Output-based OKR vs Outcome-based OKR for a Product Organization

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Most companies are trying to adopt an OKR-based business model, but some of us might have experienced that this is not easy at all. 

It is very tempting to divert your attention (and business strategy) to close a new sparkling deal that has come in. Quite often, businesses (and thus the product organization) decide to focus on a certain customer segment and plan product roadmaps accordingly. However, soon enough your Sales team brings in deals that look good on paper but do not fit the long term strategy of the business, putting your roadmap in jeopardy. I have seen this happen far too often. 

Companies need to have the appetite to take risks and let go. That requires the right mindset from top to bottom. Typically, the Executive Leadership Team comes together to set the OKR for the OKR set (which is typically every quarter). Once set, the product organization gets into a room where they decide on the specific themes/initiatives/product discovery activities to pursue to achieve the key results.

There are different flavors of OKR that product organizations typically follow. I have worked in two kinds of settings: 

Outcome-based OKRs

An outcome describes a measurable change in behavior of the users. The organization-level outcome could be something like “Increase customer retention by x%” which translates to a product-level objective of ‘Increase customer usage of the product”. The corresponding key results could be (a) 60% mobile usage OR (b) Improve the % of product NPS score OR (c) The number of new users increase by 30%

This approach, like every other approach, has its pros and cons.

Pros: 

  • Room for innovative ideas to achieve the OKR 
  • Everyone is involved to make the outcome possible
  • Translates well with company-level OKRs
  • Clarity around metrics for product success
  • Experimentation possibilities

Cons:

  • Efforts vs. impact is difficult to measure and needs to be reiterated over time
  • Higher responsibility and accountability to pick solutions autonomously might not match the ambition and skills of a product development team

Output-based OKRs

An output, on the other hand, is an artifact (such as a feature) that has been delivered through activities. It’s one way of creating this change in behavior. The product-level objective could be “Product X is generally available”. The corresponding key results could be (a) Feature X is live OR (b) Feature Y and Z is experimented and results analyzed (c) Usability testing or A/B testing is conducted across early access users. 

Pros:

  • Clear themes for short term results
  • Easy to track and manage
  • Clear definitions and boundaries around resources and skill sets needed

Cons:

  • Missing long term focus (such as improving sales, customer retention) 
  • Hinders creativity and innovation that contributes to key objective
  • Team might lose motivation because of no visible tangible impact — especially when you’re working on a feature for one+ years 
  • Very easy to focus on silo-based solutions and no cross-team solution finding

Though many have preached the magic of having an outcome-based OKR way of doing business, I firmly believe that there is no one-size-fits-all business model that works for every company. Because let’s face it, you are most probably not Netflix (yet!) and it may not make sense for your company at this point. 

It’s definitely possible to set some or all of your key results as outputs. Sometimes this might even be a better way to get started and eventually get to an outcome-based OKR. Of course, you can also mix output and outcome key results. As I said, nothing of this can happen without the right people and the right culture. Through well defined and measured OKRs, however, you quickly begin to see and celebrate success to change the culture. 

If you’re looking to move away from a project-mindset towards a more product-oriented approach, we can help you implement the Flow Framework®, created by Dr. Mik Kersten and presented in his Amazon-bestselling book Project to Product. The pioneering measurement paradigm is enabling large-scale organizations to excel at value stream management by helping them to continuously measure and improve their end-to-end flow against key business outcomes. You can download some free excerpts from the book by clicking on the book cover below:

Download excerpts

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