You can’t apply what you don’t understand. And since many leaders are looking at OKR and KPI to apply to their strategies, we decided to write a post on their differences.
No, OKR vs KPI isn’t an upcoming boxing fight between two YouTubers (though we understand your confusion). It’s equally interesting business jargon (interesting, really?) that you need to understand —your strategy and company growth depend on it.
You can boost employee performance by up to 22% when you have clear goals that align with the organizational and employee needs. OKRs and KPIs are the building blocks of progress and accountability—and they also help motivate your employees. The problem, however, is that many companies don't understand how to use them properly.
Today, we compare and contrast these two elements of business strategy.
Here’s what you will learn from this article:
- What do OKRs stand for?
- Great OKR examples
- What does KPI stand for?
- Great KPI Examples
- OKRs vs KPIs: What’s the difference?
- How to use OKRs and KPIs together
- 4 reasons why OKRs and KPIs often fail
- How to track OKRs and KPIs
What do OKRs stand for?
OKR stands for Objectives and Key Results—it is a trackable, goal-setting framework for every level, from broad organizational right down to individual people. An OKR states a clear objective and follows it with several criteria for success. An effective OKR will contain objectives and results with these characteristics:
Objectives
- Clearly defined: Understandable and accessible to anyone
- Significant: Relevant and appropriate for the business
- Concrete: Represent meaningful, measurable progress
Key Results
- Clear: Unambiguous with straightforward criteria for success
- Measurable: Success or failure can easily be shown on a numerical or percentage scale
- Achievable: Realistic and appropriate to the business or team
The Objectives are a motivational expression of what you want to achieve, while the Key Results are the quantifiable performance measures that explain how you will reach that outcome.
As a rule of thumb, good OKRs target success rates of 70% and above. Less than this suggests that results are too difficult or vague, and success rates of 100% indicate that you need to evaluate your results and reset the targets to push for even better outcomes.
Avoid using vague words like 'help' or 'consult,' as these are difficult to measure. Ideally, you will be able to ask the question 'did we achieve this result' and answer it 'yes' or 'no.'
Great OKR examples
Google, Microsoft, Intel, and Amazon use OKRs to motivate employees and drive growth. We have even heard rumors that back in 1971, an orphaned OKR was adopted and raised by humans. His name? Elon Musk.
OKR examples like those below show how you can use OKRs when goal-setting in different contexts:
Example 1
Objective: Grow sales revenue to $450,000 within the next year without compromising quality.
- Key Result 1: Marketing team to increase qualified leads generation by 20%
- Key Result 2: Improve sales conversion rate by 10%
- Key Result 3: Increase customer retention by 20%
Example 2
Objective: Become known as the leading platform to book banana boat vacations
- Key Result 1: Rank in the top 10 web pages for banana boat vacations
- Key Result 2: Get 20+ backlinks to the banana boat vacation pages
- Key Result 3: Create one ultimate guide for banana boat vacations
Example 3
Objective: Win the Wacky Races.
- Key Result 1: Reduce pit stop errors by 50%.
- Key Result 2: Tell your dog, Muttley, to only load three guns into your car, the Mean Machine
- Key Result 3: Limit yourself to sending Penelope Pitstop one selfie per race
With Cascade’s OKR software, you can set unique objectives and clear key results that give your people a line of sight to your overall vision. On top of that, you can optimize employee performance management by having real-time visibility into your team’s performance.
What does KPI stand for?
KPI stands for Key Performance Indicator—a framework and tracker to set and track progress on organizational goals or individual initiatives. These targets can fit projects, products, teams, and individuals and usually have the following characteristics:
- A quantitative target value or outcome
- Appropriate, accurate progress measurement
- A report interval and completion date
Follow these steps to build a solid, logical KPI:
- Determine your objectives. What do you want to achieve?
- Define your success. How will you achieve those objectives? When is an objective complete?
- Decide on measurement. What tools will you use to monitor progress? How often will you check?
- Write SMART goals. Oh god, no, another acronym?! Let’s explain this step below.
What are SMART goals?
SMART goals are Specific, Measurable, Attainable, Relevant, and Time-bound. They go hand-in-hand with both OKRs and KPIs. When you use SMART goals, you can convert an objective and its success criterion into an actionable message that provides clarity and context for your people.
Whenever you are goal-setting, make it SMART, and you'll be able to motivate employees and keep track of their performance in line with your objectives.
Great KPI Examples
What does a KPI look like in the wild? Does it lope across the strategy plains and prey on herds of disorgazelles? Can you ride one?
KPIs measure your progress against defined objectives. Let’s get up close with a look at some KPI examples that we can use to measure the progress of SMART objectives:
Example 1
- SMART Objective: Increase sales by 25% within the next two quarters. Sales team members will conduct 5 visits to new customers per month, with monthly progress reviews.
- KPI: Monthly sales growth
Example 2
- SMART Objective: IT department will implement the new support ticket process and reduce response time by 20% by the end of the month.
- KPI: Customer support response time
Example 3
- SMART Objective: Use Mean Machine weaponry to take out more opponents and finish one place higher each race.
- KPI: Rankings in Wacky Races
OKRs vs KPIs: What’s the difference?
Both OKR and KPI state an overall priority and support it with sub-conditions designed to reach that goal. You can apply each methodology to many of the same processes, projects, and initiatives, but some areas suit one more than the other.
OKRs
OKRs are a great top-down tool—you can use OKRs to break broad, ambitious goals down into achievable targets with the flexibility to allow users to come at each problem in a way that suits them. OKRs work best to facilitate a change in business direction or priority, especially where radical change is needed.
