Don’t use KPIs as your Objectives (and Fluffy is OK)

Bottom Line

One of the hardest things when you’re getting started with Objectives and Key Results (OKRs) is to set good OKRs. We’re all used to caring a lot about our financial health metrics, revenue, profits, shareholder value. But these metrics, while crucial to getting a sense of the health and trajectory of the business, are not very helpful in terms of helping us determine what we should do next.

Summary Recommendations

  • Move away from using KPIs as objectives, and instead ask, ‘what do we really want to achieve?’ Fluffy is OK.
  • Pick quantitative key results (health metrics, KPIs, etc), which are the best proxies to measure your progress.
  • For setting OKRs which are aligned with higher level OKRs, it is sometimes useful to look at the KRs of the higher level OKR as inspiration for your Objective.

 

A quick reminder on the structure on an OKR:

  • Objective: Qualitative, yet measurable
  • Key result: Quantitative, not a single task
  • Example:
    • Objective: Improve health
    • Key results:
      • Blood pressure 120 / 80
      • Work out 3 times per week
      • Cook 3 healthy meals per week
  • Time frame: Next 3 months

With a business, this same OKR might look like this:

  • Objective: Improve financial health
  • Key results:
    • 15% Revenue Growth
    • 82% Gross Margin
    • No more than 60 days Days Sales Outstanding
  • Time frame: Next 3 months

A Bad Way to Do It

By defining a qualitative objective, we are challenged to think about how to measure our progress quantitatively, and we get to choose which metrics to use as Key Results. If we use a quantitative metric as an objective, we don’t have the same leeway:

  • Objective: Increase revenue
  • Key results:
    • 15% Revenue Growth
    • Time frame: Next 3 months

When the objective is defined as a quantitative metric, a KPI, you really only have one way to measure success. This leads to an awkward recursive process, whereby you set objectives which are measured by a near-identical key result.

A Better Way

  • Objective: Accelerate Growth
  • Key results:
    • At least 100 new business wins
    • Max Monthly Churn 1.5%
    • Minimum ACV $20,000
  • Time frame: Next 3 months

The Key Results for this Objective are also good reference points for the next layer of OKRs. For example, the Head of Customer Success, or Account Management, may naturally wish to set an OKR relating to Churn. But again, we don’t want to simply state the KPI of Monthly Churn as an objective, rather we want to identify an appropriate qualitative objective which will drive this KPI.

Fluffy is OK. 

For example:

  • Objective: Make Our Customers Love Us
  • Key results:
    • Max Monthly Churn 1.5%
    • At least 10 customer referrals
    • At least 10 case studies
  • Time frame: Next 3 months

Here we are making a very qualitative (even fluffy perhaps) statement about customer love, which might feel wrong, when we are setting out to deliver measurable performance. Certainly you should find your own style, and what works for you might be less fluffy, and more business centric. But again, we see here how we are forced to think about how to measure something qualitative using quantitative proxies. Churn in this case is a great proxy, as is the degree to which customers are willing to speak publicly about their experience of working with you, and refer you to other customers, or act as references for your new customers.

In summary

  • Move away from using KPIs as objectives, and instead ask, ‘what do we really want to achieve?’ Fluffy is OK.
  • Pick quantitative key results (health metrics, KPIs, etc), which are the best proxies to measure your progress.
  • For setting OKRs which are aligned with higher level OKRs, it is sometimes useful to look at the KRs of the higher level OKR as inspiration for your Objective.