Measure What Matters
Under the “Read & Grow” series, MMA held a panel discussion on the theme of the book “Measure What Matters” authored by John Doerr. Mr Babu Krishna Moorthy, Chief Sherpa, Finsherpa Investment Pvt Ltd led the conversation with Mr Ramaswamy Perumal (Ram), Founder & CEO, H- Grab Informatix Pvt Ltd., and Mr Aroon Kumar R R, Chairman & Principal CFO, Touchstone CFO Services.
Babu: All of us have boundless number of ideas. But one of the things that we lack is the discipline of execution. If we are able to marry great ideas with great execution, that is what great corporate or organizational success is all about. The book ‘Measure What Matters’ written by John Doerr talks about the concept called OKR—which stands for Objectives and Key Results.
John Doerr is among the top 100 richest people in the United States. He is in the Fortune 100 list of rich people. He is also the partner of a leading firm called Kleiner Perkins, which is one of the early and very hallowed venture capital companies that is 50 years old. They have funded companies like Google, Compaq and Symantec. If you take 100 of the leading IT businesses in the US, at least 25 of them have grown using funds of Kleiner Perkins. John Doerr has been out there with Kleiner Perkins, identifying small corporate ideas and used his expertise in helping them grow and become large corporates. He’s today about 71 and stays in California. He talks about the magic of execution. Recently, he and his wife have donated about a billion dollars to Stanford and established a school within Stanford that focuses on the concept of how metrics can be used to grow organizations.
Marry Ideas with Execution
People like Jeff Bezos of Amazon, Sergey Brin and Larry Page of Google are all students of John Doerr. The fact that they have used this metric and grown proves that this works. Incidentally, John himself was schooled in Intel, a chip making company. Right from the 70s, Intel has had an incredible growth. People like Gordon Moore and Andy Grove of Intel have played a huge part in the growth of the IT hardware industry. That’s where John Doerr first encountered the idea and concept. He has taken it and used it. I believe that the secret sauce to a successful organization is not the brilliant idea. It’s that brilliant idea married with great execution.
As companies grow large, it becomes very difficult to have shared ideas and shared vision. By OKR (Objectives and key results), an organisation must arrive at its objectives and it has to be in the form of a number. For example, how many customers I want at the end of a quarter or a year. Or it can talk about revenue but there’s to be a conscious number or an objective metric around it. The key result, on the other hand, is about the things that the organisation is going to do, to achieve that number and there has to be a metric around it.
For instance, if an organization tries to have a B2C business and it wants to have 100,000 customers at the end of a particular year, then the key result areas could be: How many enquiries I am going to generate digitally. One way to look at it is that if I want 100,000 customers, then maybe I must generate 1 million digital leads, so that it gets converted to 100,000 customers. Everybody knows very clearly what they need to do, if they have to make the company grow to the next level. So that’s a very broad level of this concept of objectives and key result areas. Many corporates swear by this concept and agree that it has helped organize themselves better and reach goals in a much better way.
Ram: OKR is not necessarily for the IT companies, like Google or Intel. It has spread across various sectors. I read there’s a pizza making company called Zume Pizza which implemented OKRs and succeeded. Management by objectives is more in terms of setting the objectives top down. It cascades down to the team. Whereas when you come to OKRs, it is going to be across the organization. Here, the teams start creating the objectives and they will be interacting with other teams in doing this. There’s going to be an intrinsic way of setting the objectives.
You can have two types of goals: aggressive goals and committed goals. You can aspire to get to aggressive goals and if you reach 70% of that, it is good. Committed goals are the goals that you need to complete in the normal course of the business and that needs to be completed 100%. The goals are going to be set by the teams and then shared between the teams. Google follows these two types of goals.
The second is, in setting a goal, you need to know how it is going to be reached. And that is called the key results which will be measured numerically. The key results must be time based. Tracking the overall performance is not done once in a year. This is going to be ideally done once in a quarter. Companies like Google follow a monthly review. The Bill Gates Foundation has implemented OKRs for their Foundation and they have seen success. Companies like the Khan Academy, which is into education and Coursera have also implemented OKRs and tasted success.
