Welcome to the second part of this series titled “5 Ways OKRs Will Fuck Up Your Organization and Why That’s Wonderful.” In the first part, we looked at how OKRs will expose your lack of strategy. In the second post of the series, we will explore how OKRs will expose your inability to describe outcomes. Let’s dive into it!
Thinking About Success
Before any initiative starts and people become active, ask two specific questions:
- What will success look like?
- How are you going to measure that success?
These questions help to create alignment, shine light on areas that are still unclear, and surface unspoken assumptions. And, wouldn’t you know it, the first question will help you describe Objectives and the second one will help you describe Key Results. These questions are the essence of OKRs. Simple, right? Well…
I remember trying to guide the first team I ever used OKRs with through their first OKR-setting session. I posed the two questions mentioned above to get them to focus on the desired outcomes. Then they got to work. The team kept coming up with input- and output-focused Key Results like “Finish project x,” “Keep doing activity y,” and “Deliver milestone z.” These were very different from the outcome-focused OKRs I had asked them to describe. The team members didn’t understand why I kept asking them to refine their OKRs. I didn’t understand why they didn’t understand me. Fun times.
This experience is typical. People want to use OKRs. They nod their heads when I talk to them about outcomes. They have no idea what that actually means. When they finally get it they realize that measuring outcomes will require them to work in a different way. Some teams will make that change. Most won’t.
The Difference Between Inputs, Outputs, Outcomes, and Impact
So let’s look at the difference between Inputs, Outputs, Outcomes, and Impact. ChatGPT provides the following definitions that I find helpful:
Inputs refer to the resources, efforts, and activities invested in an endevour. These can include financial investments, human resources, equipment, and materials.
Outputs describe the tangible products, goods, or services resulting from a development intervention. These are the direct results of the input activities.
Outcomes represent the real-world changes that occur after the production of outputs. They focus on the short- to medium-term effects of an intervention.
Impact refers to the long-term effects and broader societal changes resulting from the endevour. It goes beyond immediate outcomes.
ChatGPT also gives an example of a Tech Company Launching a New Software Product:
- Inputs: Investment in R&D, software developers, marketing budget, and technology infrastructure.
- Outputs: Software developed, number of units sold, marketing campaigns executed.
- Outcomes: Increased customer base, enhanced customer productivity, better market penetration, targeted change in customer behavior.
- Impact: Industry-wide changes in productivity standards, sustained revenue growth, improved company market position, and technological advancements in the field.
The Effects of Not Tracking Outcomes
In my opinion OKRs work best when they target outcomes, I’ll outline why below. So is it forbidden to track outputs? Absolutely not.
Years ago, I was working with a company that manufactured all kinds of home improvement items. They had long, incredibly optimized processes and established sales channels. This allowed them to accurately forecast expected revenue reliably. In a stable environment in which monitoring outputs leads to success, it makes sense to operate like that. They eventually decided that OKRs weren’t the right tool for them and that a traditional roadmap made more sense.
So while tracking outputs isn’t bad per se, there are downsides to using OKRs but not focusing on outcomes. These include the following:
- Outputs often result in binary Key Results, which make it super difficult to track actual progress. Binary Key Results are the ones that only trigger a single question “Have we already achieved this or not?” with the answer being either yes or no. Examples include “Finish project x.” or “Acquire customer y.” There’s no actual measurement going on and progress will be completely opaque. At some point during the OKR cycle, the answer simply switches to “yes”. Or it doesn’t and you will find out right at the end. Measurable outcomes offer you a fine scale. Shoot for percentage figures, for indicators moving from number x to number y.
- You can deliver all the outputs in the world but not achieve a single outcome. This is called ineffectiveness. Seeing lots of things getting done might give you a false sense of security. You can nail all your output OKRs and still have the worst business year in company history.
- Outputs preclude adaptability because they fix the solution space. Outcomes give you flexibility regarding possible solutions. They let you switch approaches half-way through and still achieve success.
The Benefits of Tracking Outcomes
Why do I believe tracking actual outcomes is so important? Here are just some of the reasons that I have identified:
- Outcomes measure the actual value delivered to stakeholders. This means you’re not simply staying busy but making real, measurable progress that matters.
- Teams are empowered to determine how best to achieve the desired outcomes. This creates a sense of ownership and responsibility. By focusing on what needs to be achieved rather than how, teams can explore innovative solutions and adapt their approaches as needed, leading to better overall results.
- Outcomes provide clearer insights into performance, helping to identify which strategies and actions are effective and which are not. This clarity is crucial for making informed decisions and driving continuous improvement. Organizations can quickly pivot and improve based on what the data reveals about the effectiveness of their actions.
- By understanding which initiatives drive the most significant outcomes, organizations can allocate resources more effectively, ensuring that time, money, and effort are invested in the most impactful areas.
- Working towards outcomes provides a sense of purpose and meaning, as employees understand how their work contributes to the organization's success.
Moving to Outcomes
When I started using OKRs with my clients, I asked the two questions outlined in the first paragraph. Most of the time, I would just get something like “Make as much money as possible.” So I started digging deeper. “How do you make money?”
- “Our customers pay us!”
“How do they pay you? By single transaction? Or do you have a subscription model? Or something else?”
- “They pay a monthly fee.”
“How do you acquire new customers?”
And so on.
In order to keep track of all the information, I would put post-its on a wall. Meticulously, we would work our way backwards from “Revenue”, always making sure to identify indicators of success that could be measured. Eventually, we would arrive at success indicators that could be influenced by the team I was working with within a quarter. Looking at the whole map, I would tell the participants “Right now, this is your theory of how you generate success. It might be accurate, it might be way off. That’s why it’s a theory. You can use this map to set OKRs. But most of all, OKRs will help you test this theory and adapt it.”
I felt like a genius for having invented this. Until I learned that, of course, other people had invented this before. This was essentially what’s known as a KPI tree. Amazon seems to use a similar thought pattern (though not visualized the same way as far as I know) in their Weekly Business Reviews. No matter what, this is a really useful technique and a cornerstone of successfully using OKRs. You can learn more about this tool in the Holisticon OKR Guide in the section “A Theory of Success”.
What To Do Now
Outcome-focused OKRs are so useful because
- they will help you actually measure progress and move away from binary Key Results
- they will create the alignment you’ve been looking for
- they can enable cross-functional collaboration (if that is helpful) by providing a focal point that is independent of specialization
- they help you measure the effectiveness of your strategy
If you’ve been using output-focused OKRs, try moving towards outcome-focused OKRs. You can even keep your outputs and start asking what effect you’re hoping for after those outputs are delivered. Use the Theory of Success technique outlined above. Yes, it’s difficult. But it makes all the difference! Doing so will also help with the next dysfunctions we are going to look at.
