What’s the difference between OKRs vs KPIs?
The conversation around OKRs (objectives and key results) vs KPIs (key performance indicators) is a bit confusing. The simplest explanation of the difference between OKRs vs KPIs is that the OKRs express what your organization needs to achieve and how you will achieve it, and the KPIs outline how you’ll measure the most important measures of your plan. OKRs are a framework for building your strategic plan and actions, and KPIs outline the measurement of that framework.
It’s not really a question of which is better or more effective between OKRs vs KPIs as both have their place and usefulness. They have many similarities, and because of this, we believe it is most advantageous to think about using them in tandem instead of being two separate or competing processes.
In this guide, we’ll cover the essentials on both OKRs and KPIs, and we’ll outline how to develop them together and help your team understand the best context and time to use each planning element.
What is an OKR? (Objective and Key Results)
Objectives are Outcomes
OKR stands for Objectives and Key Results. They are a type of strategic planning framework where you set organization-wide objectives that articulate what you must achieve and then create 3-5 supporting Key Results to outline how you’ll achieve that objective.
Objectives are outcomes and are measured based on the performance of the objective’s Key Results. The biggest piece to remember about this is that Objectives are the outcomes, and Key Results are how you’ll achieve that outcome.
Key Results are How You’ll Achieve Your Objectives
There are two types of Key Results:
- Outcome-Based Results. These are key results that measure quantifiable outcomes in your organization. An example of this type of KR might sound something like, “Sell 10 new annual contracts this quarter.”
- Effort-Based Results. These key results measure the success of an effort, project, or initiative. An example of this might be, “Implement new sales CRM in Q3 of this year.”
Need more OKR examples? Check out our post on OKR examples here!
What Do OKRs Do?
They are designed to:
- Engage all staff in goal setting and managing performance from the top-down to individual team members. They drive tight alignment and commitment from your team.
- Help organizations cascade a clear direction, mission, and vision to clear outcomes that align with day-to-day activities. Align talent, resources, and energy in a single direction.
- Connect individuals to the larger mission and vision of your organization.
- Dial in your most important metrics.
- Communicate commitment and accountability, performance, and rigor.
- Support an agile planning process.
How are OKRs different from KPIs?
They are different from KPIs because they outline what your organization needs to achieve a future state. The latter measures performance, but it does not express what you need to achieve and how you’ll achieve it.
What is a KPI? (Key Performance Indicator)
Key Performance Indicators are quantifiable, outcome-based statements that help measure if you’re on track to meet your objectives and key results. They monitor the core performance of your plan and organization. Good plans have 5-7 key performance indicators, each with the following components:
- An expressive measure, meaning you can clearly understand what you need to measure and monitor to track your progress and performance.
- A quantifiable target that matches the time-period and duration of the goal or key result it measures.
- A clear data source so there is no gray area about what you’re measuring or how you’ll find that information.
- A clear reporting frequency. Every KPI is different, but we always recommend reporting on them at least monthly.
What Do KPIs Do?
Ultimately, they are designed to:
- Outline and measure your organization’s most important set of outputs.
- Work as the heartbeat of your performance management process and confirm whether progress is being made against your strategy.
- Represent the key elements of your strategic plan that express what you want to achieve by when.
- Measure the quantifiable components of your goals and objectives.
- Measure the most important leading and lagging measures in your organization.
How are they different from OKRs?
KPIs are different from OKRs because they measure and track the performance of your organization’s most important performance metrics. Alternatively, the latter tells your team what they need to accomplish, and the former measures the most important elements of that plan.
How to Use OKRs and KPIs Together
Objectives and Key Results are objectives measured by several outcomes. A Key Performance Indicators measures the performance of a single outcome.
Not every OKR is a KPI. Good plans identify 5-7 KPI measures that best articulate how your organization is performing. Choose the best Objectives or Key Results as your plan’s KPIs.
However, Key Results can be KPIs. Technically speaking, they are two distinct planning elements. But an excellent planning practice is to use them together. One of the simplest ways to achieve this is by using a key performance indicator within one of your key results.
- KEY RESULT: Effort-based result.
What’s important is that both types of KRs are not eligible for being KPIs—only the KRs that have quantifiable outcomes can also be KPIs.
