One of the most common questions we are asked about OKRs (Objectives and Key Results) is if they can be used with KPIs. The answer is yes, and it’s easier than you may think because companies that use OKRs inevitably also use KPIs.
Before we get too far into our explanation, let’s define both OKRs and KPIs.
OKRs are a process for setting, tracking, and measuring goals. KPIs (Key Performance Indicators) are measurements of the output of activities toward an organization’s objectives or strategies.
For each OKR, there is an Objective to be achieved, along with a set of metrics that will measure the achievement of that Objective, called Key Results.
Both the KRs (Key Results) in OKRs and KPIs tend to be numeric. Both are designed to measure performance.
KPIs, when used in a typical MBO environment, tend to be static, relating to ongoing activities or metrics already in place. Objectives and Key Results, on the other hand, are far more agile with their quarterly goal-setting cadence and regular, weekly Check-Ins.
OKRs Encompass KPIs
Now, let’s take a closer look at how these two concepts work together:
Let’s say you have an Objective relating to new customer acquisition. You might have a Key Result as follows: Grow New Customer Acquisitions by 50% by the end of Q1.
We’ve highlighted in bold “New Customer Acquisition” because that represents the KPI for this specific Key Result. New customer acquisition is one factor that could determine the success of your company.
Here are some additional examples:
KR – Increase gross profit margin to 30% for Q1. (KPI: gross profit margin)
KR – Increase company revenue to $5M in Q3. (KPI: company revenue)
As you can see, KRs intrinsically encompass KPIs.
How a KPI Becomes an OKR
A KPI might even generate a new OKR if performance against a specific objective or its metric starts to decline or lag projections.
One example would be NPS (Net Promoter Score). If your Objective is to Improve the Customer Experience, the “What,” you might include NPS in your KR the “How.”
Example: Objective, “Provide an Exceptional Customer Experience,” supported and measured by a Key Result, “Improve NPS from 50 – 75 during the quarter.”
In practice, NPS may be considered a long-term KPI in your company. In this instance, the KPI becomes the measurement for the KR.
If during the quarter, your NPS scores decline rather than improve you may identify this as an OKR in a subsequent quarter,
Create a Continuous Feedback Loop
We mentioned the agility of OKRs, enabled by their quarterly cadence. To optimize performance and to ensure continuous improvement in execution you must establish a consistent, ongoing feedback loop. We encourage regularly scheduled Check-Ins so that managers and employees can discuss progress, expectations, and identify any possible roadblocks or obstacles. Use employee Pulse reports and one-on-one meetings to exchange feedback on a regular basis. We hope this helps to clarify the relationship between OKRs and KPIs.
Do you manage a company or teams (either as a CEO, a senior executive, a middle manager or even a front-line manager)? Do you set and track objectives? Does aligning employee performance to business goals matter, and are you responsible for driving results? If so, please check out a live demo of Atiim OKR & Goals Management Software and we’d love to hear what you think about it. Thank you!