Objectives and Key Results (OKR) is a strategy planning and alignment method. Andy Grove developed it at Intel. John Doerr brought it to Google and this made it popular. Microsoft, Uber, Twitter, and others adopted it since then. Unfortunately, it is hard to find a clear description and a plausible explanation how it works.
Reading Switch, I discovered that OKR implements aspects of a successful change. While OKR is not marketed for change management, every business goal is about change. At least, I haven't seen a company which says its strategy is to "simply continue." Looking at it through this lens some misunderstanding becomes obvious.
Definition of OKR
OKRs consist of two parts. Here is the definition from Felipe Castro:
Objectives are memorable, qualitative descriptions of what you want to achieve. Objectives should be short, inspirational, and engaging. An objective should motivate and challenge the team.
Key results are a set of metrics that measure your progress towards the objective. For each objective, you should have a set of two to five key results. More than that and no one will remember them.
Coming from Switch, the objective is the "motivate the elephant" part. More precisely it should "find the feeling". It can also be understood as "point to the destination".
The key results, can "direct the rider" or "shape the path". More precisely, they "script the critical moves" or "build habits".
Other aspects are that key results are made up collaboratively so it does "rally the herd".
I got the definitions from this Atlassian page. The rest of that page shows how you can misunderstand OKRs.
As example objectives, it lists "increase recurring revenue" and "scale system performance". It is "short" but not "inspirational and engaging". Would you feel motivated by such objectives?
How could you make "increase recurring revenue" more inspirational? You have to think about what matters to the team. Let's assume they identify with the company otherwise you have bigger problems. So the teams wants the company to be successful. What does success look like and how is it related to revenue? Maybe you are a startup and you barely get by. Increasing recurring revenue would mean you finally establish a solid foundation and become profitable. So, "be profitable" would be a fine objective here and every team member can connect to that after months or years of financial insecurity.
The Atlassian page dismisses "be profitable" as too high-level in general. This is true. It only makes sense for an unprofitable startup we assumed here. A good objective touches the team emotionally. It must be specific to their context. You cannot use generic objectives from a website.
How does it work? Just stating an ambitious objective in a confident manner does inspire some hope. Such positive emotions enable more creative problem solving.
See Barabara L. Fredrickson (1998), "What Good Are Positive Emotions?" Review of General Psychology, 2, 300-319. Among the studies Fredrickson cites: Doctors experiencing positive emotions solve a tricky medical dilemma more flexibly and quickly. Students in a positive mood devise more innovative solutions to a technical challenge. Negotiators in a positive state of mind are more successful and creative negotiations; they find "win-win" solutions more often. Positive emotions also makes it easier for people to make connections among dissimilar ideas, and it makes them less likely to slip into an "us versus them" mentality. All of these tendencies–flexible problem solving, innovative solutions, less political infighting–would be very useful in a change situation. –Switch
Behavioral Key Results
Having a lofty objective is nice but how are you going to achieve it? The key results capture your plan into measurable goals so you can check your progress every day. In fact, it might be a useful habit to check them every day in a team meeting to keep everybody aligned. Key results which are only measurable at the end are useless. If achieving the key results does not imply achieving the objective, you made a bad plan.
One insight from Switch here is that behavioral guidelines work well:
In a pioneering study of organizational change, described in the book The Critical Path to Corporate Renewal, researchers divided the change efforts they'd studied into three groups: The most successful (the top third), the average (the middle third), and the least successful (the bottom third). They found that, across the spectrum, almost everyone set goals: 89 percent of the top third and 86 percent of the bottom third. A typical goal might be to improve inventory turns by 50 percent. But the more successful change transformations were more likely to set behavioral goals: 89 percent of the top third versus only 33 percent of the bottom third. For instance, a behavioral goal might be that project teams would meet once a week and each team would include at least one representative of every functional area. –Switch, page 62
How does it work? Clear key results align the team. The key results also focus the team on specific metrics and implicitly assign a lower priority to others. Thus should ease and speed up decision making.
Key Results should be achievable on their own
One question I struggle with is how achievable the key results should be. Some say they should be S.M.A.R.T. and the A is for "achievable". On the other hand most describe them as stretch goals. For example, the Atlassian page:
Scoring .7 on a key result is considered a success! You should set ambitious stretch goals and not feel like a failure if you end the quarter without a perfect score.
Andy Grove, the father of OKR, writes:
Output will tend to be greater when everybody strives for a level of achievement beyond his immediate grasp, even though trying means failure half the time. Such goal-setting is extremely important if what you want is peak performance from yourself and your subordinates. –High Output Management
There is no consensus as you can see in this discussion if goals should be unrealistic. I belief unrealistic goals work if you deliver them in an inspirational way. In OKR the objective is responsible for the inspiration not the key results. On the other hand if the key results are achieved, the ambitious and inspirational objective must be achieved as well. Maybe the fine balance is that each key result is achievable on its own but achieving them all is nearly impossible.
Example: Rivkin and Institutional Investor
While Switch does not mention OKR you can map some stories quite directly. An example is how Jack Rivkin turned Shearson Lehman's research department from fifteenth place to first within three years.
Rivkin didn't just script the critical moves–Make 125 calls, and cite your colleagues' work–he also did point to the destination: We're going to crack the Institutional Investor Top 5. That was something everyone in his department understood and aspired to. –Switch page 96
Objective: Crack the Institutional Investor Top 5. This was an ambitious "we are part of the elite" vision for a team which was at the bottom.
Key results: Make 125 calls per month, cite your colleagues' work. These are clear behavioral guidelines.
Do the key results achieve the objective? It isn't obvious and I assume Rivkin did get pushback. History says yes though.