If you include KPIs as outcome measures in your key results, we don’t recommend creating new key performance indicators every single quarter. Instead, they should carry forward in your OKR structure consistently for the duration of the plan (or at least through the year!); you don’t want to create new ones every quarter. Barring a seismic strategic shift during the year, you want your performance indicators’ annual target to remain steady, but you can update the quarterly targets for the key performance indicators based on the previous quarter’s actual results.
An Example of How to Build KPIs into OKRs
- KEY RESULT: Implement new CRM to automate customer outreach by end of October.
How we’re going to achieve wildly loyal customers is through driving retention, driving overall health, potentially standing up success plans, and implementing a new CRM system.
Key Results that Can Be KPIs
Outcome-based Key Results are good to use as key performance indicators because they have clear measurement, data sources, and time-periods. the example above, these could be used as KPIs:
- KR1: Increase client retention rate from 73% to 75% by end of Q3 to drive towards an 80% client retention by the end of 2020. *KPI
- KR2: 20% increase clients rated as “healthy” to 20% by end of the quarter. *KPI
In this example, the increase in retention rate is a measurable output that’s critical to the success of your organization. It’s also something that is a verifiable output of performance of your organization. We would also say that it’s a key performance indicator.
The overall health of your client base is also a key performance indicator. It’s nice when KPIs are leading indicators, like KR2 above, but they don’t always need to be leading. KR1 is an example of a lagging indicator.
Key Results that Can’t Be KPIs
Effort-based Key Results aren’t eligible to be Key Performance indicators because they aren’t explicitly quantifiable measures. From the example above, these shouldn’t be used as key performance indicators:
- KR3: Design and implement success plans for client health by end of September.
- KR4: Implement new CRM to automate customer outreach by end of October.
The number of success plans is a great output and it’s important, but it’s not a quantifiable KR, so not eligible as a key performance indicator. Like the KR around implementing a new CRM system, it is an activity KR.
Carrying Forward KPIs
Objectives and key results are designed to be reviewed and changed quarterly. But, if you include Key performance indicators within your key results, it’s important to not change them every quarter!
If you opt to change an entire OKR stack next quarter, think about how you might roll your KPIs into a new or adapted OKR stack. Here’s an example:
- KEY RESULT: Create annual contract and early signing incentives to be rolled out at the end of Q4.
3 Common Mistakes to Avoid with OKRs and KPIs
Mistake #1 – Using the Terms Interchangeably
We often see people using the terms interchangeably. Don’t! OKRs outline what you’re going to do and how you will do it. KPIs outline how you’ll measure and track the performance of your plan. They’re different but have a symbiotic relationship. Use them together, but not interchangeably.
Mistake #2 – Marking Every KR as a KPI
Great plans have 5-7 KPIs to define any plan’s most important performance measures. However, don’t mark every Key Result as a KPI because it will be unclear about what are the essential measures to watch and monitor.
Additionally, not every Key Result is a good candidate for a KPI, particularly if the Key Result measures are outputs and not quantifiable metrics.
Mistake #3 – Changing KPIs Every Quarter
The beauty and power of OKRs are they adapt and change quickly. But, key performance indicators should be measured and tracked for at least one year. So, if you have Key Results that are also KPIs, make sure they carry forward into the next set of OKRs.
Ultimately, the question isn’t OKRs vs KPIs as a matter of choosing one over the other or comparing which is better. As we learned in this article, they work in tandem. So, when moving forward with your strategic plan, ask yourself, how can I make sure my OKRs and KPIs complement each other and work together, rather than separately?
OnStrategy Application for OKRs and KPIs
The OnStrategy Team built our application to manage organizational, team, and individual performance. With our tool you can easily:
- See a quick view of your team’s performance.
- Collect performance updates in 15 minutes or less.
- See company-wide performance and pre-built dashboard to run quarterly reviews.
- See how everyone on the team contributes to the bigger picture.
- Quickly refresh and reset OKRs quarterly.
- Know the status of your KPIs in a single view.
Frequently Asked Questions for OKRs vs KPIs
The difference between OKRs vs KPIs is that OKRs express what your organization needs to achieve and how you will achieve it, and the KPIs outlines how you’ll measure the most important measures of your your plan’s OKRs. OKRs are a framework for building your strategic plan and actions, and KPIs outline the measurement of that framework.
Yes, KPIs can be included in OKRs. Outcome-based Key Results are good to use as key performance indicators because they have clear measurement, data sources, and time-periods. So, a Key Performance Indicator can be integrated as the measurement for a Key Result.