Goals are necessary for any business that wishes to thrive or succeed. And while most organizations do this already, measuring and tracking the progress of these goals is as important as setting them. Considering this truth, companies have come up with ways to measure performance, namely KPIs and OKRs. They are the two most widely used and misunderstood frameworks in the business world. This article will explore the following:
- What is a KPI
- KPI Examples
- What is an OKR
- OKR Examples
- OKR vs KPI: What is the Difference?
- How OKRs and KPIs Work Together? [Analogy]
- KPI and OKR Best Practices
What is a KPI?
KPI stands for Key Performance Indicator, which helps measure the health of a company. They are measurable numbers that show or point to how effective your strategy is as it moves towards a set target. KPIs can also highlight problems in a business strategy. They help steer management to decide to continue at their current pace, quicken the pace or, if not meeting targets, improve.
Companies can set a KPI daily, weekly, quarterly, or yearly, depending on what indicators the organization wants to measure and how often they choose to measure it. We can set KPIs for individuals, teams, departments, or the entire organization.
KPI talks about business-as-usual metrics. In simple terms, it means what employees should be doing as per their job descriptions to achieve organizational targets. The below KPI examples will make it more clear.
- Monthly sales growth is 30%
- Average profit margin is 15%
- Lead response time is 1 day
- Quote-to-close ratio is 30%
- Monthly calls per sales representative is 2000
- Average new deal size is $5000
- Traffic to MQL ratio is 20%
- Monthly MQL attribution is 100
- Monthly published blog marketing content is 100
- Average email click-through-rate is 15%
- Monthly video impressions are 1 million
Customer Success KPIs
- Customer churn rate is 5%
- Monthly recurring revenue is $10,000
- Average revenue-per-user is $1000
- Customer satisfaction score- CSAT is 80
- Customer lifetime value is $100,000
Product Team KPIs
- Session duration is 2 minutes
- Bounce rate is 35%
- The count of weekly-active-users is 5000
- Average product update delivery is 60 days
What is an OKR?
OKR stands for Objectives and Key Results. It’s a strategic framework that helps companies improve their performance. The process entails setting objectives in any area of your business you want to improve, then writing key results to reach those objectives.
It is a collaborative methodology that provides a match between the objectives that organizations want to achieve and the key results that help measure their progress. By tying objectives to small and measurable key results, the framework enhances visibility and provides actionable insights into every employee’s contribution and performance.
Unlike other goal-setting frameworks, OKRs are clearly defined, making it easier for managers and employees to track progress. By breaking down objectives into small key results, managers can create milestones that help accomplish challenging goals.
Attract 50 B2B new customers
Increase Community Engagement
- Create a customer community
- Reach out to 30 industry experts/ influencers in Q1
- Get 20% of customers to participate in the community in Q1
- Interview and launch 10 podcasts from key industry influencers
Customer Success OKRs
Improve Customer Satisfaction Index in Q4 by 30%
- Conduct 50 customer satisfaction surveys every month
- Conduct monthly interviews with 10 recently churned customers
- Achieve a Net Promoter Score (NPS) of 10.0
The whole concept of OKR is to identify an area that needs improvement, create a goal, which is the Objective, and then state how you should meet that goal, which is the Key Result. The goal is to get from point A (where you are now) to point B (where you want to be) by the end of the quarter or year. It’s strategic in its approach because it’s holistic compared to the KPI.
OKR vs KPI: What is the Difference?
Let’s understand the differences between OKRs and KPIs through an analogy.
A parent wishing to know their child’s performance at school can do that by checking the child’s grades. Grades on individual subjects can act as a KPI. We can assume the target for each subject is to get a pass.
Imagine now that the student failed one or more of these subjects or didn’t meet the expected target set by their parents. A parent can use OKR by taking the subject of math as an example and then creating an objective to get good at mathematics and subsequently working on creating strategic key results.
The aim is to improve the student’s performance in math. The parent can then set different KPIs for various tests to measure the effectiveness of the OKR strategy.
