With so many performance metrics, it can be challenging to learn which ones work best for your business. What’s even more challenging is learning how to implement these metrics to drive business performance. However, there are two most commonly used business performance metrics: OKR and KPI. What did we learn by pitting OKR vs. KPI?
OKR and KPI work perfectly together—any business should set their KPIs and OKRs to make sure the right things are measured. But what do KPI and OKR stand for? KPI or Key Performance Indicator are measurable numbers that show how effectively your business is achieving set goals. OKR or Objectives and Key Result is a goal-setting framework that assists businesses in setting goals along with measurable key results that focus on achieving each objective.
Keep reading to find out more about this topic below.
Measuring the performance of any business is the key to the growth and success of the company. It’s very valuable to know where your business stands at a certain moment and find out what works and what doesn’t. Any team should develop a performance measurement framework and set clear, defined goals across the organization. You should think about what you want to accomplish and then decide about the individual performance metrics you’re going to measure.
It doesn’t matter which method you choose—the goal is to measure, analyze and improve performance. Measuring and reporting performance is vital for enhancing the organization’s environment. More and more businesses have realized the importance of measuring performance because it helps them achieve long-term success in today’s highly competitive business world. Performance measurement isn’t always justifiable, however it’s important for performance improvement in the long run. If done effectively, the process can help companies identify their strengths and weaknesses, areas for improvement, top high performers, and set benchmarks.
As we mentioned earlier, KPI is an acronym that stands for Key Performance Indicator. This performance metric is used to measure how effectively your business is achieving set goals such as targeted quarterly revenue or new customers per month. KPIs are valuable to many companies, teams, departments as well as individuals because the numbers help them set clear targets and track how those targets are progressing—we strongly suggest you consider regularly creating KPI reports and track the performance.
KPIs are only used to measure performance, but they don’t suggest what needs to be changed or improved to drive the growth of the company. KPIs allow you to learn what you need to analyze in order to determine the basis for your OKRs. They are business performance metrics that allow you to analyze results with precise frequency (yearly, quarterly, monthly, weekly, daily, or even hourly).
KPIs can be used for projects, programs, products, as well as other initiatives. They can measure the performance of anything from sales, and revenue, to social media metrics. The purpose of KPIs is to analyze past performance and forecast the future such as: ‘Which months are most likely to bring in the most sales?” or ‘How many deals can be closed by a salesperson’? Etc.
Today, KPIs are implemented by thousands of organizations to analyze, evaluate and predict success. However, it’s good to note that since every organization is different, KPIs should be tailored to your specific company objectives. Some companies just follow KPIs used by other companies and wonder why their goals cannot be met.
OKR stands for Objective and Key Result. They are used for establishing desired outcomes within the company and focusing on areas that need improvement. Accordingly, KPIs serve to achieve effective results for the business. Usually, OKRs demonstrate which areas need improvement (i.e objectives) in order to achieve KPIs. OKRs are measured by key results which are usually used to monitor the performance of changes and improvements made by the company.
OKRs can help you improve many areas of your business such as
OKRs are aggressive goals and illustrate the measurable steps a business should take toward achieving its goals. So, the purpose of these metrics is to find out what exactly you need to improve in your business and based on those findings, decide what to do in the next quarter.
They’re usually applied for quarterly goals but can also help with annual planning. OKRs can be determined by the company, team, or individual. All in all, OKR is a goal-setting approach that helps you improve performance and make changes.
Many employees don’t understand the difference between OKRs and KPIs. The easiest way to differentiate between these two terms is to know that OKRs are used to reach objectives and KPIs measure organizational performance.
OKR and KPI is the most common example of measuring performance. But even though they overlap in certain areas, these two concepts are totally different.
Let’s take a look at the differences between the two.
The most prominent difference between these two concepts is the purpose behind goal setting. KPIs usually demonstrate the results or output of a process or project management that’s already going on, while OKRs are simply what someone wants to achieve for their business i.e crafting strategies to push the team to improve their performance.
So, you can use OKRs to set and achieve specific goals for a specified time period, for example, a quarter. You can include a specific objective along with a couple of small key results. The objective indicates the desired outcome, while the key results suggest how the objective will be achieved. These metrics must be measurable and attainable, but they’re usually more ambitious in nature.
On the other hand, KPIs do not facilitate the completion of a task or objective. KPIs only measure the growth and progress of the ongoing plan and project. These metrics are different for each individual company, and sometimes even vary between industries.
OKRs help companies grow and make further progress, while KPIs measure the success, quantity, quality, or results of an ongoing project.
Common examples of key performance indicators (KPIs) include:
Various teams have different KPIs—they’re quantitative, measurable, and target-oriented. Here are some examples of KPIs for different teams.
Product management KPIs:
Examples of possible OKRs may include:
Here are some specific examples of OKRs:
Marketing team OKRs:
Objective—Strengthen social proof to improve credibility and reputation.
Key results— Get 20,000 views on the testimonials page/ Achieve a click-through-rate of 15%/ Increase the number of shares on social media (50–150)
Initiatives—Connect with thought leaders to promote the testimonials page/Reach out to users and ask them to share their stories/ Identify ideas for social media marketing
Once a business determines the objective, the team should focus on delivering key results. The key results are strictly determined and identify whether you have reached your objective. Most OKRs have multiple key results. Once the key results are achieved, the organization should think about future initiatives that will create the basis for the next OKRs. If you failed to meet the objective, you should at least know how close you were to meeting it and craft new OKRs based on your progress.
When considering whether to use KPIs or OKRs, you need to decide what you’re going to measure. For example, if you want to improve a plan or project that’s already been implemented, KPIs might seem like a better option. This performance metric allows you to add a measurement system to your ongoing projects and processes.
On the other hand, if you’re thinking of changing your overall direction, OKRs might help you do that. They’re more in-depth, and allow you to expand your goals and be more creative when deciding how to reach those goals.
However, OKR and KPI work perfectly together as well. If a KPI result suggests that some areas need improvement, this may become the ‘key result’ of a new or existing OKR. For example, if a KPI result determines that sales are declining, the organization might choose to create an inspirational OKR that improves the overall profit, marketing, or even customer service. Likewise, an OKR objective may suggest that the company should come up with new KPIs to measure the company’s growth.
After comparing OKR vs. KPI, there’s enough reason to believe should be used together. For example, if you’re behind on your KPI target, you will need an OKR to address a specific issue. Furthermore, if you want to focus on a more ambitious KPI such as improving revenue, you will OKRs that will support the process.
Managers and employees should consistently communicate and discuss progress in order to effectively use both OKRs and KPIs. They should also be able to identify potential challenges and weaknesses that would help them manage their business goals.