As a former industrial engineer who became a lean management expert, I’ve witnessed the impact that performance measurement can have on a business. OKR vs KPI is often debated but both are excellent options, but selecting the correct option is key. In this post, you’ll learn the main distinctions between OKRs and KPIs and how to choose the right solution for your company.
Understanding OKRs and KPIs: Definitions and Purposes
OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators) are two of the most popular performance measurement tools. I have significant experience using both in my career, and I can confidently say each has its own distinct purpose.
OKRs are a goal setting framework. An OKR is an Objective (a specific, ambitious goal) and Key Results (specific, measurable outcomes that define achieving the objective). OKRs are designed to:
- Align your team with the company’s top priorities
- Encourage setting ambitious goals
- Ensure regular check-ins and adjustments
KPIs, on the other hand, are metrics you use to measure the success of your organization or a specific activity. KPIs are designed to:
- Measure specific aspects of performance
- Offer ongoing tracking of the most important metrics
- Make data-driven decisions
While the concept of performance measurement is not new (it dates all the way back to the third century during the Wei Dynasty in China from 221-265 AD), who used a performance rating system to rate family members in ancient China. This ancient system is a clear example of how long we as humans have recognized the value of measuring progress.
Today, both OKRs and KPIs are keystone concepts in modern business management. Both provide different, yet highly effective ways to ensure progress and success. Understanding the strengths of each will help you select the right tool.
Key Differences Between OKRs and KPIs
OKRs and KPIs are different in several ways. Here’s a closer look at them:
Focus and scope:
KPIs measure how things are now, while OKRs articulate how you want things to be. KPIs tell you where you are and OKRs tell you where you want to be.
Time frame and frequency:
- KPIs are typically measured on a continuous basis, often daily or weekly.
- OKRs are typically set and measured on a quarterly basis.
- Most OKRs should not be longer than one year.
Goal setting:
KPIs are often based on historical data and common industry standards. OKRs are designed to be more aspirational “stretch” goals that push teams to achieve more than they think is possible.
Measurement and tracking:
KPIs correspond with very specific metrics that are updated on a regular basis. OKRs often require moderators to subjectively evaluate progress toward achieving an objective.
Flexibility:
KPIs don’t move around much. OKRs are designed to be flexible to move them around and set new ones if things change.
These differences help explain why many companies use both OKRs and KPIs. They are truly a match made in heaven, as they offer a complete picture of both how things are today and where you want them to be tomorrow.
Implementing OKRs in Business Settings
In my opinion, the impact of implementing OKRs is often transformational for a business. Here’s how to set effective OKRs step by step:
- Define clear Objectives.
- Create measurable Key Results.
- Align OKRs throughout the organization.
- Establish a cadence for regular reviews.
- Adjust as necessary.
It’s also important to ensure leadership buy-in, focus on quality (not quantity) of OKRs, and maintain transparency throughout the process.
The most common mistakes are setting too many OKRs, setting key results that are either too easy or too difficult, and failing to align OKRs with the broader company strategy.
Many companies implement OKRs successfully. Google, for example, attributes much of its growth to the implementation of OKRs. The same goes for Intel, where OKRs originated.
The best way to measure OKR success is through regular check-ins (likely weekly or bi-weekly) where you review progress toward key results, reassess strategies, and iterate. Note that most companies use OKRs for quarterly goals, though it’s also possible to use them for annual planning.
Implementing KPIs in Business Settings
Effective KPIs have the following traits in common:
- Relevant to business objectives
- Measurable and quantifiable
- Actionable and controllable
- Timely and updated at regular intervals
- Simple and easy to understand
To identify and define KPIs, look at your business objectives. Then, determine which metrics most accurately track your progress toward those objectives. Make sure your KPIs directly correlate with broader business strategy.
Here are a few examples of KPIs for different departments:
- Sales: Revenue growth customer acquisition cost
- Marketing: Lead generation rate conversion rate
- HR: Employee turnover rate time to hire
- Finance: Profit margin return on investment
For KPI tracking and reporting, remember to include these four elements of a KPI: a measurable target timeframe to reach the target, a data source to track it, and how often you will check.
