02 OKR Value - Why Internet Companies Are All Using OKR #
Hello, I’m Teacher Liu.
In the previous lesson, we mentioned that organizational goal management has gone through several stages, from MBO, SMART principles, KPI, BSC, to OKR. So why is OKR, as the most popular goal management method today, so popular? There are four reasons for this.
For Business: OKR can drive business transformation and support long-term business success #
OKR originated from Intel and was popularized by Google, and its early development could not be separated from the influence of John Doerr. At Intel, Doerr was involved in the business transformation from memory storage to microprocessors. At that time, CEO Grove successfully completed the business transformation by introducing and applying OKR, helping Intel’s management and employees set work goals and priorities for the business transformation, and establishing Intel’s leading position in the global chip industry.
At Google, Doerr, as an early investor and board member, introduced OKR into the management of organizational goals in the early stages of Google, which helped Google develop into a leading search engine company in terms of market value and brand effect.
I introduce the development history of OKR in Intel and Google to illustrate that OKR can help us achieve successful business transformation and continuously support the successful development of an organization.
If OKR were an ineffective method, Google would face challenges in managing and implementing organizational goals, and the organization would not achieve its current performance. Consequently, OKR would also be abandoned.
Therefore, one of the most important reasons for the popularity of OKR is its foundation in the development of Intel and Google: OKR supports the successful implementation of organizational goals, can drive successful business transformation, and ensure continuous business success.
For Operations: OKR can flexibly respond to the VUCA environment of organizational operations #
In October 2017, JD.com CEO Richard Liu mentioned the challenges faced by organizations in a VUCA environment in an article titled “Organizational Transformation in the Fourth Revolution of Retail.” VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity.
With digitization covering every aspect of our daily life, learning, and work, the VUCA nature of the environment has become more prominent. User needs are diverse, variable, and filled with unknown factors. This requires organizations to establish more flexible response mechanisms to keep up with user changes. For example, with the popularity of livestreaming e-commerce on platforms like Douyin, users now prefer the shopping experience of livestreaming commerce. JD.com, as a traditional e-commerce platform, needs to adapt to changing user shopping habits and introduce livestreaming as part of its business operations to meet users’ diverse shopping needs.
To establish flexible operational mechanisms, we must start with the formulation and operation of organizational goals. Internally at JD.com, there is a performance contract (KPI) used for goal management. However, this performance contract is updated every three months and does not allow for arbitrary changes in between, which means we lack the ability to manage uncertainties. Furthermore, because plans cannot keep up with changes, the performance results based on KPI goals at the end of each quarter are often far from reflecting the actual work content and outputs. KPIs cannot truly reflect the organization’s actual operational results.
In contrast, the goal management concept of OKR is different. It advocates establishing a flexible and agile goal management response mechanism. Throughout the goal achievement process, OKR allows for adjustments and modifications to goal content based on actual circumstances. When more opportunities arise, we can seize them through additional OKRs.
For example, JD.com began a collaboration with Beiqi (Beijing Automotive Group) in the middle to late August 2020 to expand its B2B business. This collaborative business goal was then broken down into my department’s objectives. However, when we set the Q3 departmental KPIs in early July, the collaboration with Beiqi had not yet occurred. OKR allows us to manage changing business goals in a timely manner. By the end of Q3, when performance evaluations are conducted, we can comprehensively evaluate the overall business performance of the department and organization using OKRs. In this way, OKR helps us to manage business goals in an agile manner, flexibly obtain performance results, instead of managing them rigidly through KPIs.
This is the second reason why OKR is so popular: the VUCA nature of the operating environment. We urgently need an OKR-style flexible organizational goal management method to respond to changes in the external environment and flexibly achieve organizational performance results.
For Organizational Capabilities: OKR can comprehensively enhance organizational capabilities and win in the second half of the internet game #
Meituan’s CEO Wang Xing once made a wonderful statement about the first and second halves of the internet game: “We rely on dividends in the first half, and we rely on organizational capabilities in the second half.” This not only applies to the internet industry but also to the entire business environment in China. Since the reform and opening up, most industries have been in the blue ocean stage. Anyone who dares to venture into business and work hard can achieve good results. However, nowadays, markets in various industries and fields are approaching saturation, and different companies in the same industry are competing for existing market share. The competition is intense. At this time, what matters is not only the understanding of the market and the business environment, but also the management capabilities of various organizations to gain competitive advantages through cost efficiency. Therefore, we need to transition from the intensive operation of the first half of the internet era to the refined management of the second half.
