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Dreams With Deadlines TRANSCRIPT Kenneth Lewis On Transforming Performance ________________ Jenny Herald: I am so stoked as always because our guest today is the co-founder of the first OKR consulting company in India and Asia. He comes with more than 22 years of experience in business, working with some of the biggest names in the industry like Colgate, Swift, Bosch, Edelweiss, to name a few. Let's welcome to the podcast Kenneth Lewis, co-founder of OKR International. Welcome to the show. Kenneth Lewis: Thank you. Thank you, Jenny. I’m happy to be here as well. Jenny Herald: So let's start with the classic, what's your origin story? How'd you come to learn about OKRs? Kenneth Lewis: Okay. I think it's a mixed bag of a lot of things that has brought me to where I am and where I'm going to go from here as well. I started off, of course, being in the field, being a sales guy, always focused on numbers. That's my first job. I was also teaching at the same time. As a kid, I paid myself through college. I funded my own self by giving tuitions to younger kids and earning money. So there was a passion in teaching. And I used to do sales on the side as well, so that helped me. I used to sell modems, and I used to sell fax machines back in the day, and earned money out of that. So there was always this thing about goals. There was always this thing about teaching. And then after completing my engineering, when I landed my first job, I realized that I'm very good at standing up in front of people and speaking, and people listen to me. My first tryst with coaching and training was my first month on my first proper job for a corporate company, I was told, you speak well, why don't you train the new guys coming in? And I was just one month old. That was a telecom company, which was Orange, which then became Hutch, which then became Vodafone. So spent a long time with them. And then when I started my business, one of the things that always fascinated me was organization development and organization culture. And part of it was things like balanced scorecard, performance management, and a whole lot of things. I graduated spending 10 years in the corporate field and graduated to a point where I was more interested in business and how organizations work. And I quit that and got into consulting, and joined hands with a very good friend of mine, Nikhil Maini, who was my manager at that time in my previous organization. But today, we're best friends. And we got into consulting. He was already in it. I joined him a few years later. And then we started helping organizations across the globe in a lot of organizational development work, culture transformation work. During that time, I realized, one of the things that’s always in the back of your mind is those who can, do teach. And that got me interested in being also an investor and an entrepreneur. I said, enough of training, enough of coaching, now it's time to do something for yourself. In that, one of the CEOs, founders of the company that's a health tech start-up, came up to me and said, Kenneth, have you heard of OKRs? I think it was 2015, ‘14, ‘15. Early, very early in these days. I said, not really. Sounds pretty fancy thing, but what is it really? Then he said, okay, here is an article on- he sent me a Google link. I read up on it. I said, ah, this is like MBOs and balanced scorecard, but there seems to be something fascinating, different about it. What stood out was focus and transparency. That's when I realized there's something here. Then the same guy told me, can you do this for my company, the one that you invested in? I said, okay, I’ll learn it up, I study it and do it. And since 2015, ‘16, it hasn't been the same. Life has changed post OKRs for us. We formed OKR International. Nikhil and me said, it's time for us to really brand this, set this up. That's my tryst with OKRs. And there's more to come. There's a whole lot to come in this journey. Jenny Herald: That’s pretty amazing. You are the first OKR consulting company in India and Asia, kind of a big market. We've heard and learned a lot of OKR principles since its re-education by John Doerr. Some of the core ideas, I think, have been muddled. Can we have a refresher on what those principles of OKRs are? Kenneth Lewis: Yeah, absolutely. I think ever since Andy Grove and John Doerr have done a fantastic job in setting it up and evangelizing it, I think- and you're right, along the way, just because businesses are different, and companies are different, and consultants are different. We put in our own values and everything in it. It changed course so much so- it's not just muddled, but it's become a very blurry, fuzzy thing. And it's time to come back to the basics. So what are the basics? The basics of OKRs, the first thing, it is a way to bring strategy to everybody in an organization. Make strategy first clear. It's not just a boardroom thing. It is something that everybody in the organization can live and breathe. If your organization says that as a business, we are going to set foot in North America and we're going to expand there, then everybody, even if they're not doing work in North America, knows about it, and knows that anything that they probably do can link to the expansion plans in North America, right? So it's that, strategy to execution. The second big thing about OKRs is in the process. People set goals, not activities, not just things to do. They set clear goals, goals that mark- and in the form of Os and KRs that tell them exactly what those aspirations are and how do everybody contribute towards those aspirations. So it's about making sure that people know what the goals are. They either know what they can do to contribute towards those goals in the form of their own OKRs, or again, they could probably write their activities or the to-dos that could probably enable that as well. But at the top, you need those large goals that you mark each part of the strategy. The second part in this entire thing is, of course, then alignment. So first thing is strategy to execution. The second thing is alignment, making sure everyone's efforts count towards it. People know that they can contribute towards it. I'm going to speak about flex a bit later because that's a part that's going to come, because in all of this, there's always going to be a flex. The third part in all of this is transparency. OKRs, as much as possible, need to be visible to people, not just in the way it's being set but the way it's being tracked and measured.[a] A lot of organizations think that, oh, we set our OKRs once a quarter, we're done. But that's, again, old wine in a new bottle. You’ve got to make sure that you are setting the OKRs, but you’re also tracking them. What's the progress? What's the [inaudible] look like? Where are we heading towards? Are we doing well? Do we need to course correct? That needs to happen. The transparency and the tracking need to come together to make that to happen. I think the third and the fourth thing in all of this is going to be focus. Of course, you can't forget that. It needs to be about a vital few. Not that everything is important, but a few things are important. The number is debatable because John Doerr says three to five. Some consultants are even today saying one. I say, again, it depends because if you're a large conglomerate, you're in India, we have a large business called Reliance and they got into OKRs. Now they are in everything. They’re in oils.They’re in textiles. They’re in chemicals. They’re in mobiles. They’re in finance. You can’t ask them to set three to five OKRs. They’re a large organization, right? And each firm of them is pretty large by themselves. They are an $80 billion organization. Now for a company like that, again, you’ve got to see what does priority mean. Of course, you can't say that it's everything. I can't even put a number to it. But again, less is more, and you’ve got to find out what that less really means. So that's another part, which is the entire aspect which is around focus and making sure that they prioritize. The other piece in this entire thing, which is linked to transparency but also needs to be called out in the entire aspect, is that it needs to be collaborative. OKRs is a social process. It cannot be done in silos. That means when you're setting OKRs, when you're tracking OKRs, it's not just, oh, it's all on the system, go take a look at it. No. There needs to be a conversation that I need to have.