OKRs and KPIs

Not everything that can be counted counts.”

- Albert Einstein

There are many ways to measure the performance of a company, each with its own specific purpose and possibility. A near-infinite number of metric combinations can also be achieved, creating an enormous task for organizations in selecting and updating success benchmarks.

While nearly all things in business can be measured, knowing the right metrics to track will define the visibility, productivity, and profitability of your enterprise.

In this article, we will explore the relationship between OKRs and KPIs and how your business can leverage both for optimal performance tracking and growth.

 

What are OKRs?

 

For those already in the know about OKRs, scroll down to see how they fit seamlessly into KPI tracking. For those who don’t, Objectives and Key Results, or OKRs, is a goal-setting methodology for organizations to set ambitious goals with measurable results. The objective is the thing you set out to do, and the key result is the way you measure the outcome of your actions, in order to attain the objective.

For a more in-depth explanation, we’ve also put together this free guide to show you how they work.

 

What is a KPI?

 

A Key Performance Indicator (KPI) is a single, tracked, quantifiable measure of success.

The focus trends towards historical performance, however, real-time tracking can be utilized. The input data can be either quantitative (number of sales, number of email opens, etc.) or qualitative (employee or customer satisfaction, etc.), as well as a host of other sub-types.

 

The Historic Beginnings of KPIs

 

The first usage of KPIs is shrouded in the mists of time. We do know that the oldest complaint letter, created in Mesopotamia circa 1750 BC, is the first written record of a KPI not being met.

The story goes that one Nanni agreed to purchase a sum of copper ingots from Ea-nasir. The deal was agreed upon, the money was sourced, but when it came to exchanging goods, the ingots were found to be sub-standard.

The KPI, make metal of a high standard to meet consumers needs, was not met and a formal letter of complaint was sent to his home: even in early history, meeting performance criteria was critical and its failure, damaging. At the start of his career, Ea-nasir was supplying precious metals to the leading ruler. By the end, according to archaeology, his antics had up caught up with him, leading to diminished finances and having to combine his house with his neighbor’s.

From Mesopotomia to Wei China, we have the 9 grades of the ‘royal performance’ system, circa 230 AD, where officials were categorized and awarded advancements based upon measurable morality and administerial ability.

For the lucky, and metric-minded, advancement in the ranks could be expected along with the trappings of wealth and power. For the luckless and those without measurable merit, they could expect penury in some forgotten outpost with the diminished responsibility that entailed.

150 years into the future and the creation of the Domesday book, in 1086 AD, began the birth of modern accounting. William the Conqueror, crowned King of England, recognized the need for revenues to be generated in an efficient and replicable way.

The land was surveyed and levels of taxes were levied based upon historic payments to the previous king, present payments calculated based upon the productivity of the land, and a named tenant was made responsible for said payments. From William, we get a clear example of performance benchmarking and proto-predictive analytics, as well as metric ownership and accountability.

The earliest mention of the phrase “Key Performance Indicator” we could find comes from the 1941 Federal Securities Law Service book, referring to RRR being a strong indicator of Oil and Gas performance.

However, the true formalization of KPIs isn’t until 1990 when we see the Balanced Scorecard, created by Robert Kaplan and Dr. David Norton. The Balanced Scorecard is a framework for measuring organizational performance using a mixture of financial and non-financial metrics.

Frequency of “KPI” in English texts from 1800-2019, source: Google Ngram Viewer

Types of KPIs

 

Historical KPIs - Compare period on period data such as year on year (YoY), quarter on quarter (QoQ), or week on week (WoW) to benchmark performance

  • Number of website conversions YoY
  • Number of opportunities QoQ
  • WoW growth of pipeline

 

Real-time KPIs - Give a snapshot view of current usage or performance

  • The average number of users on the website
  • Current CPC range of converting users
  • The % of customers who are currently using a new feature

 

Qualitative KPIs - Used to indicate sentiment and capture opinions, properties, or traits

  • Number of brand mentions containing positive words
  • 50% of reviews talking about our features
  • Emoji rating for help articles

 

Quantitative KPIs - Measure exact figures and are usually expressed with numbers or percentages

  • Customer churn rate
  • Conversion rate
  • Total number of sales emails

 

Company KPIs - The most important ‘health’ metrics for a business

  • Profit and loss
  • EBITDA
  • Operational cash flow

 

Department, shared and team KPIs - Specific some area of a business, may not be relevant to others

  • Sales target
  • Marketing cost per lead
  • IT open tickets

 

Individual KPIs - Used to assess skills, behavior, or personal performance

  • Production SLAs
  • Support request response time
  • Tasks completed in a day

 

Primary KPIs - The direct measurable output of a given process, supported by secondary KPIs

  • Leads from lead generation campaign
  • Web purchases
  • Video watched 100%

 

Secondary KPIs - Provide context and additional data for understanding Primary KPI performance

  • Lead generation page bounce rate
  • Purchase drop-off rate
  • Video watched 25%

 

KPI method

 

Below is a simplified process of how companies go from zero KPIs to selecting, measuring, and reviewing performance.

  • Determine the number of metrics to track
  • Choose the metrics to track
  • Review sources of data for metrics
  • Set benchmarks
  • Choose a timeframe
  • Determine who is responsible for KPIs
  • Build out KPI reporting
  • Review performance

 

Potential pitfalls of KPIs

 

The biggest challenge in implementing KPIs is deciding the right number of measurements for a given individual or team. With too few, the picture of performance can be biased, misleading, or cluttered and confusing. Finding the sweet spot of insight without superfluous data is an art.

