WELCOME, ONCE AGAIN to our weekly open Q&A series where you pose your questions about Dr. Deming’s management philosophy, or anything adjacent, and I, your intrepid “expert” student, do my best to find you the answers!
Today’s question comes from Rob P. who is perplexed by the rise of OKRs (Objectives and Key Results) in organizations and wants to understand them better through a Deming lens:
Hi Chris, if you can, contrast MBRs with OKRs (and MBOs)? Given OKRs high prevalence today, how can we work with them? Or is this another case of "Why bother? Eliminate them." In which case, how to defend just not doing them?
Q7: What is the Deming view on OKRs? Are they compatible with his theory of management?
Thanks for the question, Rob, and for going “easy” on me with the difficulty level for the answer Quite happy to tumble down this rabbit hole, again as I’ve come up against this question, or a variation of it, in my professional community for some time. Grab a cup of your favourite beverage and let’s dig-in.
tl;dr
To answer your question up-front, like MBO as practised, OKRs are not compatible with a Deming view of management for the specific reason that they are designed to be an enhancement of an organization managed according to The Old Economics, ie. in accordance with all the Faulty Practices and Deadly Diseases Deming identified intact and untreated. Consequently, you could easily add them to the list of things management does to duck their responsibilities as Deming noted in The New Economics (3rd ed pp. 9-10, 2nd ed. pp. 13-14).
What to do instead? Keep highlighting the source of the problems and, if you can, advocate for regulating their introduction through PDSAs at various levels of the organization so you can gather knowledge about what works or doesn’t in your context. A way of slipping Deming in the side-door, if you will.
Operational Definitions: MBR, MBO, OKR
As per our routine, let’s make sure we’re using terminology correctly and consistently:
MBR or “Management by Results” is one of nine Faulty Practices of Management” that Deming introduces in The New Economics that describes the management reflex to immediately react to “any fault, defect, complaint, delay, accident, breakdown” or “last data-point”. It’s an admission of not understanding the canonical rule that good management depends on knowing how to differentiate routine from extraordinary causes, and usually results in injecting more variation that then causes more things to react to in a vicious cycle. NB: Not related to OKRs.
MBO, or “Management by Objectives” is the theory first advanced by Peter Drucker in his 1954 book, The Practice of Management, for creating a company-wide communication system for setting and monitoring progress of a company’s overall objectives. Revolutionary for its time, it advocated for collaborative goal-setting between all levels rather than top-down order-taking, and clear delineation of how an individual’s efforts contribute toward the business’ broader goals. Ironically, it would also suffer the same foundational problems as OKRs would decades later: implementations drifting from the original intended purpose/specifications— which, I think is a built-in defect I’ll get to later. It was in this regard that Deming was critical of MBO as practised, where it came to be used as a means of distributing pieces of a larger goal and attaching short-term numerical goals to them. NB: Definitely related to OKRs.
OKRs, or "Objectives and Key Results” is an “evolution” of MBO that was developed by Intel Employee #3, Andy Grove, in the early 1970s. His chief innovation was to add a milestone (Key Result) to Drucker’s objective so as to give a sense of pacing, and to set objectives against relatively short time horizons, eg. monthly, quarterly, then annually. Grove originally called his adaptation iMBO or Intel Management by Objectives, and taught them extensively within the company in his role as Director of Operations. One early student of his was a salesman, John Doerr, who would go on to popularize them with Google in 1999. OKRs suffer from some of the same problems as their predecessor, eg. drifting from intended purpose, being used to drive individual performance on short-term goals, abdication of managing the system. NB: Definitely related to MBOs
A Brief History of MBOs to OKRs: 1954 to 2018
In the timeline below I’ve illustrated significant milestones (ha!) in the development of OKRs from their original inception in 1954 by Peter Drucker in his book The Practice of Management to Andy Grove’s reincarnation of them as iMBOs (Intel Management by Objectives) at Intel in the early 70s to John Doerr’s expansion of them in his 2018 book, Measure What Matters.
As mentioned above, Drucker intended his theory of MBO to catalyze a distributed and collaborative planning process engaging everyone in the organization rather than the traditional “handed from on high”, top-down delegated event. As a practice it received a significant profile boost when, just as OKRs would decades later, be adopted as the new management sine qua non by a large tech firm, in this case Hewlett-Packard, and later Xerox and important to this AMA, Intel.