[b] Sales needs to have a conversation with marketing and say, hey, you know what, these are the OKRs I'm setting. Are you clear of it? Are you able to help me? Do you have any feedback? Those are the kinds of conversations that need to happen. And hence, it needs to be a collaborative process. And then while the tracking is going on, marketing goes back to sales and says, hey, you know what, it’s middle of the quarter, this is how I have supported you so far. How's it working? Are you seeing an increase in demand? Do we need to change something? Do we need to alter our plans for the next quarter? It's those conversations that need to happen. It’s constantly collaborative in nature. So yeah, those are the important points that I would like to remind everybody of what OKRs brings in. Jenny Herald: When people adopt or organizations adopt OKRs, often there are existing management practices in play. One that's top of mind for most people is how things get funded, the investments in various programs and projects in terms of money, people, all of this. How do you actually connect the investment to those outcomes? I think you have an example for us. Kenneth Lewis: Yes, having worked with the first large FMCG company that got into OKRs many years ago, that was Colgate-Palmolive. When the CEO came up to us and asked us to do OKRs, we were quite excited that it would be a great opportunity for us to bring OKRs to a 250-year-old organization. And the saying that went around the management circles when they started doing OKRs is that we are an elephant and OKR International is going to teach us how to dance. Now I'm going to connect the question that you asked, which is about investment and budget considerations. Now this is a public company. That means it's listed. They are answerable to shareholders. Before the shareholders, a board that makes decisions on stuff like budgets. It’s different from a funded organization like a VC, which lays bets and says, here's $30 million, here's $20 million, we got your pitch, we understand your pitch, now show us two or three clear metrics, like customer acquisition, or your growth plans and your product road map and stuff like that. But for a public company like this, or in most traditional companies, it works quite different. What happens is there's a budget, and the budget that is set commands then work and activities. It's the other way around. It's not based on aspirations. As much as saying, this is your [kitty], now work within the [kitty] that you've got. But here again, for an organization to work this out, the CEO, and a fantastic guy, Ram Raghavan- today, he's elevated as the global head of oral care, and he’s out of New York. But this guy had a clear plan. He’s saying that we'll keep budgets, but the budgets are only going to help us understand what we can do with what we've got. And then we're going to keep OKRs. And OKRs are going to help us understand our true potential. Clear demarcation, right? Budgets help us create certain plans that we have to meet, like certain margin goals, certain profitability goals, certain product manufacturing goals that we have had. Each one of them are certain things that you need to say, hey, shareholders, this is what you said we can spend, this is what we invested as capital, and this is what we got as returns. So budget. OKRs sat on top of the budget all the time. But OKRs were not something that you promised to the shareholders or to the board. It was something more internal. It was where your finance head, your HR head, your technology head, your sales head, your manufacturing head, and the CEO with all the C-suite came together and said, we know what we've got in terms of a budget. A budget allows us to do certain things. So there are constraints in a budget, but again, there is also flex in the budget, because the budget is not only about saving money. A budget is also about what can you do to expand and push yourself forward. So there's money given for that. But when you look at OKRs, usually, the budgeted amount is not enough, especially when you have an aspiration. Say, for example, they want everybody to brush twice a day. Now when you’ve got to fund something like that, you’ve got to fund it socially. That means at the grassroot level, you’ve got to do it and you’ve got to get everybody in the know of what does it mean to brush daily. So there's marketing efforts in it. There are sales efforts. There’s production effort in it, and requires considerable expenditure. Now to do something like that, they're very clear, they’re not going to achieve it now. These are OKRs that are going to last for us for a couple of years. The budget allowed them a certain amount that could fund pilots, that could fund certain activities, certain innovations. And if they started doing well on those innovations, then the next budget, the next quarter budget, or the next year budget, would increase in that demand. Jenny Herald: Like the VC example that you gave where they are placing bets internally. That's what it sounds like. So that they can continue to innovate, they're going to seed fund these ideas. And then should they prove fruitful and return what they expect, or maybe the things that they didn't expect that are still viable for the business, then they do further investments down the line. So it really was running the business and transforming the business at the same time. Okay. Kenneth Lewis: You got it, Jenny. You got it absolutely. So running the businesses, the budgets that are transforming the business is what comes on top of the budget. And this is where I think- I love what Ram kept on doing to the business. He said, in fact, he used the same terms, treat me like a VC, treat me like an investor, and come to me with your business case as an OKR. Jenny Herald: That is such a great reframe. I don't think many C-levels or executives have talked about it that way. That's a great revelation, I think. If we were to push further, there's not very many techniques out there that outline how to do this, this idea that you've come with, where Colgate was saying, we're going to fund the core business, but anything that's transformative, innovative, we're going to start to seed. Can you use things like better budgeting to fit your OKRs? Because I think you believe that budgets shouldn't define OKRs. And that's what the Colgate example seems to suggest. But maybe you can dive deeper into what can we do then or how should we think about framing how to allocate whatever is necessary to these OKRs. Do you have a framework for this? Kenneth Lewis: Yes. It's a combination of a whole lot of things. I think the first thing is if you go to a classic project management methodology, you will always say that before we begin a project, there will be a business case, right? I still remember the format. It's called BOBSCARDISA, B-O-B-S-C-A-R-D-I-S-A. You’ve got to fulfill that method. Each one of them starts with something. B stands for background, O stands for objectives, the other B stands for benefits. So it goes that way. And you’ve got to fulfill that in, and once you fill that in, it is then vetted by people within the business. Now the thing with OKRs is that OKRs- so say, for example, I say the one of the things that we wanted to do is we want to, say, quite a common word, we want to digitally transform our business. Now that's an objective, right? And the reason we want to digitally transform our business is supported by a business case that says that digital transformation includes stuff like investments in data science, investments in digital marketing using social media, investments in making sure our employee processes are more data centered, our HR capital expenditure is more data centered. So stuff like that comes in largely. And there's a business case that's created. One of the organizations that I'm working with is one of India's largest-selling thermos businesses. They sell stuff that keeps the stuff hot or cold. And they are one of- and not only India's, but now soon to be the world's largest also as well in that business. They're a traditional organization, a very traditional promoter driven. 