This is the last of a five-part series examining how OKR compares with other management frameworks. In this post, we look at how OKR compares to KPIs.
At Perdoo, we receive many questions about OKR vs. KPI and whether or how the two work together. Since there seems to be some misunderstanding about the definitions of an OKR and a KPI and how both work, 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.
What does OKR stand for?
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:
- Where do you need to go?
- How will you know you’re there?
We also suggest adding a third:
- What will you do to get there?
The third question will generate Initiatives: things you’ll do to get to your OKRs. They complete the picture and help people understand the difference between Key Results and Initiatives (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:
- Grow new business revenue (Sales OKR examples)Improve our customer experience (Customer Service OKR examples)
How will you know you’re there?
The answers are Key Results, the results you need to achieve to reach the Objective. They provide the house and apartment number. Examples:
- Close deals worth $100.000
- Increase our NPS from 70 to 80
What will you do to get there?
The answers are Initiatives, the things you’ll do to achieve your Objectives and Key Results. It’s every movement toward the apartment. Examples:
- Host 100 product demos
- Implement in-app live chat
There is a lot more to learn about writing OKRs. We wrote an OKR eBook that has everything you need to get started.
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What does KPI stand for?
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 KPI examples.
- Customer Lifetime Value
- Trial-to-Customer Conversion Rate
- Tickets per Month
- Average Reply Time
- Web traffic
- Visitor-to-Signup Conversion Rate
What’s the Difference between an 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 Ultimate Goal—for your company, you need OKRs that take you there.
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.
Very often, a KPI that needs improvement will be a starting point for creating an OKR, and it will become a Key Result of an Objective. Accordingly, 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.
How do OKRs and KPIs play together?
Because of their complementary scope, OKRs and KPIs are natural companions. The best way to show how they work together is to give some examples.
Example: A support KPI below target becomes a Key Result
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 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 Initiatives).
Example: Improving the customer experience at Perdoo
One of our KPIs at Perdoo is NPS (Net Promoter Score), -100 being the lowest and +100 the highest possible score. We want this NPS to be at least at 75. Since we want to get our customers excited about your product and services, NPS is 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 our customer experience, 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 our customer experience, 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 Ultimate Goal or fix problems that prevent you from realizing your dream.
OKR vs. KPI: Conclusion
Look at your KPI dashboard as your car’s dashboard. It tells you if you still have enough oil, how much fuel you’ve got left, if the engine isn’t too hot, and so on. OKR is your navigation software. If your fuel level (KPI) indicates you’re running out of gas, you need your navigation software to get you to the closest gas station.
In other words: OKR and KPI work perfectly together. KPIs help monitor performance and identify problems and areas for improvement; OKRs help solve problems, improve processes, and drive innovation. You’ll need both.