When leading a company to long-term success, the development and definition of an overarching vision, a resulting mission and a holistic strategy are essential. The company strategy acts as a guiding principle for all further measures needed to reach the overall company goal. While certain frameworks, such as OKR, can be used to help support the strategy, the OKR metric should not be used to replace the entire strategy. Continue reading to learn why OKRs cannot be used to replace a company strategy and how the two can be optimally combined.
- How are OKRs and company strategy related?
- Advantages of OKRs in regard to strategy
- OKRs vs. strategy: Where can problems arise?
- How can OKRs and strategy be optimally combined?
- North Star metric with OKRs
- OKRs and strategy FAQ
To best understand how OKRs and strategy are related to one another and how this can lead to problems, it is necessary to briefly clarify both concepts.
What are OKRs?
Objectives and Key Results is a framework used to support the process of executing a company strategy. With help from OKRs, transparency, strategic focus, alignment, and collaboration among teams and hierarchies can be improved.
This is achieved by setting relevant outcomes (Key Results), which make the achievement of company goals more predictable and measurable. This also leads to increased added value for customers.
While the OKR framework can have many positive effects on internal collaboration, OKRs can also have great advantages in terms of strategy. They operationalize and make it more tangible. Each Objective and its respective Key Results are the means to effectively pursue a more comprehensive strategy based on the company’s mission.
The introduction of Objectives and Key Results can also reveal strategy weaknesses. Suddenly, new questions arise, such as:
- What is the customer’s actual added value?
- How can the success of strategic priorities actually be measured?
- Are all projects and teams really working towards a common goal?
OKRs automatically encourage each team member to ask themselves questions like this and, in addition to improved team dynamic, the strategy can also become clearer, more transparent and ultimately better.
Apart from the aforementioned positive effects OKRs can have on company strategy, however, problems can also arise.
Problem 1: Differing time horizons
A company’s strategy is always designed for the long term. Successful implementation is not always guaranteed, but it does set a direction for the company.
OKRs, on the other hand, are set for the medium term, usually on a quarterly basis. Each OKR Cycle helps to meet this medium-term goal. However, this framework cannot guarantee that all of the following quarters will build on the ones before. For this reason, it is important to ensure that OKRs are always built on the existing, long-term strategy. This is the only way to be sure identified dependencies or problems will be taken into account for subsequent planning. In this way, the OKR Cycles can build step by step on the long-term strategy and lead to company success.
Problem 2: No strategic anchor for OKRs
Thanks to OKRs, companies are able to break down the strategy to all areas of the company and develop Objectives and Key Results for each department. From then on, all of these OKRs work towards the overall strategy. However, this is exactly where problems can arise. A clearly formulated strategy is needed before one can optimally work with OKRs.
If no strategy exists, or it is not well developed, mistakes can creep in. If it is not clear what goal is being worked towards, outcomes cannot be formulated.
This leads to Key Results becoming simple to-do lists, which in turn leads to results-oriented work and the outcomes that are more relevant for the company cannot be reached. Without a strategic anchor, OKRs do not lead to optimal results.
You can read more about outputs and outcomes in our magazine article here.
To prevent these problem areas even before the OKR drafting, a company strategy should be clearly formulated beforehand. This should be done not only to establish the overall direction of the company, but also to derive various “smaller” goals from it. Based on these specified goals, various company departments can formulate useful OKRs that can build on one another between quarters. A suitable strategy alignment for this is the North Star metric.
The North Star metric, also known as the North Star alignment, is the alignment of entire teams within a company to a bigger, overarching goal. This method has the advantage of bringing a certain order to the table, especially under chaotic circumstances. The North Star strategy is a suitable tool for guiding team members in a certain direction. This is particularly helpful for start-ups, where a great deal happens all at once—especially in the initial phase—and chaos is often unavoidable. Team members can then use OKRs to break down the strategy to their level. Depending on the level of the company, this time frame for alignment may be longer or shorter.
Specialized strategy execution tools, such as the Workpath graph, are suitable for ensuring North Star alignment at all times. This helps to visualize the various dependencies within the company, which in turn shows each employee how important their work is for the entire company.
How do company strategy and OKRs relate to one another?
The company strategy determines the overarching (long-term) direction of the company, letting all teams know what they are working towards. The OKR framework supports the entire organization by defining suitable, medium-term goals that all work towards the respective strategy.
What advantage do OKRs offer in terms of strategy?
The OKR framework has many positive effects, especially on internal collaboration. On the one hand, OKRs help make the strategy tangible for all team members and, on the other hand, they help make it easy to identify strategy weaknesses. It can then be optimized.
What problems can arise between OKRs and strategy?
Since the company strategy is based on the long term and OKRs on the medium term (usually quarterly), they both have differing time horizons. If attention is not paid to clearly formulating the strategy and the different OKR Cycles are not built on one another, the individual Key Results can quickly turn into a simple to-do list of tasks instead of clear, specified goals. As a result, only outputs are generated instead of company-relevant outcomes.
How can OKRs and strategy be optimally combined?
The first step should be to clearly formulate the company strategy. This paves the way for everything else and various Objectives and Key Results can be easily defined. The North Star metric is suitable for the best possible alignment of team members to the company goal. With help from alignment tools, such as the Workpath graph, various dependencies within a company can be visualized.