90% of the organization belongs to the promoter. Now in this case, there's clear budgets because this is your own money. This is not VC money. This is not shareholder money. This is not public money. This is money out of my pocket. This is the way the promoter looks at it. If I'm going to spend on anything, including spending on me, it’s money out of my pocket. So you got to show me ROI first, what is the ROI. But I want to do OKRs. That means your OKRs need to have a promise of what's going to be delivered. That means for this company, there's a budget, which is based on a business case. A budget is approved, and then that feeds into an OKR. And I like that methodology. I don't know, one of the consultants put this in, which I employed for this. There is a commit and there's a stretch. The commit goal is the budget goal. The stretch goal is the OKR goal. Jenny Herald: I like that. Closer to Ben Lamorte’s method of stretch, target, and commit. Kenneth Lewis: Correct. And I like that methodology because it fits in then for this organization. It says that, what we're going to do is we're going to commit to this goal, which is based on certain budgets, but we're also going to say that we're going to stretch. And for the stretch, we're going to do a few innovations. That innovation is going to be funded by certain extra monies that we're going to demand from the budget. Jenny Herald: Okay. And the idea being when you do the commit, it's just like you would expect from the word, that you have pretty high confidence that you're going to hit that number, versus the stretch, which is being funded elsewhere, but you don't have a strong confidence that you're going to achieve whatever that outcome might be. And so it allows the team to have some level of confidence and be really good about their measurement and their confidence level kind of calibration to be able to actually put their number against an owner for that allocated budget, because like you're saying, this is real money. This is how the business needs to continue to exist, because as we know, stasis is death for businesses. So let's discuss then the outcome goals, right? There seems to be these purists and pragmatists out there where the purists believe OKRs should be outcome focused. Only pragmatists say you do what you need to do, it's okay. What's your take? Because you're working with these traditional industries. They have a way of working. I feel like the purist take might be a little too much for them. But what are your thoughts and having done this, I don't know how many times at this point? Kenneth Lewis: It's a quote that I usually tell my team members who join me that if you live by this quote, you will do well. And the quote goes something like this. It says, first, know all the rules and then break them. And I started off OKRs just like that. I said, let’s create rules, not more than three to five. All the goals will be outcome oriented. We’ll not link it to performance management. Rules. And I remember one of the things, Jenny, you used to come into my programs and say quite often, don't be dogmatic about OKRs. This is your word. I remember this. You keep on saying that. At that time, I just ignored it and saying, to be a consultant, you’ve got to have rules. You’ve got to make a stand. And that's when you become a consultant. But then within a few years and with implementations, especially Colgate, I think it was a fantastic experience for us, we realized that you can't have rules. You just can't have rules. You have promises but not rules. And that's when you go back to those basics. The basics, that is strategy to execution, transparency, collaboration, alignment, focus, outcome focus. These are promises, and promises can't be rules. You’ve got to find ways to get there. Now, say, for example, this thermos company, or even one of the world's largest credit card companies that we're working with today on OKRs, we're working with them globally. We just started something with them. And we have noticed that most of their OKRs, especially for one team, they’re liaison managers. This is like a group of lobbyists who work with governments. Now they came to me and said, you know what, we understand sales, we understand collections, we understand credit, they all will have numbers. But we work on relationships. How do I create numbers for relationships? Because we lobby. We influence regulations. We come in and we help governments, and we want to be close to them. How do we create a measure of success there? And my answer to them is, don't worry about the outcomes there. You worry about effort. You're not worried about outcomes because this is where effort matters. And it comes back to a CEO of a loan company. And I was doing a training program. And I was proudly saying out there, you know what, you need to have all your goals as outcomes. And then the CEO stands up and says- this is a CEO that has risen through the ranks. He grew up by being a sales officer himself selling loans. And he's today a CEO of a company. He raised and said, I disagree. He said, what matters to me is not the number of loans that this person is about to sell. Of course, it matters to him because it is an outcome. But what I want to track first is I want to track how many houses has he visited, how many hours has he spent with every customer. That's important. Because if I can get these leading output metrics- I know there's a nice, fancy term to it- Jenny Herald: Yes, there is. Kenneth Lewis: Are more important now than outcome metrics, especially for an organization like mine, because I don't want to force them saying, just focus on the outcome. I want them to focus on the outputs, on the leading metrics, because those leading metrics then tell me what do I need to change, where do I invest in more. Outcome metrics, especially the lag outcome metrics, are metrics that can only tell you quite late in the day whether you've done well or not. And I will come back to the government example, the government relations team of this large credit card company that we're speaking about. This is still under discussion, but it looks like the focus is going to be the number of meetings that they're having with their counterparts in the government, the number of proposals they're sending across, the number of connections that they're making, the number of times they get information first before anybody else. It's about goals that matter more to these guys and say, oh, you know what, let's put a goal. We'll sign X contracts this quarter. So that's what matters. Hence, I'll repeat what Jenny Herald told me a long time ago, don't