Aroon: In our college days, we studied Henry Fayol’s theory of management for our line assemblies and the progress we made with this. Then the father of management Peter F Drucker came out with MBO—Management by Objectives, which was successfully implemented for a couple of decades. At Intel, Andy Grove was very impressed with Peter Drucker’s MBO but he felt that it was not so effective for his company’s growth. He then modified it and called it as IMBO—that is, Intel MBO. It was a tool of thought.
In OKR, we talk about Objectives and Key Results. The objective can be achieving a market share of 10% or a simple one like delighting the customer. It can be a big and audacious goal. The goal is primarily derived from the mission statement. The methodologies and the metrics are important in going towards the objective.
How Google Adopted OKRs
Normally, in our work life, we see that most of the objectives and mission statements come top down. There is hardly a semblance of understanding at the lowest level. When John Doerr presented his idea to Larry and Sergey of Google in 1999 and asked them about their goal, Larry said that they were looking at 10 Bn$ revenues. Google at that time was not the first search engine. Already, six or seven search engines were in place.
Then they looked at achieving that objective within a timescale and worked on the key result areas. They broke it down to products in design, products in production, ways to reach the market and so on. Each vertical or functional head was assigned their key results. The person who was going to execute was taken into confidence. The metrics to achieve the objective were determined.
The organizational structure was flattened in the process. So instead of having seven layers, you may end up with just three layers. The impact can be profound when you have multi-geography firms operating on a time zone difference. OKR enables participation by all the team members or contributors who adopt a business partnering approach in setting the objectives and key results. The reporting structure was made broader and concise and they brought in agility.
When Intel was established, they used the concept of agility to challenge Motorola, their main competitor at that time. We are familiar with budget setting process. Normally we start working on budget in January, interact with other departments, collect data and produce something and then build it up for the management and thereafter for adoption by the Board. This is not going to work in a company which looks at very rapid growth plans. So, they changed the review period to quarterly at the most and to make it successful, the objectives could be amended on the fly and the means to achieve certain goals can also be changed. Google went a step further and adopted reviews on a monthly basis, so course correction becomes easier.
The second significant element is that it was more participatory. Buy-in from the executing person was really deep. There was alignment vertically as well as horizontally with other departments and diagonally too. What they did is to make the management responsible and the goals were made public. As a result, the goal of a Vice President was known to the factory supervisor.
Babu: Many times when we set goals, we’re always looking at it incrementally. If I did a sales of 100 last year, my sales number this year is going to be 120. This book talks about setting challenging goals. It means that if last year sales was 100, the next year goal can be 500 or 1000. We wonder if we are dreaming. They call it a moon-shot, which was first used when JFK announced that America was going to make a trip to the moon by sending human beings in a rocket. At that time, it was so ridiculous an idea that people laughed at it.
One of the ways corporates can grow and achieve extraordinary growth is to have two types of objectives. One is quite an extraordinary one, which is not in the normal realm of thinking. The author goes on to say that it doesn’t matter if you don’t hit it. It’s perfectly okay if you don’t achieve 100% of your audacious goal. Even if you don’t achieve it, you will fall somewhere significantly higher than where your competition is. That’s one big takeaway.
The second is to make sure that you achieve 100% of your normal goals. Just because you’re thinking about an audacious goal, it does not mean you can give up on doing your day to day stuff. Also, the simplicity of the way in which OKRs get implemented is very interesting.
Review through colour coding
In the typical review mechanism of OKRs, the various key result areas are codified in colour forms. Many times, we are overwhelmed with numbers. Colour coding is similar to our traffic signals. If a goal has been reached to the extent of 70 to 100%, it’s marked in green. If it is between 50 and 70, it’s marked in yellow, which tells you that you need to do better and review your process. You have a chance of hitting the goal but you got to change some of the things. The third is in red. If you are achieving less than 40%, then it’s really a red alarm. There’s something wrong either with the way you’re approaching it—either in the process, the idea or the measurement. So go back and revisit. It is easy to look at a colour code rather than trying to figure out numbers.
Ram: John Doerr introduced another concept called CFR, which is like a twin sister of OKR. CFR stands for Conversation, Feedback and Recognition. There has to be a conversation between the manager and the contributor. The contributor can give feedback to the manager and vice versa. There has to be recognition for the contributor. Like OKRs, CFR is also going to be a continuous process, which means you don’t have to wait till the end of the year for annual performance review.
