08 Process - How You Should Define Managing OKRs #

Hello, I’m Liu Liu.

After introducing the practical application of Objectives and Key Results (OKRs), I believe you have a clear understanding of how to write OKRs. So, when do we usually write OKRs in organizations? Also, we often hear people say that “OKRs never really take off.” How do we solve this problem?

In fact, the main reason why OKR transformations fail to take off in most organizations is the lack of a process mechanism for applying OKRs in the organization. The purpose of this process is to address the issue of whether the “people” and the “tasks” are aligned.

Here, the “tasks” are the basic steps for applying OKRs. The team or organization needs to establish a workflow based on OKRs and run it accordingly. Only then can OKRs be integrated into daily work and provide a basic guarantee for the implementation of OKRs. So, how do we go about implementing this OKR process?

Overall Rhythm of OKR Execution #

Combining the performance management rhythm of most organizations in China, we can operate OKRs on a quarterly basis.

As shown in the above diagram, the overall rhythm of OKR formulation and management for Q2 will start at the beginning of April and end at the end of June. To ensure that this rhythm runs smoothly, organizations need to start conceptualizing and aligning strategic directions in mid-to-late March. Then, at the beginning of Q2, departments and teams can smoothly formulate and execute OKRs for the quarter.

We can extrapolate this for other quarters. Without prior discussion and confirmation of the direction for the next quarter, the entire OKR formulation rhythm will be delayed and the organization’s performance will be affected, resulting in delayed and inefficient results.

In the rhythm of operating OKRs on a quarterly basis, we need individuals, teams, and departments to engage in their work based on the OKR workflow. This workflow consists of three stages:

1. Formulating OKRs at the beginning of the quarter;
2. Reviewing and adjusting OKRs during the quarter;
3. Closing the loop on OKRs at the end of the quarter.

Let’s first look at how to formulate OKRs at the beginning of the quarter.

1. Formulating OKRs at the Beginning of the Quarter #

At the end of 2019, I led a team from a business unit in JD.com (including product, research, and operations roles) to co-create multiple OKR formulation workshops. These workshops were conducted to determine and reach a consensus on the team’s work direction and content for Q1 2020. The core process of the entire workshop is the key process of formulating OKRs at the beginning of the quarter that we need to master.

• We need input from the department’s strategic direction and the expectations of the department head to ensure that the team’s OKR formulation aligns with the organizational strategic direction.
• Each team member individually writes down their perceived business objectives (O) and then clarifies their own O with the team members, followed by discussion and categorization.
• After categorization, refine the descriptions of different categories of O and reach a consensus on multiple business objectives (O) for the team.
• For each O, the team continues to co-create and produce the Key Results (KR) that need to be achieved.

To help you understand, I have posted a photo of our on-site workshop. As you can see, during the workshop, we clearly wrote and posted JD Retail’s strategic intentions on a kanban board, which corresponds to the “Strategic Direction” I marked in the picture. This is the input for establishing the O direction at the strategic level. Guided by the group’s strategic direction, team members first produce their own O directions for future business lines. This ensures that the O directions produced by the team are focused and can support the strategy.

After team members have produced their O directions, we clarify each O and group together those that express the same or similar meaning. This is what I labeled as the “Classification Area” in the picture. In this case, we classified a total of four team business directions. With the classification of the four business directions, we continue to refine and conceptualize each direction. This refinement process is the process of consensus-building for the team’s future business direction.

Once there is consensus on the O direction, the next step is to develop the Key Results (KR) for each O. In this KR part, constant communication and confirmation are needed. The team held nearly 3 formal communication meetings on the consensus of KR, and there were even more informal communications. This continued until both the team and superiors had reached a final consensus on the OKR.

In the process of helping the business team formulate OKRs, we have accumulated valuable lessons and would like to share them with you, hoping to help you avoid these problems when setting OKRs.

• Lesson learned 1: KR needs a responsible person. Without a responsible person for KR, there is no possibility of implementation. In addition, unclear responsibility for KR will result in unclear division of labor within the team, which may lead to problems of mutual avoidance and a lack of specific personnel to undertake and drive the completion of KR.
• Lesson learned 2: For each formulated KR, if there are KR(s) that involve external dependencies, it is necessary to promptly confirm their feasibility with the dependent and cooperating parties. The person responsible for KR should actively communicate with others. Otherwise, the KR produced by an individual may have many defects.
• Lesson learned 3: As a team or department leader, it is important to participate as early as possible. If you cannot join the process of formulating the team’s OKRs in a timely manner, it will result in inconsistent information and a lot of redundant thinking and rework.
• Lesson learned 4: KR discussions are not a one-time process; they require multiple discussions and refinements. Therefore, we should not expect KR to reach consensus as quickly as O.

