Measure What Matters

1

Google, Meet OKRs

If you don't know where you're going, you might not get there.

—Yogi Berra

On a fall day in 1999, in the heart of Silicon Valley, I arrived at a two-story, L-shaped structure off the 101 freeway. It was young Google's headquarters, and I'd come with a gift.

The company had leased the building two months earlier, outgrowing a space above an ice-cream parlor in downtown Palo Alto. Two months before that, I'd placed my biggest bet in nineteen years as a venture capitalist, an $11.8 million wager for 12 percent of a start-up by a pair of Stanford grad school dropouts. I joined Google's board. I was committed, financially and emotionally, to do all I could to help it succeed.

Barely a year after incorporating, Google had planted its flag: to "organize the world's information and make it universally accessible and useful." That might have sounded grandiose, but I had confidence in Larry Page and Sergey Brin. They were self-assured, even brash, but also curious and thoughtful. They listened—and they delivered.

Sergey was exuberant, mercurial, strongly opinionated, and able to leap intellectual chasms in a single bound. A Soviet-born immigrant, he was a canny, creative negotiator and a principled leader. Sergey was restless, always pushing for more; he might drop to the floor mid-meeting for a set of push-ups.

Larry was an engineer's engineer, the son of a computer science pioneer. He was a soft-spoken nonconformist, a rebel with a 10x cause: to make the internet exponentially more relevant. While Sergey crafted the commerce of technology, Larry toiled on the product and imagined the impossible. He was a blue-sky thinker with his feet on the ground.

Earlier that year, when the two of them came to my office to pitch me, their PowerPoint deck had just seventeen slides-and only two with numbers. (They added three cartoons just to flesh out the deck.) Though they'd made a small deal with the Washington Post, Google had yet to unlock the value of keyword-targeted ads. As the eighteenth search engine to arrive on the web, the company was way late to the party. Ceding the competition such a long head start was normally fatal, especially in technology.

But none of that stopped Larry from lecturing me on the poor quality of search in the market, and how much it could be improved, and how much bigger it would be tomorrow. He and Sergey had no doubt they would break through, never mind their lack of a business plan. Their PageRank algorithm was that much better than the competition, even in beta testing.

I asked them, "How big do you think this could be?" I'd already made my private calculation: If everything broke right, Google might reach a market cap of $1 billion. But I wanted to gauge their dreams.

And Larry responded, "Ten billion dollars."

Just to be sure, I said, "You mean market cap, right?"

And Larry shot back, "No, I don't mean market cap. I mean revenue."

I was floored. Assuming a normal growth rate for a profitable tech firm, $10 billion in revenue would imply a $100 billion market capitalization. That was the province of Microsoft and IBM and Intel. That was a creature rarer than a unicorn. There was no braggadocio to Larry, only calm, considered judgment. I didn't debate him; I was genuinely impressed. He and Sergey were determined to change the world, and I believed they had a shot.

Long before Gmail or Android or Chrome, Google brimmed with big ideas. The founders were quintessential visionaries, with extreme entrepreneurial energy. What they lacked was management experience. For Google to have real impact, or even to reach liftoff, they would have to learn to make tough choices and keep their team on track. Given their healthy appetite for risk, they'd need to pull the plug on losers-to fail fast.

Not least, they would need timely, relevant data. To track their progress. To measure what mattered.

And so: On that balmy day in Mountain View, I came with my present for Google, a sharp-edged tool for world-class execution. I'd first used it in the 1970s as an engineer at Intel, where Andy Grove, the greatest manager of his or any era, drove the best-run company I had ever seen. Since joining Kleiner Perkins, the Menlo Park VC firm, I had proselytized Grove's gospel far and wide, to fifty companies or more.

To be clear, I have the utmost reverence for entrepreneurs. I'm an inveterate techie who worships at the altar of innovation. But I'd also watched too many start-ups struggle with growth and scale and getting the right things done. So I'd come to a philosophy, a mantra:

Ideas are easy. Execution is everything.

In the early 1980s, I took a fourteen-month sabbatical from Kleiner to lead the desktop division at Sun Microsystems. Suddenly I found myself in charge of hundreds of people. I was terrified. Andy Grove's system was my bastion in a storm, a source of clarity in every meeting I led. It empowered my executive team and rallied the whole operation. Yes, we made our share of mistakes. But we also achieved amazing things, including a new RISC microprocessor architecture to secure Sun's lead in the workstation market. That was my personal proof point for what I was bringing, all these years later, to Google.

