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What Is the Difference between OKRs and KPIs?

What are the differences between OKRs and KPIs? How KPIs and OKRs could work together?

OKRs and KPIs are two different approaches to measuring a company’s performance. OKR is a goal-setting framework introduced in the 1970s that consists of a goal (an Objective) and a set of measures (Key Results) that track goal completion. KPIs are a set of business performance metrics indicating how well an organization is functioning.

But how do they differ from one another exactly? If you have your share of doubt about whether you need both, we're here to give you clarity. Let's start by explaining what OKRs and KPIs are.

What Are KPIs?

Key Performance Indicators (KPIs) are business measurements that convey the current health of an organization’s performance. KPIs are widely applied to evaluate the performance of projects, products, or employee’s performance. You can think of KPIs as lagging indicators because they show you how your business has been performing over a specific period.

While KPIs are great for measurement, they're standalone metrics. They may tell you when a measure is good or bad, but they don't necessarily convey context or the direction your team should take.

What Are OKRs?

OKRs stands for Objectives and Key Results and represent a goal-setting framework used to connect strategy with execution and align everyone around the same organizational goals. Objectives and Key Results are best applicable at the organizational and team level.

OKRs deliver the crucial context and direction missing from KPIs. Objectives describe what you want to achieve, while Key Results indicate how you know that you are progressing with your Objectives. Unlike KPIs, you can think of OKRs as leading indicators because they're related to a future business state or impact you're striving to achieve.

OKR vs. KPI

Use OKRs to lead as they clearly show what you want to accomplish and how you will achieve it. Objectives, which are change-oriented goals, are paired with Key Results, which are measures.

KPIs, however, are standalone numbers. They are metrics. They don’t represent path, progress, or purpose. While KPIs typically monitor the status quo, OKRs are designed to help your company move forward on something strategically important.

okr vs kpiDifferences between OKRs and KPIs

Furthermore, developing OKRs is a collaborative process. Team members are involved in the OKRs definition by regularly providing feedback and setting team-level OKRs that contribute to the organizational ones. Whereas KPIs are predefined metrics indicating how well an organization is functioning. Most often, they are set by management, but Agile organizations collaborate when setting KPIs to avoid measuring the wrong thing.

While OKRs are frequently re-evaluated to be adapted to the dynamics of the market, the same key performance indicators are oftentimes applied quarter over quarter. You can think of KPIs more as benchmark targets that help you answer the question, “Did we reach our targets or not?”.

OKR vs. KPI examples

A KPI Example

We will use a co-working space as our example. Two of their KPIs are the number of freelancers who use their space and the number of yearly subscriptions to their co-working desks. So, they gather data for two ongoing metrics:

  • How many freelancers use their co-working space every day?
  • How many buy a yearly subscription to work from there?

An OKR Example

Now, let’s continue using our abovementioned example to illustrate OKRs. The co-working space has noticed that more and more freelancers are people working in the tech industry, and they have decided to aim at the following Objective: “Increase our presence in the tech community.” In order to understand if they have succeeded, the co-working space can set two Key Results (KR) in order to achieve the Objective.

  • Objective: Increase our presence in the tech community.
  • Key result 1: Increase the number of monthly visitors from the tech industry by 25% in the next three months.
  • Key result 2: Increase quarterly freelancer leads from tech events by 30%.

Let's also use a Formula 1 analogy to explain the difference between OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators).

A KPI Example 

Key Performance Indicators (KPIs) are more focused on monitoring specific aspects of performance without necessarily being directly tied to a specific goal, like winning the F1 championship, for example. Here are some KPIs for a Formula 1 team:

  • Average Lap Time: Monitoring the average lap time throughout the season to assess the car's performance and potential for improvement.
  • Pit Stop Time: Tracking the time spent in pit stops to optimize efficiency and minimize time lost during races.
  • Driver Feedback Score: Gathering feedback from drivers after each race to evaluate areas for improvement in the car's handling, engine performance, etc.

An OKR Example

On the other hand, OKRs should be inspiring and audacious. In Formula 1, what could be a better objective than Winning the Formula 1 Championship, right?

