Yes, we get it, business consultancy can often seem like an alphabet soup of acronyms and jargon. Especially when KPIs are considered BAU and the C-suite wants a POA to implement OKRs because of the CSFs.
But stay with me here! You’re probably already familiar with the KPI (Key Performance Indicators) and OKR (Objectives and Key Results) concepts, but one question we’re often asked is what’s the difference between the two systems. And are they alternatives to each other, or complementary.
It’s important to differentiate between OKRs and KPIs at an early stage as they fulfil different needs for an organisation. Although superficially they can look similar, in practice they are entirely different. There is a close link however, and the good news is that they can be used very successfully in conjunction with one another. This article will set out the reasons why.
First of all some basics. KPIs track progress. They are standalone numbers like sales figures, revenue, social media metrics, customer satisfaction survey results, website uptime, product quality, etc. They are created to measure the output, quantity, or quality of an ongoing process or activity (how the entity is performing today).
Think of KPIs as being the health metrics of your company, which is why you need to ensure they’re kept on track and within threshold. KPIs are results-orientated and tend to be backward-looking and, frankly, not particularly inspiring.
Individually we all have our own KPIs too - if we consider our personal health metrics for example, we know that as long as our heart rate has been averaging between 45 and 65 at rest, all is well. Above or below those numbers and we may need to take action.
And that’s where OKRs come in.
OKRs are action-orientated and establish what outcome a team, department, organisation or individual is focusing on achieving in the future (performance against a desired future state). They focus resources on a company’s most important ambitions. This defines the purpose of a company and its teams, which leads to better motivation, higher morale, and exceptional performance.
Put simply, OKRs have a much higher bar because they are inspirational and aggressive. And KPIs are often the start point for OKRs – a failing KPI needs corrective action.
Thinking back to our heart rate example, once we know we’re no longer within threshold we’d be foolish not to do something about it. So we set ourselves objectives – lose weight perhaps, or increase our exercise regime, and then define how we’re going to measure success (e.g. increase the number of exercise minutes per week from 0-100). There’s our “O”, and our “KRs”. Over time, we’d expect to see the relevant KPI getting back to acceptable thresholds as a result.
Another analogy that’s often used is to think of a car journey - organisational strategy is your destination, KPIs are the dashboard keeping you updated about the general health of the car, whether you have enough fuel for the journey, oil level, tyre pressures etc., whilst OKRs are your sat-nav, outlining the best path to reach your end destination (objective) and demonstrating your progress along the way (key results).
KPIs and OKRs therefore have very different functions even though they can help you to achieve the same goals. Rather than talking about OKRs versus KPIs, we like to think of them as complementary. In other words, don’t abandon your KPIs because you’ve decided to implement OKRs. Use them to inform your OKRs.
We hope that this article has shed some light on this very common question. Legendary investor John Doerr, who introduced OKRs to the founders of Google and is known as a modern-day godfather of the system, describes OKRs as ‘KPIs with soul’. For companies that want to innovate, grow, and transform in the modern world KPIs are not enough on their own. They are only measures of what’s happened already, or to use corporate lingo they are BAU (business as usual). OKRs are what drives innovation and success.