The practice that molded me at Intel and saved me at Sun-that still inspires me today-is called OKRs. Short for Objectives and Key Results, it's a collaborative goal-setting protocol for companies, teams, and individuals. Now, OKRs are not a silver bullet. They cannot substitute sound judgment, strong leadership, or a creative workplace culture. But if those fundamentals are in place, OKRs can guide you to the mountaintop.

Larry and Sergey—with Marissa Mayer, Susan Wojcicki, Salar Kamangar, and thirty or so others, pretty much the whole company at the time—gathered to hear me out. They stood around the ping-pong table (which doubled as their boardroom table), or sprawled in beanbag chairs, dormitory style. My first PowerPoint slide defined OKRs: "A management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization."

An OBJECTIVE, I explained, is simply WHAT is to be achieved, no more and no less. By definition, objectives are significant, concrete, action oriented, and (ideally) inspirational. When properly designed and deployed, they're a vaccine against fuzzy thinking-and fuzzy execution.

KEY RESULTS benchmark and monitor HOW we get to the objective. Effective KRs are specific and time-bound, aggressive yet realistic. Most of all, they are measurable and verifiable. (As prize pupil Marissa Mayer would say, "It's not a key result unless it has a number.") You either meet a key result's requirements or you don't; there is no gray area, no room for doubt. At the end of the designated period, typically a quarter, we declare the key result fulfilled or not. Where an objective can be long-lived, rolled over for a year or longer, key results evolve as the work progresses. Once they are all completed, the objective is necessarily achieved. (And if it isn't, the OKR was poorly designed in the first place.)

My objective that day, I told the band of young Googlers, was to build a planning model for their company, as measured by three key results:

KR #1: I would finish my presentation on time.

KR #2: We'd create a sample set of quarterly Google OKRs.

KR #3: I'd gain management agreement for a three-month OKR trial.

By way of illustration, I sketched two OKR scenarios. The first involved a fictional football team whose general manager cascades a top-level objective down through the franchise org chart. The second was a real-life drama to which I'd had a ringside seat: Operation Crush, the campaign to restore Intel's dominance in the microprocessor market. (We'll delve into both in detail later on.)

I closed by recapping a value proposition that is no less compelling today. OKRs surface your primary goals. They channel efforts and coordination. They link diverse operations, lending purpose and unity to the entire organization.

I stopped talking at the ninety-minute mark, right on time. Now it was up to Google.

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In 2009, the Harvard Business School published a paper titled "Goals Gone Wild." It led with a catalog of examples of "destructive goal pursuit": exploding Ford Pinto fuel tanks, wholesale gouging by Sears auto repair centers, Enron's recklessly inflated sales targets, the 1996 Mount Everest disaster that left eight climbers dead. Goals, the authors cautioned, were "a prescription-strength medication that requires careful dosing . . . and close supervision." They even posted a warning label: "Goals may cause systematic problems in organizations due to narrowed focus, unethical behavior, increased risk taking, decreased cooperation, and decreased motivation." The dark side of goal setting could swamp any benefits, or so their argument went.

The paper struck a chord and is still widely cited. Its caveat is not without merit. Like any management system, OKRs may be executed well or badly; the aim of this book is to help you use them well. But make no mistake. For anyone striving for high performance in the workplace, goals are very necessary things.

In 1968, the year Intel opened shop, a psychology professor at the University of Maryland cast a theory that surely influenced Andy Grove. First, said Edwin Locke, "hard goals" drive performance more effectively than easy goals. Second, specific hard goals "produce a higher level of output" than vaguely worded admonitions to do your best.

In the intervening half century, more than a thousand studies have confirmed Locke's discovery as "one of the most tested, and proven, ideas in the whole of management theory." Among experiments in the field, 90 percent confirm that productivity is enhanced by well-defined, challenging goals.

Year after year, Gallup surveys attest to a "worldwide employee engagement crisis." Less than a third of U.S. workers are "involved in, enthusiastic about and committed to their work and workplace." Of those disengaged millions, more than half would leave their company for a raise of 20 percent or less. In the technology sector, two out of three employees think they could find a better job inside of two months.

