Host Intro (Gene Kim)

Thank you, Dr. Westrum.

Okay, the next speaker is Jon Smart, co-author of the amazing book, _Sooner, Safer, Happier_, the book over my right shoulder here. I love this book, and it does such a splendid job in capturing so many of the principles and practices he has developed over the years. It was informed so much by his lessons learned leading the ways of working at Barclays, a bank founded in the year 1635, which actually predates the invention of paper cash.

We have heard so many problem statements being voiced by this community about problems being encountered during the OKR planning process. So Jon has some pretty brilliant observations on what makes for good OKRs versus what makes for bad OKRs, and some incredibly practical advice. I am a huge fan of Jon's work, and I think this might be some of his best work yet. So here is Jon.

Jon Smart

Hi, my name is Jon Smart, and I am going to talk today about OKRs, lessons learned in the implementation of OKRs, around okay OKRs and not okay OKRs, and the three Ms, which are mindset, mission, and measurement.

First of all, we will take a look at what are OKRs. We will then have a look at the anti-patterns and patterns, the lessons learned the hard way. So the patterns are the okay OKRs and the anti-patterns are the not okay OKRs. These are, like I said, lessons learned the hard way. I have experience of implementing OKRs across tens of thousands of people with multiple business units and thousands of products, as well as supporting organizations across different industry sectors in their adoption of OKRs.

We will then take a look at OKR alignment, and in particular this is relevant when you get into size, scale, and complexity, so how OKRs align. And we will take a look at how to get started or how to get restarted.

But before we do that, let us take a look at the rising popularity of OKRs. Taking a look on Google Trends, I looked at the number of searches for the term OKR and the number of searches for the term balanced scorecard. Interestingly, around about the middle to the end of 2018, there was that tipping point where OKR became a more searched term than balanced scorecard. Also, what pleasantly surprised me is that there are now more searches for the term OKR than there are for portfolio management. And again, that tipping point was towards the end of 2018. So pretty recently we see this shift in consciousness around adopting OKRs, and I am sure it is absolutely no coincidence that the rise in the trend there coincides with the DevOps Enterprise Summit, London and Las Vegas.

A symptom of the hype cycle around OKRs: if you type in OKR certification into a search engine of your choice, you will get pages back of organizations who will very happily take your money to make you a COP, a Certified OKR Practitioner.

So first of all, what are OKRs? OKRs are objectives and key results, and there are three Ms for OKRs. I like to think about them with the three Ms. They are all equally important.

The first M is mindset, and this is having an emergent mindset over a deterministic mindset. This is acknowledging that the future is unknowable. And it is also adopting a stance of empowerment, but also taking empowerment.

Second M is mission. This is the objective, and this is outcome over output. And it should be both inspirational and aspirational. The icon on the left there is a flag, and effectively this is planting a flag at a point in the future for teams to then experiment as to how to best achieve that goal, that target, that mission.

And then finally, the third M is measurement. And this should be measuring movement and behavior. So these are the key results, and if you are not measuring movement and behavior, you do not know whether you are actually going to achieve your outcome. You do not know if you are making progress. In particular, behavior. If behavior does not change, you are going to get the same outcomes. So there has to be a change in human behavior to have a change in outcome.

And there should be leading and lagging measures. If there are not any leading measures, again, it is like you are flying blind. You have got no idea if you are making progress on your desired outcome. The better your leading measures, the more agility you can have to be able to pivot.

When we look at the history of OKRs, so OKRs came from MBOs, management by objective. MBOs came from Peter Drucker, who wrote about them in 1954. And management by objective has been the almost universal way that large organizations have organized what work gets done.

So the characteristics of management by objectives: they are top-down. They are generally focused on output and tasks. They are static, typically annual. They are private and siloed. Typically, the objectives are tied into your performance appraisal. They are in the performance appraisal system, so of course they are private. They are not available for people to see in that context. And because they are tied to your performance appraisal, your pay, and everything else, they tend to be risk-averse. It tends to be a case of shooting for mediocrity because you would rather under-promise to be able to over-deliver.

And finally, the prevailing cultural norm is one of command and control, and benevolent dictatorships where the objectives are handed down from the managers to the workers. That tends to be the norm, and that tends to be the starting point.

