KPIs vs OKRs - what's the difference?
In business, we rely on acronyms to give us a kind of spoken short-hand that saves time and promotes understanding across various cross-functional teams. You’re probably already familiar with the terms OKRs and KPIs. But you may think they’re much the same thing, or perhaps you’re unsure about how they relate to each other.
Here we’ll explain the difference between OKRs vs KPIs and why both matter so much to the success of your business.
KPIs (Key Performance Indicators)
Short for ‘Key Performance Indicators’, KPIs should reflect the baseline level of success needed to keep your business going. For example, your KPIs may relate to customer retention figures, operational and acquisition costs, conversion rates or sales targets needed to ensure your business stays profitable.
KPIs are usually determined as a median level of success based on historical performance data, competitor research and finance or growth projections. It’s important that your KPIs are measurable and timely. You’ll need to check in every few months and measure your progress against your KPIs to make sure they’re truly effective.
OKRs (Objectives and Key Results)
What are OKRs? Put simply, they are company-wide, strategic goals to drive growth, change or innovation. If we break down the acronym into its component parts, it’s easier to understand:
An aspirational statement that shows direction towards a strategic outcome related to your company roadmap. For example, “Take our products to more customers” - quite an ambitious objective that will require some very clear and strategic steps to achieve it. Everyone will need visibility and alignment on the objective in order to make it a success. This is where the key results come in.
Refers to 3-5 success criteria for each objective, presented on a 0-100% scale or any numerical unit you choose. Each team may have ideas about how to improve the success of achieving their Key Results - these are known as Initiatives. In the world of OKRs, we use Initiatives to test out any ideas or concepts we believe will help achieve the key results. Initiatives often include a series of quick fire, low risk experiments and are carefully monitored against the OKR to measure their effect.
An example of an OKR might be
- Take our products to more customers
- Increase monthly website traffic to 100,000.
- Increase customers for product X to 50,000.
- Increase customer subscriber rates by 20%.
Initiatives for Key Result 2:
- Deliver feature Y
- Change website focus to promote product X
- Translate the website into 2 additional languages
What’s really unique about Key Results is that they represent a test and learn approach to figuring out the best initiatives needed to help you achieve your objective. So if something doesn’t work, you can tweak it, try it differently or scrap it and try something else.
“You can't go back and change the beginning, but you can start where you are and change the ending.”
What’s unique about OKRs?
The biggest strength of OKRs is that they promote collaboration and alignment from staff across the board in order to be successful. If you imagine an Objective of trying to hit an ambitious revenue target, the Key results needed are going to involve the efforts of cross-functional teams, functions and individuals. A cross-functional team includes members who have various skill sets and experience levels all working together towards a shared goal. It’s a bit like a jigsaw; the pieces are different but when they’re put together they provide a holistic end result.
Key Results are important because they’re indicators of whether you’re on track to achieve your goal. For example if your Key Result is to “Reduce customer churn rate by 10%”, this might require combined efforts, focus and alignment from your marketing, sales and technology teams (or whatever teams are relevant within your own business).
In this way, it’s clear that there’s a critical place for OKRs and KPIs within any organisation. They need to work together, in the right order, so that the company achieves its goals.
How to write KPIs
Remember that KPIs typically reflect the baseline level of success needed to keep your business going. Should we maintain a current value, generally improve something, or generally reduce something. It’s relatively simple to write KPIs for your project, process or tool. KPIs tend to be insular within each team and focused on particular projects or processes. There are a few golden rules to follow to make sure your KPI setting is worthwhile.
1. KPIs should be measurable
As with any goal you set, you need to be able to tell if you’ve achieved your KPIs. For many companies, KPIs represent the very least that needs to be achieved in order to deem your progress, projects or processes as a success. When setting KPIs, it’s important to be clear on how and when you’ll measure them, even if this means regularly checking in to make sure you’re achieving your baseline success measures on an ongoing basis.
2. KPIs should be direct
Try to keep your KPIs direct - so rather than focusing your efforts on “making customers happy” for example, try to drill down into something less emotive. You might want to focus on maintaining your customer satisfaction rate at 85% or ensuring churn doesn’t drop below a 10% as these are tangible, less subjective indicators of success. It’s also critical that all teams and individuals are aligned on their KPIs so everyone is accountable for them.
3. KPIs should be timely
Your KPIs should be reasonably short-term to ensure they make a difference at the right time. There’s no point in setting KPIs that will be measured after two years as your customers’ needs may have changed by then and the landscape for success could be very different. KPIs should be focused on the next few months or the next year at the most. It’s best to break down your KPIs into action plans that will be reviewed and measured every few months, so you can tick them off and add new KPIs as you move through the plan.
How to write OKRs
Writing OKRs can be a lot harder than it looks. To be effective they need to be aligned, well-constructed and focused, and teams need to be trained and processes followed to make them consistent across the board. Because if your OKRs are confusing and uncoordinated, the people trying to execute them will find it hard to know what to get done, or how to do it.
1. OKRs should be strategic
Creating an OKR requires strategic thinking and collaboration across teams. There are differing levels of OKRs based on the size and impact of your objective. For example, you may have top-level strategic objectives that are set and owned by the CEO. It’s important for the whole company to have visibility of these so they can implement roadmaps and plans to help achieve each top-level objective.
2. OKRs should be transparent
OKRs can be particularly useful for improving transparency within your business. For example, employees can use OKRs to share success measures, blockers and progress to senior level leaders. Whilst senior leadership teams and CEOs can set and share OKRs to give visibility to their exec boards or investors. It’s really important that each team has visibility of its OKRs and that there is communication and sharing across the teams who will need to be involved in helping achieve the OKRs. It’s equally critical that each individual member of the team has visibility of their team’s OKRs as well as the wider company wide ones.
3. OKRs should be aligned
Each level of management will then set their own OKRs, which are strategic and ambitious by nature. These should become actionable plans that will contribute to the overall company objectives. They should each follow the OKR framework, in other words, once the KRs have been set, the team then needs to create and test its initiatives to try and meet the key results that have been set.
4. OKRs need to be tracked
Progress tracking is key too - you may set OKRs every quarter for example, so you’ll need a way of assessing your progress regularly, preferably weekly or bi-weekly. Then, you’ll need to share this progress and any action points with the various teams who need to know about it.
5. OKRs need to be measurable
Finally, you’ll need a way of measuring your overall success in relation to your OKRs. Many companies use clever software to help them, build and manage their OKRs.
One of the biggest benefits of our OKR software is that it gives visibility of your OKRs and the current progress to all relevant cross-functional teams, stakeholders and departments. Anyone in the business can get real-time progress updates at a glance whenever they need to, without needing to email you or set up time consuming meetings. Fewer emails and unnecessary meetings means you’ll have more time to get on with working through the action items needed to meet your goals.
Another benefit of using our OKR software is that it keeps the entire organisation aligned on a collective set of goals rather than their own insular team goals. This can be hugely motivating for staff; the idea that they are all working together on a wider business objective. And the shared visibility across teams makes for a more productive, transparent and collaborative approach.
We’d love to give you a demo of our software or find out more about your business objectives and how we can help.