General Management, Session 2

Setting Objectives and Measuring Performance.

Whether you are a CEO or a “micro-CEO” — to borrow Grove’s phrasing — setting goals for yourself and your team will play a large role in your success as a manager. If you do this part of the job well, you will leave a meaningful, positive impact on your teams and all the other people they work with over the years. If you do it poorly, chaos follows.

Assignment

Course materials

• Grove, pages 110 - 114, and chapter 13. Link.
• Chandler, all. Skim the overly technical parts; focus on the story, the characters, and major events. Link.
• White, pages 33 - 37, selections. Link. 
• What were Slater’s strengths and weaknesses?

The magic of OKRs

Andrew Humphries: Previously was a manager at Chicago Public Schools. Totally crazy place to work – trying to provide services to hundreds of thousands of students, hundreds of physical plants. His boss's boss at the time, the CEO (Barbara Bennett) is now in jail for 6 years. But he loved his job — because he wrote OKRs for himself and his team.

OKRs can take extremely difficult work situations, make them legible and understandable, focus you and insulate you from the chaos that can exist in both small and large organizations.

If OKRs can help extremely difficult work situations, thy can definitely help just as much in places where there’s more existing alignment and management talent.

OKRs are a way to think about a plan. Will help you drive output, help you define your black box. One of the largest leverage gears available to everybody.

Objectives:

• "Must-do's" to realize ambitions or execute strategy
• Can be process or outcome based
• Internally consistent within and across teams

Key results:

• Measurable
• Time-bound
• Ambitious (probability to get all of them shouldn't be higher than 60%)

Another way to think about it:

• Objectives reduce risk, increase value of the business; they move you closer to your strategic desired end-state in chunks.
• Key results are the evidence that you are making progress; they quantify the risk reductions and value increases.

Andrew Humphries: Michael introduced me to this idea of “evidence you’re making progress” years ago — I think it’s so helpful. Just the question: “What evidence would we expect to see if we were moving towards this big goal?”

Grove: If the objective is to reach a certain definition, you're going to pass certain road signs or mile posts – those are the key results.

How to make OKRs in <30 minutes

1. Pick a time horizon relevant to your work (6 weeks, 3 months)
2. Make a to-do list of all the stuff you are working on or wish you were working on during that time horizon
3. Sort the to-dos into buckets by purpose or high-level goal; these are clusters of related KRs
4. Write an "O" that captures the high concept of each cluster — inspires, elevates, rallies support
5. Go back and revise steps 1-4 three times in 20 minutes; fourth draft are your OKRs for the time horizon

Sam Slater

Opened the first cotton mill in America. But before that, was a new apprentice at Jedediah Strutt's mill, with aims to build his own business eventually. Let's help him set some OKRs.

Apprentice Sam's to-do list

Write a quick to-do list Sam might have used to guide his work.

• Figure out long-term prospects of spinning businesses in UK
• Experiment with all the machines, get really good at using them
• Convince Strutt I am trustworthy, useful to business
• What's a patent, how does it work?
• Complete whole program of apprenticeship
• See and understand process for building a mill
• Where else in world could I start a business?
• Understand financial side of business

Apprentice Sam's OKRs

O1: Become a master in all aspects of the spinning business

• KR1: Become expert machinist, as evaluated by Strutt, by [DATE]. Do this by spending each Sunday in experiments improving skills and machines.
• KR2: Earn sole responsibility for keeping books of one line of business by [DATE].
• KR3: Oversee construction of a new mill building by [DATE]; each night, write down all activity of the day. 

O2: Stress test idea of launching my own spinning business

• KR1: Interview two experts on business about future of English textiles by [DATE].
• KR2: Research prospect of launching abroad by reading 3 major International newspapers each Sunday.
• KR3: Write myself a useful definition of a ‘patent’ and review important spinning patents by [DATE].

O3: Develop people skills

• KR1: Get Strutt to not have to show up to work for 1 week by [DATE].
• KR2: Talk to Strutt for a minimum of 6 hours per week.
• KR3: Build network for launching, by meeting 3 vendors per week.

