Ever wondered what is the difference between OKRs and KPIs? I keep hearing the question quite frequently and from my own experience I have seen first-hand what happens to an organisation where OKRs are badly implemented and the wrong KPIs are being monitored. So, let’s get on the same page regarding OKRs and KPIs.
What are KPIs?
Not wanting to state the bleeding obvious but KPI stands for Key Performance Indicator and as the name suggests, KPIs align with business goals and track progress towards it.
Isn’t that what Metrics do, I hear someone ask. Yes, Metrics also evaluate performance, but operate on a more tactical level. Where KPIs have a high-level perspective with cross-functional relevance, Metrics tend to be specific to a particular function within an organisation on an operational or tactical level.
KPIs can be metrics, but metrics aren’t necessarily KPIs. That’s because KPIs tell a story. They quickly show teams if they’re moving towards shared goals, beyond reporting numbers.
KPIs help teams work towards outcomes and address obstacles blocking those goals. Employees use KPIs to understand how their efforts contribute to wider organisational objectives.
Because of their critical status, setting the right ones is crucial. The wrong KPI can derail a project and potentially cause long-term, negative impact. Selecting a KPI means committing to a specific, shared metric to drive growth, requiring all stakeholders to align and focus on them.
KPIs provide strategic context that generic metrics lack. They rally teams around measurable outcomes tied to growth.
What are OKRs?
OKR stands short for Objectives and Key Results. Its origin dates to Peter Drucker’s Management By Objectives (MBO) framework which is sometimes also referred to as Management By Planning (MBP). Drucker presented his framework to world in his 1954 published book, The Practice of Management.
By the 1970’s, Drucker’s MBO was widely adopted by Intel where John Doerr picked it up and developed it further.
In 1999, Doerr become advisor, and with an $11.8 million investment for a 12% stake also the first investor in the startup of two young tech founders: Larry Page and Sergey Brin’s Google.
Google’s meteoric rise and its de-facto world-domination of sorts is often attributed to Larry Page’s meticulous implementation of Doerr’s OKRs and has placed the framework into organisations globally.
I highly recommend John Doerr’s Measure What Matters. It’s engagingly written and the story of Google’s OKR adoption is interesting enough. But crucially, the book will put you in a strong position when it comes to the planning and implementation of your next OKRs.
In short, OKRs consist of:
- Objective: The big-hairy goal your team wants to hit
- Key Results: Measurable indicators for tracking progress towards your goal. Or in John Doerr’s words: Measure what matters!
- Desired Outcome: OKRs describe desired outcomes without prescribing how to achieve it. That’s left to the individual squads and teams.
A common mistake when setting OKRs is describing an output, not an outcome. Look at this example:
“Introduce new subscription pricing.”
This is an output and while it’s a good soundbite, it’s vague and not actionable. Try instead something like this:
“Introduce new subscription pricing to achieve [outcome] by [date] and for [user segment].”
You now set a clear and precise focus for the desired impact.
The second crucial part of an OKR is the measurable key result. It helps tracks progress and eventually outcome. Vague statements like “increase subscriptions” are unhelpful. Instead we want to apply highly specific metrics like “decrease churn by 5% by Q3.” Think SMART goals.
OKRs vs KPIs
Fundamentally, they are just labels and good OKRs often come from reviewing your KPIs. If you identified high churn amongst your KPIs, your OKR should address this by clearly stating to what you want it reduced and by when. A simply way of differentiating KPIs and OKRs:
- OKRs represent the big things you want to move, influence and improve
- KPIs are indicators and measures of health
- KPIs include metrics like CAC, LTV, AOV, Conversion Rate, Profit Margin, Churn, Retention Rate, Recurring Revenue and NPS, just to mention but a few.
If you have several sluggish KPIs but struggle to address them simultaneously, prioritise to focus on the most strategic OKRs. They have to align and represent your overall strategy and directly supporting the roadmap to advance your business.
The Complementary relationship of OKRs and KPIs
OKRs inject focus into KPIs, which, on their own are siloed metrics that don’t communicate context or strategic direction. OKRs provide that missing context.
The Objective in an OKR describes what you want to accomplish but it’s the Key Results that detail explicitly how you’ll measure progress to reach the goal. Without the KPIs quantifiable nature an objective would be just a grand idea.
So, while distinct, OKRs and KPIs complement each other. KPIs assess health, OKRs drive improvement, united by a shared set of metrics.
In other words, OKRs lend strategy to directionless KPIs. And KPIs inject measurability into fuzzy OKRs. Together, they provide insights to guide businesses forward.
Should I be using OKRs?
The answer to this question is certainly outside the scope of this post. However, it’s worth highlighting that OKRs make the most sense when adopted wide across an organisation and implementation is done structured and with the appropriate training on OKR’s best-practices.
When properly adopted, OKRs can work at any level; from company-wide focus to being product-specific.
However, a notable exception are early stage pre-PMF startups.
This comes down to the nature of OKRs being tracked generally on quarterly cycles. A pre-PMF team requires the freedom to be nimble, break stuff, and try different approaches and change tac on the spot if / when they see fit.
“OKRs are almost certainly harmful for pre-P/M fit startups because it causes teams to optimize towards goals as opposed to constantly asking if the goal is even the right one to begin with? Plus the OKR cycles are typically quarters when iteration should be happening weekly
Every blog post / book on business processes – OKRs, hiring, PRDs, launching, etc., etc., almost need a label to describe the stage of co the ideas are for. The workflows that are effective in the big co stages are simply not appropriate for early stage startups with <10 ppl
I find myself wanting to unlearn business jargon and think from first principle. “Network effects” are great, but it’s most important to startups on how to start from zero and to build them. OKRs are great, but what’s the right template for a 5 person team?
Most business books and strategies are written for big cos. That’s the market. Even “Lean Startup” ends up getting sucked into larger organizations as they want to learn to be nimble. While startups read to learn big co processes and big cos try to do the reverse”