Establishing and tracking business goals is vital for your organization's growth. However, the key challenge lies in choosing the most suitable method of measuring progress for your business. With an abundance of options available to manage your company’s goal-setting process, you may find picking a single strategic framework challenging.
In this article, we'll compare OKRs vs. KPIs: two goal-setting methodologies that have been recognized for the visibility, productivity, and profitability they can provide to businesses.
What is a KPI?
A KPI (key performance indicator) is a specific and quantifiable measure of success that allows you to track your organization's performance over time. For example, you can set KPIs for different departments within your business, such as sales, marketing, or HR. Additionally, you can update these with qualitative (e.g., customer satisfaction scores) or quantitative data (e.g., email open rates), with the latter being more popular.
What is an OKR?
Objectives : Short, qualitative descriptions of what you're looking to achieve.
Key Results : Quantitative metrics used to measure progress toward the objectives.
Essentially, objectives provide the direction towards your end goal, while key results show you how close you are to the finish line.
Find out more in our article What are OKRs? Objectives and Key Results Explained.
Differences between OKRs and KPIs
While the two frameworks are similar in some ways, we must look at their differences to get a complete overview of OKRs vs. KPIs. Overall, the difference between KPIs and OKRs is twofold, as they have different purposes and technical approaches.
The main aim of OKRs is to deliver focus, alignment, engagement, and transparency to your organization. Conversely, KPIs focus on evaluating the success of your activities (e.g., projects, programs, products) or business.
Therefore, OKRs take a more comprehensive approach to goal setting, serving as a fully-fledged management methodology. Meanwhile, KPIs have a narrower focus and are often used alongside broader management methodologies, such as OKRs or Balanced Scorecards.
OKRs and KPIs also differ in their constituents and execution.
- KPIs are set for more extended periods while OKRs tend to change quarterly, depending on the cadence of the business, team, or employee.
- As OKRs have 3-5 constraining key results, they are immune to perverse incentives (e.g., employees hitting their sales KPIs by offering abnormally high discounts).
- OKRs are buildable and driven by hierarchies, where one objective can help support another. Conversely, KPIs are flat, meaning all KPIs are equally important.
- OKRs communicate initiatives and strategies in real-time, while KPIs are static performance indicators.
Similarities between OKRs and KPIs
OKRs and KPIs overlap, with KPIs sharing many similarities with the key results part of OKRs. These similarities are:
- Both KRs and KPIs are quantitative.
- KRs and KPIs follow the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-Bound). However, there is a difference in the "Achievable" measure. OKRs, unlike KPIs, are designed to be aspirational. Hitting 100% of your OKRs every time is called "sandbagging", meaning your targets aren't ambitious enough.
- Both OKRs and KPIs have an owner.
- OKRs and KPIs have a target.
OKRs vs. KPIs examples
While we’ve gone over the similarities and differences between OKRs and KPIs, it’s always helpful to have an example. Keep reading to see how you may use these two goal-setting frameworks when faced with a similar scenario.
Imagine running a customer support team that has started to see a larger volume of support requests. As you want to decrease customers' waiting time (keeping your customer satisfaction and retention rates high), you need to set adequate goals for your customer support team to keep them responsive.
Scenario #1: The KPI approach
In the first scenario, you choose to combat the higher customer support tickets by setting the following KPI:
KPI: Complete 200 ticket responses per hour.
By the end of the quarter, you reach your KPI and consistently hit a response rate of 200 tickets an hour. However, your volume may still be increasing, with your response times dropping as a result. Consequently, the core problem persists, with longer customer wait times driving down customer satisfaction.
Scenario #2: The OKR approach
Let's apply the OKR approach to the same situation. In this scenario, you tackle the customer support crisis using an OKR, where:
Objective: Solve the support ticket crisis.
Key result 1: Reduce response times by 10%
Key result 2: Improve customer satisfaction score by 5%
Key result 3: Increase tickets handled from 180 to 200
In this situation, you attain the following results:
- Reduced response times by 7%
- Improved customer satisfaction score by 4%
- Increased the number of tickets handled from 180 to 190
- While you may not meet every key result, your OKR's multifaceted approach allowed you to improve the support ticket crisis significantly.
Analyzing the OKR vs. KPI approach
Using OKRs vs. KPIs in this scenario, you can observe distinctly different outcomes. With KPIs, you handle a larger volume of requests while still facing significant issues. This is because the symptom was treated rather than the problem. Even if you decided to add additional KPIs for response time, customer satisfaction rate, and retention, you'd be adding disparate pieces that don't convey the whole story.
In the OKR examples article, you can see how each key result contributes to the overall objective. This allows individuals to understand their impact on the final goal. Additionally, OKRs enable you to update and renew goals after receiving new information. For example, suppose you see a continuous rise in your customer support requests. In this case, you can add additional key results (e.g., increase visits to help center material by 15%) or adjust existing key results as you see fit.
The pitfalls of solely relying on KPIs
Pitfall #1: Uncertainty regarding how many KPIs are needed
One of the biggest challenges with KPIs is deciding on the correct number of KPIs. With too few KPIs, the picture of performance can be biased, misleading, or confusing. On the other hand, too many KPIs can overload your teams or employees, leading to mediocre performance. Therefore, you must find the sweet spot when assigning KPIs without creating a shortage or overflow of data.
