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OKRs Vs. KPIs: Breaking Down The Difference
Comparing OKRs vs. KPIs is an apples and oranges discussion. Learn about the usages, similarities, and differences of these two acronyms.
Comparing OKRs vs. KPIs is a hot topic you’ll hear in performance management meetings, but it’s an apples and oranges discussion. While there can be overlap (more on that later), these two concepts are really very different. Keep reading to learn how.
What is a KPI?
An acronym for key performance indicator, KPIs are used to evaluate performance over time for an organization, individual, program, project, action, etc. While you may have some outliers, these indicators should usually:
- Link to strategic objectives
- Direct where to focus resources
- Be measured against targets
We highly recommend you make your KPIs measurable. Adding quantitative value makes it easier to provide context and compare performance for whatever you’re measuring. Creating qualitative KPIs is possible, but not advisable because this structure can lead to confusion and subjective interpretations of data.
What is an OKR?
OKR is the acronym for objective and key results—more specifically, an objective is tied to key results. OKR is a strategic framework, whereas KPIs are measurements that exist within a framework.
OKR is a simplistic, black-and-white approach that uses specific metrics to track the achievement of a goal. Typically, an organization will have three to five high-level objectives and three to five key results per objective. Key results are numerically graded to obtain a clear performance evaluation for the objective. OKRs are:
- Always quantifiable
- Able to be objectively scored on a 0-1 or 0-100 scale
- Ambitious (if you easily achieve your objective, it wasn’t aggressive enough)
The OKR framework was popularized by Google and Intel, but it has also been used by Amazon, LinkedIn, Spotify, and other hugely successful companies for goal management. Generally speaking about OKRs vs. KPIs, the former are a good fit for organizations heavily focused on growth. Not to create confusion, but sometimes an organization’s KPIs are the same as the key results used in an OKR framework. Keep reading and this will become clearer.
There are near unlimited examples of KPIs across all industries. A KPI could truly be any quantitative (and in rare cases, qualitative) measure a company uses to evaluate its progress and successfully reach its goals. It’s important to note that, unless you have a very small company, your KPIs can and should be broken down by department (and by industry if you are a conglomerate).
Here are some common KPI examples for a variety of industries and divisions:
- Retail Industry: revenue per square foot, same-store sales, sales per employee
- HR Department: attrition rate, employee performance, average recruitment time
- Sales Department: customer lifetime value, sales revenue, calls made
- Technology Industry: monthly recurring revenue, customer retention or churn, ticket resolution time
- Healthcare Industry: patient wait time, average treatment charge, number of educational programs
Did you know financial KPIs are the most-used metrics? Evaluate performance at your company with any of these 68 financial KPIs.
OKRs are built on big-picture goals and targets that are designed to push employees and companies forward, so they should toe the line of “almost impossible.” The OKR framework is a continual cycle of fast, dynamic growth.
Some general OKR examples include:
- Objective: Become the market leader in our industry.
- Key Result #1: Record $100 million in revenue.
- Key Result #2: Increase staff by 45 percent.
- Key Result #3: Increase market cap sufficiently to enter S&P 500.
- Objective: Develop autonomous vehicles.
- Key Result #1: Hire 10 artificial intelligence subject matter experts.
- Key Result #2: Invest an additional $500 million in research and development.
- Key Result #3: Roll out prototype by fiscal year-end.
- Objective: Increase revenue by 30 percent.
- Key Result #1: Acquire 50 new customers.
- Key Result #2: Increase marketing leads by 20 percent.
- Key Result #3: Increase customer retention to 85 percent.
When creating your KPIs, don’t be vague. You must provide context and meaning for each KPI. More specifically, give the KPI context by tying it to an objective and compare it to a target for context (e.g. industry average, year-over-year growth, etc.).
KPIs are typically reviewed at the executive level, so don’t track every single performance indicator in your organization in the same place. The word “key” is used for a reason. At the strategic level, you only want to track and measure the indicators that have the biggest impact and value for your company.
Don’t build OKRs in a vacuum without visibility into what other parts of the business are doing. OKRs should be created in a pyramid structure—with the foundation starting at the employee level, then the manager, then the department head, and so on—to lead to the achievement of your stretch goals.
Also, don’t use the OKR framework if your organization is focused on maintaining its offerings or growing slowly. OKRs are better for dramatic growth goals.
A Final Word
When comparing OKRs vs. KPIs, we’ve used some clear-cut examples. In the real world, you will have some gray areas—a twist in nomenclature can turn a key result into a KPI (or vice versa). In the first OKR example above, a key result was to “Increase staff by 45 percent.” Counting the number of employees could also be a KPI. The OKR framework is simplistic and based on tracking data, and a KPI is usually a single data point, so you will find cases where there’s overlap.
If your key results and key performance indicators start to sound similar, that’s ok. Just remember that one’s an outcome and the other a measurement—overlap the wording but not the usage of each.
Now that you know the difference between these two concepts, you can choose the right approach for goal achievement in your organization. Whatever framework you decide on, ClearPoint can help you drive it all with our comprehensive system for strategy management.