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15Five's Ultimate Guide For Making OKRs Work At Your Company (Part One)

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Everything you need to know about how to make Objectives and Key Results (OKRs) work at your company. It includes examples, best practices, and mistakes to avoid. Learn how to manage by objectives like top execs from Salesforce and LinkedIn, the history of the practice, and how to align OKRs with your company vision and values.

Published in: Business
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15Five's Ultimate Guide For Making OKRs Work At Your Company (Part One)

  1. 1. ULTIMATE GUIDE For Making OKRs Work AT YOUR COMPANY 15Five’s
  2. 2. 2 | 15Five’s Ultimate Guide for Making OKRs Work at Your Company INTRODUCTION What do today’s most successful, fastest growing companies have in common? Companies like Yammer, which was sold to Microsoft for $1.2 Billion, or Salesforce which grew to $1 Billion in revenue in 10 years, all practice management by objectives (MBOs) for goal-focused, company alignment. Inc. 500 companies (and even some Fortune 100 companies) all use a variety of slightly different models; OKRs, V2MOMs, Rocks, etc. The common themes are creating objectives every quarter, implementing metrics to measure them, communicatingalongtheway,andthendiscussingsuccessandmissedopportunities when the clock runs out. In his best-selling book, Mastering the Rockefeller Habits, Verne Harnish provides an overview of three habits that are crucial for successfully managing a business. Harnish, who has been described as “the guru of fast growth companies”, observed that businesses need to do the following: 1) Create 5 overarching priorities for the year and the quarter, as well as priorities for individual employees that align with those of the organization. One of the company priorities should include a theme for the quarter or year. 2) The business must have sufficient data to provide daily or weekly insights, along with key performance metrics for each employee. 3) To maintain company-wide alignment and drive accountability, the company must have an effective communication rhythm of effective daily, weekly, monthly, and annual meetings.
  3. 3. 15FIVE.COM | 3 Create an overall theme for the quarterly goal, and implement a rhythm of feedback and meetings that maintain alignment and accountability. Communication Rhythm Every employee has measurable results that are tracked and updated each week. Employees regularlyupdatetheirperformance statistics so that management can see the performance of individuals, teams, and the entire organization at a glance. 2 Data The company establishes 3-5 top priorities every quarter. Each team and individual employee creates objectives that are in-line with the company-wide priorities. Priorities When applied to OKRs, these three elements make for a powerful business practice… 1 3
  4. 4. 4 | 15Five’s Ultimate Guide for Making OKRs Work at Your Company The communication rhythm is the most vital element for creating growth. Communication provides context to the data so that when employees and teams fall off target, managers have a method for discovering why. Analyzing employee performance and team dynamics involves listening to employees to hear a story more subtle and complex than the numbers alone can convey. This qualitative analysis provides a complete picture of the health of organizations who know that their people are the main determining factor between success and failure. When managers view and analyze performance metrics, they often need more context to determine the causes of success or failure, and how to take action. Rather than looking at performance figures in a vacuum, managers can take a step back to see what employee behaviors influenced the numbers. For example, a company can look at sales figures as a KPI, without looking into the quality of the demos that were done or the number of customer phone calls made. Holistic management practices like soliciting regular employee feedback coupled with management by objectives, allows managers to delve into the drivers of employee performance. Was productivity low for a certain time period? Why? Asking questions can provide valuable information to replicate what’s working and to turn failures into wins. “Themes create the focus & the fun, but what makes a quarterly goal achievable is daily and weekly rhythm aimed at keeping everyone informed, aligned, and accountable.” -Verne Harnish, Mastering the Rockefeller Habits
  5. 5. CHAPTER 1 THE HISTORY OF MANAGEMENT BY OBJECTIVES
  6. 6. 6 | 15Five’s Ultimate Guide for Making OKRs Work at Your Company THE HISTORY OF MANAGEMENT BY OBJECTIVES Objective and Key Results, or OKRs, are certainly nothing new. The practice was invented at Intel in the 1970s as the company pivoted to create computer processors instead of memory chips. Managers across the various teams used OKRs to prioritize quarterly objectives for employees that were aligned with greater company goals. By the time the personal computer revolution began, Intel was using OKRs to become one of the world’s largest manufacturers of microprocessors. Rocks are used by many Inc 500 companies and most of the Entrepreneurs’ Organization and the Young Presidents’ Organization. Steven Covey developed the term, which was later popularized by Verne Harnish in his book, Mastering The Rockefeller Habits. In The Seven Habits of Highly Effective People, Covey provided the analogy of placing rocks into a jar. Just like the workday, the jar has limited space. When people begin by adding sand and then add pebbles (the small tasks), they will not have room for the large rocks (the more important, time-consuming tasks). To make everything fit, Covey suggests putting the rocks in first, then the pebbles, sand and water. Starting the day with the most important tasks first allows for plenty of time for all the smaller, less important things. The same logic is applied to each quarter of the year. The path to success lies in simplicity and finding the leverage. Focus only on 3-5 major objectives that are aligned with the company goals. Rocks Today, Google, Zynga, Yammer and many Silicon Valley companies use the OKR model as a way to quantify what they are working on and measure their ability to achieve those goals. The main idea is to prioritize important things first, then focus on the finer details. Various other systems have evolved based on this original OKR model. All are built around the same basic premise with nuances that fit into the ethos and values of each particular organization. 1
