KPI VS OKR

KPI vs OKR Explained

A common question we get asked is what is the difference between OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators).

Here we will explore each and explain the differences between KPI and OKRs. We will also discuss their relative advantages and disadvantages, when to use OKRs, when to use KPIs, and why you might want to use both.

In ZOKRI we allow you to set, track, check-in and report using both. The reason why an OKR software platform would do this should be clear as you read this article.

Starting With KPI

There are opportunities to track metrics everywhere in a business. Deciding which metrics really are Key Performance Indicators, or KPIs, is one of the capabilities mature and highly competitive businesses acquire.

When you have this capability you can see how a company, team, individual, or, an internal system or process is fairing and trending.

KPIs are also a good comparison tool. You can compare different parts of an organization, for example regions. Or different people do the same job, like sales representatives.

You can also benchmark some KPIs against external factors like competitors, with KPIs like revenue, product ratings, or search engine rankings.

You can even use multiple KPIs to calculate new ones, for example, revenue divided by the number of employees gives you your Revenue Per Employee.

KPIs are relational, influence each other and can be sequenced

A key part of a KPI planning process is to understand the relationships KPIs have with each other.

Understanding the relationships KPIs have with each other, the sequence and the degree to which one KPI influences another is another competency businesses need to acquire.

For example, in a sales pipeline, leads are generated by marketing and go through a series of deal stages before a deal is closed.

The KPIs that are early in a sequence the greater their influence on other KPIs, the more likely they are to be called leading indicators.

Software engineering teams have a ‘Code Coverage’ KPI that tells them how much of the code base is being executed with about 80% often being seen as a good amount. 

The Code Coverage KPI usually correlates with the amount of dead code and number of bugs found in live software.

Marketing teams have KPIs like the number, length and quality of pages of content on a website. With the more high quality pages of content you have on a topic, the more likely you are to rank highly in search engines, which in turn will increase the number of sign-ups or purchases.

Acting on known leading indicators is much better than trying to act on the slower moving lagging indicators most KPIs are trying to influence, KPIs like revenue, market share and customer satisfaction.

Planning KPIs on whiteboards with connector lines will help you consider how relationships between KPIs work, in and across teams, in your business.

Knowing the relationship between KPIs will help you set better goals or OKRs as well.

KPI & OKR Intersections

OKRs are best used as a framework for ensuring the whole organization has a way of considering which goals should be prioritized above everything else, and a mechanism to track progress, and communicate and remove any blockers to progress as quickly as possible.

The types of questions being asked and considered are:

• What are the major issues being faced that are holding us back?
  
  
• What is performing badly, which processes are not working properly, which opportunities are being missed?
  
  
• Which core capabilities and competencies do we need to improve or acquire as a source of sustained competitive advantage or distinctness?
  
  
• What needs to be done in order to be successful and avoid failure?
  
  
• What do we need to make progress on most right now and why?

OKRs can elevate some KPIs

Sometimes the answer to these questions exists amongst the KPIs being tracked. And can be codified as an OKR. 

In this case you have elevated what was a KPIs to something of strategic importance, and as such will be resourced, be more visible, be more frequently discussed and be shared more widely across the organization.

You’ll also be combining KPIs in groups that make the measurement of the Objectives achievement better, often using quantity and quality together.

You’ll be saying that making improvements to these KPIs matters most.

You’ll be dialing-in ambition via stretch targets.

And you’re inviting others to support and align with your OKR.

If we use the software engineering example from earlier, you might have an Objective Statement like:

Reduce the number of bugs in our live code base post release

The success of this Objective uses Key Results. For example:

• Increase our code coverage from 63% to 80%
• Reduce the number of post release critical bugs from 10 to ZERO

When an OKR like this is agreed and committed to, teams can then plan initiatives or activities that will achieve this. For example, you might create an Initiative to implement a new code coverage reporting tool.

Other OKRs might also be created to support the achievement of this OKR. For example, you might need to hire 2 new developers to take responsibility for this area long-term and enlist HR to support you via an aligned OKR.

Some OKRs are NOT using KPIs

When you run OKR workshops you will realize that the answers to those big OKR questions mentioned earlier are often not KPIs. 

For example, you will find that the proposed OKR will include:

• OKRs where Key Result measurement can be named but there is no data or baseline from which to set a target. Targets can either be added using experience or judgment or added later. 
  
  
• Strategic projects that might use milestones or project progress as the measure of success.

Both of which are fine, should these be priorities that need to be resourced, committed to and the primary focus of lots of energy and effort.

If you have KPIs do you need OKRs?

If you’ve got KPIs or even KPIs with targets and stretch targets do you really need OKRs? The answer is probably yes because tables or dashboards of KPIs are unlikely to do the same hugely valuable jobs OKR achieves. These jobs being:

• Getting teams to identify and focus on a small subset of opportunities or issues that will make a material impact on performance by first  looking at the big picture, not just pre-existing KPIs.
  
  
• Identifying and focusing on wildly important, needle moving goals, away from business-as-usual operations and everyday firefighting.
  
  
• Having a framework to communicate objectives, and then receive the support and encouragement from your team and other teams in your organizations to deliver.
  
  
• To have a visual and centralized way of articulating the key battlegrounds that you’re intending to win as a means of becoming a leader in your market, along with an update cadence, visible scoreboard of how everyone is doing, and a narrative explaining where support is needed.
  
  
• An easy to follow way of cascading your mission to strategy, and then goals to execution, without it getting lost amongst the everyday.

Our advice is the same you’ll get by reading every OKR book, and talking to every leadership team using OKRs to deliver their strategies and lead their markets. Use both for what they were intended to do. Leverage the synergies, and don’t replace one with the other.

You can read more about OKRs and writing OKRs here