be dogmatic about OKRs. And part of it means that there will be times when you will write your goals as activities. In my training program, we call them milestone OKRs or baselining OKRs. Because you've got to start doing some activities first. And before you get there, then a few quarters down the line, you'll probably mature in understanding that maybe you can put outcome metrics as well. But give yourself the time. Don't pressurize yourself and say, oh my god, we're doing OKRs, and I’ve got to put everything as outcome goals. Don't pressurize yourself. Get going. If you've got the right stuff like conduct three training programs this quarter to improve safety, do it. And then once you're there and you’re conducting them, you will realize, oh, you know what, what's better than writing three training programs is writing stuff like number of people wearing hard hats in the construction site. That's a better outcome. Jenny Herald: And then eventually too, number of incidents minimized as a result. Yeah, all of that. Interesting. So very much a pragmatic person. Kenneth Lewis: But again, I do challenge it. When I'm coaching, I say, can we get to outcome first and tell me the outcome. And tell me, how does the outcome help you achieve the objective? The coaching needs to be geared in such a way. So if they tell you an outcome, if they say, okay, we want to get record sales this quarter, and then they say, okay, how do you measure this? And they say, okay, we can measure this by the number of customers in the pipeline. Okay, that sounds like an outcome goal, number of customers in your pipeline. So how does that help you achieve record sales this quarter? The answer is, well, it gives us confidence. Does confidence mean record sales this quarter? It could, but not really. What does give you record sales this quarter? Let's focus on that first, then say, okay, what gives us record sales? What tells us we have a record sales this quarter? Sales? Revenue? Conversion? And then among all of that will be somewhere, your pipe, right? And then you would say, okay, now what's more important? And you say record sales. Is revenues more important? Let's add weightages there. And then somewhere down the line, somebody might come up and say, what also matters to us in record sales this quarter is that we want to make sure that we launch our products right. Then say, okay, that sounds like somebody else's OKRs. Let's talk to them. Jenny Herald: Yeah, and then you start to see where things blend together. I'm wondering if then the whole stretch, target, commit thing that we talked about earlier fits really nicely in this framework, where, let's say, record sales this quarter is like the stretch definition, and then the commit is what the team decides that they feel like 95% confident they can do, which could be like the calls situation. And then there's something in a happy middle, where it's like we have done so many calls and it generated this much lead that were qualified in our pipeline, that would indicate that we would achieve record sales. So we can break them down, just as a thought experiment. But I really do appreciate this idea, because I've been saying it forever. Yes, outcomes, that's what we want to get to, but there might be some underlying things that are happening that need to be thought through that might be more output oriented that get you into the habit and the practice of even thinking this way, which is also valuable. I was trying to lose 20 kilos, which is a lot. And one of my key results was to walk 10,000 steps a day. That is very output oriented. But ultimately, the goal is I would be healthy. Jenny brings sexy back was the objective title. Someone else said fit by 40 because that was my goal at 40 years old. Kenneth Lewis: Your example is a great way to really explain it to people, that there are times when you will have to think of outcome lag, there are times when you will have to probably prioritize lead output-related OKR. And to come back to the stretch, commit, target piece, there are times when only stretches seem okay, because stretch motivates you and commit doesn't because commit will say oh, you know what, I can do that by not doing anything as well. Jenny Herald: Yeah, so why track? Waste of time. Kenneth Lewis: Go back to the Colgate example. They will still be a number one toothpaste company without doing anything different. So if they're only on the commit goals, then they can keep cracking at single-digit growth. But if they want to really be out there, not just be the number one brand but be the number one, have most loyal customers, or for example, they want to get into new territories, they want to be more innovative, they want to be seen as a more Gen Z brand, stuff like that, they can't really focus on only doing what they've done. This is where certain- like the health tech company I'm working with, they don't have commit goals. They only have stretch goals. Yeah, OKR is only stretch. It’s because we're on the verge of a Series A funding. We can’t push. You’ve got all it takes. And this is the time when we say what we got to get from the first gear directly after the sixth gear, it's time. Jenny Herald: This goes back to the very genesis of this conversation, which I really appreciate for folks who are like, where are we going with this? It's, yes, you've got rules, learn the rules, enough so that you can break them. But really the most important things, I think you called it promises. I would probably call them the philosophy, the actual underlying philosophy of the practice, because that's ultimately what we want, right? Connecting strategy with execution, being able to focus on something, all of these concepts in service of achieving what is your winning aspiration, and OKRs are a medium to be able to do that. But note that all of these examples were different. We had an example with Colgate where they have budgets and they lay OKRs on top. We have a startup or a scaleup that’s saying stretch only because we've got to get to Series A. And that's pretty challenging because if you don't get the funding, you're out. And so you have to be more aggressive. So it makes sense in an environment to stretch only. I think this is really great so that people can start to understand that the answers to how many OKRs should we have, should we- and we're going to get to this- connect performance management with OKRs? How should we budget our OKRs? This is going to be defined by the organization in different ways. And that's okay so long as you achieve the stated aims of what OKRs are supposed to do for your organization principally. To that end, and we're going to wrap up here because I think this is important, a lot of people think cascaded goals, are you insane? No, don't do it, it gets really weird. Especially if you're talking about cascading these goals across multiple layers of an organization. By the time you get to like, I don't know, the fifth, sixth, or seventh level from senior level, it's really obscure, no cascading goals. But then there's some folks that are like, this is totally fine. What do you think about cascaded goals? Can you share an example? Because I feel like you have one, Kenneth. Kenneth Lewis: Yeah, multiple. I'll go back to one of the Indian companies, which is a promoter-driven company. And they've been successful so far because they have cascaded goals. The CEO comes in every year and says, these are the goals, and this is what the goals I want everybody to do and focus on. And they have grown at the rate of 20% year-on-year. Jenny Herald: Get out. Kenneth Lewis: Do you want to change that? You want to change that formula? The reason why he wants OKRs is because it's very clear. The reason I want OKRs is because so far, I have been telling others what to do. I want people to start owning and telling the other people what to do. I only want to tell them my one line, one line down. I don't want to tell everybody what to do.