Five fundamentals for creating an effective OKR process

Running a business is a lot like piloting a ship; above all, you need to know where you’re going and how you’re getting there. What’s more, you need a crew that knows how to back you up when you need it most.

Objectives and key results, or OKRs for short, are a time-tested methodology for ensuring that you and your company have the smoothest sailing possible. They make it easy to set and track company goals so that your entire team knows what needs to be done, how to do it and why it matters in the larger vision of your business.

The OKR framework has helped countless businesses synchronize their teams and realize ambitious goals, launching their companies to new heights.

This guide will walk you through the process of implementing OKRs in your own company, making them a value-driving component of your operating system.

In this guide, we’ll cover the five parts of an effective OKR process, including:

1. The OKR framework.
2. Setting annual objectives.
3. Creating an annualized roadmap.
4. Quarterly planning.
5. How to establish a rinse-and-repeat cadence.

Every step in this generalized guide will apply to the majority of startups, but some will benefit from additional frameworks that aren’t included. To get started, make a copy of the OKR framework and template. You may want to refer to the overview on slides 3 and 4 of the deck.

Framework and ownership

OKR framework

OKRs have a very specific framework that is integral to the success of the methodology. There are several key components of an OKR process, which will each be explored more deeply later. They are:

• Annual objectives. These are the big picture items for your business. They’re your ultimate goals, your guiding light. Serving to unite a company’s vision and inspire teams, strong annual objectives are key to a successful OKR framework.
• Key results are goals that drive progress toward your annual objectives. They are more data focused, including quantifiable metrics that prove your company is on the right course.
• Initiatives are the projects and tasks that ladder up toward your key results. In other words, initiatives are the things that need to happen in order to achieve your key results.
  

  If your company is a spaceship, your annual objectives are the destination. Image Credits: M13

If your company is a spaceship, your annual objectives are the destination. The key results are the dials on the console that show your speed and indicate whether you’re on course, and the initiatives are the actions of the crew and pilot that keep the course steady and the engines burning.

It’s important to understand the differences between each piece of the OKR framework, as it can be easy to confuse them in the beginning. Without a strong distinction between each component, it will be much harder to implement your OKR process successfully.

Establishing ownership

A clear ownership structure is vitally important to the OKR framework. Without a dedicated captain, you’ll find yourself wasting resources and letting details fall through the cracks.

We recommend establishing a point person to take top-down control of the OKR process as early as possible.

This person should interact closely with leadership and understand the big picture of your business. Operations managers and chiefs of staff are typically good choices for this role.

Annual objectives

Annual objectives are the big picture items for your business. They’re ambitious, large-scale goals that you and your team can look to as a reminder of your company’s purpose and direction.

When setting your objectives, ask yourself what will move your company forward and create meaningful change in your business. Which company goals are most pressing? What would you like to see happen in the next year? What core tenants of your model can you expand upon and improve?

What makes a good objective?

Creating a good annual objective may seem simple at first glance, but it takes a bit of practice to get right. Annual objectives must have a specific format to function properly in the OKR framework.

Objectives are:

• Big-picture goals that relate directly to the most important aspects of your business. They should be doable, but ambitious. There’s nothing wrong with falling a little short — in fact, failing some of your objectives is a sign you’re using them correctly. In a given year, around two-thirds of your annual objectives should be completed.
• Clear and concise. An annual objective that is more than one sentence long is uncommon. You want a simple, punchy statement that your team will be able to remember easily.
• Strategic and specific to your business. They should set a destination for your company, the path to which will be plotted by other elements of the OKR framework.

As a counterexample, let’s take a look at what you should avoid when creating your objectives.

Objectives are NOT:

• One-off tasks that can be completed quickly. They should be ambitious, relevant for the entire year and push the limits of what you think your business is capable of achieving.
• KPIs. While objectives can occasionally contain a measurable output, you should steer away from simply stating a metric as your objective. The goal of your objectives is to define the greater purpose of your work without focusing too heavily on data-based measurements.
• Boring. When you set an annual objective, it should tell a compelling story. The best objectives use language that is inspiring and action-based.

Four is the magic number

When it comes to setting annual objectives, four is the magic number for many startups. Having four large goals for the year is the sweet spot between simplicity and granularity, allowing founders to target specific company needs without creating lists upon lists of annual objectives.

On tabs 1 and 2 of this worksheet, you’ll find further examples of viable annual objectives along with a blank sheet to craft annual objectives for your own business. Give it a try!

