OKRs vs KPIs: What's the Difference and Why You Need Both
OKRs vs KPIs
OKR is a proven strategic framework that aims to lift business to a new level of success. Used by corporate juggernauts like Netflix, Google, and more, the OKR methodology is a game-changer brimming with possibility.
But it's not the only impactful acronym you'll hear during a performance management meeting. KPI is another term that comes up often when dealing with corporate strategizing and implementation.
Both terms revolve around improvement, but they are distinct concepts. So, what's the difference between OKR vs KPI, and how do they relate?
What are OKRs?
OKR is an acronym for "objectives and key results." It's a goal-setting framework that helps align strategies throughout your company. It's about increasing collaboration and putting everyone's focus on a shared goal.
Without OKR, you might have various teams and organizational silos that never interact. The separation creates an unnecessary divide that could muddy the waters and create confusion about what your company is working to achieve. OKRs provide more focus and transparency, aligning everyone's efforts to help your organization reach its goals.
There are three primary components to OKR, two of which are in the name.
First, there's the objective. Your objective is the goal your company is looking to achieve. With an OKR, the goal should be both aspirational and achievable. Every OKR needs a clear and actionable objective.
Next, you have the key results. The key results are the benchmarks you must hit to make the objective possible. Think of it as the "how" to your objective's "what." Key results are usually data-driven, time-bound, and aggressive enough to achieve growth.
Finally, there are the initiatives. Initiatives are what you do to make the key results possible. The best way to look at it is to view initiatives as the daily tasks that contribute to the bigger picture.
Put it all together, and you have an impactful strategy that can inspire your team, keep them engaged, and provide purpose for their work. There are a few different types of OKRs, but each involves similar processes. It's about setting objectives, establishing key results to get there, and performing initiatives to make it happen.
What are KPIs?
KPI stands for "key performance indicators." You've likely heard this term before. Companies use KPIs to measure the success of both long- and short-term processes. It's what you use to monitor strategies and techniques already in place.
Typically, KPIs involve numerical targets and quantifiable data. They're the figures you look at to understand certain aspects of your operation more clearly.
Some refer to KPIs as "health metrics," and that's an excellent way to look at their purpose. KPIs help you understand the health of projects, programs, actions, and individuals. You can monitor KPIs over time to measure changes and spot potential issues that need improvement.
KPIs can use a wide variety of metrics. What's suitable for your organization will depend on your industry and what you're trying to measure.
For example, sales-focused companies can look at KPI metrics like:
- Sales revenue
- Customer lifetime value
- Calls made
- Average sales cycle length
Meanwhile, KPI metrics for a marketing team could include:
- Social media shares
- Traffic-to-lead ratio
- Conversion rates
- Cost of customer acquisition
OKR vs KPI: Core differences
OKRs and KPIs are often compared, as both concepts circle around progress and growth. However, they are two different pieces of the same puzzle.
OKRs are not meant to measure success; rather, they are a goal-setting system that gives your team focus and creates alignment. They push your company forward, give your team something to work towards, and help drive success. An OKR is like a bridge between ambition and reality. It's how you encourage innovation, expand your horizons, and avoid corporate complacency.
OKR is the tool that will help your company grow and achieve its ultimate vision of success.
Think of your business as a road trip. OKR would be the roadmap to your destination. You know where you want to be (objective), but you need GPS to figure out how to get there (key results). Once you arrive at your destination, you create new OKRs to keep the momentum going.
In this analogy, KPIs would be like your fuel gauge, speedometer, tachometer, and warning lights. Each metric you use is another item on your dashboard. Those dashboard items are critical for keeping track of your car's health and performance as you make your way to each destination.
That's what KPIs are for your company. They help you measure success, track progress, and keep an eye on how specific processes or projects are going.
OKR vs KPI: Why you need both
In the case of OKRs vs KPIs, the differences aren't as confusing as they may first seem. Your organization can use OKRs to set and follow ambitious goals while using KPIs to measure the success of the processes, programs, and projects already in place.
There are differences in how OKRs and KPIs impact your business. But, the best approach is to use them simultaneously. Instead of looking at the differences between OKR vs KPI, it's better to look at how they work together.
OKRs and KPIs are natural companions that go hand in hand. How?
KPIs are there to monitor the performance of existing activities and projects. Looking at your KPI metrics, you can spot problems and identify areas that need improvement. That's when you turn to OKRs.
OKRs can provide a solution, establish new goals, and facilitate change.
Let's say, for example, that KPI metrics show a noticeable decline in sales revenue. You can use that information to develop a new OKR. The KPI can even become a "key result" of that OKR, helping you monitor progress and change the KPI for the better.
Using OKRs and KPIs to your advantage
Ultimately, both OKRs and KPIs are powerful tools for creating and managing goals. OKRs focus on the big picture, helping your organization stay ambitious while working towards a common goal. But KPIs can give you impressive insight into your operations and what needs improving.
Instead of looking at these two methodologies as an "either-or" situation, use them together. Both have the potential to foster genuine change, helping your business reach heights you never thought possible.