When it comes to organizational management capabilities, it cannot be separated from the three dimensions of leadership, motivation, and culture.
The working method of OKR establishes a management process based on goal setting, process review, and closed-loop feedback. Through this process, it promotes communication between the superior and subordinate levels in terms of goal setting and achievement, regularly tracks progress in goal attainment, discusses expectations and problems related to achieving work goals, and builds a good working relationship between managers and subordinates, thereby enhancing their leadership capabilities.
In addition, OKR encourages individuals to think about and set organizational goals independently. By incorporating individual ideas in goal setting, it provides the greatest motivation for individuals, transforming the mindset from “being told to do it” to “wanting to do it,” thus increasing employees’ execution power. Finally, organizations that apply OKR will make their OKRs visible to everyone in a certain system, facilitating communication for goal alignment and achieving synergy. When setting OKRs, multiple functional departments will also be involved in discussions and confirmations, which helps the organization cultivate a culture of collaboration, transparency, and integrity.
Therefore, through the application of OKR, it can help employees improve their execution power, managers enhance their leadership capabilities, and the organization cultivate a culture of excellence, thereby enhancing the overall organizational capabilities.
This is why OKR is so popular reason #3: OKR enhances the organization’s management, leadership, motivation, and culture-building capabilities, which is advantageous for organizations to win in the competition of the second half of the internet era.
For individuals: OKR can activate knowledge workers in the organization and contribute to breakthroughs and innovation in organizational performance #
For knowledge workers, using a simple and crude management approach of “carrot and stick” (reward for good performance and punishment for poor performance) neglects the process factors that enable knowledge workers to achieve higher performance. They need to be given more autonomy and creative space.
I once conducted a test in a research and development department at JD.com, asking everyone to write down the main drivers of their work. The data showed that as a software product development team consisting mainly of knowledge workers, the top three motivators for their work were: “having a sense of purpose,” “achieving personal growth,” and “having more autonomy.” Among them, regarding autonomy, people expect to have more decision-making power in their work, rather than being controlled and manipulated by others.
The emergence of OKR coincidentally meets the pursuit of knowledge workers for higher performance in their work. Firstly, OKR starts with goals, allowing each individual to have an understanding of organizational goals, and then encourages individuals to contribute more ideas to achieve those goals, even generating new directions spontaneously, thereby bringing about innovation and breakthroughs in organizational performance. Finally, based on the achievement of organizational and individual goals, OKR evaluates performance comprehensively and provides motivation and promotion incentives accordingly.
For example, when setting performance goals for each person at the beginning of a quarter, it is necessary to align them with strategic goals from top to bottom. However, how to achieve these goals, we encourage employees to come up with ideas and solutions themselves, with managers providing support and assistance instead of imposing their own decisions. In addition to aligning goals from top to bottom, we also encourage everyone to set goals independently as long as they are valuable to the organization. Finally, when evaluating employee performance at the end of the quarter, not only the completion of goals aligned with the strategy is considered, but also the completion of individual self-driven goals, to provide a comprehensive performance evaluation.
Therefore, in an organization, the work goals individuals engage in are closely related to their own ideas, and even the goals are determined by themselves spontaneously. This solves the problem that knowledge workers need a sense of purpose and autonomy. Through the comprehensive evaluation of the completion of both the top-down aligned strategic goals and self-driven goals, OKR provides incentives and promotions, which solves the problem of knowledge workers’ need for personal growth.
This is why OKR is so popular reason #4: OKR activates knowledge workers in the organization, bringing more performance innovation and breakthroughs.
Conclusion #
In summary, I have explained to you the four reasons why OKR is so popular from four perspectives: business, operations, organizational capabilities, and individual capabilities. These are also the root causes of why internet companies are using OKR.
Since OKR is so popular, I believe some of you have already practiced it. What are your experiences and challenges? Feel free to share them in the comments for discussion. For those who haven’t practiced OKR yet, please list the pain points and challenges you have encountered in your organization in the comments. Let’s think together and see if OKR can help solve these problems.
In addition to the above-mentioned values, OKR also contains a hidden technique in the structure of O+KR. What is this technique? I will introduce “how OKR solves the problem of organizational growth” in the next lesson.