No matter how long you’ve been in business, you’re bound to be overwhelmed by all the acronyms tossed around. In this article, we’ll discuss OKRs vs. KPIs, two popular acronyms that help you set your goals, and measure performances and results.
We’ve covered OKRs a bunch in previous posts, so we’ll start with KPIs. We’ll discuss OKRs down the line. But first….
What does KPI stand for?
KPI stands for
Key
Performance
Indicators
They are performance metrics aimed at evaluating success, output, quantity, and/or quality of ongoing activities (i.e. projects, programs, products, and etc), and individuals. KPIs are unique for each team, company, and industry so don’t go implementing someone else’s KPIs into your workflow because it worked for them.
How do I define my KPIs
You define your KPIs according to your core business objectives. They should be linked to strategic objectives and not just anything that can be measured, otherwise, you are wasting time and resources. It can be a challenge, but you can ask yourself 6 simple questions:
KPI OUTCOME
What is the desired outcome
Why is the outcome desired
How will you influence your desired outcome
Who will be in charge of the outcome
When will you track the outcome
Here’s an example of how to answer these questions:
KPI OUTCOME: Website traffic growth
What: Increase website traffic by 10% this quarter
Why: Achieving this target will build brand presence which in turn can make the brand more profitable
How: Adding more SEO-friendly content, improving funnels to the site, adopting new marketing strategies and tools, creating more engaging content on social media.
Who: VP of Marketing will be in charge for this metric
When: The KPI will be reviewed on a weekly basis
Tips for super effective KPIs
- Make the information succinct, clear and relevant to be absorbed and acted upon more quickly
- Focus on outcomes, not business activities
- KPIs metrics should be very carefully thought through. No random numbers for the sake of having a number.
- KPIs need to express metrics that are integral for a business’s success
- Ensure that your KPIs are attainable
When you encounter a KPI that needs improvements, it becomes a starting point in creating OKRs.
What does OKR stand for?
OKR stands for
Objective
Key
Results
Like KPIs, half of OKRs are metrics while the other half is the objective aka your goals. With OKRs, you set your objectives and see your success with your key results. They’re more inspirational and help everyone share the company vision.
Aspects of OKRs:
- Measurable – there should be a significant percentage/number of improvement you need to achieve.
- Ambitious – the goal must seem impossible but can be reached with enough effort. They should be inspirational.
- Flexible & Agile – Your timeline to meet these goals must be to respond to changing conditions.
- Clear – everyone needs to know and understand what your OKR is and how they are contributing.
- Bidirectional – this means that teams define their tactical OKRs (bottom-up) and see how they align with the C-levels strategic OKRs (top-down).
Companies such Google, Microsoft, and Netflix use OKRs. C-level executives set these objectives for everyone to follow, with contributions made by the team. OKRs are both strategic (annual goal) and tactical (monthly/quarterly). Their purpose is to align teams with transparent goals and metrics in which the teams set their own goals in a bottom-up approach. When employees are able to have a voice in company goals, employee engagement increases.
In the battle of OKRs vs. KPIs, the ambitious nature of OKRs means your goals will be hard to achieve 100% of the time. It’s best to achieve 60-70% of your objectives, while anything more means it was too simple and anything less means you didn’t plan well enough to execute it. KPIs measure the metrics to help you achieve your goals by helping you see what areas you can improve or adjust on.
It’s important to note that because you are setting ambitious goals that will be very hard to achieve, failure of achieving an OKR should not be calculated into an employees’ bonuses. If you connect bonuses with OKRs, then employees will not set ambitious goals for themselves that could have benefited the company.
Objectives themselves are not countable, but with key results they are. Key results are the metrics that tell you what you have done and what else needs to be done to get to your goal. Teams can choose one or several key results, but it’s recommended to have three to five. The less you have the more you can focus.
How do you set OKRs?
John Doerr, who brought OKRs to Google, used the following formula:
I will (objective) as measured by (this set of key results)
Here’s an example of how that would be filled in:
I will get people to visit my website as measured by (1) Increasing traffic from 5,000 to 10,000 by the end of the quarter and (2) creating 20 new pieces of SEO-friendly content on the website.
