What are OKRs?
Measuring performance is a fundamental necessity for every organization. We often receive questions about OKRs vs KPIs; specifically, how they might work together to create a system for measuring performance that effectively monitors organizational health while tracking progress toward larger, big picture goals.
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OKR is an acronym that stands for Objectives and Key Results. It’s a widely utilized framework made popular by tech companies like Google and Intel for defining, aligning around, executing, and measuring progress toward key organizational goals.
OKRs link organizational and team goals in a hierarchical way to measurable outcomes. In simple terms, OKRs answer the questions:
- Where do we want to go?
- How will we measure our efforts to get there?
Although it might seem as though OKRs and KPIs are two different methods that organizations must choose between, “OKRs vs KPIs” is a bit of a misnomer, as they are actually quite complementary. Most organizations will benefit from using them together, employing one or the other depending on what they need to measure or monitor.
OKRs are typically used for quarterly planning but can also be used for longer-term strategic planning. They are often defined at the organizational level, and then further broken down in a pyramid structure at the team and individual levels.
Objectives: Where do we want to go?
Objectives in the OKRs framework are big-picture, aggressive goals. They answer the question, “Where do we want to go?” They establish a vision for the organization, team, or individual to orient themselves around.
By definition, Objectives should be ambitious, qualitative, actionable, and time-bound. The purpose of Objectives in the OKR structure is to challenge companies to reach toward big, intimidating goals.
Many organizations choose to use simple, informal language when creating their Objectives. This is intentional: Objectives must be easy to communicate and easy to understand to be effective.
Key Results: How will we measure our efforts to get there?
Key Results are how organizations measure their progress against their Objectives. They should be measurable, specific, actionable, and verifiable, answering the question, “How will we measure our efforts to get there?”
The verifiability aspect is crucial: Key Results lay out specific, actionable requirements that the team (or individual) responsible for them either completes, or doesn’t – giving team members a clear-cut way of knowing whether or not they’re making progress, and leadership a subjective way of assessing performance.
Each Objective will typically have a handful of Key Results attached to it – more than one, but fewer than five. Because each of these Key Results is measurable and verifiable, organizations use the Key Results as a sort of rubric to score the extent to which they achieved their Objectives. Once they are all completed, the Objective is achieved.
What are KPIs?
Most people are familiar with the basic concept of KPIs, or Key Performance Indicators. KPIs are performance metrics that measure the success of an activity, initiative, product, program, team, or organization. In most organizations, the acronym is used synonymously with “business metrics.”
KPIs should be measurable (quantitative), specific, time-bound, and actionable. They can be leading or lagging indicators, and can be measured weekly, monthly, quarterly, or annually. They can be set and measured by individuals, teams, departments or at the organizational level.
OKRs vs KPIs: Unlike OKRs, which are typically used to set and achieve goals during a defined period of time, KPIs can be used to measure ongoing activities.
There are literally hundreds of metrics that are KPIs. The term can be used to describe virtually any metric that is:
- Able to be measured: Quantifiable
- Compared to a target for context: Not pulled out of thin air – based on some sort of specific, contextualized data
- Specific enough to be actionable: Anyone reading a KPI should be able to identify what the target is, and start to generate actionable steps to achieve it
When establishing KPIs, it’s important to define answers to each of the following basic questions: Who? What? When? Where? Why?
- Who is responsible for this KPI? (Who is the “owner?”)
- Also: Who needs to be in-the-know about this KPI?
- What is the objective of this KPI?
- Why is this KPI important to measure?
- How do we plan on achieving this KPI?
- When will we be measuring / reporting on this KPI?
- ○ Also (if the KPI has a defined end date): When do we plan on achieving this KPI?
OKRs vs KPIs: Comparing and Contrasting
Some articles say that OKRs and KPIs are like apples and oranges – but that’s not exactly accurate. The apples and oranges comparison suggests that OKRs and KPIs are basically the same in structure and function (both pieces of fruit, meant to be eaten), just different in taste. This implies that organizations need to choose one or the other, and that either could be used to fulfill the basic need of setting and achieving organizational goals.
In reality, the difference between OKRs vs KPIs is more accurately represented by the image of a fruit salad (OKRs) and apples (KPIs).