So in terms of OKRs, it is Andy Grove at Intel who took MBOs, and he evolved them into what today we know as OKRs. He called them IMBOs, Intel MBOs. John Doerr worked with Andy Grove at Intel, and he took the concept to Google in 1999. And Larry is quoted as saying that he attributes the success of Google to the fact that they used OKRs. Today, it is companies large and small, unicorn and not unicorn, who are using OKRs.

So what are OKRs? They are top-down and bottom-up. They are not just a top-down cascade, but they are top-down strategy meets bottom-up teams and team of teams articulating their own outcomes aligned to the higher-level strategy. The focus is on outcomes and experimentation as opposed to output and tasks. Acknowledging that the future is unknowable, focusing on the outcome to achieve, and then running experiments to try to achieve that outcome.

They are more dynamic. They are multi-year, annual, quarterly. They have alignment. You will get feedback. You might get daily feedback, and you can feed that back into your outcome hypotheses, what you think are the right outcomes, and you can pivot. You can exhibit genuine agility. So they are much more dynamic.

They are transparent and aligned, so you should be able to see the OKRs that other teams are working on. So you can see what people are working on, you can clearly identify overlaps or duplication, and you can collaborate. They should be aspirational and inspirational. So some of them should be moonshots, and they are goals to achieve. And the prevailing cultural norm should be one of empowerment and autonomy. As I said before, both giving empowerment and also taking empowerment.

In terms of doing them well, it is very easy to do anything badly, including OKRs. And something that I come across quite often is all of the characteristics on the left being wrapped up in a wrapper called an OKR. So you have got OKRs, but actually, they are just projects. They are projects written as OKRs. They are cascaded top-down. They do not update. And with a charitable intent, it is kind of not surprising because people have a limited velocity to unlearn and relearn. So it requires coaching, and it requires time. And to do OKRs well, to have okay OKRs, they should exhibit the characteristics on the right-hand side on this slide.

So now let us look at some of the common anti-patterns and patterns of OKRs. Let us look at some of the okay OKRs and not okay OKRs. What are the lessons learned?

So first of all, with an okay OKR, some of the patterns. This is an annual objective to be achieved in 2021, and the objective is to have number one market share in Latin America.

When we look at the patterns, so for the mission, for the objective, it is an outcome, not an output. It is a very clear outcome, which is we want to be number one in terms of market share in Latin America. It is both inspirational and aspirational.

In terms of measurement, they are all measurable, one to five. Every single one of them is measurable. They are articulated as verb, measure, from X to Y. For example, increase net promoter score from plus 40 to plus 60. They are measures of behavior. So for example, number one, double the ad click-through rate. That requires a change in behavior. Increase word-of-mouth referrals, number three, from 50,000 to 100,000. That requires a change in behavior. Grow daily digital transactions requires a change in behavior.

There are leading and lagging measures. So the first four are leading measures. They are an indicator that you might increase your market share. The lagging indicator is number five, which is you have increased your market share. If you do not have leading indicators, again, you are flying blind. You do not really know if you are going to achieve your outcome, and you cannot exhibit genuine agility because you cannot pivot because you have not learned anything. So you need early and often feedback loops to know if you are on the right track.

They measure movement towards the objective, so you should be able to plot a trend. So for any of those, you can plot a trend from the from number to the to number. They should be measures of value. So for example, customer net promoter score. Having happy customers is valuable. Word-of-mouth referrals is valuable. Growing daily digital transactions is valuable. And no more than three to five key results per OKR, and it is business and IT as one. It is the organization, not some business OKRs and some IT OKRs. No, they are combined, the organization together achieving business outcomes.

Now taking a look at a not okay OKR. So the objective here is to deliver Project Platypus. So the anti-pattern, looking at the mission, is it is output rather than outcome. Platy-what? And this is maybe surprisingly fairly common, where I quite often come across this with organizations where there are projects with names and you might ask teams, "What is the benefit of this project?" And quite often people do not know because it has been passed down the chain, not really sure what the benefit case was when this was first put together 18 months ago. So no one is really focused on what the desired benefits and the desired outcome is.

It is not inspirational, and there is no time box on this one. The duration is not clear. Is this an annual objective, a quarterly objective, a multi-year objective?

