If you have come across OKRs before, then it is highly likely that at some stage you have asked the question, “How do OKRs differ from KPIs”? We have certainly heard it many times from clients; it’s a valid and relevant question.
Both OKRs and KPIs are ‘key’ metrics that help you focus on what is important in an organisation and are used to measure performance within an organisation. The most significant difference relates to the type of goals they measure – do they seek to maintain the health of the organisation, or are they driving strategic growth within the organisation?
Both are important and necessary within a business, and therefore the question to ask should be ‘How do we use both OKRs and KPIs within our business?’ rather than ‘Should we use KPIs or OKRs?’.
What are OKRs
OKRs (Objectives and Key Results) is a goal management methodology made famous by Google and Intel. Goal management is the missing link between strategy and implementation, and a key tool for strategic implementation within an organisation. It helps break down longer-term strategic goals into shorter-term goals. These shorter-term goals focus on the outcomes the organisation is hoping to achieve, which can then be translated into the weekly action plans that define the inputs and outputs that are required to achieve these outcomes.
OKRs are therefore used to drive strategic growth within an organisation. They should be bold goals – goals that will stretch the organisation to transform and achieve more than they have before. OKRs bring focus to the organisation – you define the most important goals in the organisation, the goals that must be achieved to move the organisation forward. It’s not a long list of all metrics that the company can measure.
OKRs are powerful within teams, aligning them around the same goals and driving engagement and communication. Because of this, OKRs should be transparent.
What are KPIs
KPIs (Key Performance Indicators) are typically used to evaluate the performance of an individual, team, or company. They highlight the key measures within the business, and filter these down to the relevant business units in the organisation to drive the performance they want.
KPIs are important to measure the health of the organisation, as opposed to the bold strategic growth of an organisation. KPIs are often set in line with a stable growth trajectory, allowing the company to track whether it is moving in a positive direction and at a steady pace. They seldom change when the strategic direction of the organisation changes and remain in place for longer periods. There are often more KPIs within all the levels of the organisation than OKRs.
KPIs are often used to evaluate the performance of individuals and are assigned by the organisation. They are not discussed and agreed upon by the team, as OKRs often are.
Several differences were highlighted above, however, the most significant difference between OKRs and KPIs is driven by the type of goals being defined. KPIs measure the health of the organisation, while OKRs measure the strategic growth, or change, in the organisation.
Many actual metrics can be used as both OKRs and KPIs in an organisation – for example revenue might be a typical KPI, yet it could also be an OKR for a defined period to get the company on the right trajectory, after which it can continue being a health metric. Other examples include team size, customer retention levels, and customer satisfaction scores.
Both KPIs and OKRs are useful tools to drive team and individual performance within an organisation. While it’s important to understand their differences, it could be powerful to use them together to get the momentum that you need.