03 OKR and Strategic OKR - How to Solve Organizational Growth Problems #
Hello, I am Teacher Liu Liu.
As mentioned in the previous section, the reason why OKR is popular and why internet companies are so enthusiastic about OKR is because OKR can help us achieve better operational results in a VUCA (Volatile, Uncertain, Complex, and Ambiguous) environment and activate individuals within the organization.
So, what are the goals that need to be managed in an organization? And how does OKR solve organizational growth problems? If these two questions are not thought through, no matter how good the goal management method and practice are, they may only be superficial and not really solve the root cause issues of long-term organizational development.
How are organizational goals determined? #
Organizational leaders should have their own operating theories when engaging in a business, and these theories first need to address three fundamental questions:
- One, what is the organization’s vision?
- Two, what is the organization’s special mission?
- Three, what are the core capabilities required to fulfill the organization’s mission?
Vision: The ultimate destination the organization wants to reach, the role and positioning it desires in the broader environment, is the organization’s vision. Mission: The reason why an organization exists, the value proposition of its existence, and the value orientation that supports the realization of the vision. Core capabilities: An organization will face specific industry segments, and the knowledge and technological accumulation possessed in these segments are the organization’s core capabilities. It is precisely because of these core capabilities that the organization’s mission can be guaranteed.
Let me give you an example of JD (京东).
- JD’s vision: To become the most trustworthy company globally.
- JD’s mission: Technology-oriented, dedicated to a more efficient and sustainable world.
- JD’s core capabilities: Technology and service company based on the supply chain.
JD’s vision is JD’s positioning in the industry and environment, and it is JD’s ultimate goal. To become the most trustworthy company globally, JD needs to bring value to the world, and this is also JD’s mission: dedicated to a more efficient and sustainable world.
The mission is the foundation for JD to achieve its vision. If JD fails to make the world more efficient and sustainable, it would lose its reason for existence and miss the opportunity to realize its vision.
Finally, the supply chain is JD’s core capability. It is precisely because of the core capability in the supply chain that JD can fulfill its mission. The supply chain serves as the foundation for JD’s business choices and guides future business expansion and innovation.
Therefore, we can observe that the long-term goals of an organization correspond to the organization’s vision, and the objectives that support the realization of the vision in stages are based on the organization’s core capabilities. We commonly refer to this selection as strategy. So, what is the significance of the strategic direction based on core capabilities for an organization?
Strategy is about solving organizational growth problems #
At the beginning of 2020, the CEO of JD Retail, Xu Lei, gave a speech that defined the main theme of JD Retail as “accelerated growth with quality” and stated, “Without growth, we will exit. Accelerated growth is our inevitable choice. In 2020, JD Retail will achieve accelerated growth in the four core indicators of transaction volume, revenue, users, and profit.” Three major “battlefields for sure-win” chosen by JD around the main theme of growth are: omni-channel, emerging markets, and platform ecology. Internally, these strategic directions are known as “the sure-win battles” at JD.
From the sharing of Xu Lei, the CEO of JD Retail, we can obtain three very important corresponding relationships:
- Strategy determines the direction of organizational goals, corresponding to the aforementioned three sure-win battles.
- The chosen business direction needs to solve the problem of growth, which is the aforementioned main theme.
- Growth is reflected in indicators, corresponding to the aforementioned “four core indicators.”
We can summarize these three corresponding relationships into a sentence: Organizational goals determined by strategy need to help the organization solve growth problems and reflect growth in multidimensional indicators.
Using the example of JD, the organizational goals determined by strategy, namely “omni-channel, emerging markets, and platform ecology,” need to help JD solve the problem of “accelerated growth with quality” and reflect growth indicators in the “four core indicators of transaction volume, revenue, users, and profit.” This is the significance of strategy for an organization, and regardless of how the strategy is chosen, growth is ultimately the goal. Here, I would like to remind you that as a business organization, in order to achieve strategic goals (such as growth), corresponding capabilities need to be matched. These capabilities include business capabilities and personnel capabilities, as well as considerations regarding organizational culture and efficiency. Therefore, focusing solely on four core indicators—transaction volume, revenue, users, and profit—is not enough for the direction chosen by the strategy and the resulting growth. Therefore, at the beginning of the year, Xu Lei also stated at the 2020 JD Retail New Year Conference that in order to achieve quality growth, JD will also undergo comprehensive optimization and innovative development in terms of organizational optimization, culture development, and talent management.
In other words, we not only need to focus on financial indicators but also non-financial indicators, and not only on business-related indicators but also on organizational ones. With the foundation of the above discussion, let’s see how OKRs can solve and support organizational growth issues.
The Relationship Between OKRs and Organizational Strategy #
First, let’s break down the objective management OKR method:
OKR = Objective + Key Results
The objective represents the goal, and key results represent multiple key results. Combining the analysis in the previous two sections of this lesson, the “O” in OKR actually corresponds to the organizational objectives determined by the strategy, while “KR” corresponds to the growth indicators of the selected strategic direction, that is:
OKR = Strategic Direction (O) + Multiple Growth Indicators (KRs)
Next, let me give you an example of Baidu CEO Robin Li’s OKRs to see how OKRs align with Baidu’s strategic goals and support organizational growth.
Before the Chinese New Year in 2019, Baidu veteran Cui Shanshan sparked an OKR transformation storm within Baidu, sweeping through almost all Baidu employees from the top decision-makers to the frontline staff. As the helm of Baidu, Robin Li set his OKRs as follows:
Through Robin Li’s OKRs, let me provide you with the following three points of analysis:
- As the founder and CEO of Baidu, Robin Li’s objective (O) represents Baidu’s strategic direction, which includes three strategies: building a mobile ecosystem, executing an AI business model, and improving organizational capability.
- Within Robin Li’s three objectives (O), not only do they include business objectives related to the mobile ecosystem and AI track, but also non-business objectives related to improving organizational capabilities. In other words, the choice of organizational strategic direction should not be limited to the business direction alone but should also comprehensively consider the direction of organizational capability.
- For each of Robin Li’s objectives (O), there are three corresponding KRs, representing three dimensions of growth quantified by results. In other words, each strategic direction requires the formulation of multidimensional growth indicators.
This is the relationship between OKRs and organizational strategic goals: O represents the chosen strategic direction, and KR represents the quantified growth results of the selected direction. Each organization may have multiple strategic directions (O), and each strategic direction may have multiple growth indicators (KRs).
Summary #
In this lesson, I mainly answered three core questions for you.
- What is the method for determining the long and short-term goals of an organization?
The long-term goals of an organization correspond to its vision, and the goals that support the realization of the vision in stages are based on the selection of the organization’s core capabilities, which is the organization’s strategy.
- What core problems does a strategy solve for an organization?
A strategy should help an organization solve growth issues and reflect the growth in multidimensional indicators. However, it should be noted that when selecting a strategy and examining its resulting growth, we should not only focus on financial indicators but also non-financial indicators, and not only focus on the business aspects but also the organizational aspects. This is the systematic thinking about how to choose organizational goals and how the organization can grow.
- What is the relationship between OKRs and organizational strategy?
O represents the chosen strategic direction, and KR represents the quantified growth results of the selected direction. Each organization may have multiple strategic directions (O), and each strategic direction may have multiple growth indicators (KRs).
So, what is your company’s mission and vision? What are your phased strategies? If you break down your strategies into OKRs, how many O’s and KRs would you have?