OKRs v KPIs - A Helpful Primer

KPIs

Key Performance Indicators (KPIs) and Key Results (OKRs) are powerful tools, but it can be difficult to understand how to use them in tandem. This is a useful primer to help you get the best out of both.

At the broadest level, OKRs represent our main business priorities. They are the goals we have identified as crucial to business success. By definition, there should be a limited number of them at any one time. KRs are the metrics we are most actively trying to influence at any given time.

At the simplest level, we can think of KPIs as the health metrics of our business.

One big misconception about OKRs and KPIs is that a metric can be one or another, but it cannot be both.

As a definition, it keeps things simple, but the distinction is artificial and inhibiting. The main difference between a KR and a KPI is timing and context.

Re-stating the point above, there are two jobs that a metric does in this context.

Represent the current measurable outcome we are working towards.
Provide a measure of something important to the business, but is not the current focus of our work.

OKRs are concerned with number 1 and Key Results are the metrics you are currently focused on impacting. This is your most important work. Ideally you will review these on a weekly basis.

KPIs are concerned with number 2. They are our health metrics. You will also review these frequently but not drill deeply into them unless they are outside of a range.

The Overlap

Here is a simple example that demonstrates why a metric can sometimes be a KPI and sometimes a KR.

This is applied to a B2B SaaS but could apply to many different products.

This is a mature product with loyal customers, but there is always competition. They recognise that maintaining churn, the number of customers who leave them, at less than 7.5% p.a. puts them well ahead of the market and represents a true advantage. Currently, churn is 4.8%, and there are no obvious opportunities to reduce it further.

The company OKRs are focused on acquiring new customers, and they have some solid hypotheses about how to increase their market share. This is their top priority at the moment.

During the quarter they made good progress on customer acquisition and hit their OKRs. At their weekly meetings, they also reviewed their KPI Scorecard, which includes churn and other metrics. Whereas they had a deep dive into the OKRs, they only dwelled on a KPI if there was a noticeable change in something.

Towards the end of the quarter, they notice that churn has ticked upwards. It’s now 6.5%, and it is troubling.

Time To Focus On That KPI

Leaders are concerned and want to focus on this problem. At the next OKR setting, a cross-functional team will be charged with reducing churn. The logical decision is to make this KPI a Key Result.

Unless the team stumbles upon an obvious cause and finds a very quick solution, they will treat churn as their key result for a period of time, identifying and testing hypotheses as they go. As a strong team, they are considering several opportunities and solutions at once.

After some tremendous investigative work, they make some changes and churn is reduced.

In the real world, churn is usually a lagging measure. The team have use a KPI tree to idenitfy the metrics that are levers (leading indicators) of churn and can add those Key Results. Leading indicators or metrics are great choices for Key Results as they change more frequently in response to our actions. This makes them more valuable for choosing what to do and for predicting the future.

Carry On Tracking, But Focus Elsewhere

With the problem solved sufficiently well, the team can focus on a new problem. Churn goes back to being a KPI and the leading metrics the team identify is added to KPI dashboard. Next time they will have more notice of a potential churn problem.

KRs and KPIs are tools. They either help you:

In either case, they’re an important measure of business success.

In mature organisations the relationships between OKRs and KPIs are well understood. They also build models of their metrics, such as a KPI tree. This allows them to know what levers they have and how a metric fits into the bigger picture. This kind of model makes identifying and exploiting leading indicators much easier.

We help companies achieve Strategy, OKR, and KPI maturity to drive revenue growth through our consultancy, training services, and software.

The Overlap

Time To Focus On That KPI

Carry On Tracking, But Focus Elsewhere

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