Another challenge with KPIs is that they focus on existing performance and do not tell you what needs to be changed or improved. KPIs in this regard are a canary — the first indicator of danger — but are not the scientific tools needed to diagnose a specific problem or decide what to do next.

Finally, ownership of KPIs can be blurry, leading to a lack of accountability and knowledge around contributions. An employee might be responsible for updating a KPI, but knowing whether it's their efforts, initiatives, or projects which directly improved or impacted a result can prove difficult.

This is where OKRs come in.

OKRs are the who, how, and what of a project and are directly attributable to results. In combination with KPIs, they are a powerful tool that gives businesses a complete picture of individual and company performance, identifying where additional resources are needed, as well as providing an early warning system for lagging results.

Below are specific examples of how OKRs and KPIs are a match made in heaven.

 

How OKRs can support KPIs

 

OKRs for flagging KPIs

 

It’s Monday morning. You’ve had your coffee or tea and are just getting ready for the day.

All of a sudden you see that one of your usually healthy metrics is red. Disaster has struck over the weekend and you don’t know why. You could interrogate each team member, scramble about in the data to try and find the cause… or you could set an OKR to fix it.

Let’s say this red KPI is a sales target: hit $500k MRR by the end of the quarter. With OKRs, you’d gather your team, apportion an amount of the target to reach for each individual, or set a team target and leave it up to them to find the right initiatives to attain it.

Their OKR could look something like this:

 

Objective: Crush my Q4 sales targets

Description: We need to finish the year with convincing sales numbers

KR 1: Hit $600k MRR

KR 2: Close 100 new deals

KR 3: Hit average deal size of $100k

 

The beauty of the above is that there are clear actions to improve the health of the KPI. By closing more deals, at a higher deal size, employees can take meaningful steps to contribute to the overall success of a metric. At a task level, i.e. the actions taken to improve the KR, sales personnel can measure what they did, whether it worked, and create best practices based upon historical success.

The benefit of using OKRs to attain KPIs, as opposed to pursuing initiatives outside of them, are traceability, transparency, and the ability to view confidence and progress at any given time.

Say goodbye to flagging KPIs with these 10 free sales OKR examples.

 

OKRs for ambitious KPIs

 

In this scenario, let’s imagine a KPI isn’t going down, but the benchmark or target is set very high: you know you’re not going to reach it on its current trajectory. As an example, imagine marketing needs to generate 40,000 leads for Sales as a KPI, and last year they delivered only 10,000. OKRs by their very nature are meant to be ambitious and aggressive, to stretch the creativity and ingenuity of a person or team.

The OKR would look something like the below:

 

Objective: Unleash the Marketing Beast

Description: All of our sales come through the website, driving quality traffic to the website is to achieve this is crucial

KR 1: Website visitors to 300k

KR 2: Bounce rate below 52%

KR 3: 80,000 generated for sales

 

The Objective is aspirational and inspirational: ‘Unleash the marketing beast’, a rallying cry for efforts, In addition, the rationale for such a high Key Result target number, double that of the KPI, is that even if employees only attain 70% of the goal, it can produce greater results than 100% of a less ambitious target. Aiming high will also motivate your teams to take risks and try new things. 

Without an OKR framework, learnings from initiatives will be lost across a variety of disparate files and deriving insights from them will have to be in a silo, rather than aggregated in a dashboard.

Test drive 268 pre-built free insights to apply to your OKR performance.

 

OKRs as a testing ground for KPIs

 

Getting the complete set of KPIs right the first time round is tough and comes with questions and caveats.

Should you measure more or less?

Are there more telling insights to be included?

Is the balance right between insights and overwhelming stakeholders with data?

Once KPIs are set, any data from metrics not tracked will be irretrievable. On the other hand, by tracking too many KPIs, getting a clear idea of what to do next will be lost in the minutiae of numbers. How then do you test and decide what to track before it’s set in stone?

OKRs, by their very nature, have multiple Key Results. We recommend between 2-4 for each individual OKR and this can be a quick and efficient way of testing and tracking relevant, potential KPIs.

Lastly, aggregated KPI and OKR measures can be bundled together in dashboards to review if there are any causal links, initiatives that overwhelmingly contribute to KPIs, or individuals who are overachieving. 

OKRs are a fast and efficient way to test the validity and relevancy of KPIs before they’re a permanent fixture of your reporting.

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Always on KPIs, ad-hoc OKRs

 

On the whole, KPIs are ‘always on’ metrics. They are important performance indicators for each area of the business and are not ‘switched off’ from one quarter to the next based on attainment. How then do you track ad-hoc or project-specific metrics?

Traditionally, these are tracked either within the native analytics of the platform in which the initiative was created or end up in a spreadsheet, likely never to be seen again once viewed.

The problem with the above way of working is the challenge in interrogating or auditing the data. This approach gives limited visibility for the rest of the business and creates the time-consuming task of trying to synthesize all the datasets in one place for an overview of performance.

For us, KPIs are used to track the business-as-usual metrics and, for anything outside of that, we use OKRs. The benefit of separating out where these measurements sit is that at both a company and individual level, employees can see the data that they need.

This transparency strengthens employee belonging and trust, in addition to being able to view how their efforts contribute to overall company performance.


How Gtmhub can support KPIs and OKRs

Gtmhub’s OKRs solution supports you in reviewing your company and employee performance in the most comprehensive and accurate way possible. Our platform enables businesses to track both KPIs and OKRs at any level of business, with beautiful visualizations, dashboards, and over 160+ integrations to give you the data you need to measure and succeed.

If you’re looking to deploy faster, align closer, and execute better on your projects, try out Gtmhub for free or arrange a short chat with one of our OKR specialists today.