The difference between KPIs and OKRs
Most organizations are familiar with KPIs, or Key Performance Indicators. KPIs can be great for measurement, but they’re standalone metrics — they may tell you when a measure is good or bad, but they don’t necessarily communicate context or what direction your team needs to go in.
OKRs, which stands for Objectives and Key Results, provide that much needed direction and context. We like to call them “KPIs with soul”. The Objective describes what you want to accomplish and the Key Results describe how you know you’re making progress. Since KPIs are measurable, they can make great Key Results. In other words, rather than talking about OKRs versus KPIs, we prefer to think of them as complementary.
What’s an example of a KPI?
Let’s use a museum for our example. Two of their KPIs, or ongoing metrics, are attendance and donations. They collect data on how many visitors come through the door and how many people make donations every month.
What’s an example of an OKR
Let’s say that the museum wants to be more relevant to the community. That’s an Objective. Now, how will they know they’ve succeeded? A good pair of Key Results, or KRs, to achieve this Objective would be to:
- Grow the number of local monthly visitors 30% by next quarter
- Host two community events focused on attracting new local donors
What’s the difference between an OKR and a KPI?
Use OKRs to lead. With the museum example, the OKR shows both what they want to accomplish and how they’re going to get there. Change-oriented goals (Objectives) are paired with measures (Key Results). On the other hand, KPIs are standalone numbers (metrics): attendance and donations. They don’t convey purpose, path or progress.
KPIs most often monitor the “steady-state,” while OKRs are meant to help move the needle on something strategically important to your organization.
Both KRs happen to incorporate the museum’s KPIs.
It would look like this:
There is no competition, KPIs and OKRs complement each other. They both have their place in a well-functioning organization.
Between KPI and OKR, is one better than the other?
KPIs are metrics while OKRs are a systemic goal-setting method. When used properly the two complement each other.
For example, your company might need your website to have an uptime of 99%. This metric represents a critical measurement to maintain. This is a KPI. And while KPIs can be critical to your success, they don’t always make great OKRs. In this example, 99% uptime is necessary to maintain, but it’s not a change. It’s “business as usual” (BAU).
Sometimes, however, a KPI rises to the level of an OKR — when you want to change it. For instance, if the website is down half the time and “fix your website” is an Objective, one of its Key Results might include increasing, or stabilizing its uptime.
Why do KPIs fail?
Here are several reasons KPIs might fail:
- Too many: Teams often pick many measures to track, but don’t elevate or pay closest attention to the metrics that drive the most meaningful changes.
- Too high level: The KPI is too far removed from a team’s actions and doesn’t actually affect their day-to-day work.
- Poor data or tracking: The team has chosen the incorrect metric or hasn’t established the best way to get regular, reliable measurements.
- Just checking the box: If KPIs are tracked for the sake of having something to report or solely as a performance management tool, they lose the power to provoke conversation. KPIs paired with OKRs allow employees to lead conversations about progress and collaborate on solutions.
Can OKRs replace KPIs?
It’s important to maintain KPIs to track vital elements of your organization. And while KPIs are often considered BAU, there are times when KPIs can inform — and even become — your OKRs if it’s a measurement that you want to significantly change. Think of it this way: OKRs describe where you want to be, not where you currently are.
Let’s use the example of a finance team who’s fallen behind on their KPI to file contracts within a certain period of time. Elevating this to an OKR for a cycle may make sense to help focus attention. Once they’ve shown they can continually meet this expectation, it can be downgraded to a KPI. This allows management to still keep an eye on it, but it doesn’t need to be an OKR.
Can you have both KPIs and OKRs?
Yes, KPIs are “health metrics” for where your business is, while OKRs are your most important milestones of future success.
Here’s another example of how these two work together: In his role as Deputy Chief Technology Officer for the US, What Matters Co-founder, Ryan Panchadsaram, was part of the “rescue” team for the failed launch of Healthcare.gov, a website designed to help people find health insurance plans.
The team’s Objective was simple: “Fix healthcare.gov for the vast majority of consumers”. To do this, they adopted a number of KRs that would define a well-functioning website. They’re common KPIs for most websites, but in this case, they were very aspirational.
After they achieved the first Objective, it was time to stretch for even better performance. If 7 out of 10 represented a “fixed” website, what might represent an outstanding one? 9 out of 10?
What are some common mistakes to avoid with KPIs?
KPI mistakes occur when:
- Your KPIs are standalone goals or targets. It’s important to focus on the “I” in KPI — indicators. They’re simply measures of what’s happening.
- Your KPIs are lagging indicators instead of leading indicators. For example, a University sets an enrollment KPI of 2500 students. But, a better KPI might be the ratio of applicants to seats. The ratio clearly illuminates whether the University needs more applicants or more slots to achieve a topline target of 2500 students. A strong KPI opens up conversation around how you’ll get there, not just what you want to achieve.
- You measure the wrong thing for the sake of measuring something (or because it’s easier to measure than the thing you need to measure), e.g., this article from the Harvard Business Review.
What are some common mistakes to avoid with OKRs?
Common mistakes with OKRs include:
- Having tunnel vision about the metrics. Setting a standalone metric as your Objective can cause teams to focus on the number at the expense of the learning. Objectives are about direction. Pair them with measurable Key Results and discuss discrepancies with a lens on learning how performance can be improved.
- Failing to differentiate between committed and aspirational OKRs
- Business-as-usual OKRs (not trying hard enough)
- Timid aspirational OKRs (really not trying hard enough)
- Low value Objectives (aka, the “Who cares?” OKR)
We’ve got even more and detailed explanations in Google’s OKR Playbook.