We are so impatient. God forbid our browsers take five seconds to load.
We take technology for granted in part because a few revolutionary companies reset our expectations. Truly awe-inspiring technologies like going to the moon, smartphones, search algorithms, and the promise of artificial intelligence don’t happen as a consequence of incremental change. They are a function of companies reaching for “10x” improvements in performance.
Venture capitalist John Doerr was a pioneer in Silicon Valley, building companies such as Intel and Google to be what they are today. In Doerr’s New York Times bestseller Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs, Doerr chronicles how Google and others broke through being startups to become companies with hundreds of billions in enterprise value.
Google embraced management practices first introduced in “the Valley” by Andy Grove of Intel. Grove’s maniacal focus on OKRs (objectives and key results) was the straw that stirred the drink.
Doerr’s book resonates with me because we operate in an environment in which more and more is written and said about measurement and metrics, and yet it feels harder to hold people accountable. Our business culture is ripe with poorly-planned projects, missed deadlines, and badly-executed meetings.
What’s truly fascinating about OKRs is that they work for large and small companies for different reasons. Startups have limited resources and little time and capital to waste. OKRs help them achieve more with less. Large companies are often challenged to manage value-destroying complexity and need common goals across divisions and geographies.
No matter your company’s stage, this strategy can help. Here are some keys to developing awe-inspiring goals and objectives:
1. Setting a true north
Companies often define an alpha goal as their single point of truth. One of my clients recently experienced an industry shakeup which required a reset of expectations.
During the few months when the leaders’ intentions were unclear, employees lacked clarity on what corporate success looked like, which manifested in poor departmental goal setting. If you don’t have a clear true north, your employee won’t understand where the company is headed.
2. Setting effective goals
In helping dozens of companies set goals, I’ve learned that there is danger in creating goals that are unachievable. Unattainable goals are deflating to employees. Every company should have two sets of goals.
One should be conservative and used for purposes of creating a budget or setting bank covenants. These are numbers you know you need to hit.
The second set should be more aspirational and used for setting incentive plans and phantom stock plans. They define what success looks like. They should be stretch goals, but not so aggressive that they are unattainable.
3. Tying back to strategy
Best-in-class companies create a link between strategy and the things they measure. Metrics should measure a company’s strategic intent.
For example, if your company were to enter a new market, you probably wouldn’t yet have operational numbers to measure success in that market. You might have some sales expenses in your profit and loss statement, and that’s about it. Measuring the number of sales calls or scope documents written within a business segment would be more meaningful indicators if your company is achieving its strategic objective.
Make sure you have key performance indicators (also known as KPIs) that matter–ones that will predict your future profit and performance.
4. Performance management
The distinction between OKRs and other goal-setting systems is that, in the cases of Google and Intel, these goals cascaded down to every department and employee.
While companies are moving away from traditional performance reviews, goals provide the connective tissue between the objectives of the corporation and the individual contributions of employees. Every supervisor should sit down with each employee regularly to discuss status versus goals (monthly if not quarterly).
As Americans, we believe in competition. Well-thought-out incentives drive behaviors we want, and poorly-constructed incentives drive poor results. Our health care system comes to mind as an example: Doctors are paid based on how often they see patients.
A popular incentive plan design today is to set aspirational goals, but to pay out when less than 100 percent of the target is achieved. For example, you might set a payout of 75 percent when 90 percent of the target is hit.
Having a useful and flexible incentive plan is critical. Design a system that incentivizes employees to reach for stretch goals. If you create a high-expectation environment within your company, your employees will come along for the ride.