KPI vs OKR: How They Differ and When to Apply Them
Running a business can be compared to going on a cross-country bus trip with a group of people. There are destinations you want to reach, lots of logistics you need to handle, and various routes you can take. You'll probably use a navigator while steering the bus down the highways and side roads. And depending on the circumstances and conditions, you may have to alter the initially planned route.
In business, OKRs are the destinations you and the team aim for (say, to go from point A to point B within a specific period). And the KPIs can be the navigator data that you check to see which distance you've covered and how much of the journey is left ahead, whether any traffic jams or other obstacles are coming up, and to ascertain that you haven't strayed off course.
On this page, we'll go over what are OKRs and KPIs, explain how these goal-setting methods differ, give KPI vs OKR examples, and bring up the use cases of each.
What Is an OKR (Objectives and Key Results)?
First things first, what does OKR mean in business? Objectives and key results is a goal management framework or method that allows for aligning teams, setting measurable and actionable goals, and noting how to reach them. This goal-setting system is needed to define which strategic aims and milestones a company and its team should concentrate on this specific period or cycle (e.g., this quarter) and the ways to accomplish them. They are often determined top-down from the enterprise level that's branched to further department or team OKRs.
Importantly, OKRs are future-focused, change and results-oriented. Plus, they are ambitious and time-bound, meaning they are often set and reviewed on a quarterly or annual basis. OKRs are also a crucial part of any product development roadmap and may be altered if necessary.
Let's break down the constituents of the OKR acronym. Objectives clearly describe what you're aiming for in a chosen time frame. They're used for orienting employees to strive to achieve set goals or to inform them about the priorities in focus or the areas of improvement that need the most attention now. Key results (often 3 to 5) can hint at what the desired outcomes and end points are for each objective so the team knows what is expected. As such, KRs may have the form of indicators that can show and confirm if the objective was achieved or not. OKRs can also come with initiatives or specific actions/steps that have to be taken to achieve the result. For example:
- "Get more existing clients to pay for repeat orders" can be the objective;
- "Getting 15% more returning clients to order again in Q3" can be one of the visible key results and deliverables to aim for;
- "Launching an email campaign in early July offering existing clients a limited-time promo code for their next purchase" can be one of the initiatives.
Are KRs (key results) always measurable entities?
Although, commonly, OKRs mark specific benchmarks that KPIs should track, this isn't always the case. Mainly because not all key results are tied to specific numbers, metrics, or KPIs. For instance, if your objective has milestone goals (such as "launching an MVP by the end of March"), the success of this OKR will be measured by whether the task was completed within the planned deadline or not.
Nonetheless, you can score the progress toward reaching a key result from 0 to 1 to mark whether you're on track, overperforming ahead of schedule, or lagging behind. Such grading can really clear things up.
Surely, various teams within a company can have different OKRs, even if they are all working towards a big shared company-wide objective. Below is an OKR example:
- Analytics revealed that clients are dissatisfied with the long response time from the customer support team, which leads to many negative reviews and abandoned carts. Objective: improve client inquiry response effectiveness in the given quarter to boost customer satisfaction. KR: shortening the response time by 25%. Initiatives: providing clients access to a detailed and searchable FAQ section on the website and creating response templates to speed up the process of giving replies to repetitive queries.
What Is a KPI (Key Performance Indicator)?
Key performance indicators are values used to measure progress in terms of reaching set goals and objectives. As such, a company may have a goal of increasing the number of purchases from returning clients by 15%, and the Customer Retention Rate (CRR) can be one of the KPIs to help find out whether it's succeeding or not.
KPIs bind the vision a company has with implementation and allow for marking specific benchmarks using data points. Hence, they are status-oriented and progress-focused. They help you answer questions like "Are we progressing toward the outcome we want?" and show how teams are performing when it comes to executing their objectives.
Notably, KPIs are quantitative and measured against targets. Tracking them is an ongoing activity. The choice of some key performance indicator sets may not change for a long time. What is more, they can hint at areas needing attention and may become OKRs.
KPIs shouldn't be confused with metrics, though. Both can be tracked using business and MVP tools like Google Analytics, Mixpanel or Amplitude. Yet KPIs are needed to monitor how a specific business is doing in terms of achieving its own priority aims. They are chosen and set by companies individually, as copying others' KPIs is useless. That's what sets them apart from metrics, which are more or less universal for everyone (such as active users, net promoter score, revenue, etc.). Simply put, all KPIs can be classified as metrics, yet it's not true vice versa.
Key performance indicators are generally paired with targets and can be applied to measure the progress of various teams within an organization or to see how effectively the company is moving toward accomplishing a set goal. Such data makes it possible to see the current picture, analyze and compare it to the indicators in the past, and make predictions.
KPIs can be measured daily, weekly, monthly, quarterly, or even annually, and usually differ from team to team. They may even be used by individuals with personal KPI targets (that is, not only teams or entire companies can have them). Here are several examples:
- how many deals a certain employee closes in a year can be a KPI monitored by the sales team;
- how many customer inquiries are processed per day, and the response speed may be used by the customer support team;
- how many unique organic visitors the website receives monthly is a KPI that marketing teams commonly track.
What's the Difference Between OKR and KPI?
To clear up any doubts regarding OKRs vs KPIs, let's distinguish the two methods by comparing them side by side.
Falling back on the road trip analogy, navigator data is useless without context. Say, you found out that you've traveled for 9 hours. So what? You need to know the starting point and final destination for such information as "you've passed one-third of the distance" to make sense. In this case, KPIs are the measurements stating where you are, whereas the final destination you want to get to is the objective with milestones marked by key results and KPI targets. That's the biggest difference between KPI and OKR.
