Have you noticed that OKRs (management speak for ‘objectives and key results’) are getting a lot of attention lately? Credited with adding to the success of Silicon Valley companies like Google and Twitter, OKRs are making real waves in performance management literature. And for good reason.
If you’ve heard anything about OKRs, you might be wondering how they differ from KPIs (key performance indicators). It’s certainly a question that I’m getting asked more and more. In this article, we’ll look at the distinction between OKRs and KPIs – and see how the two fit together.
Digging into OKRs
To start with, let’s clarify what we mean by OKRs.
The name says it all really: objectives and key results. OKRs help you define your top strategic priorities, breaking down strategy and execution into two components: your objectives (this is your direction, or what it is you want to achieve) and your key results (in other words, how you will know that you’ve achieved those goals). So, essentially, you set a goal and then define how you will get there. It’s as simple as that.
For example, you might want to deepen your customer relationships by establishing a direct mail list. That’s your O. Then comes your KR, the key results that define success for this objective. In this case, that might be to add 500 new subscribers each week, and grow the mailing list to 20,000 names.
OKRs encourage people to set ambitious goals. The concept of failing, or not quite delivering everything you set out to achieve, is part and parcel of OKRs. Better to aim high than play it safe. Going back to our mailing list example, say you only add 400 new subscribers each week – but if you’d never set that ambitious OKR, you might not have any new subscribers.
Interestingly, this isn’t a new approach. The concept of OKRs was first set out in the 1980s by Andrew Grove, former CEO of Intel. And the origins of OKRs go back even further than that, to the 1950s and Peter Drucker’s Management By Objectives (MBO) approach.
The OKR approach is perhaps best known for its use at Google (Google Investor John Doerr introduced the concept to the company in the late 1990s), but it has since spread to many other successful companies, in Silicon Valley and beyond. As the household name tech giants are often held up as shining examples of outstanding business performance, it’s no wonder more people want to get in on the OKR act.
In very simple terms, a KPI is a metric or measurement for monitoring how well individuals, teams or entire companies are performing against their goals. These metrics tend to be quantitative in nature, using simple numbers, ratios or percentages. Net promoter score (an indicator of how likely customers are to recommend your business) is a great example of a KPI.
Using these metrics, you can assess whether the business (or individual or team) is on course to meet its goals, and where improvements or action might be needed. Therefore, think of KPIs as a way to quantify goals and priorities into measurable metrics, so that you can track progress against those goals.
I’ve always believed that the very best KPIs are those that are linked to your strategic goals. In other words, you select the metrics that matter most to the business, rather than measuring everything that can possibly be measured. This is the most meaningful way to use KPIs, as it gives a real picture of how the company (or team or individual) is doing.
So what’s the difference?
It’s not that simple, I’m afraid. You can’t really compare OKRs and KPIs because they’re both part of the same picture.
OKRs help you define your top strategic goals and identify how you will achieve them, while KPIs help you measure performance against your goals. In that way, KPIs are an important component of OKRs. Your OKRs will inform the KPIs you select to track progress and performance. One feeds into the other.
They could potentially feed into each other in the opposite direction, too: KPIs feeding into OKRs. What do I mean by this? Say one of your KPIs shows your net promoter score has dropped. The KPI doesn’t tell you why that is or what you can do to improve it. It only highlights that action is needed in this area. Therefore, you might want to develop an OKR that delves into the issue and defines how you can improve customer satisfaction and loyalty.
You can therefore think of OKRs and KPIs as complementary – happy bedfellows if you like – rather than different. OKRs inspire you to set ambitious objectives and break those down into key results. And KPIs provide a way to monitor performance, measure success, and flag up where things might not be going according to plan. Sounds like a winning combination to me.