Follow these tips to learn more about the differences between an OKR and a KPI.
Hi, everyone. Welcome to the Virtual Strategist. My name is Erica Olsen. I’m the CEO and co-founder of OnStrategy. Today’s whiteboard video is on OKRs versus KPIs, a couple of TLAs, or three-letter acronyms, that we’re going to clarify today.
This video is part of our OKR series. There are a few other whiteboard videos you might want to check out. We created one on how to create OKRs, like what they are, one on the process to create them, the tools that you might put in place, and then how to score them.
One of the big questions that people have related to OKRs is what’s the difference between OKRs and KPIs. We’re going to talk about what they are, to begin with, and then just clarify the differences, or lack thereof as the case may be. Just a spoiler alert on that one.
What each acronym stands for
So, first of all, let’s be clear about what we’re talking about. OKRs stand for objectives and key results. Objectives and key results are a basket of things. It’s an objective and then a handful of three to five key results that help achieve this objective. That’s one thing that’s different, that it’s a basket, versus KPIs which are, if not plural, a single indicator of performance. A handful of them make up a scorecard, for example.
Tips to follow
Alright, so here’s some tips to think about as we’re thinking about OKRs versus KPIs. Over at OnStrategy, we believe in simple and practical. We take a little bit of a different stance on this than maybe other people do as it relates to what’s the difference. Let’s walk through the tips and then we’ll apply it to this specific example. There are two types of key results. There are outcome-based results and then there are effort-based results. I’ll explain that but there’s just two types of key results—a quantifiable outcome and an effort or a project or an initiative.
Key performance indicators — we would like to say and submit that KPIs are key results. KPIs can be your quantifiable key results. That just makes it a lot simpler than thinking there’s OKRs and there’s KPIs. Think instead about the fact that maybe, of your KRs, there might be one or two that are actually key performance indicators for your organization. Just keep that in the back of your mind.
So for key performance indicators, what makes a good KPI is that it’s an output. It is an objective outcome of some effort or some set of efforts, if you will, or outputs. KRs, as I said before, can be outputs or they can be activities, and we’ll look at that in just a second.
And then of course, just to add another K into the mix, keep it simple. We don’t need to make things confusing. Strategic planning and goal-setting and performance management can be confusing as it is. So let’s keep it simple.
So here’s an example. Here’s our objective right here In our example: create wildly loyal customers—that’s the what. The way, or how we’re going to achieve that is through driving retention, driving overall health, potentially standing up success plans, and implementing a new CRM system.
So a retention rate is an output. It’s a verifiable output of performance of your organization. We would say that’s also a key performance indicator. The overall health of your client base is also a key performance indicator. The number of success plans is a great output, but it’s not necessarily an outcome for your organization. It’s important but it’s not a key performance indicator. And then implementing a new CRM system is the type of key result that is an activity.
In this particular example, you can see what we’re saying is KPIs and OKRs work together in the context of KPIs are almost like a query of a set of KRs in your organization. If you’re looking at your whole OKR stack or the entire set of OKRs across your organization, you might find a handful of KPIs spread throughout. If you were to just query them out, you would have your scorecard of KPIs or, in other words, KPIs are KRs that are outputs, that are also indicators of the overall business performance.
With that, that’s the difference between OKRs and KPIs. Thanks for tuning in. Happy strategizing.