06. KPI vs OKRs

OKRs vs KPIs – and other common questions

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

Here we will explore each method and explain the differences between these different goal setting methodologies. We will also discuss their relative advantages and disadvantages, when to use which and why.

What are KPIs or Key Performance Indicators?

KPI stands for Key Performance Indicator. KPIs are the key metrics that correlate strongly with performance. You use them to define what success looks like and set goals, monitor performance levels, set thresholds or targets for acceptable performance levels, and define targets in goals when change needs to happen.

KPIs are used extensively by all types of organisations to track whether a mission, strategy, company and team Objectives or To-dos are successful.  They can also be used as a diagnostics tool and way of spotting issues.

Some of the KPIs you you will use are ‘leading indicators,’ some ‘lagging’ indicators, and some can be argued to be both.

Leading indicators – these are the metrics that look forward and can predict future performance, whether that’s an up or a down -m quotes sent can predict Revenue for example.

Lagging indicators – these are the metrics that look back and tell you what has already happened like Revenue and Retention. To influence them you need to improve leading indicators and there’s a time lag before improvement happens.

 

Leading & Lagging KPI examples

In Marketing, Leading Indicators might include:

• Channel visitors
• Conversion rates
• Downloads
• Webinar attendees

These will predict KPIs further down the KPI hierarchy like MQL, sales appointments and ultimately Revenue.

In Sales, Leading Indicators might include:

• SQLs
• Meetings Attended By Decision Maker
• Quotes

The Lagging Indicator being Closed Won Deals.

In Customer Service is Leading Indicators might include:

• Calls received
• Live chats
• Problems received and resolved
• Time-to-resolution
• Product usage

The Lagging Indicator being Retention and Upgrades.

KPIs as Health Metrics

KPI planning and selection is a key process for every organization and team. You need to measure what is important – ‘measuring what matters’. 

Sometimes you’ll find that you have the KPI health metrics you need already, and others times you will need to start tracking them, starting with getting a baseline.

In the context of goal setting, the sub-set of the most important KPIs are sometimes called Health Metrics. Having them defined and visible ensures teams are KPI aware, are tracking the metrics that support goal achievement and also would alert to issues with business-as-usual activities. 

KPIs also provide a mechanism to recognise the everyday day business-as-usual activities that contribute to KPI performance and are a key part of a Performance Management process.

 

KPIs & goals

Once you have your KPIs you need to think carefully about whether the KPI being monitored or is a target for change. KPI targets and monitoring is typically expressed like:

• Increase to X
• Reduce to Y
• Keep between X and Y

If you’re looking for change, the level of ambition of any target is the subject of some of the best debates you will have.  

Here are 3 questions to ask to help you get clarity on the KPIs that matter and the target.

• Which KPIs should be monitored as they show us how we are doing and would highlight issues?
• Which KPIs are our biggest priorities to improve right now?
• How ambitious should we be?

KPI ownership, collaboration and reporting is another area to get clarity on. 

• Who owns and who is collaborating on this KPI?
• How is this KPI calculated?
• Where does the data come from and who is responsible for maintaining it?
• Who needs to be informed about the performance of this KPI?

 

OKRs vs KPIs

Good OKR planning involves taking a company strategy and creating company objectives from the strategy. Your company objectives are set for the year or quarter. 

The Key Results are how success is going to be measured, which in most instances are via specific and important KPIs – the ones that would describe how your Objective could be achieved.

This means that the key differences between OKRs and KPIs are:

• OKRs often contain a small sub-set of KPIs that describe how an Objective will be achieved.
• You typically group 1 – 4 Key Results together to create a balanced view of how your Objectives success will be achieved measured.
• Targets are deliberately set to be hard and a stretch, with achieving less that 100% being a success where a genuine stretch target has been set.

This is very different to dashboards of KPIs or singular KPIs with no guide, score or label indicating how hard the target is, and flexibility over what success looks like.

• Not all KPIs are a target for improvement – some are being maintained.

This means that OKRs are used to target and inspire change, while KPIs monitor the status of metrics that matter.

OKRs & KPIs working together

Some of the ZOKRI team are big cycling fans so we are going to illustrate how KPIs and OKRs work together using an example of a someone wanting to complete a cycling event – let choose the Martona which is an event in Italy that takes cyclists across the Dolomites for 138km with a total climb of 4,230m.

The high level ‘mission like’ Objective has four Key Results that will support and measure success:

Complete the Martona with a smile on your face

• Complete the course in under 8 hours
• Maintain an average speed of 19 KPH
  
• Keep heart rate under 170 BPM

Naturally, training will be required to achieve this goal, so a supporting child OKR is created.

Train well and the event will be easy

• Train 5 days week
• Complete 2,000 KM of training miles
• Train at an average speed of 19 KPH
• Reduce weight from 85kg to 80kg

During training and during the event the most important KPIs to help achieve the Objective will be used. You can see some of them in the OKRs above

• Body Weight
• Average Speed
• Training Miles
• Training Frequency
• Heart Rate

Other KPIs are being monitored and unless they become and issue will not need to become a target for change. These include:

• Bike & Kit Health
• General Medical Health e.g. blood pressure, BMI
• Travel Arrangements
• Flight Times

The belief is that if you work towards these goals and monitor those KPIs as you go, and respond to any issues, you will achieve your Objective.

So in summary:

• KPI planning and measurement are a key part of how you run your company and teams and form part of the OKR planning and management process.
• OKRs provide a narrow focus and guide teams to being bold and ambitious with target setting.
• OKR will have more of an impact on your company and team performance than KPIs as they provide focus and inspiration.
• OKR group measurements together and allow for a more balanced goal to be set e.g. including quantity and quality KPIs together.
• Tracking more KPIs than are used in your OKRs is important.
• Knowing which KPIs are being maintained as part of business-as-usual activities, and which are opportunities for improvement and would lead to the achievement of specific and related objectives is the skill of OKR and Performance Management.

You can read more about OKRs and writing OKRs here