[c] It takes so much of my time and effort. It's time for me to retire. I want now my second in line to tell the next in line what to do. I want the same thing that I have done, but I want the second in line to do that. I don't want to do that for the second in line. I'll do it for the first in line. N plus one till N plus one, I will cascade. But N plus one will cascade further and further. They don't want to change the formula. They only want to change who does it. And they want to do that using OKRs, because the other thing is in the entire thing, what helps him and what helps everybody else is the transparency that OKRs provides. You can't hide. So that means the goals that you give others, everybody else will see. Everybody needs to work with each other. For them, it's a double whammy because in all of this, you're also bringing alignment, you're bringing collaboration, you're making it a social process. I can take a break when I want to as a CEO and a founder of this company, and just look at a dashboard and say things are working well and people are on track with all of it. That's an example of OKRs being cascaded. I've also worked with strict cascades. Strict cascades is just like the CEO did before. You do OKRs and they're strictly cascaded. Now as coaches, becoming and bringing the fact and say, if you're going to strictly cascade OKRs, remember you're also going to compromise on some of the promises. Are you okay with it? Jenny Herald: What are the trade-offs, are you okay with them? Kenneth Lewis: First trade-off is stretch. It's always going to be the first trade-off. The second trade-off is going to be transparency because people are not going to be overtly transparent. Jenny Herald: No, because they're on the hook. Kenneth Lewis: Yeah, they're going to hide. You can be transparent, but you will be [inaudible] when, just before you're having your cadence review meeting. And then you will see, suddenly, everybody's updating their OKRs because the CEO sent an email. So they're not doing it voluntarily. They're doing it forcibly. Jenny Herald: It’s compliance driven. Kenneth Lewis: It’s compliance driven. It's already a company approach. So you see, there are trade-offs. And you tell, are you okay? And there are some CEOs who are okay with it that say, yes, we are okay with it. We're okay with it. I've also worked with organizations where there's a mixed bag. Colgate is an amazing example. Budgets will drive certain cascaded goals, right? Budgets will drive certain cascaded goals, like ESG, sustainability, compliance, regulations, stuff that you're putting into kids’ mouths. You can't just say make your own goal around it. Jenny Herald: There are constraints. There are rules. Kenneth Lewis: Yeah, there are complaints. There'll be R&D-related pieces. There'll be regulations that you have to live by. There’ll be strict compliances. There'll be a making-checking approach, not really to goals but all the activities that come with it. So there's an understanding that there will be cascades in certain areas. But at the same time, the same R&D team- there's an amazing woman- if ever you want to get another lady to talk about OKRs, her name is Edna Ambundo. She is right now the head of R&D for L'Oreal in the US. She became a true champion for OKRs. And this is an R&D team that works on experiments that cannot really drive outcomes. They drive activities, experimentations. Them doing OKRs as a way to get everybody- what I like about the team is they use the bottom-up method of OKRs, not the cascade. They use the bottom-up method to showcase to everybody what they are doing. And they became an R&D team that was not waiting for the market to tell them what to do. For example, sales and marketing will come and say, hey, R&D, here's an opportunity, do you want to do this? They turn the boat around within a year of using OKRs and saying, dear R&D, we are going out to the market, and we will tell you what to do. It was an amazing shift because then, suddenly, the R&D team, it became a team full of energy because they now started owning their experiments. Jenny Herald: Because they wanted to see if they would work. Kenneth Lewis: Versus being told what experiments are. Jenny Herald: That's really great. Look at all the different examples. If I were to tie this all together, because we're going to move on to performance management conversations, I think what we're saying here, what I'm hearing from you, Kenneth, which I love, is we need to make sure that our OKR programs serve the aims that we believe they should rather than to serve the framework. The framework should work for us. Kenneth Lewis: Absolutely. Jenny Herald: Not the other way around, which is why we need to not be dogmatic. Go ahead. Kenneth Lewis: Absolutely. And probably a year later, you revisit why you took OKRs in the first place. One of the organizations- we were in multiple organizations. In three years after using OKRs, they dropped OKRs completely because it served its purpose, served the purpose. They didn't want to now set goals quarterly because they created the culture that they wanted. They created the leadership that they wanted. They created the rigor that they wanted. And they just defaulted back to the traditional MBO methodology of performance management. Jenny Herald: And it wasn't because OKRs weren't great. Like you said, they had an idea, they had a need, they fulfilled the need, and they moved on. We're going to get into a juicy topic now. I think this is one of my favorite topics because it feels like it's an enigma to most people. OKRs and performance management, is it possible? Again, I think you have these wonderful stories and vignettes that we can listen to about how or how not this would work. First question, how can OKRs be integrated into performance management systems to drive employee engagement and productivity, just what we think should happen? Kenneth Lewis: We spoke about this, Jenny. And if I go back to where I'm from, I come from a small coastal city of India. That's where my parents come from. But I used to go there to holiday or vacations. And it's a very agrarian community and agriculture. We used to grow coconuts. We used to hire workers to climb the coconut tree, break the coconuts, take care of them. There was an entirely new workforce that was set once every season to do the job. And I was thinking about it. Imagine you tell that team to say, you know what, we would like you to stretch. And if you stretch, these people who climb that work in the hot sun, break coconuts, carry them along, and they’re heavy, right? Thousands of coconuts. And you tell them, you know what, we want you to stretch, break more coconuts, we want you to be safe, we want you to build up a brand, help us build a brand, and you do all of that, and we'll continue paying you what we’re paying you for. It's not going to fly, right? As you turn back to especially developing nations, let's magnify this a bit more, magnify upwards. Developing nations, India, Vietnam, Thailand, taking the name of these countries because these are the countries that are adopting OKRs at a faster rate than anybody else, Turkey, Brazil, Indonesia. These countries are largely agrarian countries. And they are also shifting from being agriculture based to being industry based. Today, Vietnam, Thailand, India, China, they are also manufacturing centers of the world, for garments, for multiple stuff, a lot of stuff that's there. And now these companies, these traditional companies that are there are coming to know OKRs. And they love