During these early days of MBOs popularity, Dr. Deming has a conversation with Dr. Drucker at NYU (where they were both professors) about how he was seeing MBOs used for short-term performance management and if that was his intent. Drucker, appalled, immediately set out to investigate and, in an effort that would be repeated decades later with OKRs, publish writings to bring implementations back to first principles. Some of these would be gathered in his 1973 tome, Management: Tasks, Responsibilities, Practices, where he gives a warning about optimizing parts of a system without attention to the whole.
From MBO to proto-OKR
At this time, a certain Andy Grove, then Director of Operations at Intel, was beginning to experiment with his own homebrew hack of MBO that he called iMBO (Intel MBOs) which would become the engine for executing their successful “Operation CRUSH” plan to dominate the semiconductor market. He would go on to become CEO and publish a book on iMBOs and other Intel management innovations in his 1983 book, High Output Management. Key difference between an MBO and an iMBO was the addition of a Key Result that could be measured against in a binary way: it is either achieved or it is not. Technically, the OKR was born.
Grove was fanatical about his innovation and evangelized it widely within Intel, eventually attracting the attention of a salesman who attended one of his internal classes in 1975: John Doerr. Doerr would go on to repeat what Drucker had done thirty years later by evangelizing Grove’s innovation to another tech giant-in-waiting, Google, as a consultant with VC firm, Kleiner Perkins. They eagerly adopted it.
OKR Renaissance
From here on, OKRs would catch fire for a while in a variety of industries such as healthcare, education, government, and of course high-tech. However, in an early sign of the same trouble Deming had warned Drucker about how MBOs were being (ab)used, Spotify would “ditch” using them for their employees in 2013 because “it just didn’t work for us”. Of course, this was never an intended use case for OKRs, but as I’ll mention later, I don’t see how, in the context managing under The Old Economics, that you can avoid this from happening, even implicitly.
Doerr would go on to publish his NY Times #1 Bestselling book about OKRs, Measure What Matters in 2018 starting yet another cycle of popularity for the venerable red-headed stepchild of MBO, and most recently catching the interest of LeanUX creator, Jeff Gothelf who has been evangelizing them for the past few years and will be releasing an OKR book of his own with long-time co-author John Seiden this year.
What’s Wrong with MBOs, OKRs?
In brief, they’re a wonderful diversion from thinking about why we believe we need them in the first place. In other words, we’re ignoring common cause signals of problems embedded in the prevailing style of management and instead of working to improve them, we’re adding more complexity.
With MBOs, Drucker was motivated to solve a problem of poor communication and alignment between top and middle management. Previously, leadership set the objectives and pushed them down the hierarchy to be implemented; Drucker’s spark of insight was to distribute the work and have objectives developed collaboratively. Leadership would still set the direction and overall goals, but would work with lower tiers on how that would be accomplished. His aim was to create an autonomous management system for designing, communicating, monitoring, and revising objectives.
Where things fell apart, however, was in how well his advice “plugged-into” or satisfied Old Economics drives for optimizing parts and all the attendant faulty practices Deming warned about as distractions and impediments to achieving quality. It was inevitable that implementations would “drift” away from their stated intentions over time and become just another way of distributing tasks and appraising how well they were achieved, often to their ruin. This was because Drucker overlooked an important ingredient that was the centrepiece of Deming’s management philosophy: the system. Consequently, and frequently, problems arose as reality set in and teams and departments ended up at odds over “scarce” resources while vying to achieve their objectives and hit their numbers for their bonuses.
To his credit, Drucker tried to rectify this misunderstanding in his 1973 book, Management: Tasks, Responsibilities, Practices, but it was a little late. However, his efforts didn’t escape Deming’s attention:
By the 1990s Drucker had cooled on MBO considerably, noting “It’s just another tool. It is not the great cure for management inefficiency. MBO works if you know the objectives; 90 percent of the time you don’t.” In other words, Deming’s intuition to transform the prevailing theory of management was over the target.
