OKRs and strategy: please give me feedback
Unlocking Potential is a newsletter by me, Francisco H. de Mello, CEO of Qulture.Rocks (YC W18)
|Francisco Souza Homem de Mello||Jan 22|| 8|
As you know, writing is a big part of my life. Actually, I think I wouldn't have become an entrepreneur if it wasn't for writing - but that's for another post.
Anyway, I update the books I've written almost yearly. I think that's one of the greatest things about self-publishing. Most of my books bear little resemblance to what they looked like when I first shipped them.
This week, I've been rewriting parts of our book on OKRs, which is called OKRs, From Mission to Metrics, available both on Amazon (for a small price) and on our website (we need to update the version).
What I wanted for this edition of Unlocking Potential is to share a chapter of it with you, and kindly ask you for feedback. Please tell me one or two things you think would make it dramatically better!
Where do OKRs come from?
"One day Alice came to a fork in the road and saw a Cheshire cat in a tree. 'Which road do I take?' she asked. 'Where do you want to go?' was his response. 'I don't know,' Alice answered. "Then," said the cat, 'it doesn't matter!'"
Lewis Carroll, Alice in Wonderland
As we've seen above, OKRs are a strategy execution tool, that falls in a greater discipline in management that encompasses strategy formulation and strategy execution. Ideally, one shouldn't exist without the other.
Strategy formulation always starts with the company's mission and vision statements.
They should explain why the company exists, which itself is an interesting limiting factor that helps an organization figure out where are the boundaries of its footprint in the world. As we'll see below, mission and vision, when done correctly, are two sides of the same coin: whereas the mission describes why the organization exists (in a nutshell, a problem the organization wants to solve,) the vision describes a future world where the mission has been accomplished.
After vision and mission are set, the next step is actually formulating the strategy of the company. Strategy is a very tricky term to define - we haven't found a definitive answer - but a great way to think about it is as a series of decisions, tradeoffs, and milestones that will maximize the chances of the company fulfilling its mission.
Many companies use the second form of *vision* as these milestones discussed above. You may have heard, during the last decade, of companies' 2020 Visions. These are not so qualitative and inspirational as the organizational vision, but more detailed and even quantitative where possible. An organization can have a 10-year vision, but also a 5-year vision, a 1-year vision, and even a vision for every short cycle (we'll talk about short cycles in a bit.) Finally, there are OKRs, which help an organization bridge the gap between its current state (let's say, today) and its first strategic milestone or vision. OKRs are all about the critical few gaps that the company must close to get there, articulated as Objectives, Key Results, and as we'll see, efforts such as Projects and Initiatives.
Anyway, this is not a book about strategy formulation, nor about the broader discipline of strategy execution. It's about OKRs, which are one of the tools a company has at its disposal to help it execute on its strategy. So in this chapter, we'll just glance over the bigger picture of strategy formulation and execution, to give you some context, and then we'll plow back into OKRs.
Vision and mission, mission and vision
vi · sion (/ viZHən /) noun: The ability to think or plan the future with imagination or wisdom; a mental picture of what the future will or could be.
"If people do not internalize the organization's mission and vision, they will not use them to make day-to-day decisions, and if they do not use them in their daily lives, all the effort will have been in vain."
At Qulture.Rocks we read many Silicon Valley pundits talking about mission and vision statements and are amazed by how little clarity and how much confusion there is around what these terms really mean, why they exist, and how companies can leverage them the most. Therefore, we’re going to talk a bit about how to write your company’s mission and vision statements.
How pundits define mission and vision
Pundits (a general term for whoever tries to define these terms) rarely agree on what a great mission or vision statement really means.
To start, let’s look at one of the most referred to articles on the subject: Jim Collins’ "Building Your Company’s Vision," which went on to become the core idea behind *Good to Great*, Collins’ business best-seller.
In the first line of the article, which was published in the Harvard Business Review, Collins and his co-author, Jerry Porras, write “Companies that enjoy enduring success have a core purpose and core values that remain fixed while their strategies and practices endlessly adapt to a changing world.” Reading that is already very confusing. In an article about vision, the author has a first-line talking about core purpose and core values.
They then try to clarify it a bit, and go on to say “[vision] has two principal parts: core ideology and envisioned future.”
Let’s examine this a bit more.
By Googling “how to build company vision,” we stumble upon an article at the Openview Venture Partners website, written by portfolio CEO Firas Raouf, that defines mission as “what a company is striving to be in the long term” and vision as “how it can get there," asking "what things need to be executed to accomplish the mission?”