I worked in large companies and my HR would tell me that I need to have a bell curve in ranking the performance of my team members and make sure that I don’t have a right tailed curve or a left tailed curve. John Doerr goes against it. He talks about helping the contributor and the team to improve and go forward. In fact, OKR is not tied to compensation and rewards. Google says that when it comes to the compensation and rewards, the OKR is not even brought in. This is a very key takeaway. I started my company five years back and we are a small team of around 40 people. Tomorrow, we have our Annual Day for the company and my objective is to implement OKR. We are going to write down the key results for that. Along with OKR, I am also planning to implement CFR.
OKR can also be applied on a personal front. Changing your job within 1 year or buying a house within 6 months can be an Objective. You can write down the Key Results for this objective. The key results can be the amount of savings you need to have in your bank account. Though we have been doing this subconsciously, it is better to put it down into a document.
Aroon: There is no additional cost in implementing OKRs. It only requires a change of our thought process. Startups, SMEs and mid-sized MSMEs can make use of this tool in their day to day management as well as to achieve key objectives. For a small scale entity, 100% growth in three years can be a key objective. Capital for expansion is scarce and we are dependent on others including financing institution. The key results can be improving the credit score, so project funding happens. The next steps down the line are the sales target, production to match that, the kind of margins you can afford to get in sales and the terms and conditions for your procurement of raw materials. You need to break down, even in a smaller organization.
Measuring what matters is very important. Wrong goal setting will lead to disasters. A prime example which is quoted is Wells Fargo, which was incentivizing managers to open up new accounts. They went ahead and used their relatives to open multiple accounts and later 5000 people had to be sacked. Here the management set a wrong objective. So, the objective setting must be very clear. Review once in quarter. Cross functional alignment is a key element or characteristic of OKR, apart from vertical and horizontal alignment. The next step is bringing in accountability.
Separate Compensation from OKRs
When compensation is divorced from the objectives, the stress for the employees is removed. In a bell-curve assessment, even if two employees perform very well, only one will be rated in the top and it leads to disgruntlement and demotivation. Continuous Performance Review and 360 degree performance review can help to do away with the bell curve assessment. Also, when annual performance review happens, recency bias sets in and people remember only the recent achievements or failures. In fact, having quarterly or monthly performance reviews helps in better employee motivation and fitment and eliminates recency bias in evaluating the performance.
The next interesting aspect of OKR is the stretch goals. When we exercise and stretch our muscles, we don’t get killed. When we stretch, our muscles get strengthened and toning happens automatically. Dhirubhai Ambani was a prime example of setting stretch goals. In 1998, when a major cyclone hit the Jamnagar Refinery project and it was about to be derailed, Dhirubhai stepped in and said, “Nothing is impossible.” Within 15 days, the project was restarted and the plant was commissioned in less than 36 months. Honestly, I believe OKR can be used in various scenarios like project execution, cash burn, working capital management and even profit orientation.
Babu: The author is very candid in saying that OKRs will not succeed for everybody, which is why you have only one Google. What barriers do you see in implementing the OKR in an organisation?
Ram: It is the visibility of the goals. You must have visibility of top level goals and the goals being set by the individual teams that must be aligned to the top level goals. There should be some platform to implement it and an application of this goal to ensure connectedness and visibility. The peers would be able to see their related teams’ goals and objectives.
Aroon: The cultural issue will be a barrier. It’s a question of belief. If you’re going to bring in and institutionalize OKRs, you need to check out who is going to travel with you in the bus and if they are willing to take it. The top management need to take a call as to the continuance or otherwise of those who are going to do this. Without this, there will be chaos and a stressed environment. Next would be the infrastructure and system requirements to enable this.
Babu: One of the secret sauces of using this tool is the visibility. Everybody gets to see what the others do. Sometimes it can be very unnerving for senior leaders. Suppose the MD is in the Red and a junior executive is in the Green, can the MD face up to it? It is also the culture that matters. There will always be people who will be negative to any new ideas. New initiatives of this nature often fail in organizations, because the top leadership is not on board. If the MD thinks that he has given the tool to the employees and it is up to the organization to implement it and if he goes about his task in his own way, then it is never going to work. The leader must be the person who drives this initiative. The organization will behave exactly as the leader does.