Establishing business goals is essential for continuous organizational growth. The main challenge, however, lies in choosing the most suitable goal-setting method for your business.
In this article, we'll compare objectives and key results (OKRs) and key performance indicators (KPIs): two popular goal-setting methodologies recognized for the visibility, productivity, and profitability they provide to businesses. Beyond looking into the differences between OKRs vs. KPIs, we’ll uncover the benefits of using these frameworks together, including use cases and actionable best practices to help you carry theory over to practice.
The difference between OKRs and KPIs
OKRs and KPIs are frameworks that businesses can use to set goals, measure performance, and determine success. For a short recap of their definitions: OKRs, comprised of objectives and key results, help you set, track, and update ambitious, measurable, and time-bound goals. Objectives are short, qualitative descriptions of what you’re trying to achieve, while the 3-5 key results accompanying each objective are quantitative metrics measuring OKR progress. KPIs, on the other hand, are specific, quantifiable measures of success that allow you to track organizational performance.
The main differences between OKRs vs. KPIs lie in their:
Let’s take a closer look at each of these differences.
While OKRs facilitate ambitious goal setting, engagement, transparency, and alignment for your organization, the main aim of KPIs is to evaluate the success of your overarching business or its activities (e.g., projects, programs, products).
As OKRs take a multifaceted approach to goal-setting — serving as a fully-fledged management methodology — its scope is wider than that of KPIs. As such, KPIs are often used alongside broader methodologies, such as OKRs.
OKRs and KPIs also have different timeframes: OKRs typically have quarterly cycles (depending on the cadence of your business, teams, and employees), while KPIs are high-level, tracking larger business areas for extended periods of time.
Compared to KPIs, OKRs are buildable, with nested hierarchies linking collaborative and supportive OKRs together. Conversely, KPIs tend to be established at the same level, where they’re all viewed as equally important.
Unlike KPIs, which are static performance indicators, OKRs are meant to be scrapped, updated, and renewed in line with real-time findings. As such, they’re continuously reviewed to ensure they’re aligned with organizational priorities.
OKRs vs. KPIs examples
To exemplify these differences between OKRs vs. KPIs, let’s see see how these two goal-setting frameworks are applied when faced with the same customer success-related situation.
Imagine you’re running a customer support team that has started to see a larger volume of support requests. As you want to decrease customers' waiting time (keeping your customer satisfaction and retention rates high), you need to set adequate goals to keep your customer support team responsive.
Scenario #1: The KPI approach
In the first scenario, you combat the higher customer support tickets with the following KPI: Complete 200 ticket responses per hour.
By the end of the quarter, you reach your KPI, consistently hitting a response rate of 200 tickets per hour. However, your volume may still be increasing, resulting in slow response times. Consequently, the core problem persists, with longer customer wait times driving down customer satisfaction.
Scenario #2: The OKR approach
Let's apply the OKR approach to the same situation. In this scenario, you tackle the customer support crisis using the following OKR:
- Objective: Solve the support ticket crisis.
- Key Result #1: Reduce response times by 10%
- Key Result #2: Improve customer satisfaction score by 5%
- Key Result #3: Increase tickets handled from 180 to 200
In this situation, you attain the following results:
- Reduced response times by 7%
- Improved customer satisfaction score by 4%
- Increased the number of tickets handled from 180 to 190
While you may not have met all key results, the OKR's multifaceted approach allowed you to improve the support ticket crisis significantly.
Comparing the OKR vs. KPI approach
In this OKRs vs. KPIs scenario, you can observe distinctly different outcomes.
With KPIs, you handle a larger volume of requests while still facing significant issues. This is because the symptom was treated rather than the problem. Even if you chose to add additional KPIs for response time, customer satisfaction rate, and retention, these disparate metrics would convey a disjointed, incomplete story.
Conversely, in the OKR example, you can see how each key result contributes to the overall objective, enabling individuals to understand their impact. Additionally, OKRs allow you to update and renew goals after receiving new information. For example, suppose you see a continuous increase in customer support requests. In this case, you can add additional key results (e.g., increase visits to help center material by 15%) or adjust existing key results as you see fit. This can paint a clear picture of the situation.
The pitfalls of only using KPIs
As exemplified in the scenario above, several issues may arise if you rely on KPIs as a goal-management tool. Here are the three main pitfalls you can expect:
Pitfall #1: Uncertainty regarding the adequate number of KPIs
One of the biggest challenges with KPIs is deciding on the right number of KPI metrics. With too few KPIs, the picture of performance can be biased, misleading, or confusing. On the other hand, too many KPIs can overload your teams or employees, leading to mediocre performance. Therefore, you must find the sweet spot without creating a shortage or overflow of data, which is often difficult.
Pitfall #2: A lack of clarity on what needs to be improved
Another issue with KPIs is they don't reveal what needs adjustments or improvements. KPIs are indicators rather than proper tools that can diagnose specific problems or help guide you toward the next steps.
Pitfall #3: Ambiguous ownership
Finally, ownership of KPIs is blurry. This leads to a lack of accountability and awareness surrounding contributors. For example, while an employee might be responsible for updating a KPI, whether their initiatives directly improved the KPI is uncertain.
Thankfully, OKRs can help diminish the impact of these pitfalls.