OKRs provide a framework for setting and working toward big-picture, ambitious goals. They are best utilized in situations that are new to an organization: Those that require innovation and creative, out-of-the-box thinking, and are focused on growth. This is why so many tech companies rely on OKRs so heavily – because so much of the work many of these companies are doing is work that they haven’t done before.
KPIs measure the success of a particular activity, initiative, product, program, team, or organization. They are best for monitoring and measuring performance over time on routine or well-understood activities.
OKRs typically have a beginning and an end; they are used to guide organizations as they work toward a specific vision during a specific period of time.
KPIs can be used to measure these types of projects or initiatives as well, but they can also be used to monitor ongoing performance, such as revenue growth year over year.
Examples of OKRs vs KPIs
These two methods can be used together, which is where it can start to get confusing: For example, a metric can start as a Key Result, and become a KPI once a program is launched.
Here is an example of how that might happen:
Let’s say a company has an Objective of becoming the number one app in its category in the App Store by the end of the year. The Key Results for this Objective might include:
- Updating the App Store listing with specific keywords and phrases
- Generating a certain number of 5-star reviews
- Achieving a certain number of downloads
After successfully completing each of these Key Results, the company is able to achieve its Objective of becoming the number one app in its category.
Now the mission changes: Instead of working to achieve this status, the team switches its focus to maintaining this status. It establishes the following KPIs:
- Generate X number of 5-star reviews each week
- Increase daily downloads by 15% over the next quarter
Now that the big, ambitious OKR has been achieved, and the team knows what it takes to achieve it, maintaining that status becomes their target – so their Key Results become KPIs.
It can be helpful to look at examples of OKRs as a source of inspiration for writing your own. Here is an example of an OKR that a SaaS company might decide to pursue:
- Objective: Increase recurring revenues in the next six months.
- Key Result 1: Convert at least 10% of existing monthly subscriptions to annual subscriptions.
- Key Result 2: Reduce churn to less than 3% monthly.
- Key Result 3: Increase average number of seats by 20% for monthly and annual subscriptions.
The Objective is ambitious, qualitative, actionable, and time-bound. Each of the Key Results is measurable, specific, actionable, and verifiable. At the end of this six month period, the company will be able to grade their performance by assessing the extent to which they achieved each of the Key Results.
An example of a KPI that meets these criteria is: increase revenue by 22% this year compared to last year.
- This is measurable: The team / organization can quantify exactly how much revenue was generated in the specified period (one year).
- It is compared to a target for context: In this example, the team/organization is using last year’s metrics as a baseline to measure their performance this year.
It is specific enough to be actionable: Anyone reading this KPI can understand that the objective is to increase revenue. The next obvious question is, “What activities will help them hit this target?” which leads to a course of action.
When to Use OKRs vs KPIs
At this point, you may be asking yourself: When comparing OKRs vs KPIs, which is better? We’d encourage you to ask a different question: Which is better for what you’re trying to measure right now?
OKRs vs KPIs: OKRs can help you solve big problems, reach for the stars, and innovate boldly, while KPIs can help you monitor performance and identify opportunities for improvement.
OKRs are best for those big-picture, growth-oriented goals. If you’re trying to do something you’ve never done before, move into a new direction, or expand into a new market, OKRs will provide a framework for setting and achieving those goals. OKRs are great for inspiring creative, out-of-the-box thinking that is necessary for achieving big plans.
If, however, you’re seeking to improve upon or scale up something you have already done, selecting a few meaningful KPIs to track and analyze can be the right approach. KPIs are straightforward and allow you to quantify your existing projects and processes.
When it comes to OKRs vs KPIs, both are important.
Importance of Measuring Performance
Whether you choose to use OKRs or KPIs or a combination of the two to track and measure your performance, the important thing is this: You must measure to improve. This means not only sitting down to establish your goals and communicate them with everyone involved in doing the work, but also taking the time to assess how you did at the end of each planning / execution cycle. This last part is the part that is so often overlooked, but it’s arguably where most of the value lies.
OKRs and KPIs can each have their place in an organization’s measurement system – the question is not, “Which is better?” but “Which is best for what I’m trying to measure?”