KPIs
KPIs are perfect for a bottom-up approach, giving your team specific, quantitative goals. These targets help you track progress compared to your previous experiences and data outcomes. Also, a KPI is flexible enough to fit into your existing strategy without causing too much upheaval.
You can still use KPIs on a broad, top-down level, but arguably OKRs are more suitable for broad visions. Similarly, an OKR approach to individual or team strategy can work, but you could end up with silos or a loss of genuine progress in the pursuit of a binary OKR goal.
How to use OKRs and KPIs together
Like peanut butter and jam, KPIs and OKRs work best together. Rather than pit OKR vs. KPI like enemies, we can look to embrace both performance metrics and unite them in one perfect strategy sandwich.
KPIs provide the impetus to achieve the key results that underpin your OKRs' main objectives.
For example, if you’re a race car driver, you could have a KPI that tracks your monthly winnings. Over time, due to some awful performances, you might see the KPI indicates your income isn’t doing so great.
To tackle the problem, you could set an OKR that focuses on improving production issues on your car. Within that OKR, you can define key results that will act as your KPIs. It could look like this:
Objective: Increase annual income from races by 300$
- Key Result 1: Add two extra rocket thrusters to your car
- Key Result 2: Unscrew one wheel from everyone else’s car
- Key Result 3: Wear a smaller hat to become more aerodynamic
When you hit your KPI, you also achieve the results that keep you on course for your main objectives.
OKRs and KPIs are the perfect partners. You can use KPIs to monitor short-term performance and identify problems, whereas OKRs will help you solve those problems, improve your processes, and drive innovation in the long term.
4 reasons why OKRs and KPIs often fail
Success can be elusive. When you set targets for your organizational goals and strategic objectives, it helps people understand what they must do and unites them under a shared vision. However, OKRs and KPIs can fall flat on their faces if you don't think about your people while setting targets. Here are four common pitfalls to watch out for:
1. Overreaching
If you set an unrealistically high goal, it might trigger an unwanted outcome. Instead of driving people forward, your employees may lack motivation or belief if they perceive the goal to be impossible,
Make sure your targets are achievable. Talk feedback and advice on board from everyone—not just the C-suite. When you consider all the angles, you can still shoot for the moon, but ensure your goals have a reasonable chance of success.
2. Under-reaching
Sometimes, we set the bar too low. These underwhelming goals represent "business as usual" and do little to inspire game-changing innovation or high-impact performance. If your goals lack ambition, it does little to evolve or grow the company in the long term.
Consult with your teams to set targets with the right level of difficulty. Also, be prepared to adapt your goals to push for better outcomes. If teams constantly hit 100%, this can be a sign you're under-reaching and need to adjust the targets.
3. Unclear or irrelevant goals
A big problem is that you lack team alignment or strategic alignment between your objectives, which leads to a lack of understanding of the purpose of your projects. This misalignment in your organization can cause miscommunications and frustrations, which lead to poor outcomes.
Involve your people from the start and use their feedback to measure what matters. Make sure that everyone understands why a goal exists and how their role connects to the vision.
4. Inflexible approach
Another trap is when you have strict targets that don't allow your team to adapt to changes in the business, market, or consumer interests. If people miss out on goals and there's no ability to adjust, they could lose motivation.
In the age of disruption, marketplaces are not static and inflexible. Unexpected setbacks happen. You must foster the strategic agility to move with the tides and adapt your goals, objectives, and related activities whenever challenges come.
How to track OKRs and KPIs
Another common pitfall is inconsistent tracking. If you have a set-and-forget approach, you won't be able to tap into the value that data analytics offers. When you turn a blind eye to the tracking activities, you can lose sight of the progress and purpose and may eventually abandon the goal.
The famous management guru Peter Drucker once said: "If you can't measure it, you can't improve it."
It doesn’t matter what size your company is—whether you’re a scrappy startup or an established enterprise, you must measure performance. And no, the monthly check-ins on bounce rate and churn aren’t enough.
Sure, they’re important metrics, but you can improve customer satisfaction (and in turn, customer lifetime value) when you take a more proactive approach to tracking your business health metrics and consider how they align with your broader company objectives.
If your company is stuck in the mud with old-school tech, you'll struggle to keep up with fast-paced competitors. Innovation does not flourish on whiteboards and Excel sheets. These tools don't give you real-time insights into what's happening across the organization.
With a disconnected tech stack, data is spread across multiple different tools and spreadsheets. It takes too much time to gather accurate data, and by the time you get everything together, it's often already outdated. It’s hard to identify and correct underperforming areas of your business if you’re always one step behind.
On the other hand, when you use the right tools for strategy and project management, it's easier to track progress, react quickly, and maintain strategic alignment.
Cascade’s strategy execution software helps you to stay on top of your strategic plans with real-time insights into performance.
You can integrate Cascade with your favorite business tools and track all OKRs and KPIs in one place.
With Cascade’s customizable dashboards, you can quickly assess progress and identify underperforming areas before it's too late.
Ultimately, you can look forward to better strategic alignment and faster strategy execution because everyone knows what to prioritize.
OKRs and KPIs: The perfect team
There you have it. You must not compare OKR vs. KPI as if it's one or the other.
Instead, think about how best to combine them. When you successfully align your objectives, you can get the most out of your strategic initiatives. OKRs define your company's vision, while KPIs are the milestone that shows you if you're on the right track.
You can plot the course with these metrics, but you must involve your people to succeed. An adaptive, human-centric strategy is the key to successful goal achievement.
Get your stakeholders involved from the very start and set specific, measurable, and achievable goals. With the right goal management tool, you can turn OKRs and KPIs into a springboard for better strategy execution.
Are you ready to catapult your company toward your goals and vision? Start a free trial with Cascade’s platform today and speed up your progress.
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