Clarity with a single OKR
“Focus is the thing that makes the difference between excelling and flailing about in mediocrity” ~ Christina Wodtke.
The problem (and it’s a big one…)
Photo by Paul Skorupskas
Research has found that “on average, 95% of a company’s employees are unaware of, or do not understand, its strategy”1, and two-thirds of managers can’t name their company’s priorities2. And if your people don’t understand your strategy, how can they execute it?
As a result, the following are true of too many organisations (you may recognise a few):
Your OHI3 or similar employee survey results indicate a lack of clear direction;
Employees say they miss clarity and focus, and don’t know where the company is going;
Lack of purpose makes employees less motivated;
There are little or no innovation or learning initiatives going on;
Repeated change initiatives fail;
Too many, constantly changing, priority projects distract people from the strategy;
Too many ad hoc issues and too much firefighting.
But we’ve told them the strategy time and again…
If you’ve had your strategy for some time now, you’ve almost certainly communicated it to employees many times via various different channels. So how the heck can they not know about it, let alone understand it? Why, despite your efforts, do you see so little progress on this front?
Various studies4 suggest that unclear direction and lack of purpose are often major culprits. Worker performance tends to improve when the employer commits to a single strategic goal. Moreover, when each employee is set specific, relatively demanding goals they become more committed to achieving them5.
According to Google research6, who the members of a team are is not the key issue. Instead, they found that their most successful teams shared four key attributes:
Psychological safety: people felt safe and empowered to take (appropriate) risks;
Dependability: they could rely on one another to deliver timely, quality work;
Clarity: goals, roles and execution plans were clear;
Meaningfulness: people felt they were working on something that was important to them and mattered in some wider or more fundamental sense.
But how do you get to this point? I believe a tool called OKRs (Objectives and Key Results) can help you clarify, focus and communicate your strategy – and if used properly, with amazing results. Giving your people the clear goals, purpose and meaning that will improve company performance. But first we need to go back to the beginning.
What is your strategy, actually?
In my experience, when you ask a leader for their current strategy, responses typically fall into three categories:
“We don’t have a real strategy” – honest, but hardly reassuring.
“We’re doing/aiming to do X”. Where ‘X’ can be anything from “move to the public cloud” to “transition to agile” to “launch a new product”. These may be useful things to do, but they’re not a strategy.
Ten fluffy rambling sentences that no one (including the leader themselves) can quite remember. So no surprise the ‘strategy’ isn’t having the desired impact.
As Porter says, a “competitive strategy is about being different, it means deliberately choosing a different set of activities to deliver a unique mix of value.”7 This also means saying no to a lot of things. In other words:
Business Strategy = Choice
Short and sweet
The best strategy statements fit on a single page. In his book Scaling Up, Verne Harnish suggests several strategy one-pagers. You can also look at Business Model Canvas or Lean Canvas. All cover the basic elements of a strategy:
Objective
Scope
Advantage
So let’s explore each of these a little further.
Define your objective
According to Collis and Rukstad, “it is the single precise objective that will drive the business over the next five years or so”8. In other words, you need to make your strategy tangible: define a clear finish line, which can be defined as an objective. An objective shouldn’t be too easy to reach, nor should it be so hard people feel it’s impossible9. Ideally, you want a 50% chance of achieving it.10
In addition, the objective must be emotionally motivated and trackable. Emotionally motivated because not everybody likes numbers and this helps keep objectives memorable.11 Trackable because you should be able to report progress against the objectives on a weekly basis. This, as we’ll see, is why OKRs are so powerful in defining strategic objectives.
Define the Scope
There are three dimensions to strategy scope: customer or offering, geographical location and vertical integration. In other words, what you want to ‘sell’ to whom; where you want to sell it; and which components of the value chain you will run. You must create boundaries to make it clear to leaders which activities they should, and shouldn’t, be focusing on. A great tool here is a list of No’s. Or you can just explain why you’re not going to do certain other things.12
Apple, for example, clearly targets high-income customers with high-end priced products. The company chose not to offer low-priced products to customers, although it could have increased market share by doing so.
So in the scope part of your strategy statement, define the decisions you have made.