Creating an annualized roadmap

Once you’ve decided on your annual objectives, it’s time to create an actionable plan for achieving them, which we call the annualized roadmap. The goal of the roadmap is to provide you and your team a clear, time-bound path to realizing the objectives you’ve set over the coming months.

The roadmap is composed of two distinct components — quarterly initiatives and key results. Just like before, it’s important to understand the qualities of a good key result, which are distinct from the qualities of a good Initiative. Understanding how these two items differ from each other, as well as how they differ from annual objectives, is critical to a successful OKR framework.

Key results

With your objectives set, you now have a clear image of your company’s destination over the next year. If your objectives are the “where” for your business, your key results are the “how.” A good set of key results will help determine the quantifiable metrics you can use to gauge progress toward your objective.

Key results have a distinct role in the OKR framework. They provide a way of measuring progress toward the annual objectives we discussed. Unlike annual objectives, key results may change quarter-to-quarter as you refine your OKR process.

Key results are:

• Data-based targets. It should be easy to tell whether a key result has been completed, as they are highly measurable.
• Stretch goals for you and your team to reach for. While not as lofty as your annual objectives, key results should still be challenging.
• Specifically created to further the larger goals you’ve set. Key results are directly linked to your annual objectives in their intent and direction.

Just like annual objectives, it’s important to understand what a key result is not.

Key results are NOT:

• Projects or tasks. While they exist on a smaller scale than annual objectives, key results are still focused on larger goals than the day-to-day operations of the business. They are meant to be an indication of overall progress, not a minor to-do list.
• Broad. Defining a clear, specific and actionable outcome is crucial when considering your key results. Key results measure progress toward annual objectives and should be built with that function in mind.
• All about financials and bottom lines. While key results that address sales, revenue or market share are important, don’t forget to include key results that deal with company culture and customer satisfaction. These measurements are equally vital to the success of many objectives.

You should aim to have 3-5 key results per objective — this strikes a good balance between oversimplifying your roadmap and cluttering up your goals.

Quarterly initiatives

Let’s recap: You’ve established your annual objectives, which serve as guiding lights for all your team’s efforts. Your key results provide a quantifiable way of measuring progress toward those goals. Now, it’s time to think about the tasks and projects that will move the needle for your key results. We call these actions initiatives.

When crafting your annual objectives (and, later, when you create your key results), you were asked to be ambitious and large scale. Keep that same ambitious mindset for your quarterly Initiatives, but focus on a much smaller scale. Initiatives should be achievable, project-oriented targets for you and your team.

Good quarterly initiatives:

• Are specific and time-bound.There should be a clear beginning, middle and end to the project, and you should be able to easily tell when it’s finished.
• Have a clear scope and ownership. The smaller projects support the entire OKR structure. Clear scopes of work and well-defined ownership of processes will ensure accountability and completeness over the course of the project.

There is a sweet spot when considering the scale of an initiative — while they are much smaller goals than, say, your annual objectives, they shouldn’t focus on tasks that are considered business as usual (BAU). Initiatives, as the name implies, should initiate new movement within your company, not call for continuation of well-established practices.

Developing your roadmap

Your key results and quarterly Initiatives work together to move your company toward your annual objectives. The key results act as indicators that you’re on the right path, and the initiatives are the projects that help you achieve your key results. In other words, key results and initiatives are the compass and fuel for your business, respectively.

The strategy for creating an effective annualized roadmap is simple, and we’ll walk you through each step below. On sheets 3 and 4 of the framework worksheet, you will find an example roadmap and blank worksheets to complete with your team.

Building a roadmap is an exercise that helps a company envision the course of the year ahead. The goal is to gain clarity and develop a bird’s-eye understanding of what your company needs to accomplish. As you move forward with the plans, it’s entirely possible (and even likely) that the initiatives and key results you set forth in this roadmap will change.

Don’t feel strictly beholden to the roadmap you set — instead, use it as a directional tool for visualizing and understanding your annual plan.

Begin by creating an exhaustive list of your key results and initiatives with your team. This should cover everything you plan to accomplish in the next year, from Q1 to Q4. In the beginning, don’t worry about being overly prescriptive about which quarter each initiative and key result falls into.

The most important thing is to get all your key projects and goals on paper — we’ll go through and clean it up later. Using a collaborative digital document like a Google Sheets is a great way to make sure you’re getting input from every side of your business.

Once you’ve built a list you’re satisfied with, comb through and remove anything that is not mission critical, as well as any steps that are redundant. Be on the lookout for key results and initiatives that don’t fit the criteria we’ve discussed earlier in the lesson. Some of the actions on your list will be better classified as BAU (business as usual) items, or perhaps as subtasks that fall under the umbrella of a certain initiative.