it. Now why do they love it? They love it because, of course, one of the things is a Silicon Valley thing, anything that Silicon Valley does, we want to do because we want to be seen as progressive. We want to take that traditional tag out of us, and we want to announce to the world that we're doing OKRs. Many of the CEOs read book, or they hear us and they come to know of this new thing called OKRs. And they say, oh, transparent, oh focus, oh, fast growth, oh, stretch. They hear these things and they say, let's do it. And then a consultant lands on them and says, do it, but don't do performance management. And they say, okay, how do we do that? Or the other way around, they call a consultant and say, we want to do OKRs, but we want to do it like performance management. And the consultant says, no, don't do it. This is where we have burned fingers. There have been both those consultants. And in my experience in the last seven years of doing this, we have learned that there's a space for OKRs and performance management to coexist fantastically. And this is where I'm going to take some time and share something with you, what I call as the four systems that work. Now this is something I usually share with my clients, but I'd love to now share it with everybody that's here. And then, of course, you can share this. It's a file that I'm going to share, but I'm going to speak from it and explain the four methodologies. So there are four systems in which OKRs and performance management work. The first system is a no-brainer. It's a pure system. It's a pure OKR system. I call it a single system. In this system, there is no other performance management system, but there's only OKRs. This works for organizations that have exponential goals, there's a clear radical focus, mostly startups or probably some scaleups, where what you're looking for is rapid innovation, you're looking for people who are inspired, and you're looking for entrepreneurial thinking to come within the ranks of the organization, and this clear outcome focus. There is no space for business as usual in an organization like this. If there's space for it, then it's almost like you got to do it, you’ve got to do it, and that's what it is. And there's no space for rewards as well because the reward is the growth of the company. If the company grows, you grow. You probably get ESOPs later on in the future. So no PMS, just OKRs. That's the first system. So a lot of startups come to us with this. The second is a dual system where OKRs exist and performance management exists, but they run at arm's length. Now the way they run at arm's length, the reason why they run at arm's length is because these are the kinds of organizations that are betting on two things, one, to exploit their current product, employee base, capital assets, they want to exploit it, so do more of what they've got. And they also have set their sights on explore, stuff like digital transformation, new territories, new products, new segments. For the exploit pace, they will say, for every employee, there will be performance management, and we are going to continue doing that. For the explore piece, we want a few people to show up or some people to show up, and we want OKRs because that's about ambition, that's about aspiration. Now in this, you take a very conscious stand in saying, these got to be two separate ones. Why? Because we want people who show up here for OKRs to not worry about the link to performance management. So if they fail, don't worry about it, that's going to continue doing what's going to happen. Of course, you've got to be a bit careful in managing this entire base because it can create a lot of exhaustion in the system because you have two things running together. But it works. And many of the organizations that we work with, for example, Colgate, they ran with this. There was current PMS and there was OKRs. There was exhaustion in the beginning, but then after that, it started settling in. And people started recognizing that these can be two unique systems running by themselves. The third is the hybrid system. Now the hybrid system is where OKRs feeds into performance management. So you have people who say, you can say, your performance management is going to be 25% OKRs, 25% business as usual, 20% values, and 25% competency. So you break in a kind of a formula, and you make that formula work for you. It’s a great system, works towards creating accountability. It unifies the entire thing. And it works in such a way, but also gives us space for people. In this kind of a system, you’ve got to be honest in telling people stuff like psychological safety, innovation safety. You need to have a coaching culture. Your managers need to be able to differentiate OKR work versus your business as usual work, and how it impacts ratings and stuff like that. The last method is where OKRs replaces your performance management as performance management itself. That's your OKRs as a PMS system. So it becomes a continuous performance management system, like MBOs, like management by objectives. Now in this case, you’ve got to be honest with the fact that now in this case, it's going to be tightly controlled, there are going to be cascades, it's going to be a single system, you're driving for accountability and performance, and you may need to have- I know we’ve spoken about this before, there could be trade-offs on stuff like stretch. There could be trade-offs on transparency. You could probably encourage more siloed performance than collaborative performance in systems like this. But again, OKRs as PMS. Now the traditional organizations that we work with go into either the hybrid system or they go into OKRs as a PMS system. Because for them, it's not a matter of stretch. For them, what it’s a matter of is making transparency, focus, alignment. These are the important ones. And they want compliance, and control is more important than innovation. There's a trade-off. There's a trade-off there. Jenny Herald: I think this is really helpful framing for our listeners. Thank you for walking us through that. And if folks out there are wondering, is this real? Is this actually happening? Clearly, Kenneth has examples. And we also did the Global State of OKRs report for 2023, which you're very familiar with as well. 56% of the respondents, largest kind of survey of its type that we know of so far, 56% of our respondents, managers and leaders using OKRs, said that OKRs where inputs are in some way related to their performance evaluations. So then, if that's the case, the question that we should be asking ourselves, which I think that you're helping prompt all of your clients, is where do you fall in the spectrum? And then really making deliberate decisions about what is the impact of that. To your point, if you use a system where arm's length apart, it's going to be a few cycles of work because you're trying to establish a new process in parallel to an existing one of your performance management system. In the hybrid scenario, you're going to have to train up your management layers to have these conversations with their direct reports because now there are inputs into that, and they need to coach them through it on how to achieve these goals and to hopefully provide the resources they need to be successful. So there are going to be different conversations and different attributes of the business to develop, I would say, the required capabilities to make it work. But clearly, I think the example that you provided showcased that it can be done. The question is how, right? Kenneth Lewis: And there's so many other small nitty-gritties in this. For example, when we're doing a hybrid system of OKRs, and a person comes up and says, I've looked at the strategic OKRs, I'm a person