Summary
After finding the balanced scorecard goal-setting method too rigid, performance Dan Montgomery turned to OKRs.
As industries mature, competitors innovate, and technology advances, a nimble work culture is necessary for business survival. No matter the company size, from start-ups to established nonprofits, what’s worked before may no longer work well in this fast changing landscape. Teams need to embrace new approaches and strategies for greater collaboration and overall success.
The Objectives and Key Results framework (OKR) can help teams pave a new way forward that ensures they’re not just keeping up with the new landscape and industry demands, but also staying ahead of them to outperform competitors.
“OKRs are Swiss Army knives, suited to any environment,” John Doerr wrote in Measure What Matters. “In today’s economy, change is a fact of life. We cannot cling to what’s worked and hope for the best. We need a trusty scythe to carve a path ahead of the curve.”
Dan Montgomery, OKR coach and founder and managing director of Agile Strategies, believes commitment to status quo stands in the way of the mind-set shifts and cultural changes needed to help leaders and teams innovate, rethink, and redefine progress to meet the demands of their evolving landscapes.
Choosing a goal-setting framework
“When you’re getting into something new, you have what we call ‘beginner’s mind,’ and you’re open to all kinds of possibilities,” Montgomery said. “And the more you think you know, the more rigid you get … so you actually become less flexible and less accurate. This is why successful companies can fail — because they refuse to adapt to new circumstances.”
Montgomery, a strategic planning consultant for nearly 20 years in the areas of leadership development and performance management, has taught strategy, balanced scorecard (BSC), and OKR training courses in the U.S., Canada, and the Middle East. Early in his career, he worked in human resources, which piqued his interest in organizational culture. “If all you do is focus on the system and the process and you’re not paying attention to the culture,” he said, “it just doesn’t work.”
“I was trained in a traditional way to do strategic planning and started with the balanced scorecard,” Montgomery said. “I liked the fact that the balanced scorecard included multiple perspectives on organizational success. It looked at the intangible things that lead to those kinds of results, which included things like having the right people in the right jobs, having an effective organizational culture… and then having the right business processes and systems in place. It’s a holistic way of thinking about all the things that need to come together in order to have a successful organization.”
The challenges of the BSC framework
Montgomery began to rethink the balanced scorecard model when he was teaching a course on the framework to engineers from local tech companies in San Jose. He said that while the students appreciated the theory, many believed the system was too rigid and complicated to implement within their teams.
“One person said, ‘I couldn’t take this back to my company because the way we do planning is much more dynamic,’” he recalled. The person added, “We could not move fast enough with this kind of a model because it’s too complicated.”
After learning more about the challenges of implementing a balanced scorecard, Montgomery began to rethink the goal-setting approach. As he worked on a book about the balanced scorecard, he began to follow up with clients for feedback on how the framework was working for them. And from those conversations, he discovered something unexpected: All the clients who were making the balanced scorecard work had found ways to simplify.
He said, “They were doing 30 percent of what we told them to do because what we had given them was too complicated. I thought, something’s wrong with this picture, and so I took notes from those kinds of conversations.”
Discovering the power of Objectives and Key Results
After gathering more information from clients, Montgomery left the Balanced Scorecard Institute in search of a simpler approach to goal setting. A year later, he learned about OKRs.
He recalled, “I was talking to tech companies who were also trying to find a more agile way to do the planning. But nobody had a clear answer, and I thought, I’m going to dedicate myself to figuring out ways to do that.”
Exploring Objectives and Key Results became a lightbulb moment. He began to research the framework further, learning of the OKR success stories of Google and many other tech companies.
In 2013, Montgomery founded Agile Strategies, a company that specializes in service industries, health care, hospitality, finance, nonprofits, and government agencies, Agile delivers strategic planning facilitation and OKR coaching. In September 2018, he wrote the book Start Less, Finish More: Building Strategic Agility With Objectives and Key Results, a step-by-step guide on strategic planning using OKRs, with a focus on the agility that helped build Silicon Valley.
Comparing OKRs with balanced scorecard
Montgomery realized that OKRs — like the balance scorecard — required a cultural shift as well, as teams needed to push beyond their comfort zone and test their limits.
“That’s the thing that’s profoundly different about OKRs from balanced scorecard,” he said. “Both of them set goals and have clear, rigorous metrics. But there’s a huge cultural difference with OKRs that has to do with stretch goals, being willing to set your sights high and fail and learn from it — which I had not seen in other models.”
Montgomery believes that cultures must give teams the permission to aim higher and learn from their mistakes and failures. “What made a lot of those Silicon Valley companies great is that they embraced that,” he said. “And I think other people in all kinds of other industries are open to that now.”
A leadership mind-set and uncoupling compensation from OKRs
Montgomery thinks that a shift in mind-set is critical when successfully implementing the OKR framework — specifically in the area of stretch goals. Stretch goals are high-risk and high-effort goals designed to increase innovation in pursuit of 10x opportunities, and they require teams to ask tough questions and rethink problems.
“With OKRs, we set targets that we expect to meet, maybe 50 to 70 percent of the time,” Montgomery said. "For that reason, our attitude towards failure has to change. Teams and individuals who set the bar high and give it their best and learn a lot along the way — even when they fail — are more valuable than people who, like the Wally character in Dilbert, always play it safe.”
He says teams should redefine failure as an opportunity to learn: “If we try something big, a choice based on our best information at the time, and don’t make it, it’s fine as long as we are conscious of what we learned in the process.”
“This is why OKRs have a huge impact on how we think about individual employee performance and compensation,” he said. “To believe that is to foster a culture in which individuals seek to get credit for success and blame others for failure because their paycheck depends on it.” In Montgomery’s view, this notion can be toxic to a team and can threaten organizational performance.
“One of our clients is a large industrial client and was running a pilot in their corporate services group,” he said. “They had an MBO-style practice where each manager in this group had annual Objectives tied to compensation. After hearing this, they redesigned the performance appraisal process to focus on leadership and team play, behaviors, skills, and other attributes that are clearly individual, and took goal attainment out of the picture altogether.”
Montgomery said this approach sparked a surge of creativity and innovation among the team and brought out the “collective brains of the group much more.”