How big companies write their mission and vision statements
Big companies don’t really help us better understand what these concepts – mission and vision – mean.
Google’s mission statement, found on its website, is “… to organize the world’s information and make it universally accessible and useful.” There’s no mention of there being a vision. If we unpack it, there’s a first part that talks about how Google makes an impact on the world (organizing the world’s information and making it easier to retrieve), and a second part that talks about how Google wants the world to look (a world where information is organized and universally accessible and useful).
Amazon’s mission statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavor to offer its customers the lowest possible prices.” Amazon’s mission concentrates on what the company wants to become (Earth’s most customer-centric company). It goes on to explain in more detail how that’ll be true (where customers can find a lot of stuff cheaply).
It seems like these two giants don’t define their vision statements. They only talk about their missions. Now, if we read their missions, it’s very hard to abstract a consistent pattern on what a mission should look like.
What happens in the “old economy”
If we look at the “old economy” for reference, we get even more confused. Koch Industries, for example, defines its vision as: “Koch Industries is a trading, investment, and operating company that aggressively identifies and acquires companies in which it can leverage our strengths to generate superior earnings or market value.” Their mission is “Koch Industries seeks to maximize the present value of future profits. Doing so provides security and opportunity for stockholders and productive employees, while also benefiting customers and society….”
Now, unpacking Koch’s mission and vision is a trip. Their mission basically describes what business the company is in (buying out other companies for cheap, but companies where they have an edge). Their vision, on the other hand, describes what benefits the company wants to bring to its stakeholders (security and opportunity for stockholders and employees, and less explicit benefits to customers and society).
As you have probably inferred, after reading about how pundits, big tech, and the "old economy" talk about mission and vision, it's impossible to deduce what these terms actually mean, and how a company should use them.
If you're feeling more confused than when you started reading this article, that’s exactly how we felt when we tried to understand what great mission and vision statements look like to articulate our own statements at Qulture.Rocks.
After this long journey, which included countless other references, we agreed upon the following definition:
The *mission* is the company’s purpose. It’s why it exists. A great helper is to think “How would the world be negatively impacted if our company ceased to exist?” At Qulture.Rocks, for example, our mission is to “help people and organizations unlock their potential.” Google's mission statement is almost there.
The *vision* is how the world will look like if the company fulfills its purpose. At Qulture.Rocks, our vision is “a world where everybody can do their best work at a culture that rocks.”
As you can see, mission and vision statements are like two sides of the same coin. If the company fulfills its mission, the world will look like its vision. If it reaches its vision, it will have fulfilled its mission. So if they’re well written, both statements will feel harmonious.
Company-centric x customer-centric
Using broad strokes, the company’s mission can be company-centric or customer-centric. Google’s mission (or the part of it that looks like a mission by our definition) is customer-centric. If a customer reads it, she immediately relates to the company's impact on her own life. Koch’s mission, on the other hand, is company-centric. It basically talks about how the company makes money in very practical terms.
We believe missions should be as customer-centric as possible, and more abstract in nature. At Qulture.Rocks, for example, we’re not talking about anything other than the impact we were created to have on the world.
Another good guideline is to not mention your line of business in your mission and vision statements. They should be more about the world, and less about the how of your company’s impact. The how is more about strategy and tactics: how the company chooses, today, to bring that impact to the world. However, that can change if it ceases to be the most efficient way to do it.
For example, we don’t cite software or technology in our mission statement. That’s because we’re about cultures that rock, and not about software. Software is how we choose to pursue our mission, but it can change to another thing (content, consulting, wearables) if we think that would cause more impact.
Back to Google and Amazon
Now that we’ve – hopefully – agreed on the definition of a mission and vision statements, let’s go back to Amazon’s and Google’s mission statements and see how they pass our test.
Again, Google’s mission statement is "to organize the world’s information and make it universally accessible and useful.” It’s kind of a blend between a mission and a vision. The first part looks like a mission: Google exists to organize the world’s information and make it easy to access. However, it gradually blends into a vision, because it gives us a vivid description of what the world will look like if they’re successful: a world where all information is easy to access and useful. We’d give it a 7.
Amazon, on the other hand, has a worse mission statement. As we saw earlier, it reads “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” That looks much more like a vision statement to us, and quite a company-centric one, for that matter. It describes the future, but in terms of what the company will look like in the future, and not how the world will look.
By now, I hope you have a better grasp of what constitutes good mission and vision statements. As we’ve seen, a mission is the company’s purpose. It’s why it exists. A great helper is to think “how would the world be negatively impacted if our company ceased to exist?” Vision is how the world will look like if the company fulfills its purpose.