  • Objective: Win the Formula 1 Championship 
  • Key result 1: Finish in the top 3 positions in at least 80% of the races.
  • Key result 2: Achieve pole position in at least 50% of the races.
  • Key result 3: Secure at least 70% of available points throughout the season.

How Can OKRs and KPIs Work Together?

You won't be the only one if you wonder which is better to use - OKRs or KPIs. OKRs are a method of setting systemic goals, whereas KPIs are metrics. They complement each other well when used correctly.

Let’s take a look at the following example. Your organization should support its patient registration platform’s uptime of 99%. This is a metric that represents an important measurement to track. Simply said, this is a KPI. Yes, KPIs are critical for the business's success, but they won’t make a significant change. KPIs are more like “business health metrics,” they don’t move the needle that much in terms of new opportunities, and they don’t always make good OKRs.

However, there are times when a KPI can become an OKR - when you want to change it. Using the same example above, if your registration portal is down 50% of the time and “create an excellent patient registration platform” is the Objective, one of its Key Results might include stabilizing its uptime - from 50% to 99%, which in this example is also a KPI.

In other words, if you systematically achieve a Key Result (outcome), you can turn it into a KPI indicating the health of your business. This way, the newly added KPIs would indicate if your business is functioning well and can drive you toward future outcomes.

Can OKRs Replace KPIs?

While KPIs are considered business as usual (BAU), it is still important to have KPIs in order to track the critical metrics for your business. KPIs can become your OKRs if it’s a metric that you want to change substantially.

We will use an example of a sales team who fell behind on their KPI to contact new clients within the usual period. This KPI can become an OKR for a short period so the sales team can focus their attention on improving that metric. The moment they show that they can meet this metric, it can be again downgraded to a KPI. This way, the management will still pay attention to the metric, but it doesn’t need to be part of the OKRs in the long run.

What Are Some Common Mistakes to Avoid with KPIs?

Here are some of the most common scenarios when KPI mistakes occur.

  • The KPIs are stand-alone targets or goals. Focus on the fact that KPIs are indicators and measures of what is happening with your business.
  • Your KPIs are tracking vanity indicators rather than leading indicators, which can show you the current state of your business and how to improve it.
  • You are measuring the wrong thing simply because you have to measure something.

What Are Some Common Mistakes to Avoid with OKRs?

Here are some common mistakes repeated by OKRs.

  • Being too focused on the Objective. If you set your Objective as a stand-alone metric, your teams may focus too narrowly on the number rather than on learning. Pair Objectives with measurable Key Results and analyze disparities with your eyes on learning how to improve performance.
  • A failure to distinguish between ambitious and committed OKRs.
    Having only moonshots OKRs. Ambitious goals might demotivate your team, especially in the beginning—mix moonshots with roofshots OKRs.
  • “Not trying hard enough” OKRs (or business-as-usual OKRs).

KPI and OKR Best Practices

While there are no rules when setting up your KPIs and OKRs, there are general best practices you can use as a compass to guide you through the process.

KPI Best Practices

To get the most out of your KPIs, it's essential to implement best practices that ensure their accuracy, relevance, and efficacy.

  • Keep your KPIs to a minimum. While it may be tempting to want to track every metric and data point available, it is important to remember that the purpose of KPIs is to focus on the most important objectives and goals of your business. Instead, prioritize the most critical KPIs that align with your strategic initiatives and provide a clear, concise picture of performance.

  • Be clear and provide context for each KPI. When setting KPIs, it is important to provide a clear definition of what the metric measures and how it will be measured. Context should also be provided to convey why the KPI is important and how it relates to the overall business strategy.

  • Frequently review KPIs and update them as necessary. This ensures that the KPIs remain relevant and effective. KPIs that were important to the company's success yesterday may be less important in the next quarter. Therefore, you should regularly revisit your KPIs to ensure they align with your business objectives.

  • Use software to simplify tracking. By using a software reporting tool, you can easily monitor your KPIs without the need to collect and analyze data manually. When choosing a software reporting tool, make sure it can integrate with your existing systems and that it meets your specific needs in terms of features, functionality, and usability.

OKR Best Practices

To get the most out of your OKRs, it's essential to implement OKR best practices that ensure their accuracy, relevance, and efficacy.

