OKR vs KPI: How they compare and how they work together

At Perdoo, we receive many questions about OKR vs KPI, and how the two work together. Unfortunately, there seems to be quite some misunderstanding about the definitions of an OKR and a KPI. In this article, we’ll provide more clarity and explain the synergy between the two.

Let’s first have a closer look at what OKRs and KPIs really are.

 

Definition of an OKR

OKR stands for Objective & Key Result. Simply put, an Objective tells you where to go, and a Key Result will let you know whether you’re there or not.

 

When working with OKR, you will, therefore, have to ask yourself two questions:

  1. Where do you need to go?
  2. How will you know you’re there?

 

We also suggest adding a third:

  1. What will you do to get there?

 

The third question will generate actions: things you’ll do to get to your OKRs. They complete the picture and help people understand the difference between Key Results and actions (which people often mix up).

 

Let’s have a look at each question in more detail.

 

  • Where do you need to go?
    The answer is the Objective. It should provide a clear direction, such as a street name. Your Key Results will provide the house apartment number. Examples:
    1. Grow revenue
    2. Improve customer satisfaction

 

  • How will you know you’re there?
    The answers are Key Results, the results you need to achieve in order to reach the Objective. They provide the house and apartment number.Examples:
    1. Close $100.000 revenue
    2. Increase our NPS from 70 to 80

 

  • What will you do to get there?
    The answers are actions, the things you’ll do to achieve your Objectives and Key Results. It’s every
    movement towards the apartment.Examples:
    1. Host a 100 product demo’s
    2. Implement in-app live chat

 

Definition of a KPI

KPI stands for Key Performance Indicator. It is a type of performance measurement, aimed at evaluating the success of an ongoing process or particular activity. There are many different types of KPIs and choosing the right KPIs depends on factors like the industry you’re in and the maturity of your organization. Each department or team will use different KPIs to measure success. KPIs are sometimes also called health metrics.

 

Let’s look at a few popular examples.

 

Sales

  • Customer Lifetime Value
  • Trial-to-Customer Conversion Rate

 

Support

  • Tickets per Month
  • Average Reply Time

 

Marketing

  • Web traffic
  • Visitor-to-Signup Conversion Rate

 

The Difference between OKR vs KPI

OKRs provide the missing link between ambition and reality. They help you break out of the status quo and take you into new, often unknown, territory. If you have a big dream – an inspiring vision – for your company, you need OKRs that take you there. OKRs symbolize ambition.

A KPI, on the other hand, measures the success, the output, quantity or quality of an ongoing process or activity. They measure processes or activities already in place.

An OKR vs KPI comparison is a bit like comparing a fruit salad with an orange, they both contain fruit, but one is a combination that contains the other.

Example

Let’s say you want to measure the success of your Support team. You could create a KPI that measures the average reply time for incoming support tickets. If you agree with Support that the average reply time should be 30 minutes or less, you’ll be able to instantly see (on a KPI dashboard like Geckoboard) whether your target is met.

As long as that is the case, you’re all good. But what if the KPI indicates the average reply time currently is 48 minutes? You probably want to create an Objective to Improve customer support. How would you know you’ve improved it or not? Well, if the average reply time drops from 48 to 30 minutes. So that would be your key result. What will you do to make that happen? You may want to hire an extra support manager, streamline processes or implement Zendesk (which are all actions).

 

Another Example:

One of our KPIs at Perdoo is NPS. We want this NPS to be at least at 75. You can imagine NPS being a prominent KPI on our KPI dashboard. As long as our NPS is 75 or above, we’re good. If we see it drop below that level, we will immediately create an Objective to improve customer satisfaction, with a Key Result to increase NPS from x to 75. That would be a big Objective to which many teams contribute: Support, Success, Product, etc. Once we’ve fixed customer satisfaction, we will monitor it again on our KPI dashboard.

As you see, your KPI dashboard can serve as a source of inspiration when defining new OKRs. A KPI may tell you that you have a problem, but you’ll need an OKR to actually fix it. Good Objectives contribute to your company’s vision or fix problems that prevent you from realizing your dream.

 

Conclusion

Look at your KPI dashboard as your car’s dashboard. It tells you if you still have enough oil, how much gas you’ve got left if the engine isn’t too hot, and so on. OKR is your navigation software. If your petrol gauge (KPI) indicates you’re running out of gas, you need your navigation software to get to a petrol station.

In other words: OKR and KPI work perfectly together. You’ll need both.

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