Pitfall #2: A lack of clarity on what needs to be improved
Another issue with KPIs is they don't reveal what needs adjustments or improvements. KPIs are indicators rather than proper tools to help you diagnose a specific problem or guide you toward the next steps.
Pitfall #3: Ambiguous ownership
Finally, ownership of KPIs is blurry. This leads to a lack of accountability and awareness surrounding contributors. For example, while an employee might be responsible for updating a KPI, uncertainty remains about whether their initiatives directly improved the KPI.
Thankfully, OKRs can help diminish the impact of these pitfalls.
How OKRs can support KPIs
OKRs define the who, what, and how of a project, revealing what contributed to its success. When combined with KPIs, OKRs can be a powerful tool, painting a complete picture of your performance. Moreover, OKRs can help identify which areas require additional resources by warning you about lagging results. Read on to see how OKRs and KPIs can work together to benefit your business.
Use OKRs to flag KPIs
If you see your KPI's health metrics turn red, OKRs can help you find and fix its causes.
Let's say that KPI "hit $500k MRR by the end of the quarter" is the one that's failing. With OKRs, you can apportion an amount of the target to everyone in your sales team. So, employees may have the following OKR:
Objective: Crush my Q4 sales targets.
Objective description: We need to finish the year with convincing sales figures.
Key result 1: Hit $600k MRR
Key result 2: Close 100 new deals
Key result 3: Hit an average deal size of $100k
This OKR clearly highlights what sales personnel need to do to boost the KPI's health. By closing more deals at larger deal sizes, they can meaningfully contribute to the overall success of the KPI. Moreover, they can measure what they've done and whether it worked, allowing them to create a list of best practices based on historical successes. This facilitates traceability, transparency, and the ability to view confidence and progress at any given time.
Say goodbye to flagging KPIs with these free sales OKR examples.
Setting OKRs for ambitious KPIs
You can also use OKRs to establish ambitious KPIs. For example, imagine your marketing team has an extremely high KPI, where they need to generate 40,000 leads for sales (when they only delivered 10,000 last year). As OKRs are meant to be ambitious and aggressive, you can use them to stretch the creativity and ingenuity of your teams.
In this situation, the related OKR would look something like this:
Objective: Unleash the marketing beast.
Objective description: Get all our sales leads to come from our website by driving quality traffic to it.
Key Result 1: Increase website visitors to 300k
Key Result 2: Keep the bounce rate below 52%
Key Result 3: Generate 80,000 leads for sales
The rationale for key result #3 (where the target number of leads is double that of the KPI) is that even if employees attain 70% of the key result, it can produce more significant results than 100% of a less ambitious KPI. Aiming high also motivates your teams to take risks and try new things.
Using OKRs as a testing ground for KPIs
Getting your KPIs right the first time is tough and comes with many questions and caveats:
- Should you measure fewer or more KPIs?
- Are there more telling insights that need to be included?
- Did you strike the right balance between gathering insights and overwhelming stakeholders with data?
Carefully setting your KPIs is essential. Once you've set these, you can't retrieve any data from metrics you haven't tracked. Meanwhile, too many KPIs can lead to an exhaustive amount of data. So how can you test what to track before setting your KPIs in stone?
OKRs, by their very nature, have multiple key results. With 2-4 key results per objective, you can efficiently test and track potential KPIs. OKRs can therefore help you assess the validity and relevancy of KPIs before they’re permanently fixed in your reporting.
KPIs are 'always on' while OKRs are ad hoc
KPIs are powerful performance indicators that are always switched on. They don't switch off from one quarter to the next based on achievement. So how then do you track ad hoc or project-specific metrics?
Traditionally, these types of metrics are tracked using the native analytics of the platform in which the initiative was created. However, they often end up in a spreadsheet, never to be seen again. The problem with these methods lies in auditing data. These two approaches provide limited visibility to the rest of the business and require you to spend a lot of time aggregating data.
Using OKRs, however, you can separate the different metrics and see progress both at the company and individual level. As employees can access this data when needed, you strengthen employee belonging and trust while allowing them to see how they contribute to the overall performance of your company.
Want more information on the interplay between OKRs and KPIs? Find out how the OKR Cycle affects KPIs in this video:
Evaluating OKRs vs. KPIs is difficult, as KPIs often present themselves as key results for organizations that use OKRs. Additionally, the OKR framework tends to actively influence an organization's KPIs.
Yet, while KPIs are primarily static, OKRs are typically fluid. Every quarter, you can use OKRs to define your focus, align efforts, and communicate your strategy. As such, successfully executed OKRs tend to positively affect your organizational KPIs.
At Gtmhub, we help you leverage the power of OKRs and KPIs to bridge the gap between strategy and execution. Inspired by the Objectives and Key Results (OKR) methodology, our platform is designed to help you align your teams, improve focus and foster transparency.
Quick-start your OKR journey with ready-to-go OKR templates from our Marketplace or connect with 160+ Integrations to update your OKRs and KPIs automatically to easily make data-driven decisions with our customizable Insights and Dashboards.