There is a lot of misunderstanding surrounding OKRs and KPIs. While the two concepts are related and work together toward designated business goals, they are in no way the same. These terms are often bounced around the conference rooms of technology and marketing startups. Below we explain what these terms mean and outline the key differences between these two strategies.
What is KPI?
KPI stands for key performance indicator. KPIs are a kind of performance metric meant to evaluate the success of specific activity over a given time period. KPIs can be applied to projects, programs, products, individuals, and other initiatives. KPIs should include linking to certain company objectives, have a clear focus effort measured through targets, and are quantitative. Your company’s KPIs should be clear and concrete.
KPIs exist in a wide variety of industries and can be found in every department across the entire organization of a company; however, don’t try to merely copy another organization’s KPI. Each company strategy is unique, so you have to be sure that these performance indicators are personalized to your organization, otherwise you might have difficulty meeting your goals. Below is just a small sampling of possible KPIs.
- 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
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 key result should align then with the company objective. These could be annual objectives or objectives you want to reach next quarter or by the end of the quarter. 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.
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 that growth of a given company objective. A typical OKR framework will be made up of three to five ambitious objectives and three to five key results for each objective. Key results are scored numerically. An example of good OKR is increasing business revenue (the company objective) by closing sales deals, increasing the customer retention rate, and establishing new customers (all key results). The OKR process should only be used for companies looking to grow in a large, meaningful way – not merely maintaining growth or growing slowly.
How are they different?
Now that you understand what a KPI and OKR do and how they work together, you might have some difficulty separating the two concepts. OKRs are the overall goal you wish to attain, while KPIs are measuring the process of the pathway used to reach said 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 also 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.