OKRs do not cascade
In traditional organizations, goals cascade. It seems it is just something that they do. Goals start at the top and then cascade down. That is very common. And flawed.
What are the characteristics of a cascade (or waterfall)?
It’s a top-down, one-way, irreversible flow, with no feedback cycles that ends crashing on the rocks. Everything an agile, innovative organization does not want to be.
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The cascading model is a residue of a command & control mindset in which decisions simply flow downwards from the top. We have to stop using top-down analogies. Words and images are powerful and help shape the culture of organizations.
Although cascading goals is an improvement over the previous approaches, it takes way too much time. As James Harvey wrote:
[The traditional model] is a top-down approach and often takes too long to achieve alignment. Direct reports are often dependent on the completion of their supervisor’s goals before they can begin building their own goal plan.
I have seen global corporations in which the goal setting process takes 4-6 months. Not only it is a massive waste of resources, but it also leaves employees without clear goals for almost half the year.
There has to be a better way.
Bidirectional Goal Setting
On the topic of goals, the academic research agrees with your intuition: Having goals improves performance. Spending hours cascading goals up and down the company, however, does not. It takes way too much time and it’s too hard to make sure all the goals line up. We have a market-based approach, where over time our goals all converge, because the top OKRs are known and everyone else’s OKRs are visible. Teams that are grossly out of alignment stand out, and the few major initiatives that touch everyone are easy enough to manage directly. So far, so good!
That is why I created Castro’s First Rule of OKRs:
OKRs never Cascade. OKRs Align.
OKRs should be set in a parallel process in which teams define OKRs that are linked to the organization objectives and validated by managers, in a process that is simultaneously bottom-up and top-down.
From the company OKRs, the teams can get a clear direction and understand how they can contribute to reaching those OKRs.
Each team then defines a set of tactical OKRs for the quarter that contribute to the strategic OKRs and that roughly align with them. Teams’ OKRs don’t have to be 100% aligned with the company’s OKRs since they may also choose to include a local OKR.
Creating Tactical OKRs
When creating their Tactical OKRs, each team has to answer two questions:
- How can we contribute to the Strategic OKRs?
- Which of the Key Results included in the Strategic OKRs may we impact?
Tactical Key Results can be:
- A slice of the company OKR (Ex: The company will sell 100, my team will sell 20).
- Hypotheses or bets about how to contribute to the Strategic OKRs (Ex: We will reduce the number of customer complaints because we believe it will increase the repurchase rate).
Teams may have “local” OKRs, but most of the OKRs should contribute to the Strategic OKRs.
There is a rule of thumb that around 60% of the OKRs should be defined by the team, bottom-up, meaning that the managers also have a say on what the OKRs are.
In my experience, if you have a healthy environment tracking this percentage is hard. Usually, the team develops a draft for the OKRs and then there is a conversation with the managers. The company may also choose to standardize a few OKRs between similar teams (i.e., every product team has to increase customer engagement).