OKR's and Product Strategy - how do they fit together?

As you start building out your product, you need to rally your product team together around the common vision, the first key structure that you have to set up is the Objectives and Key Results (OKR) for the product team.

How do you define the most important objectives and corresponding key metrices that will drive the product team forward? This is, quite literally, the million dollar question.

The objectives can be one or more, but it certainly cannot be more than 2 or 3 at any time.

If there are more, you will have trouble in focusing the team on multiple objectives, and there will be delays in prioritization. And your time-frame should be quarterly. In any case, you will probably have to revisit your objectives a couple of time in between, as you sharpen you focus.

So how do we find the right objectives for the product?

You will derive your objectives from a few pre-established strategic insights -

1) The company vision and objectives – we have to define the objectives carefully, in line with the organizational vision/mission statement and organizational objectives. If that is defined well, then we have a good place to start. If the organizational objectives and results - the North Stars - are not well defined, then we have to assume something and move forward.

2) It must align to the value realized from the product – the right objective must measure the value at the time it is realized by the customer, and not afterwards. For example, if you are a service that super-imposes recommendations about retail products as you browse, what would be the measure that would truly reflect the value that the user derives from your service? It would be the number of times the user chooses your top recommendation. Looking at number of transactions that are made, or the number of products viewed, or the amount of time spent, will all be inferior metrices, as they do not capture the value at the moment that it is realized.

3) It must be a leading indicator (not lagging) of future outcomes for the business. A lagging indicator can be - number of new customers acquired. This kind of metric is not actionable as it just gives talking points ex post facto and nothing valuable in terms of indication of future health of the business. Where-as, let’s say for an e-commerce company, a leading indicator could be something like - number of users/percentage of users that made at least 2 separate purchases in a week. Why is that better? It is a metric on returning users, and indicates stickiness or value derived, a leading indicator of future revenue. By concentrating on improving this metric, the product team ensures that the service iterates to being more valuable for the user.

Now, with the three guide rails in place, you can start formulating the Product objective and key results that propel the product team(s) forward. We will discuss the actual formulation in a follow-up post.

But where does product strategy fit into this picture?

This is where a lot of product managers get confused. I too, was unable to figure it out, when I first read about OKR’s and started implementing OKR’s for my product team.

Turns out, OKR’s are different from product strategy, but the two are inter-dependent. Let me tell you how.

Product Strategy has to be broken into two parts – I like to call them the macro-strategy and the micro-strategy. The macro product strategy is what defines the vision for the product - a determination of what you want to achieve and whether you can achieve that profitably. It is driven by the belief that there is a “customer” need and we as a Product team can fulfill that market need in a way that is “much better” than what competing offerings can do. Along the way, you will determine who that customer is and what much better really means. The Product vision, Product Strategy, and the Product principles are the major artefacts of the macro strategy. We shall delve into each of these in a subsequent blog.

Once the macro strategy is in place, you will define the product Objectives based on the customer needs and desired outcomes, with the Product macro strategy serving as directors or guard rails. One other input for this stage is the company key results or North Star objectives, which are generally annual results that the company wants to achieve. Sometimes, a North Star objective may directly impact the Product team, and become a Product team objective. For example, the company may think that the products need to move to cloud. This then becomes the product objective as well.

The key results setting as well as the various discovery initiatives that the product team takes are part of the Product micro-strategy. This should be completely owned by the Product team consisting of the Product Manager, the UX designer, and the Engineering lead.

The key results that you define, should set a high bar, such that it takes into account the fact that we are fulfilling the needs “much better” than the competition, and that should push the product towards a lasting product-market fit.

At this point of time, the whole product team should be excited, and will start defining the significant product changes, initiatives, architecture, target benefits, etc that will result in achieving the objectives and key results in the defined time period. The product macro strategy, the OKR, and the product micro-strategy together drive the product market fit.

The following illustration explain this key concept –

Relationship between Product Strategy and OKR

Note that there are two adjustment loops that are called out in the relationship. These are explained below -

1) In an ideal world, your Product Micro-strategy would be formulated astutely enough so that you get it right the first time, and all your objectives and key results are achieved on time. However, that is seldom the case. You need to iterate a few times and adjust your Micro-strategy to see improvements in your key results.

2) Sometimes, in spite of giving your best, you seem to make very little progress towards your key results. Here, there may be a need to adjust your Product Macro Strategy - this is often termed as a pivot.

There are several important considerations that you need to watch out for -

1) Sometimes, it might seem like you are making progress in achieving your key results. However, it may not be moving the needle on your revenues and profitably. In this case, you need to take a hard look at your key results – are they really leading indicators of desired outcomes? If not, then your modelling is incorrect, you need to change your objectives/key results to something more representative of your sought after outcomes. This should lead to an adjustment in your product strategy as well.

2) You may think that, in a particular market, the market leaders should have already figured out the objectives and key results. Every entrant should somehow find out these OKR’s and formulate their product macro and micro strategy around it. You are wrong! Markets are very broad and deep (else it is not a market at all), and customers prioritize value from several different and often conflicting outcomes. For example, in the IT Service Desk B2B market space, where I have recently worked, one set of customers want a quick and easy self-help for solving their own problems. Another set want a completely transparent experience. Clearly, there are two user segment here, with different priorities on outcomes, that can be targeted.

3) Objectives and key results are good for a specific period. At the beginning you will have chosen your OKR’s from a set of competing ones. At the end of your first time-frame, you will have achieved significant progress on your key results. If not you pivot and look at a new set. In any case, by the time you have achieved your fist OKR set, you should be in a very good position from a product market fit point of view, you will be broadening your market definition. So you will be bringing in a new set of OKR’s.

4) We must also keep in mind, that the product objective and key results must reflect your win strategy. How do you plan to play the game, to leave your competitors behind? So, in that sense, the winning strategy is embedded in your OKR. We will talk about that in another post.

I have oversimplified the product discovery process here, of course, and presented a high level picture of the strategic and tactical components involved. In reality, there will be a lot of grey area that will demand significant brain power to navigate. There could be many objectives jostling for supremacy, and choosing the right one can be onerous. Also, just like objectives, there would be multiple metrices and nuanced indicators to choose from. We will leave the objective choices discussion for another day. We have not touched on technology yet. Many products are technology heavy, and the technology choice itself can be an objective. The larger the product organization, the more complex the process is likely to be, and there will be cascading objectives and metrices . You have to spend quite a bit of time in working out these objectives. However, a word of advise - don’t overdo it the first time round, it takes some time and a few iterations anyway to get it right. Spend about a fortnight, set it up, and then return to it every month or quarter, just to be sure.