Why use OKRs and KPIs together: Use cases
OKRs define the who, what, and how of a project, revealing what contributed to its success. When combined with KPIs, OKRs can be a succinct yet powerful tool, painting a complete picture of your performance. Moreover, OKRs can help identify which areas require additional resources by warning you about lagging results. Read on to see how combining OKRs and KPIs can benefit your business.
Set OKRs for ambitious KPIs
You can also use OKRs to establish ambitious KPIs. For example, imagine your marketing team has an extremely high KPI, where they need to generate 40,000 leads for sales (when they only delivered 10,000 last year). As OKRs are meant to be aspirational and aggressive, you can use them to stretch the creativity and ingenuity of your teams.
In this situation, the related OKR would look something like this:
- Objective: Get all sales leads to come from our website by driving quality traffic
- Key Result #1: Increase website visitors to 300k
- Key Result #2: Keep the bounce rate below 52%
- Key Result #3: Generate 80,000 leads for sales
The rationale for key result #3 (where the target number of leads is double that of the KPI) is that even if employees attain 70% of the key result, it can produce more significant results than 100% of a less ambitious KPI. Aiming high also motivates your teams to take risks and try new things.
Use OKRs to test KPIs
Getting your KPIs right the first time is tough and comes with many questions and caveats:
- Should you measure fewer or more KPIs?
- Are there more telling insights that should be included?
- Did you strike the right balance between gathering insights and overwhelming stakeholders with data?
Setting your KPIs carefully is crucial. Once you've set these, you can't retrieve additional data from metrics you haven't tracked. And setting too many KPIs can lead to an exhaustive amount of data. So how can you test what to track before setting your KPIs in stone?
OKRs, by their very nature, have multiple key results. With 3-5 key results per objective, you can efficiently test potential KPIs. OKRs can therefore help you assess the validity and relevancy of KPIs before they’re permanently fixed in your reporting.
Use OKRs to flag KPIs
If you see your KPI's health metrics turn red, OKRs can help you find and fix its causes.
Let's say that KPI "hit $500k MRR by the end of the quarter" is failing. With OKRs, you can apportion this target to everyone on your sales team. So, employees may have the following ambitious OKR:
- Objective: Finish the year with convincing sales figures.
- Key Result #1: Hit $600k MRR
- Key Result #2: Close 100 new deals
- Key Result #3: Hit an average deal size of $100k
This sales OKR clearly highlights what sales personnel need to do to boost the KPI's health. By closing more deals at larger deal sizes, they can meaningfully contribute to the overall success of the KPI. Moreover, they can measure what they've done and whether it worked, allowing them to create a list of best practices based on historical successes. This facilitates traceability, transparency, and the ability to view confidence and progress at any given time.
Say goodbye to flagging KPIs with these 10 free sales OKR examples.
Use OKRs and KPIs to drive decision-making
You can also use OKRs and KPIs to facilitate decision-making, using complementary data to inform organizational action. For example, if you have this OKR:
- Objective: Increase sales by 25% over the next quarter
- Key Result #1: Generate 100 sales-qualified leads
- Key Result #2: Increase upsell revenue by 30%
- Key Result #3: Implement an improved sales program
Accompanying KPIs may include conversion rate, upsell revenue, and program profit margin. By tracking these alongside your OKRs, you can get a complete, overarching understanding of OKR progress at the macro and micro levels. This can accurately inform decision-making, ensuring weak points are addressed and successes are maintained.
Want more information on the interplay between OKRs and KPIs? Find out how the OKR Cycle affects KPIs in this video:
Best practices for combining OKRs and KPIs
To help you get the most out of your OKRs and KPIs, here are five tips you can use when integrating OKRs and KPIs into your organization:
- Align your OKRs and KPIs to organizational goals
- Limit the number of OKRs and KPIs
- Review these regularly
- Keep teams updated on OKR and KPI progress
- Use goal-setting software
Align your OKRs and KPIs to organizational goals
Aligning OKRs and KPIs to your broader company strategy ensures there’s no dissonance between organizational priorities and what employees are working toward, facilitating steady, ongoing progress toward short- and long-term goals.
Limit the number of OKRs and KPIs
Limiting your organization to a handful of OKRs and KPIs makes their management less complex and time-consuming. Moreover, it erases any confusion regarding company priorities, ensuring proper time management and adequate resource use.
Review your OKRs and KPIs regularly
Creating a regular schedule for reviewing OKRs and KPIs ensures they’re continuously relevant. Additionally, it asserts these frameworks as part of integral operations, with employees acknowledging their importance and using them as North Stars.
Keep teams updated on OKR and KPI progress
Consistently updating departments, teams, and individuals on OKRs and KPIs keeps these metrics top-of-mind while holding relevant contributors accountable. This motivates them to stay productive, actively pushing to attain these goals.
Use goal-setting software
As manually setting, tracking, and updating OKRs and KPIs can be tasking and error-prone, you can use goal-setting software to keep your OKRs and KPIs accurate, robust, and efficient. For example, OKR software can help you create collaborative goals, view data on dedicated dashboards, and automatically update metrics in real-time using integrations.
Not convinced? Check out more benefits of OKR software here.
When comparing OKRs vs. KPIs, it may be easy to disregard their compatibility given their different purpose, scope, duration, buildability, and flexibility. However, it’s precisely these differences that make them so compatible.
By combining OKRs and KPIs, you can better address operational issues, attain ambitious goals, and drive decision-making. Using the best practices highlighted above, you can effectively manage your OKRs and KPIs, driving alignment, focus, and strategic success.
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