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:

  • What OKR and KPI stand for
  • The OKR and KPI Framework
  • Differences between KPI and OKR
  • How they complement each other

What Is a KPI Framework?

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. A layperson example would be if you want to know your child’s performance at school, you check their grades. Grades on individual subjects can act as a KPI. We can assume the target for each subject is to get a pass.

Other business examples include:

An individual in the sales department: $5,000 in sales every quarter, ten new leads per quarter

Team in sales department: $25,000 in sales every quarter, 40 new leads per quarter

Sales Department: $100,000 in sales every quarter, 100 new leads per quarter

What Is an OKR Framework?

okr vs kpiOKR 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. The OKR method was made popular by Google and Intel, and its success has led to other companies like Amazon, LinkedIn, and Spotify adopting the framework. If a business is struggling to make sales and not meeting its target, then the company can decide to enforce OKR to remedy this problem. They can pick some objectives, for example,

  • Attract new customers.
  • Increase sales with old customers.

The business will set key results for each objective. The key results for the first objective can include:

  • Increase funds by 30% for advertising through influencers
  • Employ two social media managers to increase presence on the social media platform

As for the second objective, some of the key results can include:

  • Conduct three separate surveys with target markets in the year, asking about price and quality
  • Ten redeemable points for every new customer an existing customer introduces to the company.

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 aim is at the end of the quarter or year; you have gotten yourself from point A, where you are now, to point B, where you want to be. It’s strategic in its approach because it’s holistic compared to the KPI.

To further explain this concept, let’s continue with the school analogy. We said earlier the KPI would be the student’s grades, and we assume the target for each subject is they pass them. Let’s now imagine the student failed one or more of these subjects or didn’t meet their expected target set by their parent. A parent can use OKR by taking the subject, math, as our example and then creating an objective. 

The objective can be:

  • Get good at math.

 And the key results:

  • Pay for a math teacher to teach 4 hours on weekends
  • Teach basics of math and give daily assignments
  • Self-study every day after school

The aim is to improve the performance of the student in math. The parent can then set different KPIs for various tests to measure the effectiveness of the OKR strategy.

Also read: 10 Actionable Tips To Boost Workplace Satisfaction

OKRs help organizations drive real performance by making employees accountable for their activities. Our expert guide on OKRs talks about how businesses just like yours can get started with them.

Take a look here.  “The Ultimate Guide To OKRs And Templates.”

OKR vs KPI: What Is The Difference?

The KPI vs. OKR is a common debate. There are some who believe they are the same and achieve the same objectives, while others say otherwise. While both frameworks measure performances, they are different in what they measure and why they measure. This section will explore the key differences between KPI and OKR.

  • By Definition

KPIs are based on past results and can be a leading indicator. They measure what has already occurred and are known as a business-as-usual metric. This means these are metrics that take place in the day-to-day running of the business. As a leading indicator, they can also help to predict what can happen in the future.

The reason companies measure employees with KPIs is to ensure they perform at a level for the continual running of the business.

OKRs are more goal-based, aspirational, and with direction. They are strategic, meaning they will achieve long-term objectives but with indicators (key results) pointing them in the right direction in the short term. Organizations set OKRs to move towards change.

  • When They Arise

Organizations set KPIs to meet company performance goals. They usually tie the KPIs to meeting the overall company goal or objectives. They are there to ensure that the company operates at the standard it has set to achieve.

As for OKRs, they arise on two occasions. When a company isn’t meeting its target, that is performing poorly (not meeting its KPI), or when a company wants to change direction to improve existing performance. On both occasions, management must set objectives and the different key results to achieve the favored outcome.

  • What they Measure

A KPI measures the performance of an activity for a period. Management measure the assigned targets against an individual, department, or organization’s performance. 

OKRs are action-oriented goals that measure the growth or improvements of a business. OKR measures bring about a change for the future, while KPIs measure past results and can create patterns to predict the future.

  • Their Duration

KPIs are an ongoing process, usually revised quarterly or yearly. OKR can change from period to period; depending on if you meet your objectives or if key results need to be adjusted.

Both KPI and OKR are important in their own rights and, if put to good use together, can achieve better results compared individually.

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.

To show this, we will use the grades analogy from earlier. 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 at 80%, and after that at 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 not always best practice, it’s still possible and unusual.

Also read: The four stages of a performance management cycle

Tips on Setting KPI and OKR

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.

Tips for setting KPI

  • Be Clear and Specific

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.

  • Use Software to Track

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.

Tips for OKR

  • Be ambitious with it

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 other 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.

Conclusion

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.


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