OKR vs KPI
Measuring your company's performance is crucial to its expansion.
Any firm must comprehend its present state of advancement, as well as what works and what doesn't. However, with so many performance indicators to analyze, it can be challenging to determine which ones are best for your company goals and which ones actually drive change.
What's more difficult is figuring out how to implement these measurements and who should be in charge of them. To measure the appropriate things and move the needle, selecting your KPIs (Key Performance Indicators) is just as critical as setting your OKRs (Objectives and Key Results). But what are the differences? Is one better than the other?
The debate over OKRs vs. KPIs is a hot issue in performance management meetings, but it's an apples-to-oranges comparison. While there are some similarities (more on that later), these two concepts are fundamentally different. Continue reading to find out how.
What is a KPI?
KPIs, which stand for key performance indicators, are used to assess an organization's, individual's, program, project, action, or other entity's performance over time. Although there may be occasional exceptions, these indications should typically:
Relationship to strategic goals.
Determine where resources should be concentrated.
Be held accountable for achieving goals.
We strongly advise you to make your KPIs measurable. Adding numeric value to whatever you're measuring makes it easier to provide context and compare results. It is feasible to create qualitative KPIs. However, it is not recommended because this structure might lead to subjective data interpretations.
We strongly urge that you measure your KPIs. It is much easier to provide context and compare results when including quantitative value. However, it is not recommended to create qualitative KPIs due to the risk of data interpretations being clouded by this structure.
What is an OKR?
The abbreviation OKR stands for objective and critical results, and an objective is linked to key results. KPIs are metrics that occur within a framework, whereas OKRs are strategic frameworks.
OKR is a straightforward, black-and-white approach to goal achievement that employs precise criteria. An organization's high-level objectives will typically contain three to five key results per target. Key results are numerically evaluated to provide a clear performance evaluation for the objective. OKRs are the following:
Ability to be scored objectively on a 0-1 or 0-100 scale
Timed Ambitious (if you attain your goal without difficulty, it wasn't aggressive enough)
Google and Intel popularized the OKR framework for performance management, but it's also been utilized for goal management by Amazon, LinkedIn, Spotify, and other tremendously successful organizations. In general, OKRs are a better fit for firms that are heavily focused on growth than KPIs. An organization's KPIs are sometimes the same as the key results utilized in an OKR framework to avoid any misunderstanding.
Differences and similarities between OKR and KPI
OKR is a goal-setting process that helps you enhance performance and drive change, whereas KPIs are business metrics that reflect performance. As a result, KPIs inform you of what data you'll need to examine in order to establish the foundation for your OKRs.
Both OKRs and KPIs are measurable and reflect the success of the team. When comparing OKRs with KPIs, the difference lies in what you measure and how you get those measurements.
KPIs are used to track performance, but they don't tell you what needs to alter or improved for those numbers to continue to rise.
OKRs are used to determine what has to be altered, improved, or modified. After you've decided which area needs to be improved, you write an Objective focusing on that area, as well as Key Results to track how close you are to achieving your goal.
Examples of KPI
There are near-infinite instances of KPIs in virtually every industry. A key performance indicator (KPI) can literally be any quantitative (and, in rare situations, qualitative) metric that a business employs to track its progress and effectively achieve its objectives. It's critical to keep in mind that, unless your business is really small, your KPIs can and should be broken down by department (and by industry if you are a conglomerate).
The following are some common key performance indicator (KPI) examples from several sectors and divisions:
- Revenue per square foot, same-store sales, and revenue per employee in the retail industry
- Human resources department: attrition rate, staff performance, and the average time required for recruitment
- Customer lifetime value, sales revenue, and calls made by the sales department
- Monthly recurring revenue, customer retention or churn, ticket response time in the technology industry
- Patient wait times, typical treatment costs, and the number of instructional programs in the healthcare industry
Examples of OKR
OKRs are based on big-picture goals and objectives that are intended to motivate individuals and businesses, and as such, they should err on the side of "nearly impossible." The OKR framework is characterized by an ongoing cycle of rapid, dynamic expansion.
Here are some examples of how all the components of an OKR come together:
- Objective: Become the market leader in our industry.
- Key Result #1: Record $100 million in revenue.
- Key Result #2: Increase staff by 45 percent.
- Key Result #3: Increase market cap sufficiently to enter S&P 500.
- Objective: Develop autonomous vehicles.
- Key Result #1: Hire 10 artificial intelligence subject matter experts.
- Key Result #2: Invest an additional $500 million in research and development.
- Key Result #3: Roll out a prototype by fiscal year-end.
- Objective: Increase revenue by 30 percent.
- Key Result #1: Acquire 50 new customers.
- Key Result #2: Increase marketing leads by 20 percent.
- Key Result #3: Increase customer retention to 85 percent.
KPI Do's and Don'ts
Avoid being ambiguous while developing your KPIs. Each KPI must be contextualized and meaningful. More precisely, contextualize the KPI by associating it with an objective and comparing it to a target (e.g., industry average, year-over-year growth, etc.).
Because key performance indicators are often examined at the executive level, avoid tracking every performance indicator in your firm in the same location. The term "key" is used with purpose. At the strategic level, you want to monitor and quantify only the indications that have the greatest influence and value for your business.
OKR Do's and Don'ts
OKRs should not be developed in a vacuum without considering what is happening in other parts of the organization. OKRs should be developed from the very top of the organization. Begin by identifying your organizational objectives and key performance indicators (OKRs), and then break them down further to the departmental, team, and perhaps even individual levels.
Also, if your firm is primarily concerned with preserving its current products or growing slowly, the OKR framework should be avoided. OKRs are preferable for achieving rapid growth objectives.
Some examples have been used to show how OKRs and KPIs are different. A change in terminology can make a key result a KPI and make it easier to track. This is how things work in the real world (or vice versa). In the first example of an OKR, one of the main goals was to "increase staff by 45%." How many people work for the company could be another KPI. If you look at the OKR framework, it's effortless and only looks at tracking data. A KPI is usually a single data point, so you'll see where there's overlap between the two.
As long as your results and KPIs start to sound the same, that's fine. Keep in mind that one is an outcome and the other is a measurement, so don't mix up the words but not the use of each.
Now that you know the difference between these two concepts, you are ready to choose the best way to reach your goals in your company.