  7. 7. 15FIVE.COM | 7 There are many different ways to move employees along the path, from formulating objectives to producing effective results. No matter the acronym, these simple and highly focused systems have been proven to work time and time again, and are easier to put in place than one would think. V2MOMs are a variant being used by Salesforce, another company that needs no introduction. The acronym that stands for vision, values, methods, obstacles, and measures was invented by CEO Marc Benioff. Benioff believes that “while a company is growing fast, there is nothing more important than constant communication and complete alignment.” V2MOMs helped make Salesforce successful because of the simple path that was laid out from goal visualization to accomplishing results. Benioff has seen the process work with every stage of company growth: “We’ve used it as a business plan for our startup, and we find the same construct to be effective for outlining the annual goals of a public company.” MORPHs (or mission, objectives, results, people, and how) have been used at Yammer for years. CEO David Sacks offers that the mission gets people thinking about their individual contributions at the company. Guided by that, they come up with their top 3 to 5 objectives for each quarter. Results are the metrics used to measure performance of those objectives and the how looks at how each person did that quarter. The big picture is that MORPHS are a symbol for change and progress within the company. What separates this practice from the others is the “P”, or people. Yammer considers how employees fit into the completion of objectives. Do they need to hire new people or reconfigure the teams? Everyone’s role within the company is defined in such a way that they have ownership over a certain sphere and the ability to achieve the desired results. MORPHs are what Sacks calls an “exercise in alignment”. V2MOMs MORPHs 2 3
  8. 8. CHAPTER 2 FITTING OBJECTIVES INTO YOUR COMPANY VISION AND VALUES
  9. 9. 15FIVE.COM | 9 FITTING OBJECTIVES INTO YOUR VISION, MISSION AND VALUES InSimonSinek’sTedTalkentitled,HowGreatLeadersInspireAction,Sinekrefocuses companies away from thinking first about what they do, and instead figure out WHY they’re doing it. This not only impacts the services and products, but also the people who build out and fulfill the company vision. No matter how great the vision, the world will always be pulling companies away from fulfilling their higher purpose. Management has to consciously and intentionally move toward it with everything they do. The worst thing one can do in having a corporate philosophy is to write it on the wall and never talk about it again. Drifting away from purpose will set the company on a course toward rampant cynicism. Employees will point to the wall of values and say, “Be the Change? Ha! We’re not that, that’s a joke.” In cases like this, companies are better off not having values at all, rather than a lack of organizational integrity and trust. Your company vision must be supported by your core values, and business leaders want those values to be more than meaningless words. They want all employees to live them in their daily work with joy, commitment and creativity. At 15Five we drive home the values by asking this question every week, “Which company value are you most aligned with this week and why?” By answering this question every week, employees can embody each value as a way to achieve their goals and do their best work.
  10. 10. 10 | 15Five’s Ultimate Guide for Making OKRs Work at Your Company 12 Questions are so powerful that they influenced the creation of objective based management. Andy Grove developed OKRs at Intel in response to two questions: Where do I want to go? How will I know I’m getting there? These questions are really asking people how they focus their time at work. With OKRs, yearly and quarterly objectives are broken down by team and again by employee. Each objective fits into the company mission, vision, and values. At the 2013 First Round Capital CEO Summit, LinkedIn CEO, Jeff Weiner, discussed how the company grew to a $20 Billion valuation by developing a strategy to achieve objectives in a fiercely competitive market. OKRs are how companies fulfill their mission while staying aligned with their vision and values. The CEO is responsible for setting the direction of his or her company. Not only to develop yearly and quarterly objectives but to be the chief advocate of the company mission, vision, and values. Every company leader must connect each action and initiative to the deeper purpose, and check in regularly to make sure the team is inspired and the company philosophy is alive and well. “Missions can be defined in terms of concrete objectives, and a company can be measured by how well it achieves them.” -Jeff Weiner, CEO LinkedIn The OKR process basically works like this: • The company sets 3-5 objectives for the year and for each quarter. • Each team sets 3-5 objectives that are aligned with the ones leadership sets for the company. • Employees work with managers to set 3-5 objectives and corresponding key results that are aligned with team and company objectives. • Employees and managers gain mutual agreement on setting OKRs as stretch goals that are not easily achievable and are not tied to performance evaluations. • Make OKRs transparent throughout the company so that everyone sees the bigger picture and can hold each other accountable. • Employees evaluate their key results (score them) at the end of each quarter -- target set by company is typically between 60-70% success. Company OKRs Objectives & Key Results For Each Department OKRs For Each Individual Employee

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