There is a lot of misunderstanding surrounding OKRs and KPIs. While the two concepts are related and work together toward designated business goals, they differ.
Objective and Key Result (OKR) and Key Performance Indicator (KPI) are often bounced around the conference rooms of progressive businesses for a good reason. When OKRs and KPIs are implemented correctly, business planning is enjoyable and highly productive.
This business blog explains these OKRs and KPIs in detail and outlines the critical differences between these two strategies.
What is KPI?
KPI stands for key performance indicators. KPIs are a kind of performance metric meant to evaluate the success of specific activity over a given period.
KPIs can be applied to projects, programs, products, individuals, and other initiatives.
- Link to certain company objectives
- Have a clear focus
- Effort measured through targets
- Must be quantitative
- Personalize KPIs
KPIs exist in various industries and can be found in every department across a company’s entire organization; however, don’t try to merely copy another organization’s KPI. Each company strategy is unique, so you must ensure that these performance indicators are personalized to your organization. Otherwise, you might have difficulty meeting your goals.
What To Measure In Your Business
Below is just a small sampling of possible KPIs your departments could measure.
- Customer lifetime value
- Sales revenue
- Trial-to-customer conversion rate
- Calls made
- Employee engagement and performance of team members
- Average recruitment time
- Website traffic
- Visitor-to-subscriber conversion rate
- Average response time
- Ticket resolution time
- Tickets per month
Many areas of a business need KPIs, including customer support, social media, supply chain, etc.
What is OKR?
OKR stands for objective and key results, in the sense that the company objective is outlining where you need to go and the key result determines whether or not you are successful in reaching that objective.
The critical result should align then with the company’s objective. These could be annual objectives or objectives you want to reach next quarter or by the end of the quarter.
Ambitious yet quantifiable
OKRs must be ambitious goals that are quantifiable. A company OKR should answer three questions:
- Where are you going?
- How will you know if you’ve reached your goal?
- What is your company strategy to get there?
The OKR methodology is all about growth and tracking the development of a given company objective.
A typical OKR framework will comprise three to five ambitious objectives and key results. Key results are scored numerically.
An example of good OKR is increasing business revenue (the company objective) by closing sales deals, increasing customer retention, and establishing new customers (all key results). The OKR process should only be used for companies looking to grow significantly and meaningfully – not merely maintaining growth or growing slowly.
Can OKRs go wrong?
Yes. Workboard say the common errors with OKRs include failing to set up the OKRs correctly. Make sure your team spends adequate time crafting the OKR framework.
The KPIs will only be as good as the initial OKRs. If you choose to use software that allows you to select ‘set and forget’ and tick boxes rather than validate objectives, then the outcomes will reflect the lack of commitment to the process at the outset.
An intermediary or external consultant to mediate and manage the OKR process will keep all stakeholders invested in setting objectives that challenge and grow the business.
What is the difference between OKRs and KPIs?
An easy way to understand the core difference between OKRs and KPIs is as follows:
OKRs are considered a strategic framework, and the KPIs are the metrics inside that framework. So while key results are the end goal, KPIs are the measurement used to determine how that goal is met.
Now that you understand what a KPI and OKR do and how they work together, you might have difficulty separating the two concepts.
OKR are your dreams, KPIs is your reality
OKRs are the overall goal you wish to attain, while KPIs measure the process used to reach the goal. So the OKR is the lofty goal your company dreams up, and the KPI presents you with the reality – how successful you are at achieving those ambitious goals.
KPIs are generally obtainable, while OKRs represent an aggressive, inspiring goal. You don’t want your OKRs to be so ambitious that they become unobtainable, but you don’t want to make them too easy to achieve. You need to find that happy medium for reaching the right goals for your company.