If you’re seeking a brief explanation of how OKRs (Objectives and Key Results) differ from Key Performance Indicators (KPIs) and Key Result Areas (KRAs). This article, however, is intended for anyone who’d like to develop a deeper understanding of how these measures not only differ, but actually work together to support effective corporate goal setting.
3 Goal Setting Definitions All Execs Should Know: OKRs, KPIs, & KRAs
OKRs (Objectives and Key Results)
OKR is a type of goal-setting methodology used to create clarity and alignment in an organization. It’s based on a shared-goals system in which all teams are connected to top company goals. The Objective informs the “what” (the thing to be accomplished) and is supported by 3-5 Key Results, which inform the “how” (measurements of how you’re going to accomplish it). To better illustrate the relationship between Objectives & Key Results, here’s just one of our many OKR examples:
- Objective: Please Our Customers
- KR1: Grow customer retention to 97% by end of Q1
- KR2: Gather feedback from 20 customers per month for Jan., Feb., & March
- KR3: Achieve NPS of 9 from customers by end of Q1
To ensure success, OKRs should always be set using the SMART goal setting approach: specific, measureable, actionable, relevant, and time-bound.
KPIs (Key Performance Indicators)
A KPI is simply a metric used to gauge the success of a company. When tracked and recorded, they give management an indication as to whether progress is on track.
KPIs can be used to measure virtually any aspect of the current status of your company. From customer retention to employee engagement and revenue, there are countless metrics you can track to determine organizational success.
However, your ability to use KPIs effectively depends on choosing the right ones for your current business needs. KPIs are actually organically factored into OKRs, so as long as you’re setting Objectives that appropriately reflect top company priorities, you’re also inherently monitoring the KPIs that matter most to your success.
For instance, let’s revisit the OKR example from above. The Objective listed would be considered a top company goal. The KRs then naturally include appropriate KPIs. Here’s how:
- In KR1, the KPI is customer retention
- In KR2, the KPI is customer feedback
- In KR3, the KPI is NPS
Thus, when many managers ask whether OKRs and KPIs can be used together to achieve effective corporate goal setting, our answer is: not only can they be used together, it’s impossible not to use them together. In other words, all organizations that use OKRs are also simultaneously using KPIs.
KRAs (Key Result Areas)
KRAs define what’s most critical to the success of a company. They’re factors that are important to the organization’s ability to meet its strategic goals and fulfill its long-term vision. Thus, the critical difference between KRAs and KPIs is that the former is used to measure areas critical to long-term success, while the latter can be measured on any time frame.
Executives can set 6-9 KRAs to develop a long-term strategy. They can then make more informed decisions to guide their near-term corporate goal setting strategy.
KRAs can fit into multiple categories (learning and growth, customers, internal business processes, for example) as well as different tiers (organizational, departmental, employee-level). For instance, a KRA in the customer realm might be the development of sales action plans. Educational excellence might be a KRA in the area of learning and development.
As with OKRs and KPIs, the KRAs you choose to develop should reflect your company’s specific business needs.
What else? Are there any other differences between these three aspects of corporate goal setting you’ve identified? What are some important goal setting definitions you refer to ensure you’re on track with ongoing organizational success?
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!