The OKR Framework: Using The OKR Methodology To Execute Strategy

3 Types Of Future State Described As OKRs

New Capability Requirement OKRs

New capability requirements refer to the development or acquisition of entirely new skills, resources, or competencies that are essential to achieving your strategy. 

Existing Capability Enhancement OKRs

Existing capability enhancements focus on improving and leveraging the organization’s current skills, resources, or competencies to achieve better results or gain a competitive edge. It involves setting goals that aim to enhance and maximize the effectiveness of existing capabilities.

When using the OKR framework to set goals, it’s essential to consider both new capability requirements and existing capability enhancements. By defining objectives and key results in these areas, organizations can ensure a well-rounded approach to goal setting.

New capability requirements address the need for innovation and adaptation, while existing capability enhancements maximize the value and impact of the organization’s current strengths. Ultimately, the balance between new capability requirements and existing capability enhancements will depend on the organization’s strategic priorities, market dynamics, and the specific goals they aim to achieve.

Performance OKRs

The third type of OKR is Performance OKRs. These focus on enhancing the overall performance of existing processes, functions, or teams within the company. They aim to optimize efficiency, productivity, quality, or other performance metrics without necessarily requiring new capabilities. Here you would ideally have a bias towards leading indicators that change frequently enough to track and act as lever on a slower moving lagging indicator.

Using Key Results To Achieve Objectives

Key Results are how you will measure the success of your Objective. As such the success of your Objective is conditional on the completion of your Key Results. The types of Key Result you choose will depend on the Objective. Typically an OKR has two or three Key Results.

The examples and tutorials in the FAST Transformation Toolkit talk you through and show you how to write and combine Key Results to tell stories. For example, here’s one of the patterns we show you.

High Level or Supporting Objective

• Key Result 1 – Describes Underperforming KPI and has a from X to Y target
• Key Result 2 – Lead Indicator (KPI) – A KPI acting as a lever on Key Result 1
• Key Result 3 – Lead Indicator (KPI) – An optional second KPI acting as a lever on Key Result 1

The Story Of This OKR

The story of this OKR is: “This KPI is underperforming. If we achieve the targets in these leading KPIs we should be able to solve the underperformance issue.”

Introducing Activities

In the above example this OKR is likely to have what we call Activities. Activities in the context of OKR are what you will need to commit to doing in order to make progress on the OKR. These activities can have sub-tasks and can also have sequence, which includes keeping a list of ideas of things you ‘could do’ to move this OKR forward.

Activation Activity planning like OKR planning should be an inclusive activity. And by planning Activation Activities you have:

• Roadmap – you will have a roadmap to help you achieve the OKR
• Belief – you will have created belief the OKR can actually be achieved, and it’s not just wishful thinking
• Resilience – you will have built in resilience, should teams hit a few bumps in the road

Note that it will make sense for all OKRs to have Activation Activities. Which is something that will make more sense as you learn and start to use the OKR methodology to set goals that align with your strategy.

Creating A Process To Evaluate Trade-offs

Ultimately, the key to using the OKR methodology successfully is to prioritize OKRs that align with the company’s strategic direction, have the highest potential for positive impact, are feasible given available resources, and mitigate risks effectively. Effective communication and collaboration within the leadership team are essential in making informed and balanced resource allocation decisions. Here are some of the decision making criteria we teach you to use and platform in our software.

• Strategic Alignment: Evaluate how well each opportunity aligns with the company’s strategic goals and objectives. Prioritize OKRs that directly contribute to the long-term vision and growth plans.
• Impact and ROI: Assess the potential impact and return on investment of each opportunity. Consider the financial, operational, and customer-related benefits that can be achieved. Prioritize OKRs that have a high potential for positive outcomes and measurable impact.
• Feasibility and Resources: Evaluate the feasibility of executing each opportunity based on the available resources, capabilities, and expertise within the organization. Consider factors such as budget, manpower, technology, and time constraints. Prioritize initiatives that can be realistically implemented given the available resources.

• Risk Assessment: Identify and evaluate the risks associated with each opportunity. Consider potential challenges, uncertainties, and external factors that may impact the success of the initiative. Prioritize OKRs with manageable risks and a higher likelihood of success.
• Trade-offs and Opportunity Costs: Recognize that committing resources to one OKR often means sacrificing resources for others. Consider the opportunity costs of investing in one area versus another. Evaluate the trade-offs and determine which OKRs will deliver the greatest overall value to the organization.

• Continuous Evaluation: Regularly review and reassess resource allocation decisions. Monitor the progress and outcomes of OKRs and make adjustments as needed. Flexibility and adaptability are crucial in an ever-changing business landscape.

OKRs Can Make Company Alignment Easier

Aspiration Made Safe

Unlike other goal setting frameworks, the OKR framework encourages you to set goals that are hard and a little aspirational, but should be doable. You know they are doable because you have taken to time to plan the steps needed to achieve the OKR. 

You will notice in the examples we’ve written in the FAST Transformation Toolkit that we’ve added ‘aspirational’ and ‘committed’ labels to Key Results. These tell the reader how ambitious the target is and whether it’s expected that 100% progress towards that target is expected. The general rule-of-thumb is progress of 70% or more of an aspirational Key Result is seen as success, and 100% of a committed Key Result. A complimentary approach when using a KPI as a Key Result is to have two targets, a target you’re happy to commit to and a stretch / aspirational target. This way you don’t worry about success thresholds.

A Final & Important Side Note Before Choosing The OKR Framework

Philosophically the OKR framework encourages ambition, transparency, and learning and discourage low-balling targets, hidden progress, and fear of failure, and in doing so unlocking the additional performance benefits associated with being stretched. This means that you need to have or develop a ‘psychologically safe’ culture – which is something you want anyway. 

We go into this more as part of the FAST Transformation Toolkit should this be new to you and something you’d like to learn more about.