OKRs, unsurprisingly, have many of the same issues as MBOs and some more besides, and with the same reactions from advocates as early Drucker about why it fails, eg. “you’re not doing them right”. For example, Christina Wodtke, author of Radical Focus (think: The Goal, but for OKRs), wrote in a Feb. 2022 blog that OKRs suffer from the same kind of “drifting” from first principles that agile software development did (does?) because people weren’t properly informed about why they were adopting them. She even goes so far as to passive-aggressively title her piece, “Are You Sure You Want to Use OKRs?” and draws comparison to marathon running to drive the point home - some fine gatekeeping, if ever there was. And she has little patience for those who choose to adapt OKRs to their system as a sign of weakness:
OKRs are like the advice “Eat less and exercise more.” They are simple and hard. If you’d rather rename what you are doing now without any changes to how you work, be my guest.
Just don’t call it OKRs.
Speaking of pain, in Danny Denhard’s Aug./22 piece, Why OKRs Don’t Work – The True Problems With OKRs, he lists a litany of problems leaders should be prepared to encounter:
Rule #1 of OKR Fight Club (as explained by an expert firm on them) “Get everyone aligned and brought in from day zero or it breaks and quickly.”
Implementations will be a nightmare for six to nine months of trial and error for teams to integrate, and even then you’re in for friction every quarter getting the pieces to stitch together — just as Drucker did;
Even correctly-implemented, they can cause culture to spiral over cross-team allegations of “we did our part, they didn’t do theirs” that requires strong leadership to overcome.
I have many more examples that can be found on my research Miro board which effectively distill into the entirely predictable patterns of problems that come from making a system change without any systems thinking. OKRs consequently exacerbate prior unattended problems from the nine faulty practices Deming outlined in The New Economics. Imagine being a manager whose appraisal depends on making OKRs “work”, for example.
In the end, for those who ford ahead with OKRs, they might want to first develop a theory of what expected benefits will accrue from them in the near, medium, and long-term. How will success be measured? What will the customer notice? How will competitive position be affected? What will be the conditions to pivot or persevere?
In short: learn some theory of knowledge to understand what you’re about to copy from someone else’s work. As Deming teaches:
If anyone were to study without theory such a company [that’s apparently been successful for one reason or another] without knowing what questions to ask, he would be tempted to copy the company, on the pretext that “they must be doing something right.” To copy is to invite disaster.
So, What Can We Do Instead?
If your firm is using OKRs, then you must use OKRs as a condition of employment. You can highlight the issues with them from a systems perspective, but if the underlying theory of management is fixed, there won’t be much wiggle room. You can begin study sessions to work on that problem over the long term, however.
If you have influence in how OKRs are going to be adopted and worked with, suggest implementing them as a PDSA so you can gather knowledge. It might force a discussion about the predicted benefits and outcomes in a specific time frame.
Summary
So, let’s go back to your question, Rob: If OKRs are being used in your org, you’re stuck with them and their attendant side-effects, good and bad. About as far as I’d push things is to question tying OKRs to your performance appraisal, which even adherents would agree with as they go beyond the stated intentions. This said, I think it inevitable that OKRs will drift in this direction given the dominating influence of the faulty practices of management. The best antidote, however, is knowledge so as to articulate why OKRs are a misdirected solution ahead of working on a transformation of the faulty practices.
In sum, OKRs, like MBO as practised, aren’t compatible with a Deming view of management because they are looking to solve a problem while creating new ones that are themselves exacerbations of the underlying faulty practices of management.
Related Posts
Management by Objective (Sept. 17/21)
The Deadly Diseases (Oct. 8/21)
The Faulty Practices of Management (Jul. 25/22)
New Competency #6: Giving Vision, Meaning, Direction, and Focus to the Organization (Jan. 24/24)
Sources
Management by Objectives, The Economist, Oct. 21, 2009
Organizational Sabotage - The Malpractice of Management by Objective, Process Excellence Network, Jul. 11, 2011
Deming, Dr. W.E. The New Economics
Drucker, Peter. The Practice of Management (1954)
Drucker, Peter. Management: Tasks, Responsibilities, Practices. (1973)
So, what do you think about OKRs when viewed through a Deming lens? Did I get this right, or is there a world where they could coexist? Let me know either in the comments below or on our Chat thread for this AMA!
This week is March break here in Toronto, so I will be postponing my Doctor’s Orders #7 two weeks hence to Friday, March 22nd. Look for a Chat thread to open later today where you can drop your questions.
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