Beyond the key elements mentioned above, we recommend using the SMART goal method to determine if your key results and initiatives are clear and effective. SMART stands for:

• S — Specific
• M — Measurable
• A — Achievable
• R — Relevant
• T — Time-bound

If all your key results and initiatives are SMART, you’re in an excellent position! If not, ask yourself what edits you can make to ensure you’re checking every box in the SMART method.

Next, look through your list with your team and define the timing for each initiative and key result. On the right side of the worksheet, you will notice a series of checkboxes that correspond to each of the four quarters. Use this format to determine which initiatives and key results will be relevant for each quarter, and check the boxes accordingly. Note that some may correspond to all four!

Congratulations! You’ve just built an annualized roadmap for your OKRs.

Quarterly planning

Having an annualized roadmap is an excellent way to visualize the year ahead. However, the specific needs of a business tend to change from quarter to quarter. In this section, we will describe the process of refining and editing your initiatives and key results on a quarterly basis.

The key results and initiatives you’ve already set out in your roadmap will be instrumental in kicking off your quarterly planning process and a helpful reference point throughout the year. Use tabs 5 and 6 of the framework worksheet as a template for your quarterly planning.

Earlier, we established an owner of the OKR process. This might be your chief of staff, your operations program manager or another employee who works closely with leadership. This same point person will be responsible for leading the development of your initiatives and key results for this quarter and beyond.

The first step is to determine which key results and initiatives are most important and align most closely with your company’s priorities for the coming quarter. Most of this work will already be done in your annualized roadmap, but we recommend that the OKR process owner get further input from team leaders. This will allow the process owner to refine and finalize the roadmap’s content for the first quarter.

The goal of these quarterly planning sessions is to encourage collaboration across teams, appoint multiple stakeholders and ultimately unite the vision of the company. Our recommended timeframe for the repeatable quarterly planning process is demonstrated on tab 7 of your worksheet and will be explained in more detail in the next section.

While your key results and initiatives may change over time, the annual objectives they ladder up to will remain the same. Make sure each of your key results and initiatives are clearly oriented around at least one of your annual objectives

As the quarter progresses, we recommend using a color-coded scale to denote progress on all of your initiatives and key results. Green is used for initiatives that are on track to be completed by the end of the quarter, while yellow indicates projects experiencing minor lag. Projects experiencing major roadblocks that will prevent timely execution by the end of the quarter should be coded red.

How to establish a rinse-and-repeat cadence

Perhaps the biggest impact of the OKR framework is its ability to lend rhythm and consistency to an otherwise chaotic planning process. Companies that are able to integrate OKR planning into the regular drumbeat of their company will find themselves at a huge strategic advantage.

In this section, we’ll identify some best practices that will help your company make the most of a repeating OKR framework. This is what we call the rinse-and-repeat cadence.

• In the final week of the month, the OKR process owner should collect updates (coded red, yellow or green) on the quarterly OKRs from team leaders. This will provide them with a high-level overview of the company’s progress.
• In the first week of each month, your point person should create a standing meeting to review OKR statuses with the leadership team. This time should be used to assess the progress of the past month, especially any items marked yellow or red. An hour is generally sufficient time to discuss progress, voice any concerns and change strategy if needed.
• In the final month of each quarter, the quarterly planning process will repeat again. We recommend using the whole month, guaranteeing the OKR owner has enough time to gather inputs from across teams. The goal is to develop a collaborative experience, ensuring all OKRs are set before the new quarter even begins.

For a visualization of this structure, look at sheet 7 of this template. It should be easy to see how the meetings fall into each week, month and quarter, along with the targets of each meeting. Let’s imagine we’re building a new rocket-launching company:

As you move forward into the coming year, you’re bound to experience your share of exciting wins and disappointing losses. Both are vitally important to your OKR process. Remember, quarterly OKRs are meant to be stretch goals; if your list was covered in green at the end of each quarter, you are likely not pushing hard enough.

If (and when) you come up short of your goals, take it as a chance to identify which steps along the way could be improved. Learn from your failures and use them to improve your operations and inform your future OKRs. Our EOQ reds can teach us just as much, if not more, than our greens.

At the same time, remember to celebrate your victories by recognizing the teams that orchestrated them. Use your win as an opportunity to foster connections between team members and strengthen your culture of collaboration. Make note of your successes, as they often provide insights into how your company works and what your people are capable of.

You now have everything you need to use OKR processes in your own company. We have found this framework extremely effective for fostering effective collaboration, unifying various teams and keeping your company focused on the big picture.