the relationship between okrs and strategy

A client I worked with earlier this year asked me to come in and help them establish objectives and key results (OKRs) for the entire product development organization — nearly 1500 people. I was thrilled. This was an organization anchored for decades in output-focused management techniques. An influx of startups eroding their market share and a drive towards consolidation shocked them into thinking about new ways of working. They were still the market leader and wanted to stay that way. 

As we sat down for one of our first meetings I asked, “Ok, what’s the company’s strategy for the next year?” The blank stares and delayed responses was a dead giveaway that there either wasn’t one or they didn’t know it. “Isn’t that what OKRs do?” they asked me. 

I wish this was a unique conversation. Many organizations believe that rethinking their goal-setting framework will somehow magically deliver the right strategy. To get to the real relationship between OKRs and strategy, let’s do some unpacking. 

What is strategy?

There are seemingly infinite points of view on what strategy actually is. The ones that make the most sense to me are the following three:

“Strategy is essentially an intent, rather than a plan.” — Steven Bungay, author of The Art of Action

“A strategy is a set of hypotheses about cause and effect.” — Robert Kaplan and David Norton

Combining these sources with the two questions from Roger Martin helps us see that strategy is the executive team’s best guess about where the company should focus for the next period of time. It is the leadership team’s job to come up with a strategy and point their teams towards that desired intent. They do not dictate a plan nor tactics but rather set the objective of the mission leaving the teams to figure out the best ways to achieve the strategy. 

Strategy statements are objective statements

Described this way, a strategy statement is indeed an objective statement. However this is not an objective that can be deduced or derived from lower level goal-setting activities. It is one that must be decided at the highest levels of the organization and then shared with the organization along with a compelling narrative to motivate teams to head down this particular path. 

Once that strategy objective has been set, the leadership team has answered Martin’s two questions — Where will you play? How will you win? — and must now move on to the third question, “How will you know you have won?” The answers to this question are in fact the key results for the strategy objective. They are metrics that measure the health of the business. As such they are not necessarily tactical measures of customer behavior but rather impact metrics or KPI’s (key performance indicators). 

For example, an organization could set a strategy objective that reads: 

Become a top 5 retailer of household appliances in Europe by the end of 2022.

Subsequently, the key results might be:

At least 25% of our household appliance revenue comes from European countries

1 out of every 10 refrigerators sold in Europe is our brand

10% of European households own at least two of our products

The leadership team here has set a clear strategic objective of expanding into the European marketplace with measurable determination of whether the organization has achieved that or not. 

Teams support the corporate strategy with their own OKRs

Once this is solidified it must then be broadcast to the entire organization clearly, consistently and with a compelling story as to why we’re heading down this path. Every person in the organization should have access to the strategy and it’s measures for success. There should be no doubt in which direction the company is pointed for the next couple of cycles at least. 

From here teams can start to determine how their work can help achieve the corporate strategy. What can they impact that serves as a leading indicator to moving the organizational key results in the right direction? The OKRs the teams determine for themselves serve the corporate strategy. They do not determine it. Any OKR that doesn’t clearly support corporate strategy should be questioned at the very least. 

The OKRs the teams determine for themselves serve the corporate strategy. They do not determine it.

Finally, as teams begin to work towards their approved OKR goals they may begin to discover gaps in the corporate strategy. After all, it is only a hypothesis the leadership team put together. The evidence the teams collect along the way may challenge this hypothesis. To truly harness the power of OKRs and build organizational agility, leadership teams need to be open to evidence that contradicts the corporate strategy. The sooner the company can find out it’s working towards a false hypothesis, the sooner it can pivot towards a potentially more accurate one. 

OKRs are a part of strategy, they don’t determine it

Setting the right goals informs an organization if they’ve chosen the right strategy to work on and how they’re progressing towards it. Goal-setting on its own, particularly with OKRs, supports the overall corporate strategy. Top-level strategy is the responsibility of the leadership team. If they want to see it blend well with OKRs they must treat it as a hypothesis, set clear success criteria and be ready to change their mind if contradictory evidence surfaces.