Defining the Advantage
“The essence of strategy is choosing to perform activities differently than rivals do.” M. Porter.
Defining the advantage is one of the most important aspects of strategy, but many forget to make it explicit. “Clarity about what makes the firm distinctive is what most helps employees understand how they can contribute to successful execution of its strategy.”13
You need to be very specific about which activities you are going to do differently, and find the right ‘fit’. Let’s take Southwest Airlines as an example. Southwest’s competitive edge derives from a whole range of activities, and ensuring these fit and reinforce one another.
The right strategic fit creates a chain that’s as strong as the strongest link.
Ensuring the right strategic fit prevents imitation by creating a chain that’s as strong as the strongest link. A strong strategy ensures Southwest’s activities complement each other to genuinely add economic value. The cost to the company/value to the customer of one activity is lowered/enhanced by how other activities are carried out. In other words, the strategic fit generates competitive edge and increases profitability.
This combination of closely-linked, mutually-enhancing activities make it difficult for competitors to copy you. Such a set of tightly-linked differentiating activities is also called a ‘strategic theme’. For example, in his paper on strategy Porter lists the strategic themes of IKEA as:
Limited customer service
Modular furniture design
Self-selecting by customers
Low manufacturing costs
One way to identify the strategic activities you should be doing differently or better than your competitors – your strategic fit – is by using an activity mapping tool15 or strategy map16. But even better is to put it on a one-pager as part of your Business Model Canvas (e.g. resources, channels) or Lean Canvas (Unfair advantage).
Meet your new best friend: OKRs
So we now have great tools for defining our strategy’s scope and advantage, but what about defining our objective? Many organisations, including Google, Intel and LinkedIn, use OKRs (objectives and key results).
OKRs were developed by Andy Gove in the late 1970s to fill the gap between strategic objectives and execution. They are a powerful way to help you define clear finish lines for your strategy and boil your strategy statement down to a succinct one-pager. Let’s have a look at the key elements:
As discussed, an objective is a short, memorable, qualitative description of what you want to achieve.
Key results are a set of metrics and KPIs that measure your progress towards the objective. Research shows the more specific your goals, the better your organization and teams can perform against them.17
A handy rule of thumb: if you can report on the progress towards your objective in a weekly email, then it’s a well-defined key result. If not, try to learn more about your data and metrics: it takes practice and patience. The following formula can help: From [X] to [Y] by [WHEN], where X = your baseline metric and Y = your goal.
Flowing out of the strategic objective there are likely to be various subordinate goals that can serve as useful metrics to monitor progress, and against which individual employees can be held accountable. But there should always be one strategic OKR: a single clear, overarching objective to drive business operations over a number of years.18
And if OKRs seem the basis of a very simple goal-setting system, don’t worry: they are – and that’s their strength!
Strategic OKRs
An objective and its key results can be used to formulate your strategic objective as a strategic OKR, which shouldn’t have a horizon longer than 5 years, or it becomes too abstract. Here’s a couple of examples of Strategic OKRs:
Youtube: Reach 1 billion hours watch time per day.
Google Chrome: 20 million weekly active users by year’s end.19
In both cases, the objectives are ambitious, focused and clear. Every employee at Google Chrome or YouTube will instantly understand the strategic direction. To reach that goal, they needed to say ‘no’ to a lot of things, runs tons of experiments, think outside the box and change certain key activities within their business. With a single OKR, everyone can keep their eye on moving the company towards its single overarching goal. Because a well-formulated Single OKR is compact and easy to communicate to employees, it will create strategic clarity20 and a shared vision within teams. Which, according to McKinsey, has a huge positive impact on organizational health, setting the foundations for a high-performing organization21.
WARNING: OKRs are not KPIs!
A classic pitfall is to use OKRs to monitor your KPIs. The balanced scorecard is a perfect tool to monitor your company’s health or the status of competitive activities, but that is not the same as measuring progress towards a single ultimate objective.
Keep it simple: Define a single objective.
Everything should be made as simple as possible, but not simpler. ~ Albert Einstein
If the beauty of OKRs lies in their simplicity, why do we need OKR experts to integrate them into our daily operations, and why do most OKR implementations fail?