Note how all of these are measurable and outcomes-based. Solve an actual problem by a certain date.

Slater... faithfully performed his part of the contract to the last day of the term, and there was good understanding between the parties to the last. He was different from those restless youths, who think they hope of their arriving at eminence in their profession.

Challenges

Discuss: OKRs are the solution to every management challenge, always in every company.

How do we know it's working?

How do you know whether your tasks are helping hit your key results? How do you know whether your key results are helping you hit your objective? By regularly evaluating and rewriting OKRs – they may be valid for 6 weeks, 3 months, but you will definitely have to iterate over time.

Top-down vs. bottom-up

If OKRs are too top-down, how do we know that something isn't missing? They could be too broad and strategic while not "minding the farm" of things actually going on – security issues, etc.

• Find the objectives by making sure you have all the important voices in the room.
• Find some way to cut a hole in the box, get some transparency in the process.

If OKRs are too bottom-up, it may result in a lack of long-term vision from the product to the organization. Six months from now, nothing's changed about the world. Every time we're just prioritizing to-do's and just moving forward.

When a company is very young, top-down OKRs tend to make sense since the founders have the vision. When a company is older, bottom-up OKRs may start to shine as context is way too large for any one person or team to hold. The best strategy is often a balance between the two sides.

What if we keep changing our OKRs, even within cycles?

Michael Eggers: One week is too short to do anything significant to the company, but four weeks later half the OKRs are lost because the company needs have changed.

Christina Hedberg: If so much is changing every 4 weeks such that you have to rewrite OKRs then I would be questioning, what are we doing?

We have a gigantic management problem here – OKRs are the canary in the coal mine. Why can't we stick to our OKRs, with our plan?

Part of the power of OKRs is as a conversation facilitating — what do we care about and what do we work on?

What if we don't have consensus on OKRs?

Consensus is nice, but it's not a requirement – especially when driving the output of where we want the company to go.

How do you know the right cadence? 6 weeks, 3 months?

What is the right 60% of your KRs to hit?

People may just do the 60% that are their favorite things and neglect the rest.

People may sandbag and pad their KRs with things that aren't really important, and end up doing non-critical things while critical work is dropping.

You must be honest with yourself and with your team.

OKRs vs. performance reviews

Sample OKRs:

• Objective: Improve our paid marketing efficiency
  • KR1: Hit growth and CAC targets each month (see scorecard) [DONE]
  • KR2: Double our blended CTR across Facebook / Instagram [Nearly Double — 1.85X]
  • KR3: Increase our blended conversion rate to 2% [Done: >2.2%]
• Objective: Transform our affiliate channel to favor content generators
  • KR1: Increase affiliate / influencer sales by 75% [Up 68%]
  • KR2: Design and make available 2 turn-key email and blog “sections” for use [1 in production, 1 nearly]
  • KR3: > 50% of affiliate sales should stem from content affiliates [Done. 55% last reporting period]
• Objective: Build a stronger relationship with Operations team.
  • KR1: Hold 3 meetings with Ops prior to finalizing spec for marketing initiatives. Create document tracking suggestions. [Held 2 meetings; no tracking document created]
  • KR2: Support Ops in upcoming conference preparation by delivering all necessary marketing collateral by their deadlines. [Delivered all collateral, though ~25% was late by two days]

Performance review:

• Positives
  • You’ve consistently met or exceeded your OKRs & drive forward the business as a result. Your project to increase CTR has been huge success with bottom-line returns.
  • The ‘influencers’ you work with gave you a rating >8 on surveys — you maintain & improve valuable relationships.
• Challenges
  • Turnover within your group is very high — top performers are moving laterally or out of our company. Suzanne McConnell most recent example.
  • Your failure to deliver on letting Ops into your process (O3, KR2) reflects a lack of energy put into meeting prep.
• Most Important Message
  • You are a great individual marketer, but your individual work will never scale quickly enough. You must build an effective team that leverages your skills and know-how. Meetings that allow you to both teach and learn from others are a huge leverage point you are punting on. Scale your impact and both you and the company will get incredible ROI. 

