ll cover how you can modify OKRs to make them work, and better alternatives to OKRs.
OKRs (definition & fundamentals)
OKRs (Objectives and Key Results) is a framework for setting goals and measuring progress. This approach was popularized by Google and seeing the company’s incredible financial success, many organizations around the world have adopted it to define aspirational goals, assign responsibility, and track outcomes.
What are the components of an OKR? Objectives and Key Results
OKRs consist of 2 parts: Objectives and Key Results. They’re often written using a formula that combines an objective with 1 to 5 key results to measure whether the objective is achieved or not. The OKR formula would then be “This team will [Objective] as measured by [Key Results]”.
For example: “Team A will increase customer satisfaction as measured by getting a 5-star rating on 98% of calls to customer service and resolving 90% of tier 1 tickets within the first day.”
How OKRs work
Most companies have a broad and fuzzy vision statement, e.g., “To be the leader in data storage,” which isn’t actionable and doesn’t give teams a clear narrative of the problem they’re trying to solve and the change they want to bring about. When you have such a broad vision, OKRs feel necessary to help you communicate the details on what you’re trying to achieve. OKRs are intended to make a broad vision more tangible by turning it into clear objectives with measurable results.
Unfortunately, setting OKRs to compensate for the lack of a clear vision is analogous to seeing cracks in the foundation and trying to patch them with duct tape.
Why OKRs fail
Even Google, which has advocated for OKRs, revealed that OKRs can be harmful. When Google tied OKRs around product usage to people’s compensation, people started gaming the system to get their bonuses. To quote Google’s Lazlo Bock, “The very idea of tying monetary incentives to hitting key results was thus deemed detrimental to both the product and the broader culture.”
But this only gets to only the tip of the iceberg of how OKRs go awry. In a joint paper titled Goals Gone Wild, researchers from Eller College of Management, Harvard Business School, Kellogg and Wharton, caution that goal setting should be prescribed selectively, presented with a warning label, and closely monitored. So what are the disadvantages of OKRs?
Leads to short-term thinking
Pursuing OKRs when the company vision is vague can result in teams focusing on short term solutions to problems. Teams may focus on meeting their set targets and goals by addressing symptoms instead of addressing the root cause of the problem. For example, if your OKR is to increase satisfaction ratings after a customer service call, reps can tell the customer at the end of the call, “Please remember that anything less than a 5-rating is considered a failure on my part.” Most customers will give a 5 rating after that plea. But has meeting this OKR improved your product or customer service?
Impedes learning from mistakes
To build successful products, you need teams to learn from mistakes. Perhaps you released a feature and it reduced user engagement instead of increasing it, or perhaps the strategy you had embarked on isn’t creating the results you expected. When you have OKRs that set targets for you, your instinct is to show that you’ve met those targets. Although it might be more beneficial for the organization to talk about why this feature or strategy didn’t work and what to try instead, OKRs makes teams want to prove that they met their goals.
OKRs feel like the equivalent of an end of the year exam where employees are graded based on numbers – people will go to great lengths to cram for an exam to make sure they don’t fail. A passing grade doesn’t mean that there was real learning or progress.
OKRs feel like an end-of-the-year exam and can hamper real learning
Stifles innovation
Because OKRs feel like an end of the year exam, when it comes to setting OKRs, even high-performing individuals who are passionate about their product will advocate for less ambitious goal setting because of the fear of failing to achieve those goals.
Further, instead of encouraging people to be passionate about solving the problem, it incentivizes employees to show results on just those metrics that they’ll be measured on. In fact, research shows that when you set goals on complex tasks that don’t have an obvious right answer, goal-setting may discourage risk-taking, experimentation, and ultimately limit innovation.
Hampers collaboration
When your team has an OKR to meet and a different team needs your help to achieve an OKR for their department, would you work to make them look good at the risk of not meeting your own OKR? Innovation requires strong cross-functional collaboration and OKRs often create unnecessary competition among teams and at worst lead to finger-pointing and sabotage in unhealthy work cultures.
Product diseases spread fast when using OKRs
OKRs often cause product diseases such as Hypermetricemia. You may have seen this in your company if your OKRs made you feel compelled to optimize for a few metrics even when you knew that those weren’t the right goals to deliver a truly great product.
I often hear a simplistic solution to this problem, “If you realize that you’ve set the wrong OKRs, just change them.” OKRs take SO LONG to set, that I’ve rarely (if ever) seen companies recalibrate their OKRs.