Probably because, despite all the warnings, the single objective the company sets itself still isn’t short, clear and/or simple enough. Clarity is more important than a nuanced and detailed description.
With the best intentions, many leaders and employees also tend to set too many goals22. A radical focus requires one single objective23. Leaders are often shocked the first time I ask them to define a single company objective. Common responses include, “We have too many top priorities” or “It’s a balancing act, we need to focus on both topics”. And there’s always the temptation to try to please multiple stakeholders: shareholders, customers, regulators…
And beware: your single goal shouldn’t be multiple goals in disguise. “We want to grow profitably.” sits on the fence: what’s the priority, growth or profitability? Sales, for example, will need to know when deciding how hard ball to play on price24.
Let’s face it, if your company achieved more than two goals last year, it did well. So let’s do the maths: it is said there is an 80% chance of successfully achieving a single goal. So if you have two goals, that means an 80% x 80% = 64% chance of success. And with three goals it’s an 80% x 80% x 80% = 50% chance of successfully achieving the three goals.
Ask the right questions
With goal-setting initiatives, people often ask the wrong questions. If you ask “What’s the most important goal to focus on?” you’ll get different answers from different departments. Quality, digitalization, customer satisfaction, financial stability…
A good OKR is one that can make a real difference within and across your organization. Ask yourself this: If every other area of our operation remained at its current level of performance, which is the one area where change would have the greatest impact? The right answer to that question can drive the behaviour change crucial to achieving your x10 growth, implementing your new organization model, or exploring new markets or business models.
Avoid the dangers
There are dangers involved in goal-setting25, so OKRs must be used with care. You need product-based metrics to ensure you create an environment where people feel psychologically safe26 so teams can fail without fear. People need to learn a lot on the journey to achieving your ambitious strategy. They need to experiment, and mindsets and behaviour sometimes need to change. And all that means you must provide people with an environment in which they can excel.
Initially, don’t make your OKRs too stretched27. Instead define a few small tactical goals. This will create a sense of victory28 for your teams. Setting a single OKR doesn’t mean neglecting daily operations (or business as usual). When running a marathon, you want to keep an eye on your heartbeat, hydration, pace, etc. Similarly, when working towards your OKR, keep an eye on your organization and teams’ health. If your vital systems start to fail, stop, fix them and only then continue.
Frequent communication a must
Defining your single OKR alone isn’t enough. You must also communicate it as often as you can. Repetition is your best friend here. Use town halls, all-hands, weekly emails and any other channels right for your organisation to ensure the message gets through and sticks. In my experience, a weekly communication cadence works best29.
And don’t just communicate your OKR but also the rationale behind it – its scope and the advantage it will bring. Explain the metrics in your key results and update on progress weekly to all employees: where are we now, where do we want to be. Over and over again. I prefer using a company or team’s whiteboard for this, but I’ll save why that is for another post!
Summary
To grow30 and increase employee engagement; to improve organizational agility; to lift company performance or customer satisfaction… In short, whatever your biggest challenge is today, you need to communicate your purpose, vision and strategy with clarity. With clarity and focus your employees can embrace the strategy, thrive in their work, and deliver what you need of them.
OKRs are a great tool as part of your strategy; but only a tool. And as they say, ‘A fool with a tool is still a fool’. However, use OKRs wisely and you’ll achieve great results. Because once you and your employees ‘get’ it, amazing things start to happen. Like that 10x growth, amazing innovation, happier customers and more engaged employees.
So if you want clarity and focus for your people, don’t wait till your next strategy off-site. Start today with a single OKR as part of your strategy statement and communicate progress weekly.
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Resources
Two thirds of senior managers can’t name their firms’ top priorities
Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting
You’ll have noticed neither example complies with the advice to exclude numbers from your objective, but in a data-driven culture like Google’s people probably like their numbers.
Shah, Friedman, and Kruglanski (2002), DontSetTooMany
Harvard Business Review https://hbr.org/2008/04/can-you-say-what-your-strategy-is]
Leaders Should Strive for Clarity, Not Transparency and Eight Ways to Communicate Your Strategy More Effectively.
Want to drive business growth? Instill a sense of shared purpose