OKRs are commonly written this way:
Objective: Get more traffic to my website
Key Result #1 Increase traffic from 5,000 to 10,000 by the end of the quarter
Key Result #2 Create 20 new pieces of SEO-friendly content on the website
If you remember only one thing about OKRs, then remember they MUST be measurable. As Felipe Castro says, “Measurement is what makes a goal a goal. Without it…all you have is a desire.”
Pros and Cons: OKRs Vs. KPIs
The pros of OKRs
John Doer outlines the 4 superpowers of OKRs
Superpower #1 – Focus and Commit to Priorities
You hone in what’s important and everyone is clear on what is not. OKRs dictate the hard choices leaders need to make and make communication between departments, teams, and individual contributors more precise.
Superpower #2 – Align and connect for Teamwork
Making goals transparent and shared everyone links to the overall company goal, identify cross-dependencies, and coordinate with other teams effectively and share ownership. When individuals connect with the organization’s success it makes top-down work more meaningful.
Superpower #3 – Track for Accountability
As OKRs are periodicly checked, graded, and reassesed thanks to data, if a key result is endanger, you are notified and are able to track it or revise/replace it.
Superpower #4 – Stretch for Amazing
With OKRs’ ambitious nature it motivates workers to excel by pushing themselves more than they thought possible. It tests their limits due to no fear of failure to worry about.
The cons of OKRs
While there are good aspects of OKRs, there are some drawbacks
OKRs, in general, are just straightforward lists that can easily make it hard to find relationships between different objectives and how each objective can feed into another. This creates transparency and alignment issues. Transparency issues can also arise if OKRs are only designed bottom-up creating a lack of clarity on what the business is trying to achieve as a whole.
Because of the difficulty in making different OKRs relate and align, it also comes with a hefty investment. It can a long time to fully integrate a company, or even a single team, to OKRs, and some departments like experimental and research-based, can’t even make OKRs work at all, no matter the effort. People can be hesitant about trying a new approach and end up throwing in the towel because it’s easier to just go back to how things was like before because it was familiar.
The pros of KPIs
KPIs track progress and make performance across teams visible with access given to accurate results and metrics daily, weekly, and/or periodically. This helps to track the progress of a team’s goal and make decisions easier, especially for managers looking to redesign or modify future strategies. It also shows who is underperforming and how to improve upon that as well
The cons of KPIs
Result-oriented and short-term oriented KPIs runs the risk of a decrease in quality of standard and output as workers feel discouraged from implementing innovative approaches and lose the overall strategic vision. If attaining short-term goals begins to take more priority, it gets in the way of long-term goals.
What is the difference in KPIs vs. OKRs?
First, OKRs sit on top of KPIs, but not because it’s better.
OKR is a strategic framework while KPIs are measurements within that framework.
The overall difference between OKRs vs. KPIs is the intention behind setting goals. OKRs are aggressive, ambitious goals concerned with the whole process and improving performance drastically while KPIs are treated as health metrics to check and measure the output of ongoing projects and specific activities. They are substantially different but will make you more productive and help achieve your goals faster.
Look over this chart for a quick go-to reference:
Conclusion
So, in OKRs vs. KPIs, which one is better?
Well, it’s not that simple. They have different purposes. and so can be used alone for certain things.
Let’s say you want to scale or improve current plans or projects, KPIs are the way to go.
On the other hand, if you have a more broad vision or want to change the full direction of your company or project, OKRs are better.
Instead of seeing it as OKRs VS. KPIs, think of it as OKRs AND KPIs because ideally they should be used together. KPIs can coincide with the Key Results of OKRs. By implementing both OKRs and KPIs, you drive your team to grow and accomplish greater goals.
We built a focus management platform to help companies be more effective and stay focused on top priorities in daily operations. You can try Focus for free to automate check-ins, one on one meetings, and OKRs. Start working smarter with Focus today.
