OKR and KPIs
posted on 20-3-16-Mon 20:31Nowadays, in modern business, many leaders are discussing about the OKRs and KPIs, what they mean, are they the same thing, are they beneficial for companies, and so on. There seems to be many misunderstanding about these two acronyms, so in this article, we will provide you with answers to all of your questions.
What are OKRs and KPIs?
First things first, in order to understand these two concepts, you need to determine what they mean and what they are used for.
KPIs
KPI stands for key performance indicators which are representing a measurable value that is showing you how effectively your business or company is achieving key business objectives. Companies are using KPIs at various levels to evaluate their success towards desired goals. High-level KPIs are focused on the overall company's performance. At the same time, low-level KPIs are more focused on tasks or processes for a particular department such as marketing, human resources, sales, customer support, and others.
Key performance indicators should:
- Be focused on strategic business objectives
- Show you where to direct and focus resources
- Be measured against goals
You should make your KPIs measurable, as adding quantitative values will make the comparisons of performances easier whatever you have to measure.
KPIs can also be qualitative, but this approach isn't recommended because it can lead to confusion and personal interpretations of data.
Key performance indicators are often referred to as health metrics because they will show you how good, or bad, is your business or company developing.
Here are a few KPI examples:
Sales
- Client or buyer lifetime value
- Trial-to-customer conversion rate
Support
- Average waiting time (time on hold)
- Average time needed to reply
Marketing
- Social media traffic
- Visitor-to-signup conversion rate
KPI Structure
To get a better perception of how you can use KPIs for your team, we will take a look at the KPI structure:
- Metrics
- The target – as we mentioned before, every KPI needs to be linked to a specific target within a given period.
- Data source – every KPI needs to have a reliable data source to generate an accurate measure of performance.
- Reporting and reviewing frequency – KPIs should be reviewed and discussed between your employees, and all team members should be involved. Mainly, this should be done on a monthly basis.
KPI Dont's
Don't track every possible KPI. Follow only the high-level KPIs, which has the most critical impact on your business or company's performance.
For every KPI, you must provide meaning and context. Every KPI must be linked to the targets, don't be vague! How to give context to your KPI? Simply by tying it to an objective and compare it to a goal.
Executives mainly review KPIs, so don't track every single performance indicator in your company in the same department.
OKRs
Acronym OKR stands for Objective and key results, the objective that is linked with key results. OKR is a simple method that is using specific metrics to track the achievement of a goal. OKR is a strategic framework, while KPIs are measurements that subsist within a framework. To simplify the meaning of OKRs, an objective tells you where to go, and the key result will show you whether you are on the right track or not.
Usually, a company or business has three to five high-level objectives and the same number of results per objective. Key results are numerically ranked to provide a precise performance evaluation for the objective.
Objectives & key results should be:
- Always countable
- Able to accurately scored on a 0-1 or 0-100 scale
- Timelined
- Ambitious (if they're easily achievable, you should pick the more ambitious ones, or set them for the shorter period)
If you choose the OKR approach, you will need to ask yourself a few questions, like:
- Where do you want to go?
- How will you know have you arrived at your desired destination?
- What actions should you take to get there?
The last question will form Initiatives, which are necessary so you can get to your OKRs. Initiatives will complete the context and help you understand the difference between key results and initiatives.
Let's explain the questions listed above furthermore:
- Where do you want to go? The answer is the objective, and it should provide a precise direction, such as a street name. On the other hand, key results will give the house apartment number. For example:
- Grow new business revenue (Sales OKR example)
- Enhance the customer experience (Customer Service OKR)
- How will you know you accomplished that? The answers are key results, the results you need to complete to reach the Objective. OKR examples:
- Close deals worth $250 000
- Increase our NPS from 80 to 90
- What should you do to accomplish this? With initiatives, the things you should do to reach your key results and objectives. Examples:
- Host 200 product demos
- Implement in-app live chat
OKR Dont's
If your business is focused on maintaining its offerings or growing slowly, don't use the OKR framework. OKRs are better used for dramatic business growth goals.
When you build OKRs, you shouldn't lose the vision of other parts of your business. Let's say you have a goal to save money or travel somewhere. Just because you set goals and determined how you will achieve it and what actions you'll have to take towards that goal doesn't mean you should forget about daily tasks and activities, such as going to the store for groceries.
Create your OKRs in a pyramid structure, starting with the employees, then to the manager, and executives on the top, to achieve your long-term goals.
KPIs and OKRs Examples
Key Performance Indicators Examples
There are countless numbers of KPIs across different industries. If your company or business isn't very small, your KPIs should be divided by the department and specific industry, if you are a conglomerate company.
