By Jackie Luo, TCV Growth Partner -
Over the years, we have seen many acronyms emerge for corporate performance management frameworks such as KPI (Key Performance Indicators), SMART (Specific, Measurable, Attainable, Realistic, and Time bound), and most recently - OKR (Objectives and Key Results). Among them, I like OKR the best. First, it’s forward looking, which encourages businesses to set audacious and aspirational goals. And second, it provides a tool to motivate and align the teams.
That’s perhaps why more and more businesses are adopting the OKR method. The Seattle based software company Ally.io, which provides tools for companies to use the OKR method to manage performance, has seen over 1,000 leading high-tech, manufacturing, financial services, and healthcare businesses across more than 80 countries adopting its tools. The company was launched in 2018, and by 2021 it has acquired more than 1,000 customers. That’s evidence of how companies are increasingly moving towards the OKR methods. They use it to manage not only their normal operations, but also business transformations.
Last year, Ally.io was bought by Microsoft. Microsoft plans to integrate Ally.io and Microsoft Viva. Together, they enrich how people and teams come together to build alignment and achieve better business outcomes. Over the next year, Microsoft plans to bring Ally.io into the Microsoft cloud, evolve the existing integrations with Microsoft Teams, and weave Ally.io into Viva, Office, Power BI, and the broader set of Microsoft 365 apps and services.
What is OKR? “OKR” stands for “Objectives and Key Results.” It is a goal setting and leadership tool for communicating what you want to accomplish and what milestones you’ll need to meet in order to accomplish it. The origin of this performance management practice can be can be found in the book written by the legendary venture capitalist John Doerr, “Measure What Matters”.
Why is OKR better than other performance management tools? I believe it is better in the following 3 areas:
1. It asks the business to set aspirational goals. OKRs are forward looking, and typically the goals are set with 12-18 month time horizons. They encourage leaders to step out of their day-to-day responsibilities and think about their aspirations. For example, a sales team may be hovering around 10% close rate, but the industry best practice should be 25%. In order to make this significant improvement, the team needs to agree that they want to achieve the 25% target. After that, they will take action to improve the results, measure their progress, and continuously adjust until the goal is obtained. Napoleon Hill said, “whatever the mind can conceive and believe, it can achieve.” In order to achieve high performance, you must set high goals.
2. It aligns the people and teams within an organization. The OKR setting exercise starts at the top of the organization, and trickles down to teams and individuals. For example, the CEO sets the company’s top objective to be “tripling our sales revenue in 12 months”. Then the CEO works with the VP's in sales, marketing, product development, customer support, and HR to develop the functional objectives. After some discussion, the marketing team sets their objective as “doubling weekly web leads within 6 months” and the sales team sets their objective as “doubling sales close rate, from the current 12% to 25% in one year”. You can see how this exercise of setting OKRs brings individual teams together to align their goals and actions, to achieve the company’s high-level objectives. That’s the power of OKRs.
3. It motivates employees. Employees don’t just work for a paycheck. They work for a purpose and recognition. Human beings are goal achieving machines. Nothing motivates them more than an opportunity for them to set a high goal and achieve it. When we set a worthy goal, half of the work is done. Objectives in the OKRs are aspirational and inspire employees to aim high. Working towards an aspirational goal makes employees more engaged and feeling more connected. I am sure this is part of the rationale behind Microsoft’s purchase of Ally.io and integrating it with their employee experience tool Viva. They believe the integration will “will enrich how people and teams come together to build alignment and achieve better business outcomes.”
In the post pandemic world, many businesses are trying to find ways to better engage their employees. They need to align the employees to a common purpose and a worthy goal. I believe using the OKR method will help them to do just that. Need help with goal setting and employee engagement? Jackie can help - Jackie@TCV-Growth.partners.