There's pretty notable distinctions between the OKR and the PR. The employee was great at hitting OKRs, but they have clear room for improvement, especially for continuing or enhancing their success in the future.

The curse of doing a good job with OKRs is the tendency to evaluate performance exclusively with them.

The goal is not to leave output or value to the company on the table, and Grove says that performance management is the largest leverage moment you have for improving someone's progress and someone's output. If you just go over the OKRs and say good, you did 60%, you've lost your best tool of making them most successful at the company.

OKRs are often very tactical. Performance review is meant to improveperformance – the retrospective narrative of OKRs is the opposite of the forward-looking thinking you should be doing for PRs. But you can successfully use performance reviews to set OKRs for the next time period.

How do you balance individual- vs. company-focused objectives? It can be a false dichotomy – e.g. things that make an individual a better manager will have a positive impact on their team and the company in the future. But you can also set professional vs. personal OKRs separately, e.g. I need to be less tense.

🃏 Build Your Deck: OKRs

Performance reviews

Sam Slater was one of the best OKR rockstars – incredible ability to get things done. It was very rare for him to set out to do something, and not do it.

But what about his performance review?

• Positives
  • Tenacious, single-minded, high-achieving in face of long goals. Decides to do something, and that's what happens.
  • Unbelievable technical mastery.
  • Great at finding and launching partnerships. 
  • Really good at training a team.
• Negatives
  • Struggle to maintain long-term relationships. “Brain drain” problem. (very similar to Fairchild story – can't retain people)
  • Single-minded to a fault, oblivious to new opportunities: missed big moments in industry (power loom).
• Most Important Message
  • Sam, you are one of the fathers of the American Industrial Revolution — your combination of entrepreneurial spirit and technical ability are un-exceeded on the continent. However, your single-minded focus on the craft you love, spinning yarn, has caused you to miss major opportunities to innovate and grow your impact. It is not time to hang up your spurs — find a young protégé and allocate significant time and resources to supporting them in experiments to grow your business and fortune. 

Christina Hedberg: He was good at exploiting, but not at exploring – at least later in his career. It's unusual to be good at both. But an organization today has to build the capacity to do both. And they require different people and processes.

He's one of the richest people in American history – how can we communicate with someone so high-powered; how do we make them listen to a performance review?

• Bring up the young protégé – ask him what he'd do if he were hit by a bus.
• Show him explicitly what's being lost from his hard-headedness from spinning yarn.
• Lowell ate Sam's lunch with the power loom – they did with cloth what Sam did with yarn. In 20 years, the price of cloth collapsed from 30 cents to 10 cents a yard. Lowell created the seventh largest city in the US from zero – where is Sam's legacy?

🃏 Build Your Deck: Performance Review

Summary

• Great general management scales creative destruction of entrepreneurs.
• Best and worst of us is woven together in business history – growth gives our best traits a shot at curing the worst ones.
• “Objectives and Key Results” (OKRs) are a swiss-army knife for general management:
  • Os = strategic must-do’s to fulfill the vision
  • Ambitious KRs get the creative juices flowing, track progress toward Os
• Performance evaluations are not the same as OKR scores – focus on the narrative including the strengths, improvement areas, and most-important-message. Highest leverage moment in helping them succeed in your organization.
• Don’t wait for your company to “implement” OKRs or performance reviews – they are your jobs always!

Listener comments

Reading: Schumpeter – Capitalism, Socialism and Democracy (entreprenurship) 

Reading: Chandler – The Visible Hand: The Managerial Revolution in American Business (general management)

Diogo Guerra: I think that a common point to people that have left a significant mark on the history is that they are very single minded, in general if their ideas wouldn't be so great, they would be a failure. But in general there's a very few people every 10-50 years that really change the world. Do we want to be those? (in our times, Steve Jobs, Elon Musk, etc). But I really see that commonality, these people that have a huge impact in the world, in general don't play by the rules

Christina Hedberg: We all have blind spots, which be definition we cannot see. That is why we need mentors.

Andrew Humphries: For me, I think it makes sense to be direct and own what you see. You don’t have the only important perspective, but I think it’s important to share yours and understand theirs, then make clear what the most important message is.