Understanding the difference between OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators)

 
Managing performance can sometimes have a language of its own. It’s important to make sure that all of your team are on the same gage. This blog article explains the difference between OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators).
 
In summary OKRs are strategic. They look at the big picture. There focus is not just about this year’s performance. They are about next year’s goals, and those for much further into the future. However, they are more than aspirations. They need to be specific outcomes that are to be tracked through measurable results.
 
In contrast to OKRs, KPIs are metrics that are designed and used to measure progress and success at a more tactical level. The purpose of KPIs is to evaluate performance and make sure that progress towards achieving the long-term, more strategic OKRs is on track and offering opportunities to identify and correct performance along the way.
 
Needless to say, OKRs and KPIs need to be aligned. In our managing performance training, we use the metaphor of the matryoshka (often known as the Russian) doll – i.e. each goal is clearly linked and connected throughout each level of an organisation.
 

The benefits of an OKR

 
Having an OKR encourages strategic thinking. An OKR is future-focused. Those can lead to creativity and innovation by encouraging opportunities to be imagined and problems to be anticipated. Once created, an OKR creates a culture of accountability for senior leadership teams by challenging progress towards strategic aims.  
 

The benefits of a KPI

 
Setting KPIs helps to clarify an organisation’s standards of performance and service to be met, maintained and even exceeded. This makes everything clear for all managers and their teams to understand. By measuring and monitoring KPIs, decisions can be better informed enabling adjustments in performance to be made. This gives a better chance of strategic aims being met.   
 

Here are some examples of how to set OKRs

 
The first step of setting an OKR is to ask what are the strategic goal(s) that will drive your organisation. For example, to grow market share from x% to y%. Your goal(s) need to be clearly linked to achieving your vision and serve your purpose as an organisation. Another example is to reduce costs from ⍺ to β.
 
Once you have decided your strategic goal(s),then develop 3 to 5 quantifiable objectives. These need to be measurable and time framed. Please see our blog on how to be even smarter with your SMART goal setting.
 
Once set and agreed by the senior leadership team, then each of the OKRs need to communicated and fully understood throughout your organisation. Just like the matryoshka doll, each OKR needs to be translated into departmental and team goals. A clear line of vision is required between what is required and what individual contributions are required. This is to be an exercise in employee engagement.
 
Setting OKRs is only part of the story. Progress needs to be measured and this needs to be built into your organisation’s review process. Whatever performance cycle that exists within your organisation, OKRs and KPIs need to be reviewed together and then actions agreed to ensure success.
 

Here are some examples of how to set KPIs
 

As with OKRs, the first step of setting a KPI is to be clear on what you are looking to achieve in the short-term. This is about setting a clearly defined objective to reach your strategic OKR(s). For example, to increase sales from x to y by Quarter 1. Another example may be to reduce waste from ⍺ to β by Quarter 2. KPIs need to be clear and unambiguous.
 
Then make sure that your KPIs are properly aligned to achieving to longer-term goals. Understand and pay attention to the difference between lead and lag measures (see this blog article for more information). Wherever possible and appropriate, involve your managers and team leaders to help set and agree the KPIs that will indicate whether or your organisation is being successful.
 
Remember to keep your KPIs under review and compare against your targets. Share information at team meetings and invite feedback and contributions that can improve performance. Treat this as an activity that will increase employee engagement. People want to be successful and involving them in discussions can increase contribution levels.
 
Ensure that KPIs are linked to personal objectives set in your managers’ and team members’ performance reviews. Feedback on positive progress needs to be provided as well as when performance needs to be corrected. Review progress regularly at 1:1s as well as the more formal performance review meetings.
 

Summary

 
What gets measured gets done. But of course, organisational and personal success means setting the right goals and measuring the right things. This is why setting, measuring and reviewing strategic OKRs and tactical KPIs is so important.
 
Paul Beesley
Director and senior consultant, Beyond Theory
 
Related blog articles:
 
 
Be even smarter with your SMART goal setting
Managing performance – how lead measures differ for lag measures
How to give a feedback sandwich with no bread
The benefits of negative feedback