in payroll, I'm a payroll executive. I have nothing to do with the strategic OKRs. I just have my BAU. So that means am I going to lose out on the fact that I don't have OKRs and they don't link up to the strategy? Then we say, okay, you know what, there's an exception. The two ways we can go about doing it, A, don't write OKRs, B, write OKRs and make them your own. Think of what you want to do. Yeah, it can be personal growth or it could be the fact that you want to minimize grievances in payroll, or you want to simplify the basis. It could be stuff that you want to do. You're not asking for funds for it because of funding the strategic OKRs. But you’ve got to do it. You’ve got to find an innovative way to do it. And we'll award you for that. Now a person might say, yeah, I can do that without OKRs as well, can I? It's called continuous improvement. So I can do that, can’t I? Yeah, you can. It's just then filling up a syntax. It's okay, that's an important point. Not everybody in an organization needs to have OKRs. Jenny Herald: This is true. This is true. Although I think both of you and I are obvious big fans of the methodology because we're spending our lives working with them. But I would agree with you. I think we'll tie off the section two and then get into our quickfire in a second. We didn't touch on this, I think. We've talked about the challenges or the trade-offs we would need to consider if we were to imagine OKRs somehow related in the various ways to a PMS, or performance management system. What are the potential benefits, if we can be very explicit about the benefits of combining OKRs with performance management? Because you have organizations that you mentioned, they have 250-year histories. They're making deliberate decisions that this either replaces or complements their existing PMS. Why are they doing this? What benefits are they seeing as a result of that? Kenneth Lewis: Yeah. And this comes back to the early exploratory questions that we have with the clients, like what's the challenge with the current performance management system? The common ones that we hear is stuff like, oh, you know what, it's too late in the day for people to improve their performance. They're not getting feedback on time. Conversations are not happening. Tracking is not happening. There's more siloed performance than there is collaborative performance. This is stuff that we hear. They say, okay. Then if you want to have OKRs as performance management, then here are some things that we need to code in. If you're going to say that OKRs as performance management is going to help you increase collaboration, then you are in for a surprise. It could be old wine in a new bottle. What you need to code in is you need to code in certain behavioral components like collaboration, successful collaboration for every person, and you're saying this is going to be a competency that has high weightage in your performance management. Jenny Herald: So it's about incentivizing the right behaviors and the actions from your staff. And so you have to be very thoughtful about what kinds of behaviors or habits do we want to incentivize. And once you think about that, then to your point, that's the linkage, right? If you silo behavior, but you want to break down the silos, then in your performance management system, you're having your managers talk with the direct reports. To what degree are you collaborating with other people, succeeding with your OKRs? What are you learning with them? How are you going to take these learnings forward with that team? Whatever. And then you blend the two worlds. Is that right? Kenneth Lewis: Absolutely. I'll give you another example. There was a senior leader in the organization who was sandbagging their OKRs because it was linked to performance management. We all know what sandbagging is, right? Sandbagging is setting your goal lower but letting the world know, yeah, I got 100% at the end of the quarter. It's as simple as that. But there was a leader who was constantly doing that. And then what we did is we changed the code on the OKRs. We said leadership, for the leadership team, OKRs will constitute 80% of their performance management, 80%. And it decreases as you go in the hierarchy of an organization. It decreases that percentage. The reason we call that out is because OKRs are supposed to be transformative stretch goals for that company. And this person was constantly bringing BAU as OKRs. So we changed it. Yeah, I changed. So suddenly now, everybody said, okay, you can't put BAU as OKRs anymore because they're sandbagging. And you got to bring in those transformative goals and encourage leaders to be more strategic rather than operational. Jenny Herald: Because the percentage of their bonuses or whatever their schema was would be tied to them. Kenneth Lewis: And OKRs are strategic. OKRs are not operational. Clear benefit in that, but [inaudible]. So going back to the benefit piece and the first benefit of linking OKRs to performance management. If we could take a step back. The first thing is try not to do it. You try not to link OKRs to performance management. And if it still requires to link it, then here are the benefits. The first benefit is you get control, clearly. So if the organization's looking for control and accountability, they seek accountability, but honestly, what they're looking for is control. You have the two of them happening out there. The other benefit is when OKRs are linked to performance management, it makes it so- it's a thing where- try playing a game without a scoreboard, and nothing will happen. You will just probably funnel, fizzle out in some time. But it creates a kind of competition. And it's a psychological edge for a lot of those people who thrive in a situation like this to keep on performing because they see the number up in a transparent scoreboard. And it pushes the entire organization to up the game a bit. So that's another benefit that you get out of OKRs and performance management. It's a transparent scoreboard where everybody's performance is seen, not at the end of the year but on a regular basis. It’s almost like weekly, because we say we review it quarterly, but the data is available to you just in time, it's right there. So you can see how you're doing. And you can constantly challenge yourself. You can challenge others to increase this collaboration. You can call out support and need when need be. This is one of the reasons that many- you have a lot of consultants, including me who say when you’re starting off with OKRs and performance management together, start with a few OKRs. Don't try to put everything in it together because it's going to make life very difficult. Yeah. So that's some of the benefits that you get out of it as well. And then I think the other thing that you’ve got to be also watchful for is if you're going to use the bell curve to do your final compensation. We have a lot of companies who are switching from the bell curve to the nine box, which is a better methodology for them to look at it. Because then you're not forced ranking. Because then the next year, what's going to happen is I tried my best, I really stretched, but you still marked me in the middle of the bell curve as a tree. So next year, I'm not going to do all of that. Jenny Herald: Lots of considerations here. Thank you for just breaking it down for us and providing examples. I think this has been really helpful, hopefully, for our listeners. Definitely helped me today. Kenneth, we're going to go into quick fire. Are you ready? Really quick fire. Kenneth Lewis: Here we go. Let's do this. Jenny Herald: I always wanted to ask you this question. What is your dream with a deadline? Kenneth Lewis: All right. When a person tells me dreams