Check out the below differences between OKRs and KPIs to get an even clearer understanding.
|Key Performance Indicator
||Objective and Key Results
|Business-as-usual metrics to highlight performance
||Goal-setting methodology that drives higher employee performance
|Used for performance measurement
||Used for performance improvements, enhancement, and engagement
|Top-down approach only
||Mix of top-down and bottom-up approaches
|A certain level of performance
||Strategic improvements in performance through specific initiatives
|Ongoing process, usually revised quarterly or yearly
||Periodically, as and when objectives and key results need adjustment
OKR vs KPI: How They Complement One Another
Understanding OKR and KPI framework allows you to appreciate them for what they do individually and how they can work together if implemented well. It’s possible to use both together instead of pitting OKR vs. KPI, missing out on both. This section will show examples of how both can work together.
KPIs bring management attention to underperforming areas. The reason companies have KPIs in the first place is to make sure activities are going on smoothly, so when a company misses its targets twice or twice in a row, it needs management intervention. OKRs are perfect for such a case. Identify a clear objective to aim for before brainstorming on the key results you need to achieve the goal.
How OKRs and KPIs Work Together? [Analogy]
OKR and KPI complement each other. We will use the grades analogy from earlier to showcase the relationship.
In our example, a parent wants to know how well their child is doing at school and uses their grades to measure them. We assume the target is a pass in all their subjects. This example was to demonstrate an example of a KPI.
We then said if the student failed math, we needed to do something about it. So, the parent would use the OKR framework in this situation. In our example, the objective was for the student to improve in math, and then we drew up key results to achieve this goal.
The key results are to enable the child to be better at math. While the KPI brought our attention to the problem of not getting a pass mark, the objective is to make sure the child doesn’t have a problem with math again. The parent can set a new KPI for the child based on the new objective. The KPI for the next test can be 70%, and the one after that can be 80%, and the one after that can be 90%.
A well-implemented OKR can give birth to new KPIs, and these KPIs will ensure that the key results are effective and produce the desired result.
If the child doesn’t meet the first target of 70% in the first test, let’s say a 67% or so, then the parent can look into it to see if it is a process issue or if they should readjust the next test KPI, which was an 80%, to a 75%.
The example above is a simple illustration of viewing the interrelationship between KPIs and OKRs. Failing any target will lead to the business looking at that area to improve on it. The OKR framework is a suitable tool to use to achieve this goal.
Another scenario where both can work together is if a company wants to step up their current performance because they believe they can do more, and then using the OKR framework can be helpful. After this, KPIs can be derived from the framework to monitor performance. On rare occasions, some companies’ key results are also their KPIs. Although it’s not always the best practice, it’s still possible and unusual.
KPI and OKR Best Practices
While setting up your KPI or OKR frameworks, there are some do’s and don’t you should know, and in this section, we will look at some of them.
Best Practices for KPI
KPIs need to be clear to prevent personal interpretations. KPIs should also be specific; for example, increase customers by 25% in Q4.
Keep your KPI to the Minimum
This tip is in its name key, meaning that the indicators your company tracks are critical for the sustainability and profitability of your business. Work on creating between 12 and 25 KPIs for the entire company. The idea is the smaller you track, the better.
Attainable but Challenging
When targets are unreasonable, it discourages your employees, and if they are too easy, there is little sense of achievement. The secret is to make them challenging as well as reasonable.
Frequently Review and Update
You should set KPIs and reset them because they are subject to yearly review and not set and forget them. It’s important that the KPIs stay updated with changing business objectives to reflect the organizational performance.
Technology has made it easier for us to monitor and track KPIs. Using good software like Engagedly can help you easily keep tabs on the KPIs set for departments and the company.
Best Practices for OKR
The objectives of OKR are aspirational. There are objectives that one can look forward to accomplishing in the long run.
Don’t have too many objectives.
It’s advisable to have a maximum of three objectives and three key results in order to focus on them and maximize your results. Paying attention to many objectives at once can be counterproductive for the company, and it may also point to the objective not being broad enough.
In conclusion, the OKR vs. KPI war is one that will continue to rage well into the future as different companies and their managements will have varying opinions. The crucial point to note is that both are adequate tools when properly implemented, and if used together, they will make the management job a lot easier.