It’s paradoxical that OKRs which are supposed to drive growth often end up stifling innovation.
Common mistakes with OKRs (+examples)
Despite all the downsides of OKRs, perhaps your organization has adopted OKRs and you’re not in a position to change that. How can you avoid common mistakes that exacerbate the side effects of OKRs? Here are some mistakes to avoid if you’re stuck with the OKR approach:
Broad vision statements
When the long-term vision for the company isn’t clear, short-term business needs are the most visible and determine your direction. So if you’re writing OKRs in the absence of a clear company vision, OKRs can often be focused on the short-term at the expense of the long-term. You can avoid this by crafting a detailed vision with your team before you start on an OKR exercise.
Setting targets
It’s good to be data-driven and track metrics rigorously. But when you set targets for those metrics, that’s no longer productive.
For example, here’s an example of an OKR with targets that is likely to result in gaming and myopic solutions: “Team A will increase customer satisfaction as measured by getting a 5-star rating on 98% of calls to customer service and resolving 90% of tier 1 tickets within the first day.”
Instead, here’s an OKR example that is designed for real learning and collaboration: “Team A will increase customer satisfaction as measured by call ratings and how quickly tier 1 issues can be resolved.”
With this modified OKR approach, you’ll track how these metrics are improving and regularly discuss what you’ve learnt and what you’ll do next to improve your offering. There’s no need for the team to game the system because you’re not using OKRs to judge the team at the end of the year on whether they’ve achieved their target.
Setting OKRs for teams
When OKRs are specific to a team or function, each team is incentivized to meet their own OKRs and needing to help another team can feel like an unwelcome distraction. To avoid this problem, instead of assigning OKRs to specific functions or teams in your organization, set company-wide OKRs.
Setting stretch goals or unachievable targets
Although you’ll often hear that you should set OKRs that are ambitious goals and “moonshots” that are likely to be unachievable, in reality there’s damning evidence that you shouldn’t! Researchers found that people who were given specific goals were more likely to engage in unethical behavior than people who were told to do their best.
We’ve repeatedly seen evidence of unachievable targets leading to bad behavior. In 2020, Wells Fargo agreed to pay $3 billion in fines for fraudulent practices. Branch managers were assigned aggressive sales quotas, and to meet these, employees had been opening new accounts without customer’s knowledge – sometimes this even included forging signatures. Similarly, in 2000 Lucent Technologies reported that it had overstated its revenues by nearly $700 million. Revenue magically appeared each quarter after the CEO had set an aggressive target of 20% annual revenue growth.
In setting specific goals for complex tasks (especially when we set aggressive goals), we’re ignoring evidence to perpetuate a system that damages performance and incites bad behavior while expecting different results.
An OKR alternative: Radical Product Thinking
Now that we’ve covered the downsides of OKRs and how you can modify the OKR approach, let’s talk about a better OKR alternative that won’t stifle innovation but rather align your teams’ efforts toward developing world-changing products. This is where Radical Product Thinking comes in.
The Radical Product Thinking approach helps you communicate where you want to go and systematically translate that into execution, hypotheses and metrics to track progress. Here’s how you can apply this approach to harness the benefits of OKRs without the negative side effects.
Learn more about workshops to help you apply this approach.
Step 1: Craft a clear vision and strategy to communicate the impact you want to have.
Now that you recognize that OKRs are a Band-Aid to the real problem of an unclear vision, you can fix that. It’s time to rethink “being the leader in XYZ” and write a Radical Vision Statement to help you define the who, what, why, when, and how for your product. It’ll help you and your team share a clear visualization of the end state you’re trying to bring about together.
Once you have a vision, translate that into a RDCL Strategy (pronounced “radical”). The RPT approach to strategy means identifying the RDCL elements: Real pain points that make someone come to your product, Design or functionality to address those pains, Capabilities that power the Design, and Logistics that help you deliver the solution to customers.
Step 2: Align your team and get buy in on what you measure.
Instead of setting arbitrary goals, in the RPT way, you can think of your vision and strategy as hypotheses. For each element of your strategy, identify your hypothesis and which metric(s) you’ll measure to prove/ disprove your hypothesis. The RPT formula for writing a hypothesis is:
If [experiment], then [outcome], because [connection].