Your company doesn’t need to talk about both a mission and a vision. As we’ve also seen, when they’re well-written, they kind of convey the same message to readers. Google’s, for example, is a mission statement with elements of a vision statement and that’s fine.
Actually, since we're using *vision* in another context below (as in 2020 vision) we'll just ask you to stick to a great mission. Just make sure people can understand, in terms that are relevant to them, why your company exists and/or how the world will look if it fulfills its purpose.
From the mission of the company, which is quite generic in terms of how it can be achieved, the next step is to define your strategy, which is the journey from today until mission accomplished.
If you're not a startup (in Steve Blank's sense, which is 'an organization in search of a repeatable and scalable business model') the starting point of your strategy is already defined as your organization's present state.
The journey, then, will describe a series of choices the company has to make around its business that will hopefully maximize its chances of fulfilling its mission, as well as a series of visions or milestones that will allow the company to see if it's in the right direction and course-correct.
A good strategy is usually painful to produce because it forces the company to make difficult choices (or trade-offs). It's impossible to compete for price and quality at the same time. It's difficult to open up many markets at once. Resources are scarce and certain choices make other choices unfeasible.
A great resource on the nature of these choices is A.G. Lafley's Playing to Win methodology, that describes two main choices a company must make in its strategy formulation: *where we will play,* and *how we will win.*
*Where we will play* is about the boundaries where the company will operate at a given point in time: geographies, product categories, customer segments, go-to-market tactics, and so on.
*How will we win* is about defining the company's value proposition and positioning, and its competitive strategy.
These choices are not static. The strategy is precisely about how the company will sequence and time changes in them from today until the far future. For example, if we look at Amazon, we'll see that it first built its proprietary eCommerce business and then, only after it was big, became a marketplace. eBay, on the other hand, has always been a marketplace play, with no inventory. That's strategy. If we look at Google, we'll look that it first sold its products online, without the help of a sales force. But it quickly hired a bunch of salespeople to cover major customers in offices spread around the US - and then the world -, whereas Slack took a lot more time to build out a salesforce, sticking to self-service online sales for a big part of its pre-IPO years.
A strategy is also iterative: even though it's good for the company to have an idea of what its future will look like in terms of choices and milestones, it will be necessary to adjust course in response to competitors, customers, technological shifts, regulation, and geopolitics.
Some of the variables that make up a company's strategy are:
Competition for cost/price or differentiation: The most basic aspect of a company's strategy is to choose one of two major paths identified by Michael Porter, a Harvard professor (or, in his own words, to pick a *competitive strategy*). In most markets, the same product can't, in a sustainable way, compete for price and quality at the same time. Bear in mind that some offerings may provide both for some time in order to quickly rob market share - but it is usually unsustainable in the long run. Tiffany is the example of a differentiation strategy: it sells high-quality products at posh stores that serve french champaign, and invests heavily in its brand so as to charge a premium price - and thus command premium margins - over its competitors. Walmart is the example of a cost strategy: it has always oriented its efforts towards being the lowest cost retailer in its markets, so as to be able to command lower prices than its competitors and still make a healthy profit.
Geography: The organization has to choose where it will operate. Certain businesses are easier to expand nationally or internationally. A company may want to dominate one market before expanding into another, while another company may want to "plant its flag" in a large number of markets, albeit without attaining dominance of any of them.
Portfolio of products and services: The company has to choose what products and services to offer. One option is to focus on one or a few products, making them very complete (a vertical approach). Another is to expand its offerings horizontally, having many shallower products.
Customers: The company has to choose how it will serve its customers. This is necessary whether focusing on a specific customer niche, addressing its needs in a very deep way, or focusing on a broad group of customers and serving its needs in a shallower way.
Organic growth or acquisitions: The company has to choose which will be its main growth generator: whether it will grow organically - that is, by investing in its own operations (as most startups grow) - or through acquisitions and possible incorporation of other products and businesses (as most large high-growth companies grow).
No need to panic
Don't despair if you don't know *exactly* what your organization's mission or strategy is. You don't need precision in order to start setting OKRs.
All you need is a general direction.
And after you have a general direction and start executing, you can a lot some regular time every month or quarter to think about strategy.
Something that should make your life easier: almost all companies want to maximize their impact in the world, and that means one of their main Objectives will revolve around growing. That, along with natural restrictions such as funding and talent, are enough to rule out many strategic choices in the short term.
Anyway, we believe that any successful organization has to have growth as its major objective, and this objective already works very well as a guideline for its OKRs.
Growth is key to the success of any business.