OKRs and KPIs can work together beautifully, so long as everyone is clear what each is designed to achieve
OKR stands for Objectives and Key Results. This is a goal setting framework pioneered initially by many fast moving product and technology companies like Google, but now being adopted more widely by forward thinking executives. You can think of it as “agile” for the corporation, insofar as it recommends goal driven “sprints” across all areas of the business. These sprints are aligned to higher level goals of the organisation. To use OKR, the organisation sets its objectives and alongside those, defines the key results, or measures, that determine whether that objective is being met.
KPI stands for Key Performance Indicator. These are measures that inform company leaders whether their business is performing as desired. They can be financial, or non-financial. They usually show a range of indicators which reveal how the business is performing over time.
Confusion may arise between OKRs and KPIs because the Key Results may use KPI measures as a way to determine if the objective is being met.
Here’s how to think about OKRs and KPIs.
OKRs represent inspirational descriptions and outcome measures (with timing) of things the business wants to change.
Example (for a bricks and mortar retailer):
Objective: Become a destination online store
Key Result: >25% of all sales to be online by end Q2-2018
KPIs usually represent measures of the things the business knows it needs to keep on doing, They are denoted as being key, because if they go off track, the business will suffer in some way.
Example: KPI: Returns rate across all lines < 20%
Those definitions are a bit black and white, as sometimes KPIs might be used to monitor the emergence of a new change, or exit of an old way of doing things. Taking the example above, the retailer may well have had a KPI to do with % of sales online. Let’s say this was hovering around 15%
In this case the OKR and KPI go perfectly together. The OKR is an inspirational statement and associated target for the KPI of % of sales through the online channel.
But the crucial difference is that the OKR was decided on specifically to drive focus and change by a certain date, whereas the KPI is more of a passive indicator of the current situation.
Do OKRs need to cover every KPI?
No, this is a common OKR error.
Remember that for the most part, OKRs represent those things that the business wants to change, while KPIs usually represent those things that the business wants to maintain at a good or acceptable level.
So most KPIs can be termed business as usual (BAU) measures.
If BAU item are included as OKRs then the OKRs tend to get very busy and clogged, diluting the clarity and focus required to change things.
However it is important that BAU performance does not suffer when OKRs are introduced and pushed hard, so for some particularly hard-to-maintain KPIs, ones that require particular project effort or creativity to maintain, it is reasonable to include them in the OKR program. This signals that its particularly important to maintain or improve this particular KPI and that its accepted that this in itself will require great focus and effort.