History of OKRs – From Peter Drucker to Andy Grove6 min read

“Aliyar hates processes.” I heard one of my team mates explain to a new hire.

It was true. I used to hate management by processes. Too much reliance on following processes leads to mediocrity. I’ve seen it happen before and I was determined to avoid it by promote healthy skepticism and a spirit of experimentation. I’m still not a huge fan of processes but I’ve come to see that all processes aren’t created equal.

Building a high performance team requires a disciplined approach to managing performance and rewards. Before fully adopting OKRs I had heard about them but I didn’t fully commit to using Objective & Key Results without some trial and error.

Along the way the two management titans that inspired me the most were Peter Drucker and Andy Grove.

Discovering my Way of Working

Processes are tools and as a manager you can use them to enable your team to excel or stifle inspiration and hold them back.

The most important process an organisation needs to master is how to get its most important work done. I prefer the term Way of Working to describe such processes.

A way of working isn’t just a schematic guide it’s also a culture of shared values.

For me our Way of Working had to lead towards building an environment which attracted high performers and enabled them to do their best work.

It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.

Steve Jobs

Managing myself

If you want to attract and retain high performers you need to start with hiring and training team leaders who can deliver disciplined management and dependable leadership.

I firmly believe that some managers can grow their teams to match their own competence, while others enable their teams to reach beyond anyone’s individual skills.

I wanted to be the latter type.

As a team leader my first responsibility was to commit my energy and skills towards the development of team. Knowing that I’m an over achiever and annoyingly competitive at times, it was my first priority.

On top of that I like testing new ideas, learning and pivoting as often as it’s necessary. I knew that I needed to find a way to set objectives, evaluate them regularly and optimise without driving my team crazy.

I needed a process and that’s when I first came across Management by Objectives.

Peter Drucker and Management by Objective

peter_drucker

Peter Drucker – Wikimedia Commons

Peter Drucker introduced the inclusive, open, consciences and goal oriented management practices that us Millennials adore and advocate.

Drucker believed that managing knowledge workers required a more inclusive approach compared to the authoritarian top-down management style common during the mid twentieth century.

In his book The Practice of Management published in 1954, he popularised his management theory known as Management by Objective or MBO.

A corporation should be a community based on trust and respect for the workers, not just a profit machine.

Peter Drucker

George Odiorne was Drucker’s student and a contributor to his new management theory. He described Management by Objectives – in his book by the same name as:

A process where the superior and the subordinate jointly identify common goals, define each individual’s major areas of responsibility in terms of the results expected from him or her, and use these measures as guides for operating the unit and assessing the contribution of each of its members.

Wikipedia – Management by objectives

Management by Objectives was a revolutionary idea which encouraged managers to involve their subordinates in not only setting common objectives but also deciding the key activities required to reach them.

Management by Objectives inspired a new generation of business managers and leaders. A research published in 1991 showed that CEOs that committed to MBO saw a 56% improvement in productivity versus only a 6% gain where commitment was low. In fact many successful organisations such as HP and Xerox attribute their success to their adoption of Management by Objectives.

Organisations that adopted MBO started doing things differently when it came to

  • Reviewing organisational objectives.
  • Setting employee objectives.
  • Monitoring progress.
  • Evaluating results and
  • Giving rewards.

Performance mismanagement

While MBO is an effective approach it also has an inherent flaw i.e. tying performance to financial rewards. While goal setting is beneficial mismanaging performance and rewards can lead to disastrous results.

When this approach is not properly set, agreed and managed by organizations, self-centered employees might be prone to distort results, falsely representing achievement of targets that were set in a short-term, narrow fashion. In this case, managing by objectives would be counterproductive.

Wikipedia – Management of Objectives

Separating performance from rewards

Look at any job ad out there and you’ll see employers looking for people with deep expertise, independent thinking, problem-solving skills, entrepreneurial attitude and willingness to take on greater responsibilities.

Yet many organisations still rely on yearly performance reviews which are notorious for being time consuming, subjective, demotivating and ultimately useless.

A performance management system is inherently worthless unless it can deliver a subjective analysis of and individual’s i) performance ii) skills and iii) impact on the job.

That’s where Objectives and Key Results come in.

Andy Grove – Father of OKRs

Andy Grove – Wikimedia Commons

Andy Grove was instrumental in transforming Intel into the world’s largest manufacturer of semiconductors. Grove’s management philosophy was influenced by both Peter Drucker and arguably by an essay named The Giving of Orders by Mary Parker Follet written in 1929.

Grove understood that good leadership and not performance reviews was the bedrock for growth. Being aware of the short comings of Peter Drucker’s methodology he specifically separated performance towards achieving organisational goals from financial incentives or compensation.

During his time at Intel between 1968 and 1997 he developed, implemented, tested and refined this management method called Intel’s Management by Objectives which later came to be known as OKRs – Objectives & Key Results.

Grove believed in building an environment where execution trumped over knowledge. In his words:

It almost doesn’t matter what you know. It’s what you can do with whatever you know or can actually acquire to accomplish.

Andy Grove – Quote from Measure What Matters

John Doerr in Measure What Matters wrote

The crucial quality of a healthy OKR culture are ruthless intellectual honesty, a disregard for self interest, and a deep allegiance to the team.

John Doerr – Measure What Matters

OKRs not only separated organisational objectives from individual rewards, his introduction of Key Results also brought the metrics required to measure individual skill, impact and contribution towards the team.

Success stories of Google, LinkedIn and Bill & Melinda Gates Foundation are just few examples of how OKRs not only push organisations towards achieving their Wildly Important Goals but also lay the foundation for a culture based on meritocracy, openness and collaboration.

Main points

  • High performance organisations are successful at building an inclusive and collaborative work culture.
  • Organisations and teams that involve everyone in setting goals get better commitment and results.
  • Having a disciplined approach to goal setting and performance management improves productivity and efficiency.
  • Peter Drucker’s methodology known as Management by Objective revolutionised performance management.
  • Management by Objective didn’t provide a suitable solution for separating performance management from financial rewards.
  • Successful performance and reward management requires using objective metrics for evaluating individual skill, impact and contribution.
  • Andy Grove improved on MBO and developed Objective & Key Results at Intel.
  • OKR align individual activities and performance with organisational objectives.
  • OKR measure individual skill, impact and contribution using Key Results.

Photo by Icons8 team on Unsplash

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