and deadlines, the first word that comes to mind is legacy. The deadline is by the time I'm finished. By the time I'm finished, I would have seen myself impacting at least a million lives positively. And after I'm finished, another million. So that means my legacy impacts a million more. That's something that you could probably count and say that something I would like to do. Another short-term goal that I have, and it's something that just came about a month ago for me to process is a very tangible goal. I would say one of the companies that I'm invested in, it becomes a $5 million bootstrapped company by 2026. It's one of the small companies that I want to work with. There are three of them. One of them to hit $5 million in revenue and bootstrapped completely. Yeah. I'm an investor because I'm one of those founders of that company. So yeah, that's my dream with a deadline. Jenny Herald: I love that you have two, and one that's near and then one’s long term. That's really cool. Okay. You have seen a lot of OKR implementations. You've been a part of them. When things start to go sideways, they're failing, what would be advice that you give to turn things around? Kenneth Lewis: All right. I think the first thing is it's always a learning journey. You don't beat yourself down on the fact that you have failed. I have had OKR implementations that have not worked. Some because of the company itself. Some because if you look in hindsight, you say, oh, you know what, we could have done things differently, but we didn't. You take that as learning. And I think that's what OKRs is all about, the fact that you're always learning with every single OKR implementation. And don't be too hard on yourself because at the end of the day, for me as a consultant, I'm a consultant and I'm a coach, if I'm given the reins of the business, I probably would make the same mistakes again. Even if I had control of that business, I would have made the same mistake again. Just learn from it and keep on moving ahead. Jenny Herald: You have name-dropped a few senior leaders. You've worked with senior leadership team CEOs. What do you believe the role of the C-level, or the CEO even, is in the OKR program? Kenneth Lewis: Half conviction, half hope. I think that's one of the first things that I've seen leaders, they're convinced about OKRs. But there's also this hope that they have, and the convince is because they've done the research, they've done all of it. But there's also hope that says, you know what, it will bring me something that I don't know but I know it's going to be positive. So that's one of the things. The second thing is they show up at the workplace and not just delegated to, say, HR or delegated to the chief of staff. They show up with OKRs on top of everything that they do. So I see this as a very positive thing. And they also know that OKRs is not the end. It's a means to the end. It's like, when they hire us, they know that we are just part of the larger puzzle that they are working on. And we are, say, for example, bringing softwares, they're just a part of this entire thing. And they're able to tie in and stitch in a possibility of a future, whether it's a transformed organization, whether it's a more successful organization, whether it is the best place to work in, whatever they have as a dream, or maybe their own personal dreams, for example, for them to elevate themselves at a much more high level, they're able to see that we are just part of that large puzzle that they're putting together. And as a consultant coach, I see leaders who can do that. They're not doing this as only the end but a means to an end that they're looking for. Jenny Herald: What would you say is the single most impactful lesson or insight you've gained from your experience with OKRs and performance management within an organization? Kenneth Lewis: Okay. The single- wow, there's so many to choose from here, Jenny. Jenny Herald: Just one, just the most impactful. Kenneth Lewis: I think the most impactful thing about OKRs is that OKRs are actually very simple. They're very simple if you go back to the promises. I think when people say that they are complicated and deceivingly simple, I think ignore all of that. Just ignore all of that because that is noise. OKRs are simple. There's an O, there are KRs. The Os contain your dreams and your ambitions. The KRs contain the measurability towards your dreams and ambitions. The moment you put that on paper, it changes you. It gives you that kind of focus that you're looking for. Now you might argue that even a SMART, S-M-A-R-T, or a balanced scorecard can do all that. But I think the beauty about the Os and the KRs is that they are much more holistic. They require a little bit more thinking and defining. And the simplicity is very attractive. When I am thinking of doing something new, I just think of it in terms of the O or the KRs. And if they all make sense to me and it can move me, the moment I write them, then I know I'm onto something. This is what I like to look into the people that I'm coaching with writing OKRs, I look for shining eyes. I look for when the moment they write their OKR, they say, this is it, this is what I want. Jenny Herald: And what would that impactful lesson number one thing be for your experience with OKRs and working with clients on performance management systems specifically? Because we've spent quite a bit of time talking about that today. Kenneth Lewis: Yeah. I think the first lesson has always been, and the most important one, don't rush into integrating them. First, do the pilot of an OKR, a team or a level for a couple of quarters. See the effort that will probably take to code your OKRs into performance management. Usually, we tell the company that you can tell your people when you're announcing OKRs saying that we're doing this as an experiment. And we are looking- hoping of bringing it, aligning it with performance management, or replacing performance management. We ask them to choose their words very carefully. You can help companies communicate the larger intent. And why do companies do OKRs ultimately? It's because they want to improve performance. It’s not just because of the fad. So when you want to improve performance, you also want to make sure you are measuring it and you're also rewarding people along the way. It would eventually impact performance management, and it would eventually impact compensation. Whether John Doerr likes it or not, it's going to happen. Jenny Herald: So be ready for it. Last question, what would you say is the single book that largely shaped how you think, Kenneth? Kenneth Lewis: Single book that largely shaped how I think. Okay, so I'm looking at my bookshelf right now. Which is the book that really shaped- I think it's going to be the easy one. It’s going to be Atlas Shrugged by Ayn Rand. It's a book- I know it's a dystopian piece, even Fountainhead by Ayn Rand. Anything by Ayn Rand has shaped me because it is objectivism and it is about that we as human beings are much more capable than what we think we can. There's more. Reason is more absolute than anything else. And if you can reason out things, you can find solutions to a lot of problems. I think that's me. I’m both of a right brain and left brain person, but I like to move to reason. I'm very passionate, but I like to look more for reason in the passion than anything that I have. I think that's the book that has defined me because you want to think of yourself more than what you are you think of what you could be. And that's what Ayn Rand teaches me. Jenny Herald: What a fantastic way to wrap up the episode. Thank you so much for being on the show today, Kenneth. It's been an absolute pleasure. Kenneth Lewis: Thank you so much, Jenny. Thank you.