Over the years, there have been many different approaches to implementing and executing business strategy. Different waves of optimization in the business world led to the popularization of different goal-setting methodologies, including Hoshin Kanri, Management by Objectives (MBOs) and Big Hairy Audacious Goals (BHAGs).
OKRs, also known as Objectives and Key Results, were evolved in the 1970s from MBOs. Intel’s Andy Grove introduced OKRs and his protégé John Doerr evangelized it in his 2018 book Measure What Matters.
Today OKRs are going mainstream, and businesses of all sizes and in all verticals use this goal management framework to track their most important goals.
Many people hear about OKRs and believe that they’re replacements for Key Performance Indicators (KPIs); measurable values that can tell you how your business is performing in different areas. While these two terms are closely related, they’re far from interchangeable.
So if they’re not interchangeable, then what exactly is the relationship between OKRs & KPIs?
OKRs vs. KPIs
Objectives are qualitative, inspirational and time-bound goals that are designated for a certain level of a company. Objectives should be memorable and give a clear goal.
The success of an objective is measured using Key Results (KR). KRs are specific, concrete targets that must be completed within a certain timeframe. These quantify the associated objective, providing specific, trackable KPIs.
Identifying KPIs is an important step in managing a business. OKRs put these metrics in the context of a larger goal and direct the individuals working towards that goal to increase, decrease or control a certain KPI to benefit the business.
The KPIs that your company uses can vary greatly depending on the industry you’re in. Here are some examples of KPIs by department:
- Engineering: API response time, system usability scale and tasks success rate
- Marketing: Average time on page, # of backlinks and email open rate
- Sales: # of inbound demos, lead conversion rate and annual recurring revenue
OKRs and KPIs today
With the onset of the COVID-19 pandemic, how do OKRs and KPIs play into this shift for the majority of businesses around the world? With a common office space suddenly off-limits, managers and business leaders have to find new ways to coordinate priorities within the company and KPIs play a more important role than ever as new business management techniques are adopted.
Many companies no longer measure a workday with eight consecutive hours in front of a computer. Instead, they measure output and productivity. KPIs play a critical role in this shift. By tracking KPIs, businesses can still get a great idea of the progress their employees are making, even if they can’t monitor work in person.
OKRs and KPIs function in tandem during remote work to keep companies aligned and moving forward even while the rest of the world is on pause. KPIs measure progress and output, while OKRs contextualize these measurements in the strategy and direction of the company.
While OKRs and KPIs are closely related, they don’t replace one another. In fact, they make one another more effective, as well-developed key results are usually measured by KPIs and KPIs are guided by well-crafted OKRs.
It’s important to know the difference between these two important acronyms that can change the way businesses visualize, plan and execute their strategy. OKRs use KPIs to help you define your direction and measure the outcomes you want for your business.
As the dynamics of your business operating environment are changing in response to the external conditions such as COVID-19, your KPIs have to be morphed. KPIs are set and reset, not set and forgotten. There’s no better time to rethink how you develop your KPIs so you can be ready to adapt to changing circumstances.