Playing To Win
Stop Letting OKRs Masquerade as Strategy
I am getting weary of the Objective & Key Results (OKRs) hype-train. As a result, I am compelled to dedicate my third Year II Playing to Win/Practitioner Insights (PTW/PI) piece to Stop Letting OKRs Masquerade as Strategy. Given the widespread enthusiasm for OKRs, I predict it will be a worthy successor to It’s Time to Toss SWOT Analysis into the Ashbin of Strategy History, which is, simultaneously, my most read AND most objected to PTW/PI! You can find all previous PTW/PI here.
The modern phenomenon of OKRs came from Intel, under the legendary Andy Grove, to Silicon Valley, via courier John Doerr of venture capital firm Kleiner Perkins fame, and to the broader business universe, through Doerr’s best-selling 2018 book, Measure What Matters. For those not already familiar with it, the OKR approach involves setting an audacious objective and then laying out 3–5 specific, measurable and timebound key results that serve as indicators that you are on track to meet your objective. For example, your audacious objective could be to go from #3 in market share to #1 in market share in your industry within 36 months. Key results could be: 1) to increase new customer acquisition by 25% within one year; 2) to decrease existing customer churn from 15%/year to 7%/year within 18 months; and 3) to increase Net Promoter Score (NPS) from 28 to 52 within two years.
OKRs are set at multiple levels in the overall organization. An organization (or part thereof) can have multiple objectives at any given time but the general view of OKR aficionados seems to be that more than five at a time is too many. In a well-functioning OKR system, the key results metrics should be assessed regularly, and corrective actions taken if the key results are not met.
What I Like about OKRs
Like most (but not all) things that arrive, gain adoption, and persist, there are a lot of positive things about OKRs. And like most ‘new’ things, OKRs are by no means a new concept. The greatest management thinker of all time, Peter Drucker, introduced the world to Management by Objectives (MBO) in his 1954 book The Practice of Management. Drucker argued that managers should be assigned objectives and their performance assessed by a set of timebound, measurable results. Sound familiar? Indeed, but that was written long, long before the era of the business best-seller, so the sales of The Practice of Management are probably less than 0.1% of those of Measure What Matters. In any event, far be it from me to disagree with a key tenet of Drucker’s view of business.
In addition, I love Grove’s insight that rather than prescribe inputs, we should focus employees on figuring out how to deliver the outputs we wish for them to achieve. That is, don’t instruct a manager to visit 10 customers per week, spend twice as much time with existing customers, and work more hours — those all being inputs that may (but may not) lead to greater customer growth — but rather to focus on the output — X amount of customer growth, thus letting managers figure out for themselves what actions are most effective in achieving the output.
I have been arguing this point for two decades, framing it as “output regulation” rather than “input regulation.” For example, Congress was extremely out of character (in a good way) when it passed the Energy Policy and Conservation Act of 1975, which created the Corporate Average Fuel Economy (CAFE) standards. Rather than regulate inputs — like engine displacement, use of aluminum, etc. — as most governments do most of the time, the Act regulated outputs, mandating that average fuel economy of each producer’s new car fleet must achieve 27.5 mpg by 1985 — a near-doubling over a decade. And it worked, in large part because the auto manufacturers were left the flexibility to figure out themselves how to reach the target result and each one did so in its own way.
What I Don’t Like about OKRs
All of the above is meritorious. But what I have found to be increasingly the case as OKRs have become the management rage is that OKRs have become an implicit substitute for strategy. That is a problem. OKRs must be a complement to strategy, not a substitute for strategy, as I have similarly argued previously about planning. It is problematic for OKRs to masquerade as strategy.
That happens when leadership of an organization sets an audacious goal — as called for in the OKR methodology — and then parses it out into key results, which is typical done with engineering-style precision. That is, if the organization does indeed achieve the key results, it will have achieved the audacious goal.
However, it begs the question of whether the organization in question has any chance of achieving the key results? In my observation, there is an implicit assumption that if we set the proper key results that are causally linked to the achievement of the objective, the setting of the key results will make it more likely that the objective will be achieved. But desire (as with hope) is simply not a strategy. The desire to achieve the named key results won’t cause those key results to happen. You may desire the substantial rise in your NPS, but if you are serving customers that your key competitor serves better than you do, your NPS is unlikely to rise — even though you really want it to.
Your strategy is the thing that will cause your NPS to rise or your customer churn to fall, or your customer acquisition to strengthen. Your current where to play/how to win (WTP/HTW) choice produces your current results. Better results will only be causally driven by a more powerful WTP/HTW choice. The setting of key results will have little or nothing to do with their achievement.
I know it is romantic to think that OKRs had much to do with the success of Google. But my bet is that if we had perfect data on Google and we did a multiple regression analysis of the factors that caused its other-worldly success, over 90% of the causality would go to one variable: inventing the single most valuable business in the history of the world — search-based advertising, a gigantic, zero-marginal-cost business, combined with a fabulous business model (giving search away to drive demand and monetizing those users by selling search terms to advertisers). OKRs would be in the residual term — a tiny rounding error.
That having been said, I do agree with the setting of an audacious objective. I call it a winning aspiration (WA), but because I try not to be precious about terminology, I have no objection to the term ‘audacious objective.’ But I argue that it is absolutely critical to toggle back and forth between WA and WTP/HTW until such time as you have consistency and mutual reinforcement among the three. If it isn’t paired with a WTP/HTW that has a good chance of achieving the desired objective/aspiration, an audacious objective/WA is worse than useless. It will cause senseless wasting of resources and generate discouragement when it isn’t met.
There is no such linkage step in the OKR process and in this way, it attempts to substitute for strategy, and I have gotten tired of it. I hate to see organizations design for failure.
The other thing I don’t like about the application of OKR principles is the multiplicity of objectives. This leads companies to call each objective/key results loop a ‘strategy,’ so it sees itself as having multiple strategies — i.e., one ‘strategy’ is increase distribution, another ‘strategy’ is increase customer loyalty, another is to expand geographically, etc. I believe that an organization (at a given level) has one strategy, not multiple strategies. Whenever anyone refers to their ‘strategies,’ I know they don’t know what strategy is.
This is important because to be effective, a strategy needs to be an integrated set of choices, each of which fits with and reinforces the others. There may be various attributes to a given WTP choice. There may be various facets of the HTW choice, and various must-have capabilities (MHC) and enabling management systems (EMS). But all are encapsulated in one set of choices to win — your strategy. It is not a bunch of loosely connected ‘strategies.’
OKRs are not bad. I began with the things I like about the concept. And I have the equivalent of the ‘O’ in my own system — a WA. Plus, I believe that ‘KRs’ are an integral part of EMS. You need a management system that helps track the progress toward building the capabilities necessary to win where you have chosen to play to meet your aspiration. And if you build the desired capabilities and they don’t produce the winning outcomes that you targeted, your management system needs to alert you of that so that you can take corrective actions. So, both the ‘O’ and ‘KR’ fit entirely with my approach to strategy.
But there is a huge gulf in the middle that OKRs are likely to miss. I say likely because I am sure some practitioners of the OKR approach have a way of filling in the strategy gap. And that gap is an explicit theory of the WTP/HTW choice that will make the objective/aspiration more than a pipe dream. If that gap is filled in the middle, then ‘O’ and ‘KR’ make a perfectly good set of bookends.
But it is critical to avoid going directly from ‘O’ to ‘KRs’ because doing so results in OKRs masquerading as strategy, which sets up desire as the primary driver of your strategy. And that is a recipe for disappointment!