In the What You Need to Know series, we’ll be addressing many of the most commonly asked questions regarding OKRs. In this first installment, we’ll discuss how OKRs differ from KPIs, and how they’re complementary.
The goal-setting methodology, OKRs (Objectives and Key Results), has gained enormous traction since Rick Klau’s 2013 YouTube video, “How Google Sets Goals,” and the release of John Doerr’s, “Measure What Matters” earlier this year. Today the protocol has been adopted by many of the largest companies in the world to give them an advantage in the execution of strategy.
The Evolution of OKRs
OKRs are not a new phenomenon. Doerr learned the system at the hands of Andy Grove of Intel in the mid-seventies and brought them to a very young Google in 1999. Grove evolved what is today’s OKRs from Peter Drucker’s Management by Objectives, referring to them as iMBO’s or Intel MBOs. Grove’s description of the methodology and how he taught the practice led Doerr to coin the phrase Objectives and Key Results.
A Definition of OKRs
To better understand how OKRs differ from KPIs one needs to understand the protocol and its definition: Objectives and Key Results is a collaborative goal-setting methodology for companies, teams and individual contributors. The process is designed to ensure that everyone in the organization focuses their attention and efforts on the same corporate initiatives.
Objectives reflect “What” is to be achieved; the Key Results benchmark and monitor “How” you accomplish the Objective. Objectives tend to be qualitative, action-oriented, and aspirational. Key Results must be succinct, specific, and most importantly measurable. Key Results are most often expressed as a hard number.
OKRs and KPIs Are Complimentary but Different
OKRs are a process for setting, tracking and measuring goals. KPIs (Key Performance Indicators) are a measurement, of the output of activities toward an Objective or strategy.
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.
A KPI that gauges performance may intrinsically be included as a metric in a Key Result. For instance, if a Key Result is to increase gross profit margin to 30% for Q1, the KPI (gross profit margin) is naturally encompassed.
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 the subsequent quarter, Objective, Improve Customer Service NPS, supported by KR, hire two additional Customer Success Managers.
Another difference is the type of Objectives you create. Google uses a two-pronged approach, Committed and Aspirational goals. For committed goals, which tend to be more incremental and less stretch KPIs may be a measurement in your Key Results.
For Aspirational goals, Key Results will typically be different from the standardized metrics in your KPIs.
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!