When it comes to measuring company performance, OKRs and KPIs are both popular approaches. But what’s the difference between them? In this article, we will explore the concept of OKR vs KPI and see how they can be implemented in your organization to drive success.
What is an OKR?
OKR stands for Objectives and Key Results. It is a goal-setting framework used to define and track objectives and their outcomes. The framework is designed to help businesses establish ambitious goals in a short period of time.
OKR is made up of 2 parts: objectives and key results. Objectives are what you want to achieve while Key Results are how you will reach your achievement. Each objective should have 2-5 key results, and each key result should include a number (something to measure).
Unlike KPIs, OKRs are considered leading indicators as they are related to goals or impacts that you are striving to achieve.
For example, a tech company may set an objective to “Increase user engagement for its mobile app by 25% within the next quarter.” Key results may include “Increasing daily active users by 20%” and “Reducing app uninstall rate by 10%.”
Read next: OKRs for HR: Samples and Guide
What is a KPI?
Key Performance Indicator (KPI) is a business measurement that demonstrates the current health of an organization’s performance. KPIs are often used to evaluate the performance of projects, products, or employee’s performance. You can think of KPI as a lagging indicator as they show you how your business has been performing in previous periods.
While KPIs are great for measuring performance, they are often standalone. They may tell you when a measure is good or bad, but they don’t necessarily provide context or the direction your team can take next. For example, a retail company might include total sales revenue as its KPI, which can provide valuable insights into the business’s overall performance. However, the KPI alone doesn’t tell the complete story.
OKR vs KPI
While OKRs and KPIs are both used as a measure for performance and success, there are some major differences. Here’s a breakdown of OKR vs KPI:
Purpose
The first difference between OKR vs KPI is its purpose.
When it comes to setting OKRs, set ambitious, overarching goals that align with your company mission and business goals. For example, a tech company might set an OKR to “Increase market share by 20% within the next year.”
For KPI, the purpose is to quantify performance against specific metrics, making it an effective way to track progress towards your OKRs. To illustrate, to achieve the above OKR, the tech company might use KPIs such as “Increase website traffic by 15%” or “Improve customer satisfaction by 10%.” These KPIs are concrete examples of how the team is progressing towards achieving its goals.
Scope
Another difference between OKR vs KPI is its scope.
OKRs are often broad and strategic, focusing on the overall organization or team objectives. For example, an F&B company might set an OKR to “Become the leading sustainable F&B brand in the region within the next five years.”
Contrastingly, KPIs are narrow and tactical, focusing on specific metrics or activities. For example, the same F&B company might set KPIs such as “Reduce carbon footprint by 30%”, “Source 80% of ingredients locally” or “Open three new sustainable locations.” These KPIs create measurable steps towards achieving the larger strategic goal, motivating employees in the process.
Time frame
When thinking about OKR vs KPI, a distinct difference is its time frame.
Typically, OKRs are set on a quarterly or semi-annual basis. It also provides a clear time frame for goal achievement. For instance, a marketing team might set an OKR of “Launch a new product line by the end of the quarter.” In this case, employees are aware of the goal and when it needs to be achieved.
As for KPIs, it can be set weekly, monthly, quarterly, or annually, depending on the metric and its importance. The time frame in this case is not as rigid. To illustrate, a customer service team might track weekly customer satisfaction scores to identify trends and areas for improvement.
Flexibility
OKRs tend to be more flexible and can be adjusted as goals evolve. This is especially critical for businesses in a volatile industry. Namely, if a company faces unexpected challenges such as economic downturns, natural disasters or changes in company structure, they can adjust their OKRs accordingly.
KPI on the other hand, is less flexible and often requires consistent tracking and measurement. However, KPIs can easily be adjusted or removed if they are no longer relevant and effective to the current business situation.
Motivation
Last but not least, the difference between OKR vs KPI is its motive.
OKRs aim to inspire and challenge employees by setting challenging and ambitious goals. By setting stretch goals, OKRs can be a great way to motivate employees to work harder and smarter, fostering a positive workplace culture.
Over to KPIs, they provide a clear and measurable performance benchmark to track progress and accountability. When employees are able to see their progress towards KPIs, it can be a great source of motivation and empowerment.
OKR vs KPI FAQs
1. Can OKRs replace KPIs?
By now, you should be clear on the distinction between OKR vs KPIs. In fact, you might be wondering which is more important or suitable for your organization. The truth is, OKRs and KPIs are complementary to each other.
While OKRs provide a strategic direction for the organization, KPIs help measure the progress towards those goals. Both these approaches work together efficiently to ensure that every individual within the organization is aligned and focused on achieving its company objectives.
Additional reading: 6 Step OKR Implementation Guide
2. How to effectively combine OKRs and KPIs?
Here are four effective steps to combine both approaches:
- Start off by setting ambitious, challenging but achievable OKRs that align with your company’s vision and strategy.
- Next, identify the key metrics or KPIs that can help you measure your accomplishments as you progress towards your OKRs.
- Ensure that your KPIs are directly aligned with your OKRs.
- As you monitor your progress towards OKRs and KPIs, make adjustments as needed to ensure they stay relevant and effective.
3. What are some common mistakes for OKR vs KPI?
It might seem like a daunting task if you are setting OKR and KPIs for the first time. But by taking note of these common mistakes, you’ll be well on your way to effective goal setting and performance tracking.
- Setting too many OKRs: Overwhelming your team with too many OKRs can lead to a lack of focus and reduced productivity. Not to mention, employees who are juggling too much could end up burning out.
- Using vague or unmeasurable KPIs: Unclear KPIs may confuse your team, leading to wasted time and effort. Ensure that your KPIs are specific, measurable, achievable, relevant, and time-bound (SMART).
- Misalignment between OKR and KPI: As mentioned above, it’s important to establish KPIs that directly support your OKRs to avoid misalignment.
- Failing to review and adjust: Change is inevitable, hence, regularly review your OKRs and KPIs to ensure that they remain relevant and effective.
Read next: How to Write Effective OKRs: The Ultimate Guide for 2024
4. What are the best practices for OKR vs KPI?
To make the most out of your goal setting, involve your entire team from the start.Gather input from all team members to ensure buy-in and alignment. This can be done through brainstorm sessions, performance reviews, and 1-on-1 meetings.
Keep goals simple and easy to understand. Avoid overly complex OKRs and KPIs that are difficult to understand or track. This ensures that employees are aware of the bigger picture as well as the pivotal role they play. Adopting OKR management tools and software can help you automate the process, making it easier to track your progress.
Recognizing and rewarding team members for their accomplishments is pivotal. This signals to employees that their hard work is valued, leading to boosted satisfaction and employee engagement.
5. How often should OKR vs KPI be reviewed?
For OKRs, a rule of thumb is to review quarterly or semi-annually. This allows you to perform timely adjustments based on changing circumstances.
As for KPIs, it can be reviewed more frequently, depending on the specific metric and its importance. For example, weekly or monthly reviews may be necessary for critical KPIs.
Balancing OKRs and KPIs for Business Success
By effectively implementing OKRs and KPIs, you can create a powerful framework for setting and achieving even the most ambitious goals.
Knowing how to set OKRs and KPIs for employees requires strategic input and consideration from managers, however the tracking and gathering of data can become yet another time-consuming administrative task. Omni helps you track, analyze and gain actionable insights from performance data through an automated and digitized platform. Easily and quickly gather the data you need so you can spend more time on the strategic planning necessary to drive business outcomes.
To learn more about how Omni can automate and improve your goal setting practices,