In business, alienation isn't an abstract, philosophical problem; it saps the bottom line. More highly engaged work groups generate more profit and less turnover. According to Deloitte, the management and leadership consulting firm, issues of "retention and engagement have risen to No. 2 in the minds of business leaders, second only to the challenge of building global leadership."

But exactly how do you build engagement? A two-year Deloitte study found that no single factor has more impact than "clearly defined goals that are written down and shared freely. . . . Goals create alignment, clarity, and job satisfaction."

Goal setting isn't bulletproof: "When people have conflicting priorities or unclear, meaningless, or arbitrarily shifting goals, they become frustrated, cynical, and demotivated." An effective goal management system-an OKR system-links goals to a team's broader mission. It respects targets and deadlines while adapting to circumstances. It promotes feedback and celebrates wins, large and small. Most important, it expands our limits. It moves us to strive for what might seem beyond our reach.

As even the "Goals Gone Wild" crowd conceded, goals "can inspire employees and improve performance." That, in a nutshell, was my message for Larry and Sergey and company.

As I opened the floor for questions, my audience seemed intrigued. I guessed they might give OKRs a try, though I couldn't have foreseen the depth of their resolve. Sergey said, "Well, we need to have some organizing principle. We don't have one, and this might as well be it." But the marriage of Google and OKRs was anything but random. It was a great impedance match, a seamless gene transcription into Google's messenger RNA. OKRs were an elastic, data-driven apparatus for a freewheeling, data-worshipping enterprise. They promised transparency for a team that defaulted to open-open source, open systems, open web. They rewarded "good fails" and daring for two of the boldest thinkers of their time.

Google, meet OKRs: a perfect fit.

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While Larry and Sergey had few preconceptions about running a business, they knew that writing goals down would make them real. They loved the notion of laying out what mattered most to them-on one or two succinct pages-and making it public to everyone at Google. They intuitively grasped how OKRs could keep an organization on course through the gales of competition or the tumult of a hockey-stick growth curve.

Along with Eric Schmidt, who two years later became Google's CEO, Larry and Sergey would be tenacious, insistent, even confrontational in their use of OKRs. As Schmidt told author Steven Levy, "Google's objective is to be the systematic innovator of scale. Innovator means new stuff. And scale means big, systematic ways of looking at things done in a way that's reproducible." Together, the triumvirate brought a decisive ingredient for OKR success: conviction and buy-in at the top.

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As an investor, I am long on OKRs. As Google and Intel alumni continue to migrate and spread the good word, hundreds of companies of all types and sizes are committing to structured goal setting. OKRs are Swiss Army knives, suited to any environment. We've seen their broadest adoption in tech, where agility and teamwork are absolute imperatives. (In addition to the firms given the floor in this book, OKR adherents include AOL, Dropbox, LinkedIn, Oracle, Slack, Spotify, and Twitter.) But the system has also been adopted by household names far beyond Silicon Valley: Anheuser-Busch, BMW, Disney, Exxon, Samsung. 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.

At smaller start-ups, where people absolutely need to be pulling in the same direction, OKRs are a survival tool. In the tech sector, in particular, young companies must grow quickly to get funding before their capital runs dry. Structured goals give backers a yardstick for success: We're going to build this product, and we've certified the market by talking to twenty-five customers, and here's how much they're willing to pay. At medium-size, rapidly scaling organizations, OKRs are a shared language for execution. They clarify expectations: What do we need to get done (and fast), and who's working on it? They keep employees aligned, vertically and horizontally.

In larger enterprises, OKRs are neon-lit road signs. They demolish silos and cultivate connections among far-flung contributors. By igniting frontline autonomy, they give rise to fresh solutions. And they keep even the most successful organizations stretching for more.

Similar benefits accrue in the not-for-profit world. At the Bill & Melinda Gates Foundation, a $20 billion start-up, OKRs deliver the real-time data Bill Gates needs to wage war against malaria, polio, and HIV. Sylvia Mathews Burwell, a Gates alumna, ported the process to the federal Office of Management and Budget and later to the Department of Health and Human Services, where it helped the U.S. government fight Ebola.