In a technology space, especially at a SaaS company, where the dynamics, demographics, and tools used can change at any second, it’s important to have goals in place to ensure that your teams are constantly working towards growth in a way that’s measurable and clearly makes sense for your brand. There should be a bit of a challenge to these goals so that you’re improving upon what’s been done before, but not to the point where teams are wildly over their heads. You want to make it something that’s maybe just out a reach and can be tracked along the way, driving motivation throughout the quarter and creating lessons learned for the future.
This technique is called OKRs – or objectives and key results – and is used by the likes of Google, LinkedIn and Twitter to drive success. Kumud Kokal, Director of Enterprise Applications & Insights at Stitch Fix and previous Head of Business Systems at Airbnb, spoke about how his current organization uses OKRs at Biz Systems Magic, the first and only conference for Systems leaders. At his session, he spoke about his team’s review process for OKRs, what they mean to his organization, and how you can build OKRs into your own business.
Stitch Fix: A Data-Driven Company Built for OKRs
At Stitch Fix, a company founded in 2011 by Katrina Lake, the youngest female CEO to take a company public, customers are offered an online personal styling service that transforms the way they find what they love, says Kokal.
When you sign up for the service, you’re asked to provide 90+ meaningful data points to describe yourself, including your dimensions, styling preferences, and even a styling shuffle where you rate with a thumbs up or thumbs down sample items in their inventory. Once the data points are received, they’re sent to a team of 4,500+ stylists for matching based on algorithms developed by their robust group of data scientists. You’ll then receive an email informing you of the selection prior to shipping and have up to three days to review the items (return envelope included).
If you elect to keep any items, a $20 styling fee (charged upfront) is credited towards your account. Customers are only charged per personalized fix and can cancel at anytime.
Stitch Fix collects a lot of rich, meaningful data surrounding its interactions – not only the data points from clients, but from merchandising inventory as well, so they can measure exactly what their preferences were against what was shipped, received and returned. “The feedback comes in, [and] as a StitchFix employee looking at feedback, I see the person has said, ‘My sleeve length is actually an inch longer.’ That feedback goes into our algorithms and then essentially the next fix,” Kokal said.
“I know this because that was my feedback when I first started as a client. Then slowly and steadily, I saw my sleeve lengths becoming a little shorter. The algorithm seemed to be working, the stylists are paying attention to what fits best for our clients and that’s ultimately the service we provide,” said Kokal.
Defining OKRs and Preparing Them for Your Business
As a company that collects so much data, with 3 million-plus active clients, it only made sense to build OKRs to ensure that internal teams continuously strive for success.
OKRs are made up of two components by definition: objectives and key results. The objectives, or what you’re trying to achieve, should be aspirational and qualitative in nature. These single statements about your goals should be about 70% obtainable, according to Kokal – or a bit of a stretch goal that’s difficult to achieve but not impossible. Each objective should be tied to up to three key results (or KRs), which make it measurable. Any more than three KRs and you’ll dilute the key objective you’re trying to achieve, says Kokal.
As each objective will have three metrics to track, Kokal recommends having no more than five objectives per quarter (or whatever length of time you give yourself before starting the OKR process again). They should be actionable by the team, in terms of what individual members can do to help achieve the goal – but from an organizational standpoint, they should also work towards what the business is trying to achieve overall in the market.
An example of an OKR coming out of Biz Systems Magic, says Kokal, the first event of its kind, would be to create a community of systems leaders that supports and grows organically. Three KRs he could use to quantify this are to grow the attendance of the next conference by 100%, achieve a >8 NPS score for his presentation, and to organize three local events per quarter. Over time, that’s something he could easily track and gauge whether he’s getting closer to a 70% goal.
From a reporting standpoint, Stitch Fix tracks OKRs using a traffic lighting color scheme. Green means you’re on track with high confidence and will obtain at least 70% of the OKR goal. Yellow means you’re at risk, but can get back on track by the end of the quarter or so. And red means you’re underperforming and will achieve less than 40% of the objective within a certain timeframe.
Though the red can seem alarming, Kokal says, your teams shouldn’t be afraid to fail. “Do not change your OKRs midway if you see this,” said Kokal. “It is absolutely OK to fail. Think about it this way: If your objective is for a quarter and you’ve achieved it sitting at 80 or 85%, that means it wasn’t a stretch goal for that particular period. On the other hand, if your OKR is sitting at below 40%, it’s OK to fail in that regard. The learning that comes out of that session is, ‘Next time we do this, I’ll be able to do a better job of setting our objectives and key results based on what happened before.’”
Reviewing OKRs to Drive Success for Future Cycles
At the end of each quarter or cycle, companies should review their OKRs. The roadmap review and planning process, says Kokal, should have several goals to ensure implementation was effective. “One is to create transparency and drive accountability, which OKRs are excellent for – getting teams aligned on what the objective is either at the team or organizational level,” said Kokal. “Another thing OKRs can do is spotlight big wins and lessons learned. As part of your objectives, if you’re driving towards launching an awesome community, for example, would be to spotlight any events held for the community and discuss how well they went.”
“You’d also want to highlight any risks or dependencies based on things you want to improve, which will provide clarity for the next quarter’s objectives.”
“[The OKR review process] also drives alignment across functional partners,” Kokal continued. “Whether it’s your own team or organization, or cross-functional teams or organizations, the OKR review process should ensure that leadership is aligned and that resources are allocated properly via your executive sponsor. Without executive knowledge, objectives may be prone to dependencies or risks, which you want to avoid.”
“All of this will help create a plan of record that can be referenced throughout the quarter,” Kokal added.
How Stitch Fix Leverages OKRs
Once a quarter, executives at Stitch Fix dedicate a full day to OKRs, where departmental heads give a 15-minute presentation on where they currently stand and what they’re planning for the next iteration. For Kokal, as head of IT, prior to this meeting, he’ll meet with finance partners, engineers and others and ask what they think they can strive for throughout the next quarter.
“This is not a laundry list of all the projects that we’re going to accomplish,” says Kokal. “These are objectives that we want to accomplish from a stakeholder perspective across the board.” He also wants to ensure that resources are aligned and, from this, “we put a stake in the ground that this is what we are going to accomplish.” They also define what they won’t be working on based on resources, and highlight any assumptions and dependencies, including whether any external influences will be generating work for them during this period.
In monthly OKR sessions, departmental heads have five minutes to present OKR standings using their red/yellow/green system to track progress. While they do address all objectives, their main focus is on those in the red to determine how they can improve and apply those learnings to the next cycle.