After setting OKRs, we move on to the execution stage. During the execution of OKRs, what mechanisms do we need to establish to monitor the progress and changes of OKRs?

2. OKR Review & Adjustment Mechanisms #

We usually establish a review and adjustment mechanism for goal achievement processes from three dimensions: daily, weekly, and quarterly. This helps control issues and risks and respond to goal changes.

Daily: Daily Stand-ups

The significance of daily stand-ups lies in monitoring the progress, issues, and risks of work items derived from KR.

Within JD, teams write work tasks on sticky notes and post them on a physical kanban board. The board has three vertical lanes named to do | doing | done (as shown below). During daily stand-ups, team members gather around the physical board and ask the following questions for each work item:

1. What progress was made yesterday?
2. What is planned for today?
3. What obstacles/issues have been encountered? Who needs to assist?

During daily stand-ups, team members need to update the status of work items on the board in a timely manner. For example, if a work item in the “doing” column is completed, it is moved to the “done” column, and high-priority work items in the “to do” column are moved to the “doing” column.

In addition, we need to pay attention to exposed issues, assign responsible individuals to each issue, and follow up on issue resolution. This way, we have a daily feedback loop that not only systematically advances the progress of OKR completion but also helps synchronize and address issues in a timely manner.

Weekly: Weekly Meetings/Reports The significance of a weekly meeting/report is to follow up on the progress and risks of established objectives (O) and key results (KR), as well as manage changes in objectives and identify new ones.

I will use my own JD.com OKR weekly report as an example (the content discussed in the weekly meeting is similar to the report) to share relevant practices with you. In my weekly report, I focus on highlighting these three dimensions:

• Pay attention to the progress and risks of each KR under each O. In my weekly report, I quantify the progress using the completion percentage, as shown in the red section, which is 80% in this case. Then I use the confidence index (1-10) to quantify the issues or risks faced by the KR, meaning a lower confidence index indicates potential risks and a need for focused follow-up to resolve the issues, while a higher confidence index indicates no risks, as shown by the green section, which is 9 in this case.
• Describe the completion status of each KR broken down into weekly tasks. This corresponds to the content of the “daily stand-up” mentioned earlier and can include the tasks completed in the current week, such as 1) and 2) in my report, as well as the tasks to be done in the following week, such as 3) in this case. The daily tasks are closely aligned with the completion of KRs, ensuring the realization of KRs.
• Follow up on changes and new OKRs. In my weekly report, I also present work items that are not part of the original planned OKRs. Once such a situation arises, it is necessary to communicate and reach consensus with the team, the dependencies in that direction, and superiors and subordinates. After reaching consensus, we update and adjust the existing OKR contents or add new OKRs, and then use these OKRs as established OKRs for management and follow-up.

As we can see, the work weekly report based on OKRs presents a three-level correspondence relationship, where multiple work tasks support the achievement of a KR, and multiple KRs support the achievement of an O. These three levels constitute the specific work content of each week. The completion percentage and confidence index of the KRs are two practical tools for quantifying progress and risks. Finally, by focusing on the changes in OKRs in the weekly report, we can respond promptly to changes in the business environment. This way, we have a weekly closed loop that systematically advances the progress of all OKRs and reflects the management of changes in daily work.

Mid-term: Overall OKR Review

The significance of the mid-term OKR review is to review and control the overall progress and risks of individual, team, and departmental OKRs. At this mid-term stage, it is necessary for managers in the organization to reconfirm and reach consensus on the objectives, which provides a guarantee for the actual performance results at the end of the quarter.

Within JD.com, due to the large organizational structure and departmental management scope, when conducting mid-term OKR reviews for my department, I divide them into two levels: departmental managers and the management level, and the management level and frontline team.

For the mid-term OKR review with departmental managers and the management level, I have classified the key points to be aware of during the review:

• Discuss the progress of established OKRs and address any changes, issues, and risks.
• Reach consensus on the progress of newly emerged OKRs and stage-based KRs at the end of the quarter.
• Agree on the timing for subsequent specialized discussions regarding identified significant issues and risks.

For the mid-term OKR review between the management level and frontline teams, our discussion and review content are similar. This is illustrated in the meeting minutes email for the mid-term OKR evaluation of a certain team, as shown in the figure above.

The meeting objective is to “conduct a stage review of Q3 team and individual OKRs, focusing on updates, identifying risk in achieving goals, and whether goal adjustments are needed”.

In organizational management, it is most feared that someone’s work is not related to organizational goals, which we often refer to as “drifting away from goals.” When we use OKRs to manage organizational goals and establish a mechanism where daily and weekly work processes are based on OKRs, we can ensure that everyone in the organization is working towards organizational goals. This not only ensures the efficient implementation of the strategy but also improves organizational management efficiency.