Examples of KPIs for various industries and departments:
- Retail Industry: conversion rate, revenue per square foot, gross and net profit, sales per employee
- HR Department: attrition rate, employees execution, average recruitment time
- Sales Department: customer lifetime billings, sales revenue, e-mails, and calls realized
- Technology Industry: periodically recurring revenue, customer retention or churn
- Healthcare Industry: average patient wait time, average treatment cost, number of informative programs
Objectives & Key Results Examples
OKRs are made for long-term or high-level goals and targets that will drive employees and companies forward.
The OKRs framework is a constant cycle of dynamic improvement.
Here are some general OKR examples:
- Objective: Become the market leader in our industry.
- Key Result #1: Make $200 million in revenue.
- Key Result #2: Add additional staff, up to 45%.
- Key Result #3: Improve market cap enough to enter the S&P 600.
- Objective: Develop autonomous vehicles.
- Key Result #1: Hire 20 artificial intelligence experts.
- Key Result #2: Invest an extra $650 million in research and development.
- Key Result #3: Roll out a prototype by the end of the year.
- Objective: Grow revenue by 440 percent.
- Key Result #1: Obtain 50 new consumers.
- Key Result #2: Grow marketing leads by 230 percent.
- Key Result #3: Develop customer retention to 85 percent.
Key Performance Indicators vs. Objectives & Key Results - What's the Difference?
When you look at your car's dashboard, it will tell you valuable information like do you have enough amount of oil, do you have enough fuel for your trip, is the engine working properly, and so on. When you're driving your car, the navigation system is the OKR. When your fuel indicator (which is KPI) is showing you that you don't have enough fuel for your trip, your GPRS (in this case, OKR) will assist you to get to the nearest gas station.
Within this example, you can unquestionably determinate that OKRs and KPIs are synchronizing, they are working together, but they are certainly not the same thing. KPIs are great tools to help you observe the performance and distinguish possible obstacles and issues in order to improve them before they decrease the performance. OKRs will help you solve those obstacles and problems to improve the process and drive reform for better performance. You will need both key performance indicators and objectives and key results to obtain a successful business or company.
OKRs are strategic frameworks, while KPIs are measurements within that framework. Because of this, OKRs are on top of the KPIs, and it's an essential tool for accomplishing company goals.
OKRs have a different purpose than KPIs. You use them to enhance your team to set higher-impact goals, develop accountability amongst your team, or employees, and keep everyone's targets aligned with the high-level company goals.
If you want to make a drastic change in your business or a particular department, and you want to reform it completely, OKRs are the best way to handle this, as they can change your company's overall direction. With objectives & key results approach, you can be more creative with how you will achieve your desired goals, and unlike KPIs, they allow you to extend your goals, push your team further and make a high impact on your company's improvement.
If you asked yourself can you use both methods, KPI and OKR, the answer is yes! As mentioned above, they coincide, and using them both, you can drive your employees and leaders to accomplish higher goals and make your company grow enormously!
Similarities
- Objectives & key results and key performance indicators are both used to follow the company's goals and visions, regardless of the company's growth, whether it's small or enterprise.
- They both have a positive impact on the company's growth.
- OKRs and KPIs need to be quantifiable.
Differences
- Objectives & key results motivate and move forward while key performance indicators observe and measure.
- KPI is a metric with a particular target, while OKR has various metrics ( key results), and it's practically a goal framework.
- Key performance indicators may be the part of OKRs, as their metrics for key results.
- Objectives & key results are more focused on accomplishing the company's goals, while KPIs measure and monitor the results.
One other approach to explain the difference between key performance indicators and objectives & key results are thought lag and lead goals:
- Lag goals - They are defining the outcomes of a process that needs to be attained, and they are equal KPIs. For example, lag goal (and KPI) is the increase of market share by 15%.
- Lead goals - They directly measure manipulatable target rates that will lead directly to the accomplishment of lag goals, and they are equal to the key results from the OKR approach. Let's say the increase of market share by 15%, KPI, ca be achieved with the objective ''excellent customer service support''. Corresponding Key Results can be the starting point to upgrade the customer support department by reducing the waiting time on call by 15%.
OKRs are described as manipulatable success drivers of a particular goal. On the other and, key performance indicators are there to verify the result.
OKRs and KPIs aren't the same things, but they are aligning. If you want to manage an inclusive goal, you will need both KPIs and OKRs in a coordinated manner. KPIs are mainly used for leaders to lead and not for planning, designing, or active management. OKRs and the understanding of leadership are linked with the concept, they concentrate on the anthropological factor and create a better activation of employees by driving motivating and attainable goals that give workers the right perception of context and purpose.
