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OKR vs KPI – a guide to understand how they differ and how they can work together.
So what is the difference between OKR vs KPI?
First of all, let’s just explore a few questions – think of it as setting the scene for reading on, rather than just hopping around looking for a simple solution.
After strategy comes implementation. That’s where the rubber hits the road, where the culture, operations and management of the business have to come together.
The thing is though that organisations – of all sizes – are messy – full of social interactions, attitudes, opinions, emotions. So how do you know when things are working and when they aren’t?
As a leader, you have your hand’s full balancing between looking at what comes next and what is happening now.
Unless you have a system in place, a way to track and steer progress your strategy is worth zero.
Managing a business means measuring the right things – not just anything though. That’s where KPI’s come in. But how do your teams understand what they need to do?
How do you align them to where you want the business to go?
Well, by using OKR’s you work with your teams – not simply top-down – you provide them with the tools to understand what they need to achieve and then they decide the how – simple right!
So we need to measure the right things and to set objectives at different levels of the business – but allow teams to do the objective setting like a cascade so it all knits together. Instead of thinking OKR vs KPI it should be OKR and KPI.
Table of Contents
Before we dive into the main differences and how they work together. It’s important to get a balance with setting and measuring what’s important at the strategic level of a business as well as across different business units.
The wrong measures can easily drive the wrong behaviours. Aligning measures with the mission, vision and values of an organisation help ensure consistency of behaviours and performance.
OKR’s stand for Objectives and Key Results which together form the framework for setting and achieving objectives as a company, team and individual. The OKR framework knits together across all levels of the business the strategy and how it is achieved.
The OKR formula is: “I will __ (Objective), as measured by __ (Key Results).”
The OKR framework then is a method to set objectives across an organisation that then align with the overall strategy. By regular measuring and tracking performance of the objectives, large organisations can consistently achieve their overall goals.
Creating high-quality OKRs is a crucial first step. They should be:
KPI stands for Key Performance Indicator. A Key Performance Indicator is a measure that evaluates the progress of a particular activity in an organisation.
In simple terms, it is a measure that is set against a strategic objective and then tracked at regular intervals e.g. monthly, quarterly and annual reports.
First of all, they need to be aligned with the overall strategy. Second, you need to limit them. Repeated research has shown that too often senior managers either 1Hammer, Michael et al. “The 7 Deadly Sins of Performance Measurement and How to Avoid Them.” (2006).
Although you can measure anything and everything you shouldn’t just jump in and measure too many things. Key Performance Indicators are a way to filter and focus on measures that matter.
Whatever the type of KPIs, you need to make sure that they’re SMART:
Here is a quick summary table of OKR vs KPI
OKR’s | KPI’s |
---|---|
Objectives and Key Results | Key Performance Indicators |
Strategy linked to team and individuals | The strategy aligned across divisions and teams. |
Inform everyone on what’s important to achieve company goals. | Translate strategy into operational activities and processes. |
Measure progress – more lead than lag measures | Uses both but tends to result in more lag measures |
Ambitious Goals | Attainable Goals |
A broad framework that enables clear communications aligned to roles. | Linked to organizational performance – balanced scorecard |
Bottom-up and Top-Down – 50/50 | Leadership led – Top-Down |
Growth Orientation | Performance Management Focus |
KPI’s can, in fact, be set for both lag and lead measures.
This is a simple example just for illustration. how you do it will depend entirely on your strategy, goals and overarching objectives. Needless to say that giving these elements careful thought pays dividends and improves how leaders align people, culture, operations and finances.
You can align the frameworks by using a balanced scorecard for strategic initiatives and then use the OKR framework to cascade the objectives and track them. Essentially, the core metric on the scorecard becomes a measure.
Note: Managing people top-down is not the aim here. OKR’s work and stimulate teams because they have a voice and ideas on how to achieve their objectives. This, in turn, creates a level of organizational agility and flexibility.
If you are in a startup or new corporate venture I recommend you use OKR’s – they will streamline your goals, improve engagement and help you to steer and adjust your course towards your goals.
If you’re a large organization and are looking at OKR vs KPI, then you need to use some form of a balanced scorecard, in other words, a management dashboard to structure and guide the organization, but tapered to accommodate OKR framework.