Ideally, you have to know how to use both. KPIs are great for measuring existing programs and processes, while OKRs may be a better route to take if you're thinking about trying out a new strategy, launching something you haven't done before, or are considering a business pivot.
In many cases, the OKR goal-setting methodology and the selected corresponding set of KPIs can work in tandem. The latter makes detailed business performance analysis possible, allowing you to determine where to move as you launch a startup or product, why to do so this way, and how to reach the desired target best. So it's not just about the way a KPI vs OKR differ from each other, it's about how you can put each into practice.
OKRs vs KPIs: When to Use Them
Let's recap on the time orientation and duration of the two:
- Key performance indicators are the things you need to keep an eye on at all times to see if you're moving in the right direction and at the desired pace. KPIs are ongoing, and the same set can serve you for months or even years, which is a major OKR vs KPI difference.
- Alternatively, your objectives and key results are oriented toward the future. They may change and are, therefore, temporary. I.e., once you've reached a certain objective, you move on to the next, so you can review the set goals every quarter or any other period of time.
When do you use KPIs and OKRs? In essence, you need to use OKRs to line out what you plan to accomplish. Then after defining the key results, you may select a set of KPIs that'll reflect how well you're progressing toward these aims, targets, and priorities. This is a way to connect the desired outcomes with specific metrics to measure product success and help your team stay on track.
Can You Make Use of Both KPIs and OKRs?
If you're wondering whether the two can be incorporated together, the answer is, "Of course they can"! As you see, an OKR and KPI are closely tied and can work together. KPIs may become the basis of OKRs or serve as key results. In turn, OKRs sometimes determine the KPI benchmarks. They are intertwined and interconnected.
Therefore, applying both simultaneously so they can complement each other when possible is among the best practices. Such collaboration can assist in many aspects, including better resource allocation, feature prioritization, sticking to a timeline, and saving the budget.
In fact, KPIs can sometimes be your key results, but this isn't always obligatory. The major reason for that is that some KPIs can exist as standalone metrics that deal with ongoing measurements (not temporary objectives). For example, an e-commerce business might want to keep the page opening speed under 3 or even 2 seconds at all times. Otherwise, users may get irritated waiting for the page to open and flee to another website. Hence, this is a standard or norm that this business should regularly maintain as usual, not a temporary OKR. Besides running page speed tests, monitoring bounce rate may be one of the related KPIs for this purpose.
On a similar note, in some scenarios, KPIs may become OKRs too. For instance, if a current indicator shows a serious digression, improving the situation can become an objective. To illustrate, a sudden bounce rate spike can signal that something has to be done to fix page performance. Therefore, this KPI may pave the way for website improvement making page speed optimization a priority and OKR for the next month or quarter.
KPIs vs OKRs: Common Mistakes to Avoid
What can go wrong when you attempt to dot the i's with OKRs and KPIs? Here are several points worth noting and sidestepping.
1. Choosing Too Many KPIs
If you pick too many KPIs to keep track of, you might end up with tons of data that no one needs or can act on. It may even confuse and mislead you. Thus, it doesn't make sense to monitor dozens of things just for the sake of it. Minimize the set and select only those KPIs that are meaningful and relevant. Also, try to apply data visualization to keep your findings organized and easy for everyone to grasp.
2. Using the Wrong KPIs
On a similar note, having unreliable data at hand driven by KPIs may also lead to poor results. Any information in your data reports or dashboards must be useful, measurable, and convey meaning. If not, incorrect or worthless data can backpedal the company's progress and push people to make irrational decisions and mistakes based on wrong interpretations.
3. Deciding on OKRs Single-Handedly
Setting OKRs without understanding why you need this objective can be a big oversight. Even if a metric or KPI hints at the need for change, it is best to brainstorm with the team about what can be done to act on the findings and improve the situation, which tactics to use, and which deliverables and outcomes could measure the required change.
This is applicable when you're discussing the company-wide objectives and key results, as well as the smaller goals that'll stem into team-level objectives. I.e., if your overall company goal is increasing conversions by 20% in Q1, the marketing and sales teams will have their own corresponding objectives and KRs to make it happen. Such collaborative alignment with the team results in a smoother process, efficient startup growth, and sensible outcome.
4. Not Assigning Someone to Track Results
Planning and implementing are both highly important, but who's the one to monitor the results? The whole point of setting OKRs and selecting the right KPIs is to facilitate and assess progress. Therefore, it is considered a best practice to assign responsible people to keep track of them. For instance, you can assign a separate person for monitoring startup digital marketing and likewise choose other team members as "owners" who should monitor a specific KR and communicate the progress to others.
5. Ignoring the Results
Regardless of what's in the spotlight, a KPI or OKR, you must consistently review and analyze the results. Say, a quarter has come to an end, now you have to look into why you've managed to achieve the set goals (or not). Without a retrospective of the good and the bad, you won't learn, make conclusions, and perfect your goal-setting strategy and the approaches to their achievement.
Final Notes on OKR vs KPI
Pairing KPIs and OKRs can allow you to facilitate business processes. Such a results-driven approach where the two frameworks coexist may help you stay aware of where you currently stand, find out which tactics work or not, and reach your goals more efficiently, leading to sought-after growth.
As you've seen from the OKR vs KPI examples given above, the specific goals and ways to measure their effectiveness differ from company to company. To bring fruitful results, the processes have to be well-organized. So if you need a hand with integrating analytics tools or organizing your dashboards, feel free to turn to us for data visualization services. If you need our help with team scaling, don't be shy to contact Upsilon to discuss your needs!