OKRs vs KPIs
When people first learn about OKRs (Objectives and Key Results), a lot of times they’ll be confused how are OKRs different from KPIs (Key Performance Indicators). Admittedly, there are certain similarities between the two concepts.
Two quick examples
Before we start comparing the two, let us briefly examine two examples.
- Objective: Shorten sales lifecycle
- Description: Our conversion rates are good, as well as our ACV – however, it still takes us too long to close a deal; therefore this quarter we want to focus on shortening sales lifecycle.
- Key Result #1: Decrease average sales lifecycle from 59 days to 38 days
- Key Result #2: Keep conversion rate at 9%
- Key Result #3: Keep ACV at $8,000
- Owner: Jenny Murphy
- Timeframe: Q1 2018
- KPI #1: Sales lifecycle in days = 59 days
- KPI #2: Conversion rate = 9%
- KPI #3: ACV = $8,000
Similarities between OKRs and KPIs
KPIs share a lot of similarities with the KR (Key Results) part of OKRs.
- Both KRs and KPIs should be quantitative
- Both KRs and KPIs should follow the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-Bound), though there is a small difference in the “achievable” part. Namely, OKRs are designed to be very aspirational – hitting 100% time and time again is called “sandbagging” and means target was not ambitious enough.
- Typically, both OKRs and KPIs will have an owner
- Usually, KPIs will have a target – similar to OKRs
Differences between OKRs and KPIs
Before we dig into the technical differences, let us back up for a moment and see the purpose behind each of these concepts.
OKRs deliver to an organization focus, alignment, engagement, and transparency, where KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products and other initiatives) in which it engages.
We can see that OKRs are a much higher concept – a fully-fledged management methodology. KPIs are a way of evaluating performance and are often used together with a management methodology such as OKRs or Balanced Scorecard.
List of technical differences
- KPIs tend to stay same for a long time (e.g. MRR), whereas OKRs typically change from quarter to quarter depending on what the business, team or an individual wants to focus on
- Because OKRs typically have 3-5 key results, they are immune to the effects of perverse incentive (for example, someone may hit their sales KPIs by giving absurdly high discounts). With OKRs, we can always set constraints in the form of additional key results
- OKRs support hierarchy, where one objective can support another one (e.g. Reduce Sales Lifecycle objective could support a higher objective of Improve Sales Process). KPIs are flat and are all equally important (by definition, all of them are “key”)
- OKRs communicate the strategy or intent in real-time, whereas KPIs tend to be static list of performance indicators (if we go back to the two examples, OKRs clearly communicate why reducing sales lifecycle is important at the moment)
- Because OKRs are typically associated with each other, they help avoid Cobra effect in execution
Juxtaposing OKRs and KPIs is somewhat a false premise because it is almost impossible to imagine an organization that uses OKRs, but not KPIs.
KPIs tend to be present as key results of at least some OKRs in every organization that uses OKRs.
A useful way is to think of OKRs as a framework to actively influence KPIs of an organization. While KPIs are typically static (they don’t change often), OKRs are typically fluid, depending on the circumstances. Every quarter organization can use OKRs to define it’s focus, align its effort and communicate the strategy and intent.
Successfully executed OKRs will typically have positive effects on the organizational KPIs.