What you need to know about OKRs and KPIs
We talk a lot about OKRs and KPIs as tools used in growth management frameworks. At first glance, the terms can seem like a collection of buzzwords that are difficult to separate or put into practice. In reality, the concepts are simple and provide valuable insights, direction and results for teams. We give a high level overview of the definitions, differences and how OKRs and KPIs work together.
Refresher on OKRs
OKR is an Objective and Key Result. Popularized by tech industry giants like Google and Microsoft, the framework is based on assessing where you want to go, creating actionable steps to get there and the metrics by which it will all be measured. This is broken out by defining the below:
Objective: A clear, time-bound goal to be achieved. Objectives should be aggressive but still attainable and need to be shared with the entire team. In Align, we call these Priorities. We’ll go in more on this below.
Example Objective: Double revenue by year’s end
Key Result: A metric measuring progress towards your objective. Key results are often broken down into 5 or fewer targets relevant to the different legs that support the overall goal.
Example Key Result: Bring website conversion rates up 20%
Example Key Result: Close 2 international contracts at a value of $50,000
Initiatives: The strategies you will employ to reach your key results. These are your actionable steps for your teams to follow in order to reach the key results necessary of your overall objective.
Example: Implement live chat on website
Example: Run 5 international PR campaigns
OKRs bridge the gap between the company’s long-term vision and execution. The concept is based in aligning efforts company-wide to work toward a shared goal for the company. You can read more about the potential return from OKRs here.
What is a KPI?
KPIs are Key Performance Indicators that measure how you’re tracking against your assigned Priorities or objectives. These metrics vary across financial, people and customer channels. Typically KPIs evaluate the health of your day-to-day activities like marketing campaign analytics, sales goals, NPS scores, hours spent toward a project and more.
The purpose of a KPI is to create a unit of measurement so people can quantifiably assess how they are progressing toward an outcome. This serves as a diagnostic to raise the red flag or identify potential opportunities as they come up. KPIs should be reported on at least once a week. We talk about how Align can be used to present your team with a clear, transparent KPI Dashboard here.
We spoke to Business Coach Andrew Blickstein to get his insights and tips he shares with clients when working through the process of setting KPIs after strategic planning.
“When setting KPIs you need a number, a noun and a verb. Someone will say, my priority is ‘write an employee manual’ … so you have the verb and the noun, but now you need the measurable to track how you are getting to that outcome. The KPI would be write one chapter each week in Q1.”
So what’s the difference between KPIs and OKRs?
Blickstein noted how he makes the distinction between the two terms:
“When I think of KPIs, I think of them as repeatable activities you do over and over. It’s the ‘as measured by’ component of an OKR. The OKR outlines what will be achieved and the KPI is the measure. For example, your OKR is acquire six new clients, as measured by making five phone calls a day and sending out one proposal a day. All of them separately are KPIs. But OKRs tie it back to that higher level outcome.”
And we agree. A KPI by itself is a measure of an ongoing, repeatable activity that you do in your day to day. It’s a metric you can point to and clearly assess how you are performing – you can quantifiably report on the activities you handle daily, weekly and monthly.
The OKR, or Priority, is broader in scope. It connects the longer term vision (objective) with the day to day and drives growth or change within the organization.
To sum it up:
- KPIs are a measurable to evaluate the health or success of ongoing activities and quantifiably assess output of individuals or teams.
- OKRs are the link between day to day activities and overarching strategic initiatives that move the organization closer to the long-term vision.
Think about it this way. OKRs are like your brain. It sets plans in motion to improve your life, to make you better. KPIs in that sense would be your body. It tells you when you need food when you need to sleep, if you need to slow down or what you need to maximize your day. You need your brain (OKRs) to reach new heights and you need your body (KPIs) to inform your brain along the way.
There’s overlap and gray area between the two concepts. Blickstein commented, “I would love to tell someone if something meets ‘x’ criteria it’s clearly a KPI and if it meets ‘x’ it’s clearly a Priority or OKR. But that doesn’t exist.”
Every organization is unique and you’ll have to tailor the system to meet the circumstances that work best in your business.