Strategy, OKRs, and Monitoring KPIs - The Road Trip Explanation
We've already mentioned some comparisons of OKRs and KPIs in daily life with the car ride. But we will compare them through this theory once again, all together, so you can finally get a crystal clear image of these acronyms! The people at Booking and Perdoo founded the original version of this analogy. So let's dive into it!
Let's say you're planning to go on a road trip, and the first thing you will do is to decide where do you want to travel. So you will take a travel guide and choose your destination. After you pack and you've started your car, you will input the destination in your GPRS so that you can follow the right track and correct course. While you are driving to your desired destination, the car's dashboard will show you the necessary metrics, such as the fuel status. Until the indicators on your dashboard are within the thresholds, you will not pay much attention to them. But when your dashboard shows you that you're running out of fuel, you will have to adjust your course and find the nearest gas station.
This analogy is an excellent way to geta better picture of the difference between OKRs, monitoring KPIs, and strategy.
- The strategy is the process of determining your destination. The strategy will help you to decide where you want to go.
- OKR is the navigational system of your car. It will show you whether you're on the right path or not. Comparing GPS and OKRs - they both will not help you determine the destination or goal, and they will not help you form your strategy.
- Monitoring KPIs are the indicators on the dashboard of your car. They will tell you if everything else is okay, are all other required processes performing right.
How Do OKRs and KPIs Play Together?
OKRs and KPIs are in the corresponding field, and they have a natural companionship. In order to understand their alignment, the best way to show you is through examples.
Example: A support KPI under target becomes a Key Result
You need to measure the success of your support team, and you could create a KPI that is measuring the average reply time for the tickets. Let's say you discussed this with your support team, and you both agreed that waiting time shouldn't be over 20 minutes or if it's possible less then 20 minutes. By setting this, you will be able to see whether your target is instantly reached, and if that's the case, great job! But if you don't, and the average waiting time per ticket is, let's say, 43 minutes, you will probably need to create an objective to improve the performance of your support team. How would you know if you achieved this goal? Simply if you see that average waiting time dropped from 43 to 30 minutes. The key result should be an action which you need to take to achieve this goal, the increased average waiting time per ticket. What would that action be? Maybe you should hire more staff for your support team, support manager, or implement some tools that will help you resolve the tickets faster.
Example: Improving the customer experience at your platform
Let's say your KPI, NPS (Net promoter score), is -100 at the lowest rate and + 100 at the highest score, and you want this NPS to be at least at 70. NPS is a leading KPI on your KPI dashboard because you want your customers to be excited about your products and services. If the NPS is at 70 or above, you have a good score, and you will not take any actions. But if it drops lower than 70, you will have to create an objective to increase the customer experience with the key result to improve this score. After you fix the customer support experience, you should track it over your KPI dashboard.
KPI dashboard can be beneficial when you want to determine new OKRs. KPI can show you that you have an issue with the performance, KPI only indicates problems, but to actually fix the issue, you will need an OKR. Objectives are used to correct the issues that can prevent you from achieving your desired goals, and they are contributing to your company's ultimate goal.
The Benefits of Key Performance Indicators and Objectives & Key Results
Regardless of the company's size, there is always a struggle with limited resources for all objectives achievements. That's why one of the essential things for your company is the ability to focus on the right priorities and ensure maximum improvement. OKRs grant the benefit of a realization management framework that allows the alignment of company driven essence values and objectives.
OKRs bring adjustment from strategic devising to actual achievement.
When you are using the objectives & key results approach, you don't have to wait for things to be troublesome to change them.
Transparency breaks the theory that performance needs to be managed, moving focus on sharing the company's vision.
When your employees clearly understand what their efforts are for, they don't feel like a part of a hierarchical tree. Employees feel more engaged and more motivated to achieve goals and fulfill everyday tasks while they see the bigger picture. They can see how priorities are developing at an individual level.
Your teams will be able to assess current actions and plan the next steps. With OKRs, you can have an insight into how every role is impacting the next person and their job. Because of the increased visibility, every team in your company will be able to create clear expectations for all interactions.
With OKRs, your managers will be able to spend more time on training employees then dealing with numbers. The entire team in your company will work towards achieving high-level goals. OKRs will encourage employee engagement, and it will trigger meaningful conversations about the business.
Final Thoughts
In today's business, both key performance indicators and objectives & key results are excellent, essential tools that will help you monitor performance and identify problems or areas that need improvement. OKRs and KPIs work perfectly together, and you need them both to run a successful business, company, or organization. Objectives and key results will help you solve the problems and improve processes within the company, while KPIs will help you monitor performance and identify the origin of the issues.