Metrics to measure outcome: Leading indicator and lagging indicator
For example, in a B2B company, if one element of your strategy is to invest in training your customer support team on the product so that customers will have a good experience and renew the support plan, you might write your hypothesis as follows:
Hypothesis:
If [we invest in training our customer support team], then [we expect higher ratings at the end of customer support calls and a higher renewal rate for our support plan], because [our customers will be more satisfied with fast issue resolution].
Metrics:
- Leading indicator: better ratings on customer satisfaction after the call, customer feedback to our sales team
- Lagging indicator: % of customer renewing support plan next year
Step 3: Talk about metrics and what needs improvement.
Often the data that offers the most value is not metrics that show how well you’re doing, but rather what you could do better. To uncover these nuggets of value, you need to have regularly scheduled collaborative discussions on what you’re learning from your measurements and which metrics need more attention. To encourage innovation as a business leader, instead of managing by objectives, you need to offer regular feedback in a culture that offers psychological safety.
Conclusion
When the company vision is unclear, OKRs feel necessary to convey the narrative of the impact the company is trying to create. Unfortunately, the fundamental idea behind OKRs of setting specific and aggressive goals is detrimental to experimentation, creativity, and collaboration.
To avoid the disadvantages of OKRs, you can either modify OKRs to avoid setting targets or use the Radical Product Thinking approach to communicate a clear vision and strategy and systematically translate those into priorities, hypotheses, and how you’ll measure success.
Many companies are moving away from OKRs. In fact, Spotify explained its rationale for ditching OKRs in its blog in 2016:
“What went into the OKR process was often already outdated when we got that far. So the OKRs that came out were too. We noticed that we were putting energy into a process that wasn’t adding value. So we decided to ditch it and focus on context and priorities instead. We make sure everyone knows exactly where we are going and what the current priorities are, and then we let the teams take responsibility for how to get there.
Ditching OKRs and taking the alternative of making sure everyone understands the direction, priorities and is able to take responsibility for making it happen, is exactly the Radical Product Thinking way.
Learn more about how you can build vision-driven products in Radical Product Thinking: The New Mindset for Innovating Smarter.
FAQs
When do OKRs not work?
OKRs don’t work for complex problems when there’s no obvious right answer and when performance is a function of strategy rather than repetitive effort. Building successful products falls firmly in the category of complex problems, so using OKRs for product metrics is strongly contraindicated. When a company’s product demands ingenuity and innovation, OKRs are detrimental to achieving the end goal instead of being helpful.
What is a better OKR alternative?
After working with several organizations from different branches, I’ve found that instead of using OKRs, companies benefit from applying the Radical Product Thinking approach to translate a clear vision into hypotheses and how you’ll measure progress.
Are OKRs agile?
OKRs are usually combined with the Lean and Agile approach but OKRs are not an agile way of working. Being Agile means course-correcting based on feedback/ evidence. Because OKRs take a long time to set, requiring extensive discussion and negotiation across teams, companies rarely ever recalibrate OKRs even when they realize they’re no longer the right OKRs to track. That goes against the Agile approach.
Is Google still using OKRs?
Google continues using OKRs in 2023. However, they’ve admitted that they’ve faced serious issues regarding the metrics and money incentives.
What is the difference between KPIs and OKRs?
KPIs are Key Performance Indicators or metrics that you’d measure to know whether you’ve achieved your goal. KPIs can be used to measure progress on an OKR. For example, if your OKR is to double the visitors to your company website, the KPI you’ll measure will be website traffic. You could use KPIs to measure performance of your product or your company even if you don’t use OKRs. Instead of using OKRs, you can use the Radical Product Thinking approach to agree on hypotheses that you want to validate as a team or company and measure KPIs to test those hypotheses.
Are SMART Goals still relevant?
SMART Goals, which stand for Specific, Measurable, Achievable, Realistic and Time-bound were first written about in 1981 and are a precursor to OKRs. SMART goals have been entrenched in the corporate mindset and have created the dogma that goal-setting is the way to motivate teams and track progress. So although OKRs are now more popular than SMART goals, they share the foundational belief that goal-setting is indispensable despite evidence to the contrary. Research shows that setting specific goals for complex, strategy-driven tasks discourages experimentation, risk taking, collaboration, and ultimately stifles innovation.
What is the difference between OKRs and SMART Goals?
OKRs look to achieve concrete goals in the short term and are set at a team or company level, but not at the individual level. SMART goals on the other hand are often at an individual level to measure individual performance and roll up to team and company performance. However, both approaches set specific goals for team members and can discourage innovation and creativity. You can read more about downsides to goal-setting here.
){kind=link}