Dear Andy: Annual Vs. Quarterly OKRs
My company has recently set our annual goals and are now working on our departmental OKRs. I know OKRs are supposed to be set quarterly, but is this really necessary when we have a very clear idea of where we want to be in a year? What are the benefits to setting quarterly goals vs. annual goals?
Great question. OKRs are often done in what we like to call ‘nested cadences.’ These are best explained with a ‘Russian doll’ metaphor. I know, bear with me here.
Think of your company’s mission goal or vision as the biggest doll. Open it up and inside you’ll find a strategic cycle (around 3-10 years). Next up is the annual cycle, and finally, the last and smallest doll is a normal OKR cycle which usually lasts about three months (or one quarter). Though each cycle/doll may differ in size, they each contribute to the greater whole.
You’re wondering what’s the benefit of setting goals so frequently, correct? Well, if this past year has taught us anything, it’s that things change. As we all know, new challenges arise frequently and without warning (hello 2020), so it is crucial for any company to be able to swiftly and deftly adapt. It’s entirely possible that goals set in January may not be relevant by October. Quarterly OKRs (i.e. the smallest dolls) allow for agility and flexibility that annual goals alone cannot provide.
Quarterly OKRs also encourage teams to take innovative and game-changing risks. Why, you ask? Let me give you a very formal and very serious example.
Imagine you’re eight years old and your lemonade stand just finished its most profitable year yet. After counting all the quarters in your jar, you’ve made fifty dollars this year! You’re an ambitious eight-year-old though, with big dreams, and decide you want to make one hundred dollars next year. You run this number by your mom/investor and younger sibling/underling and they balk at your audacity. You’ve done the math, however, and you tell them to reach one hundred dollars, you only need to sell roughly four more lemonades per week than you sold last year. A few extra sales a week sounds much more reasonable than that big scary hundred dollar number, doesn’t it? Suddenly, everyone’s on board and you’ve got yourself a motivated workforce!
Metaphor aside, setting quarterly OKRs can make even the loftiest of ambitions feel immediately achievable. Your team or management will be much more willing to invest in greater and more ambitious endeavors if they know they have the ability to evaluate and assess progress quarterly (or weekly/monthly) rather than annually.
Does this mean you shouldn’t set annual goals? Absolutely not! We encourage teams to set their annual goals and make them visible. They should serve as a broad framework or guidance for the year and should inspire your quarterly OKRs. Going back to the lemonade stand, everyone involved knows the annual goal is to make one hundred dollars, but the immediate focus is on selling four additional cups of lemonade per week.
In the end, there are many different ways for companies to adopt OKRs—it’s all about finding what works best for you and your team. We’ve found the ‘nested-cadences’ model to be immensely beneficial to a diverse array of lemonade stands and hope it will be for yours, too.
Thanks so much for writing in, George, and best of luck to you.
Sincerely, Billy from the What Matters Team
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