In addition, in some organizations, after performance objectives are established, subordinates may have minimal face-to-face interactions with superiors within a quarter. However, the daily and weekly meetings based on OKRs provide formal channels for continuous communication between superiors and subordinates regarding goal progress and issue feedback. This contributes to establishing good working relationships between superiors and subordinates and significantly enhances leadership within the organization.

The OKR review mechanism established mid-quarter promotes the establishment of friendly feedback nodes between managers and subordinates, which, in turn, enhances the management accountability for performance. Therefore, in an organization, it is particularly important to establish a mechanism based on OKRs that allows for evaluation and adjustment of the goal achievement process at three levels, daily, weekly, and mid-quarter. So after we have followed these process mechanisms, what should we do at the end of the quarter?

3. Quarterly Closing of OKR Management #

At the end of each quarter, we need to conduct a closing management of goal progress based on our OKRs. This closing mechanism can be established by evaluating our Key Results (KR).

Internally at JD.com, at the end of each quarter, we evaluate each KR using a scoring system with four dimensions: “Far Exceeded Expectations: 1 point,” “Excellent: 0.7 points,” “Average: 0.3 points,” and “No Progress: 0 points” (as shown in the figure below).

During the evaluation process, both self-assessment and peer evaluations are considered.

• For self-assessment, individuals choose the completion results of each KR based on the four scoring dimensions.
• For peer evaluations, individuals involved in achieving the OKR rate each KR based on the four scoring dimensions.

For example, a score for a development colleague’s KR will be given by product managers, testing colleagues, and business units. This is because the completion of development KR depends on the requirements provided by the business unit, as well as the prototype design and requirement communication by the product manager, and the quality assurance by testing.

After all parties involved in achieving the goals, including individuals, superiors, and colleagues from different teams, have finished evaluating each KR, a total score is given to each KR and each Objective (O). The score for each O is calculated as a weighted average of all the KR scores.

For example, if an O consists of 3 KRs with priorities of 5, 3, and 2 respectively, and there are 5 people who have evaluated all the KRs, the calculation formula for the O score is: (0.5 * total score of KR1 + 0.3 * total score of KR2 + 0.2 * total score of KR3) / 5. Thus, the final score for each O falls in the range of 0 to 1.

It’s important to note that during the actual process of OKR scoring, we should not only score based on completion rate.

For example, if a person’s OKR content lacks challenges but has a completion rate of 100%, the evaluation score might be 0.3, indicating an average performance. On the other hand, if an employee sets challenging OKRs with a completion rate of 70%, the score might be 0.7 because achieving a 70% completion rate under challenging circumstances is considered excellent. If this employee’s OKR is challenging and has a completion rate of 100%, then the score might be 1, indicating far exceeded expectations.

Therefore, OKR scoring is a comprehensive evaluation based on both completion rate and the difficulty of the KR.

From the four dimensions of OKR scoring, we can see that OKR advocates for setting and accomplishing challenging objectives. The highest score of 1 corresponds to “Far Exceeded Expectations,” while a relatively “Excellent” performance earns a score of 0.7. Therefore, OKR encourages individuals to challenge more possibilities, aiming for breakthroughs. This leads to organizational performance improvements.

The purpose of the quarterly closing management of OKR is to manage the performance results obtained during the organizational phase. At this point, it becomes related to motivation, and ensuring the fairness of motivation becomes important. The design of the OKR scoring mechanism is similar to the mechanism of our 360-degree performance evaluation. It controls individual performance completion from multiple perspectives, avoiding organizational corruption and unfairness caused by personal emotions and evaluation biases. Moreover, relying on OKR to incentivize performance based on results, rather than non-performance factors such as good relationships or personal qualities, ensures the effectiveness of motivation.

Summary #

The goal management cycle may vary for each organization. For example, ByteDance sets OKRs every two months, while I introduced a sample that follows the natural quarterly schedule. In practice, you can adapt the OKR setting and process management rhythm to the unique characteristics of your organization’s business. You can refer to the practices mentioned in my quarterly process and implement OKRs accordingly.

After studying this lesson, which OKR process practices do you find particularly useful? Does your organization have any innovative approaches? What difficulties have you encountered when implementing the OKR process? Feel free to share your experiences and questions in the comment section, and I will help clarify and answer them.

With a process ensuring the implementation of OKRs, the next thing we need to change is the management style within the organization. The KPI-based management model has led to an increasingly rigid organizational state, so how is the OKR-based management model different?

In the next lesson, I will discuss the “Connection and Differences between OKRs and KPIs”.