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OKR vs. KPI: Differences Explained

What are the differences between OKRs and KPIs? How KPIs and OKRs could work together?

OKRs and KPIs are two different approaches to measuring a company’s performance. OKR is a goal-setting framework developed in the 1990s that consists of a goal (an Objective) and a set of measures (Key Results) that track goal completion. KPIs are a set of business performance metrics indicating how well an organization is functioning.

But how do they differ from one another exactly? If you have your share of doubt about whether you need both, we're here to give you clarity. Let's start by explaining what OKRs and KPIs are.

What Are KPIs?

Key Performance Indicators (KPIs) are business measurements that convey the current health of an organization’s performance. KPIs are widely applied to evaluate the performance of projects, products, or employee’s performance. You can think of KPIs as lagging indicators because they show you how your business has been performing over a specific period.

While KPIs are great for measurement, they're standalone metrics. They may tell you when a measure is good or bad, but they don't necessarily convey context or the direction your team should take.

A KPI Example

We will use a co-working space as our example. Two of their KPIs are the number of freelancers who use their space and the number of yearly subscriptions to their co-working desks. So, they gather data for two ongoing metrics:

  • how many freelancers use their co-working space every day?
  • how many of them will actually buy a yearly subscription to work from there?

What Are OKRs?

OKRs stands for Objectives and Key Results and represent a goal-setting framework used to connect strategy with execution and align everyone around the same organizational goals. Objectives and Key Results are best applicable at the organizational and team level.

OKRs deliver the crucial context and direction missing from KPIs. Objectives describe what you want to achieve, while Key Results indicate how you know that you are progressing with your Objectives. Unlike KPIs, you can think of OKRs as leading indicators because they're related to a future business state or impact you're striving to achieve.

An OKR Example

Now, let’s continue using our abovementioned example to illustrate OKRs. The co-working space has noticed that more and more freelancers are people working in the tech industry, and they have decided to aim at the following Objective: “Increase our presence in the tech community.” In order to understand if they have succeeded, the co-working space can set two Key Results (KR) in order to achieve the Objective.

  • Increase the number of monthly visitors from the tech industry by 25% in the next three months.
  • Increase quarterly freelancer leads from tech events by 30%.

What Is the Difference Between KPIs and OKRs?

Use OKRs to lead as they clearly show what you want to accomplish and how you will achieve it. Objectives, which are change-oriented goals, are paired with Key Results, which are measures.

KPIs, however, are standalone numbers, they are metrics. They don’t represent path, progress, or purpose. While KPIs typically monitor the status quo, OKRs are designed to help your company move forward on something strategically important.

okr vs kpiDifferences between OKRs and KPIs

Furthermore, developing OKRs is a collaborative process. Team members are involved in the OKRs definition by regularly providing feedback and setting team-level OKRs that contribute to the organizational ones. Whereas KPIs are predefined metrics indicating how well an organization is functioning. Most often, they are set by management, but Agile organizations collaborate when setting KPIs to avoid measuring the wrong thing.

While OKRs are frequently re-evaluated to be adapted to the dynamics of the market, the same key performance indicators are oftentimes applied quarter over quarter. You can think of KPIs more as benchmark targets that help you answer the question, “Did we reach our targets or not?”.

OKRs vs. KPI: How Can They Work Together?

You won't be the only one if you wonder which is better to use - OKRs or KPIs. OKRs are a method of setting systemic goals, whereas KPIs are metrics. They complement each other well when used correctly.

Let’s take a look at the following example. Your organization should support its patient registration platform’s uptime of 99%. This is a metric that represents an important measurement to track. Simply said, this is a KPI. Yes, KPIs are critical for the business's success, but they won’t make a significant change. KPIs are more like “business health metrics,” they don’t move the needle that much in terms of new opportunities, and they don’t always make good OKRs.

However, there are times when a KPI can become an OKR - when you want to change it. Using the same example above, if your registration portal is down 50% of the time and “create an excellent patient registration platform” is the Objective, one of its Key Results might include stabilizing its uptime - from 50% to 99%, which in this example is also a KPI.

In other words, if you systematically achieve a Key Result (outcome), you can turn it into a KPI indicating the health of your business. This way, the newly added KPIs would indicate if your business is functioning well and can drive you toward future outcomes.

Can OKRs Replace KPIs?

While KPIs are considered business as usual (BAU), it is still important to have KPIs in order to track the critical metrics for your business. KPIs can become your OKRs if it’s a metric that you want to change substantially.

We will use an example of a sales team who fell behind on their KPI to contact new clients within the usual period. This KPI can become an OKR for a short period so the sales team can focus their attention on improving that metric. The moment they show that they can meet this metric, it can be again downgraded to a KPI. This way, the management will still pay attention to the metric, but it doesn’t need to be part of the OKRs in the long run.

What Are Some Common Mistakes to Avoid with KPIs?

Here are some of the most common scenarios when KPI mistakes occur.

  • The KPIs are stand-alone targets or goals. Focus on the fact that KPIs are indicators and measures of what is happening with your business.
  • Your KPIs are tracking vanity indicators rather than leading indicators, which can show you the current state of your business and how to improve it.
  • You are measuring the wrong thing simply because you have to measure something.

What Are Some Common Mistakes to Avoid with OKRs?

Here are some common mistakes repeated by OKRs.

  • Being too focused on the Objective. If you set your Objective as a stand-alone metric, your teams may focus too narrowly on the number rather than on learning. Pair Objectives with measurable Key Results and analyze disparities with your eyes on learning how to improve performance.
  • A failure to distinguish between ambitious and committed OKRs.
    Having only moonshots OKRs. Ambitious goals might demotivate your team, especially in the beginning—mix moonshots with roofshots OKRs.
  • “Not trying hard enough” OKRs (or business-as-usual OKRs).

Why Is It Important to Measure Performance?

Your business needs to measure and review performance as it is the only way to improve. When you fail to set objectives, or you define them but do not review them, you miss a valuable opportunity to learn and improve.

By implementing performance metrics, you can learn from both failures and successes. In this way, you may be pleasantly surprised at how quickly you and your team reach your goals and how well your organization functions.

In Summary

OKRs and KPIs are two different approaches to measuring a company’s performance. When implemented correctly, they can complement each other. Just make sure that you understand the difference between OKRs and KPIs:

  • KPIs are metrics that represent your business health.
  • OKRs are your most valuable measurements of future success.

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