It’s also critical to regularly review and adjust KPIs. They should change as your business objectives change.
Advantages and Disadvantages of OKRs vs KPIs
Both OKRs and KPIs have their own advantages and disadvantages. Let’s discuss them:
Pros of OKRs:
- Encourage setting stretch goals
- Promote organizational alignment
- Foster flexibility and agility
Cons of OKRs:
- Implementation can be time consuming
- Goal myopia (focusing solely on the goal at the expense of everything else)
- Require a culture shift to be effective
Pros of KPIs:
- Objectively quantify performance
- Make data informed decisions
- Easier to implement than OKRs
Cons of KPIs:
- Encourages short term thinking
- Can be gamed
- Performance is more than just a number
In my experience, the decision to use OKRs or KPIs often comes down to the specific needs of the business. OKRs are often a great fit for high growth and innovation. KPIs are often better for stable industries with established processes.
Choosing Between OKRs and KPIs
When considering a performance measurement framework, evaluate:
- Company culture and willingness to change
- Industry and competitive factors
- Existing performance measurement frameworks
- Leadership and management styles
- Company size and structure
OKRs are best suited for:
- High growth startups
- Companies in transition
- Organizations looking to increase innovation
KPIs are best suited for:
- Mature businesses in stable markets
- Companies with consistent operations
- Companies focused on maximizing efficiency
Here’s a simple framework to help you decide:
| Factor | OKRs | KPIs |
|---|---|---|
| Objective | Step change | Incremental change |
| Emphasis | Future results | Historical results |
| Timeline | Quarterly/Yearly | Ongoing |
| Flexibility | High | Low |
Many experts recommend that both are correct. You just need to choose the right one for the job and the unique company context.
Integrating OKRs and KPIs
In my consulting, I’ve seen great success in combining OKRs and KPIs. OKRs tell you what you’re trying to achieve and why, while KPIs tell you how you’re doing.
The key is to use KPIs to inform your OKRs, align KPIs with your key results, and use OKRs to set targets for your KPIs.
Google is a great example of a company that has combined the two successfully. It sets OKRs at the beginning of the quarter and then tracks various KPIs to ensure the company is hitting them.
The main challenge with combining the two is misalignment or over-engineering the KPIs and OKRs. Keep it simple and ensure the entire company understands the KPIs and OKRs for each department.
If you take a hybrid approach, make sure the KPIs ladder up to the OKRs, and then the OKRs ladder up to the overall business strategy.
Finally, successful change management often involves holding effective retrospectives. If you want help planning these, check out our guide on retrospective meeting agendas.
Impact of OKRs and KPIs on Employee Performance and Motivation
OKRs are one of the best frameworks for aligning individual goals with company objectives. They help employees see a clear path from their work to the company’s mission, which in turn boosts motivation. For example, 34% of team members said they would be more motivated at work if they knew how their work connected to the company’s mission.
KPIs, on the other hand, are excellent framework because they help employees see specific performance metrics. This is a great way for employees to feel a sense of progress and accomplishment, which in turn increases accountability and performance.
Both frameworks are also great frameworks because OKRs inspire employees to set stretch goals, which makes them feel a greater sense of purpose and growth. KPIs provide frequent feedback, allowing employees to feel their contribution in real-time.
Feedback and recognition are a critical part of both frameworks. Regular check-ins for OKRs and KPI reviews are an opportunity for managers to offer feedback and recognize good performance.
One of the most common concerns employees have with these frameworks is fairness and feeling micromanaged. Solve this problem by making the goal of setting goals as transparent as possible, and involve your employees in the process. Use these tools to develop your employees, not to punish them.
Remember, the point of these frameworks is to empower and motivate your team. If you use them correctly, both OKRs and KPIs will do exactly that, which will result in both more individual and company success.
Signing Off
OKRs vs KPIs will always be debated but both are excellent frameworks to drive business results. I’ve witnessed the impact these frameworks can have on businesses when implemented properly. Just remember the main distinction: OKRs are designed to achieve something significant, and KPIs are designed to measure ongoing performance. Using them together in the right way will give you a more complete performance framework. The key is selecting the right tool for the job and using it effectively. With some trial and error, you’ll strike the right balance for your business.