In terms of the measurement and the key results, number one to eleven is a task list. This is an activity list. These are not key results. They are not measurable. They are not measuring a change in behavior. There are no measures of value. There are no leading indicators of value. There are too many key results, which is common when organizations start on this journey. It is IT only as well. Where is the business value? Even for initiatives which only involve IT, there has to be some business value; otherwise, why are we spending money doing it?

Now on to the mindset. We have looked at the mission. We have looked at the measurement. Now on the mindset and the patterns around the mindset. The background image here is a Japanese Zen garden, and I think it is appropriate for the mind because OKRs are as much a philosophy as they are a framework. It is culture over process. Watch out for new labels on the same old behavior.

You will have not okay OKRs if the approach is to treat them as if they are a process and a framework and leave the culture unchanged. It requires a mindset of emergence, experimentation, and empowerment. Acknowledging that the future is unknowable, maintaining options and optionality, running experiments, learning quickly with empowered teams. They are top-down, bottom-up, and sideways. Less is more. There should be no more than three to five OKRs per value stream. There should be a regular cadence of review to reflect and pivot. And again, it is business and IT together delivering on a business outcome.

Now taking a look at OKR alignment. So in particular, this is around simplicity and complexity and large organizations. How do OKRs align? First of all, if we do a double-click on a quarterly OKR and see what is inside it, what is comprised within an OKR, you can break them down into experiments. I like to use the word experiment because the future is unknowable, and let us face it, they are experiments. You can equally use the word initiative, or you could use the word epic. When you break that down, you have daily stories, you might have weekly iterations, and ideally, you have continuous delivery.

Going up towards strategy, those quarterly outcomes are aligned to an annual outcome. And you will have multiple value streams, assuming you have multiple value streams, assuming you have multiple products, you will have multiple annual outcomes. For larger organizations where you have got multiple business units, you will then have multi-year OKRs aligned to the business unit. So if this was a bank, the area on the right might be an investment bank, and the area on the left might be a retail bank. And then you have got the group-level strategic objectives. So these are the strategic objectives, multi-year across all of the business units.

Before we get to the worked example, on the left-hand side, it is both top-down and bottom-up, and it is continuous strategy alignment. So you have got a continuous feedback loop on your multi-year strategy. On the right-hand side, you have got regular value realization, and you have got a feedback loop, and you can pivot. So you have got typically a monthly cadence on your quarterly outcomes. So at least once a month, you have got a feedback loop on your key results. And that is across the organization. That is incredibly powerful to be able to exhibit genuine business agility.

So imagine you are a luxury retailer, worked example, strategic outcome: top three most valuable luxury brand. When you then go into the business units, luxury bags and fragrances. Luxury bags, you break that down. The goal is to be top three market share in China. For fragrances, top five global brand. Break that down within luxury bags: you have got handbags, the handbag value stream. And the goal here is to increase market share in China within the next 12 months. Break that down into a quarterly outcome. The goal is to increase market share in Shanghai. Break that down into experiments. In the first month, we are going to run an online promotion, and we are going to hire some social media influencers to take selfies with our bags, post them on Instagram. So that is how you slice the elephant. That is how you slice it into value and learning. And that is how you align, and you can align across value streams.

Now, how to get started or how to get restarted. So to get going, think big, start small, and start. Start broad and shallow, which is your strategic top-level multi-year outcomes, and then narrow and deep. Do not try to big bang it; narrow and deep. Pick pilot areas. Go down to your quarterly outcomes, down to your monthly experiments, and your daily stories. Have a bias to action because the only way you will learn is by doing. Do not spend 12 months in PowerPoint.

Appoint OKR champions. So have some named people who are OKR champions to provide support. Be patient and be resolute. Expect to get it wrong. Expect four to five quarterly cycles to be able to fully embrace OKRs. It is common sense, but it is not common practice. And like most things, it is actually hard to-- it takes a lot of unlearning and relearning to do it well.

Create a community of practice, an OKR community of practice for shared learning. Expect the reinvention of the PMO. So this is the PMO reinventing itself to the VRO, the value realization office, to support the organization on OKRs. If you are interested in more on that, I did a talk in June 2018 at the DevOps Enterprise Summit, where we have a bit of a case study on that. And experiment and enjoy the journey because it is about the journey rather than the destination.

In terms of the help I am looking for, I would love to hear your stories, your adventures with OKRs. I would love to hear about your patterns and your anti-patterns. Thank you very much.