We are almost towards the end of March—the end of the financial year for companies in India or the end of Q1 for companies in the USA or the UK. Irrespective of where you are located while reading this, the fact is that a quarter is coming to an end (could be Q1 or Q4 depending on where you work), and it’s time to do some performance analysis.
When it comes to tracking performance, there are two commonly heard words in the business world, KPIs and OKRs. In this article, we will summarize what these two are and what the differences between them are.
What are OKRs (Objectives & Key Results)?
OKRs or Objectives and Key Results were first used in Intel as a performance management framework to define goals that can be measured, then tracked to see the outcomes of those goals. It was later introduced to the team at Google, and then it exploded as a mantra for businesses looking to build a process to track the progress they were making towards their goals.
One of the crucial things to remember when setting up an OKR is that they need to be focused on a goal that you as an individual, a team, or a company are looking to achieve in a stipulated time. This time could be a particular quarter or a year or any period you decide on.
The way an OKR is set up is usually by identifying an objective that needs to be achieved, followed by three or five key results that need to be completed for the overall goal to be achieved. Later in this article, we will show a few examples of putting together a good OKR.
When setting up the objectives, it is essential to know that the aim is achievable. There should be a way to identify a set of key results that will contribute to accomplishing the objective.
Similarly, when creating key results, it is crucial to understand that they need to be achievable, and there should be a way to measure the result. It is also essential to have a target that the individual, team, or company needs to work towards.
For example, a key result stating “Identify and run employee engagement activities” is achievable and measurable (in a way), but there is no clear definition of the target.
But a key result stating: “Identify and execute two employee engagement activities in Q2” is achievable, measurable, has a target in terms of how many activities to execute, and an identified timeline in place.
What are KPIs (Key Performance Indicators)?
KPIs or Key Performance Indicators are measurable and quantifiable lists of targets that can be used by a business to measure the performance of an individual or a team, or the whole company.
These performance indicators can be individual or linked targets that can be tracked in isolation and do not have to depend on other KPIs or targets.
Like a key result, each KPI has to have an achievable, measurable, and time-bound target that the individual, team, or company has to achieve to complete the KPI.
Something like “Generate 20 leads using outbound calls in 2 months” is an excellent example of a KPI; it ticks all its requirements. Setting KPIs is one of the ways in which you can track employee performance.
How do OKRs and KPIs compare?
To a large section of people, it could be challenging to differentiate between an OKR and a KPI. It might feel like they are just the same thing different businesses use in slightly different ways.
But there are still a lot of differences between them, and it is essential to understand that before going ahead and implementing these in your business:
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Does an OKR replace a KPI?
No, OKRs are typically more focused on bringing in a strategic change and trying to achieve something which is currently not being done at the business.
On the other hand, a KPI is more focused on tracking the performance of the existing activities in the industry. Hence, it is implausible that one can replace KPI with an OKR.
Most strategic objectives require the assigned individuals to improve, enhance, or rethink how they do specific tasks. That frequently forms the basis for the key results that eventually help achieve the objective.
It is advisable to run both OKRs and KPIs for their purposes within the business.
OKR and KPI examples
Below are some examples to understand what OKRs and KPIs are:
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Why OKRs fail
There is a chance that businesses might end up creating OKRs that are too big to achieve in the timeline that has been identified for it; this usually results in OKRs not working for the business.
Imagine a business generating $100k in Q1 as revenue. Now, the management has a strategic plan to increase the business's revenue to $5 Million. It’s a good target, and it would be great for the business to grow to that number. But imagine if the OKR for Q2 is set as “Generate a revenue of $2 Million in Q2”. Unless the company has invested very heavily into their sales and marketing efforts, that number is unachievable for the business in just one quarter, when they could only achieve a fraction of the revenue in Q1.
Similarly, there could be other reasons like no clear accountability or having too many OKRs assigned to teams, which could overload the teams, making it challenging for them to succeed in completing them.
OKR and KPI dos and don’ts
A few things need to be taken care of when setting up and tracking OKR and KPIs in a business:
Dos
- Always ensure that the OKRs and KPIs are aligned towards the mission and vision of the company.
- Always ensure a feedback process is set in place to discuss these. It’s crucial to have CFRs or conversations, feedback and recognitions when tracking the progress on OKRs and KPIs. OKRs and CFRs will always need to work together to stay on track and update the OKRs according to requirements.
Don’ts
- Create unrealistic and unachievable goals and performance targets.
- Only track progress on OKRs and KPIs just before the end of quarters. A lot of the progress gets lost, and the final results are sometimes incorrect if they are not tracked regularly.
How are KPIs and OKRs used together?
It is advisable to use both KPIs and OKRs together to give you a better way to track, measure and accomplish the final goals. For example, imagine you have a goal for losing a few kgs of weight, you have a few key results focused on doing various forms of exercises like running for 30 mins daily or going to the gym four times a week. Along with that, you also measure and track your calorie intake per day and the number of steps you take in a day. So in a way, you are using OKRs and KPIs together and in a very beneficial way.
Wish to monitor many aspects of your business in real-time? Then, an OKR tracking software is a must-have when aiming at growth.