  • Start with a few specific objectives so you can easily implement the OKRs. Start with a few objectives that align with your overall business goals and are achievable within a specific timeframe. Additionally, clear objectives provide greater clarity in decision-making, making it easier to decide which initiatives or projects to prioritize. Starting with just a few specific objectives paves the way for a successful and effective implementation of OKRs.

  • Ensure executives support your OKRs. Before starting any OKR program, ensure that all key stakeholders understand the benefits of OKRs and are willing to support the program. To achieve this, create a clear communication plan that emphasizes the potential value that OKRs can bring to the organization.

  • OKR cycles should run on a monthly or quarterly basis. It is important to break down long-term goals into manageable tasks that can be achieved within these cycles. This approach allows for regular check-ins and adjustments to the objectives, ensuring that progress is being made and potential roadblocks are addressed promptly.

  • Regularly review and adjust OKRs. Typically, it is recommended to review and adjust OKRs on a quarterly basis, but more frequent reviews can be beneficial for fast-paced or rapidly evolving projects. During these reviews, it's important to assess the progress made toward the objectives, evaluate whether the key results are still relevant and achievable, and adjust them accordingly.

  • Use OKR software to simplify OKR metric tracking and reporting. Тo ensures the success of your OKR program, it is essential to track progress toward your objectives on a regular basis. OKR software solutions can streamline this process by offering easy-to-use interfaces that display real-time progress toward your objectives. By automating the tracking and reporting of OKR metrics, companies can stay on top of their objectives, make more informed decisions, and be better positioned to achieve their goals. 

Why Is It Important to Measure Performance?

Your business needs to measure and review performance as it is the only way to improve. When you fail to set objectives, or you define them but do not review them, you miss a valuable opportunity to learn and improve.

By implementing performance metrics, you can learn from both failures and successes. In this way, you may be pleasantly surprised at how quickly you and your team reach your goals and how well your organization functions.

OKR vs KPI Frequently Asked Questions (FAQ)

Can You Have KPIs and OKRs Together?

Yes, you can have both KPIs and OKRs. You can think of KPIs as your business’ current health metrics, whereas OKRs are your most valuable measurements of future success. 

Let’s once again use the example mentioned above for the SaaS product uptime, where “create an excellent technical product” is the Objective. To do this, your team will adopt several KRs (key results) to define a well-functioning product. These KRs are common KPIs for many SaaS products, but in this case, they were very ambitious, thus acting like KRs rather than the typical KPIs.

How Does an OKR Differ from a KPI?

The main difference between OKRs and KPIs is that OKRs are focused on achieving specific objectives, while KPIs are focused on measuring performance against targets. OKRs are more outcome-oriented and focus on achieving results, while KPIs are more process-oriented, measuring the ongoing performance of business operations.

Can KPIs be Used as Key Results in OKRs?

Yes, KPIs can be used as Key Results in OKRs. KPIs are often used as the basis for Key Results because both are measurable and quantifiable.

Can a KPI Become an OKR?

KPIs can form a part of OKRs, but they can’t stand alone as OKRs. This is because OKRs include objectives (clearly defined goals) and key results (measures used to monitor their achievement). It is possible to use a KPI as a key result.

How Often Should OKRs and KPIs be Reviewed?

OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators) should be reviewed regularly, typically on a quarterly basis. This allows for progress to be tracked and adjustments to be made if necessary. However, some companies may choose to review them more frequently or less frequently, depending on their specific needs and goals.

Why Is It Important to Use Both OKRs and KPIs?

It is essential to use OKRs and KPIs because they serve different purposes in measuring organizational success. OKRs are used to set and track progress toward strategic objectives, while KPIs measure performance against specific targets and benchmarks. OKRs provide a directional framework for the organization, while KPIs provide a quantitative measurement of progress toward the organization's goals. Both OKRs and KPIs are important tools for monitoring and improving organizational performance. Using both in tandem can help ensure that the organization tracks progress toward its objectives and meets its performance targets.

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In Summary

OKRs and KPIs are two different approaches to measuring a company’s performance. When implemented correctly, they can complement each other. Just make sure that you understand the difference between OKRs and KPIs:

  • KPIs are metrics that represent your business health.
  • OKRs are your most valuable measurements of future success.

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