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.
Perdoo was the first OKR platform that brought together OKRs and KPIs in one place. While this combination has been well-received by both our customers as well as OKR consultants, it did raise a number of questions amongst our users. What’s the difference between OKRs and KPIs? How do they work together? And, what’s the value of tracking them alongside each other?
Since there seems to be some misunderstanding about the definitions of an OKR and a KPI and how they both work, we’ll provide more clarity and explain the synergy between the two in this article.
But, before we get into the details of OKRs and KPIs, it’s important to first establish the role that both these goals play within an organization. Let’s have a look at activity- versus results-driven organizations:
Activity-driven vs. results-driven
Organizations are groups of people, and just like people they have ambitions. That ambition is reflected in their strategy — their Ultimate Goal and Strategic Pillars.
Organizations then have their processes, which are their business-as-usual. They execute those processes on an ongoing basis in order to maintain the core business functions. But they also have an innate drive to realize their ambitions, which is why they’re constantly working on Initiatives, which are all the (temporary) projects and tasks that will get them closer to their ultimate goal.
For activity-driven organizations, it’s just processes and Initiatives, which are both output- or activity-driven goals. On a daily basis, their employees execute the tasks that the organization deems necessary to maintain the performance of key business areas and to advance towards their Ultimate Goal.
While completing tasks and activities is a great feeling, it’s often a wasted effort if you don’t know the outcome you’re trying to achieve and how it affects the bigger picture.
Organizations that are activity-driven typically continue executing their processes and Initiatives without regularly revisiting if these are still the right things to do. Often they have little to no insight into how their processes and Initiatives help them realize their ambitions.
Results-driven businesses take a different approach. Firstly, they consider their activities (i.e. processes and Initiatives) to be a means to an end. They instead focus on the results that these activities are supposed to deliver.
Secondly, they regularly look at the bigger picture and review what their business-as-usual should be, and what advancements they need to make, in order to realize their ultimate goal.
They use KPIs, Key Performance Indicators, both to define what business as usual is critical, as well as to measure how that business-as-usual is performing.
They use OKRs, Objective and Key Results, to define what key advancements they need to make within a particular quarter or year, and they use these same OKRs to measure whether these advancements are actually being made.
KPIs and OKRs are both outcome- or value-driven goals.
In other words, they create an extra layer where they define and measure the outcomes that their Processes and Initiatives are supposed to deliver — and that’s how they’re able to see if their work is actually moving them in the right direction.
Now that we know results driven organizations use OKRs & KPIs, let’s take a closer look at what they really are.
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What’s the difference between OKRs and KPIs?
OKR stands for Objective and Key Results. An OKR is made up of 3 separate components — an Objective, Key Results and Initiatives.
Simply put, an Objective tells you where to go, a Key Result will let you know whether you’re there or not and Initiatives will tell you what you need to do to get to your destination. Initiatives are often confused with Key Results, it’s important to note that they’re not the same thing. In case you were confused, head over to this article.
Here’s are two examples of how all the components of an OKR come together:
Objective: Grow new business revenue
Key Result: Close deals worth $100.000
Initiative: Host 100 product demos
Customer Success OKR
Objective: Improve our customer experience
Key Result: Increase our NPS from 70 to 80
Initiative: Implement in-app live chat
To learn how to write great OKRs, download our eBook on How to write great OKRs.
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 metric examples.
- Customer Lifetime Value
- Trial-to-Customer Conversion Rate
- Tickets per Month
- Average Reply Time
- Web traffic
- Visitor-to-Signup Conversion Rate
KPI vs. OKR
As we’ve seen, KPIs and OKRs are different types of goals.
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.
Let’s look at OKRs and KPIs as a metaphor. Imagine your organization is a car and you’re driving that car towards a destination (your Mission & Vision). Your KPIs are what you’ll find on your car’s dashboard, like the fuel gauge and engine temperature gauge. They prevent the engine from overheating and make sure you won’t run out of gas, which are all things that you’ll constantly need to watch. OKRs are like your roadmap, they’ll guide you to your destination. OKRs are temporary, they’ll change from time to time. Once you’ve passed a landmark towards your destination, you’ll focus on the next one.
Results-driven organizations need both KPIs and OKRs. If you were only watching KPIs, you’d have no clue how you were advancing towards your destination. Had you only been watching OKRs, you wouldn’t see that you’re running out of gas.
How do OKRs and KPIs work together?
OKRs and KPIs complement each other and are in fact natural companions. While they’re mostly used to help an organization realize its strategy, an OKR can also be used to improve a KPI. The best way to illustrate how this works is through an example.
Let’s say that critical business as usual for your Support team is to answer incoming support tickets as soon as possible. You agree with Support that, on average, tickets should be answered within 30 minutes. You create a KPI in Perdoo that measures the average reply time for incoming support tickets.
As long as the KPI indicates an average reply time of 30 minutes or less, you know you’re all good. But what if the KPI indicates the average reply time currently is 52 minutes? You probably want to create an Objective to fix this.
In order to create the right Key Results for this Objective, you’ll need to investigate what exactly caused the average reply time to rise. Perhaps you’ve onboarded a lot more customers recently so there simply are a lot more users but you didn’t hire extra Support agents. Or perhaps you released new features without creating support articles for them on your Knowledge Base.
What’s the value of tracking OKRs & KPIs alongside each other?
OKRs and KPIs 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 and, therefore, tracking them alongside each other not only provides the bigger picture at all times, you’ll also have all the functioning parts in front of you that your organization, teams and people need to deliver strategy.
What differentiates activity-driven from results-driven organizations is that the latter treats activities (processes and Initiatives) as a means to an end. To them, activities are output goals that will help them achieve certain desired outcomes. Results-driven organizations also have these output goals, but they work with an extra layer of outcome goals — KPIs and OKRs — to define what these desired outcomes are, and to monitor whether these desired outcomes are actually being achieved.