The US Centre of Medicaid Services (CMS) operates on annual appraisal cycles and sets org-wide goals. Initially, they had a plethora of metrics to determine the status against each task. Even with a bunch of metrics at their disposal that tracked the business's health, the leaders were directionless. Priorities kept changing - new initiatives like new healthcare programs, tea parties for donors, etc., took precedence. Over time, CMS lost track of its purpose - their people were picking up ad-hoc things, and the teams weren’t working in cohesion - each getting frustrated at another.
Looking at all the chaos, the leadership team at CMS had an aha moment. They realized they needed something more, tracking metrics alone didn’t do the trick. It made the people at the workplace frustrated as they were getting pulled in different directions.
They slowly started evaluating and transitioned to an OKR framework - they listed the areas they wanted to improve in tandem with their future aspirations. This activity resulted in 3 hero goals: ending the cost curve, increasing quality, and pushing value to Medicaid users. The hero goals were further split into 16 strategic initiatives; under each, there was an objective and key results. Slowly the OKRs were rolled out to the teams. Within days, everyone started gaining clarity, and teams started working together in cohesion -pitching in and helping other functions. Over time, Medicaid started seeing growth by achieving its objectives.
In 1954, Peter Drucker wrote “management by objectives”. It was designed to help employees set and achieve their goals with the help of their managers. Back then, even a visionary like Drucker couldn’t have predicted how goals would dominate the modern work culture.
Even though companies have been setting goals since the 50s, 16% of today’s knowledge workers claim that their companies aren’t effective at developing and communicating. Many organizations worldwide, like CMS, think of their KPIs as goals - the absolute Northstar they need to sail toward. But that’s not how it works! OKRs and KPIs are different and often times leaders fail to differentiate between them losing the plot.
OKRs vs KPIs
OKRs helped CMS prioritize what they needed to focus on to the scale, whereas KPIs helped track their business health. In simple words, OKRs contain objective and key results which are measurable and futuristic. Whereas KPIs are indicators that help track the organizations' quantitative, success and health metrics.
Here’s how OKRs and KPIs are different from one another
OKRs and KPIs can work together but can also work alone - specifically in cases where there isn’t a requirement for a quantifying metric. If your HR teams’ main OKR is to increase retention, the key results should be to engage your people, roll out org-wide activities and have frequent 1-1s. These OKRs cannot be quantitatively assessed and need no support from KPIs.
How are Goals set with OKRs
“OKRs have helped lead us to 10x growth many times over. It made our crazy bold mission of organizing the world’s information achievable and kept the company on time and track when it mattered the most,” says Larry Page, Co-founder of Google
Jini Kim founded a medical database company called Nuna. They used data to serve the health needs of workers at large companies. In two years, they had an opportunity from Medicaid to build the Nation’s healthcare database. For starters, Medicaid is the program that serves 70 million Americans, including the poor, children, and people with disabilities.
Nuna was a lean organization with just 15 employees, and the Medicaid database had to be built in a year. In addition, they also had existing commitments and goals to achieve. Jini Kim jumped at the opportunity and immediately reoriented her organization’s objectives to help them complete this project.
Her why was simple, Jini immigrated from Korea and had an autistic brother; Medicaid was the program that saved her family from bankruptcy. Jini’s objective for Nuna was simple - it was “ to help every row of healthcare data accessible across the nation”.
Nuna’s story emphasizes how compelling why’s can be a launchpad for your organization's objectives. Objectives are inspiring, audacious, and bold, and avoid any fickle thoughts that might crop up.
Key results are timebound, measurable, and specific. If they don’t work, you can keep changing them to make them work! That’s what Sundar Pichai did in 2008. His 3-year objective was to build the “next generation client platform for future of web applications”. His key results were specific and measurable - to generate millions of users, as users will decide if Chrome will be here to stay. He stuck to the same objective but kept updating his key results.
In the first year, he aimed for 20 million users, but he got less than 10 million. In the second year, he aimed for 50 million users and reached 37 million users. But in the third year, he aimed for 100 million users. He modified his key results to include - aggressive marketing campaigns, broader distributions, improved user experience, and technology, and that was it! He got 111 million Chrome users, acing his 100 million targets.
Every Googler creates their OKRs and publishes them so everyone can have visibility. These OKRs aren’t used for promotions or appraisals. Instead, they drive a sense of collaboration and commitment amongst Googlers to achieve the organization’s goal.
Here’s an example of how OKRs work by tying team-level goals to org-level goals
In an OKR framework - the objectives stand for whys and whats, and the key results stand for hows. When your company sets a big-picture, you can make the goal more attainable by breaking it down into departmental and personal OKRs. Creating this structure ensures everyone’s OKRs lead back to the company's main objective.
How are KPIs determined
KPIs are metrics that determine the health of your organization. They need 4 components to be effective and useful. These components are - a measurable target, timeframe, data source for monitoring, and frequency.
Here’s how a Fortune 1000 light manufacturing company implemented KPIs to improve its processes. The owner initially saw performance inconsistencies between different worker shifts and its attribution to product quality, equipment downtime and first-aid incidents. Over time the problem became concerning, and eventually, he figured he needed KPIs to improve his processes. He started measuring what mattered:
- Number of incidents because staff failed to respond to alarms
- No. of errors made by staff
- No. of incidents due to equipment failure
- Login hours of the team
- No. of lights produced in each shift
- Time taken to make lights in each shift
- Elements of the emergency procedure that didn’t function as designed.
With data at his fingertips, he could improve and tweak the manufacturing processes, improve his bottom line and increase employee morale.
Not just in manufacturing, but KPIs span across different industries; for customer success teams, it is around customer churn. For marketing, it is around bounce rates, new users and more. Every team has its own KPI that shows the health of the business. Here’s how a KPI is structured -
OKRs are for Prioritisation and KPIs are for Dashboards
So which is better, OKRs or KPIs? There is no right or wrong; it depends on what your business needs to track and your intentions. KPIs are the best if you want to track and improve on specific initiatives. If you want to achieve bigger goals, then OKRs are the best! It will help your team stay motivated and consistent as you progress toward your goals.
OKRs enable leaders
For big-picture thinkers, segmenting goals into concrete tasks and metrics helped them analyze and think through how they wanted the achieve their objectives. OKRs help leaders focus on their goals instead of micromanaging what’s happening at a team level.
LinkedIn’s CEO, Jeff Weiner, meets with his executive team weekly to discuss how his team members are doing against their goals and metrics. OKRs provide the framework for making difficult trade-offs and helps the leadership prioritize the initiatives which matter the most. It also allows them to allocate resources, focus on new business development and respond to other team members' requests.
OKRs help provides focused feedback
The power of ambitious and specific goals not only improves the performance of teams and individuals but also has its findings in organizational psychology. Compared to vague exhortations, adding a set of metrics and providing frequent feedback, and monitoring the progress can improve results.
Working through concrete actions helps understand your people’s purpose, business needs, and what is expected of them. Feedback and coaching sessions help your people and managers discuss goals on an ongoing basis. It helps them realign and reprioritize as needed, and feedbacks aren’t broad generalities that can be left to assumptions.
The psychology behind achieving OKRs
OKRs can drive creativity and intrinsic motivation amongst your people. Internal motivation is six times more effective than external incentives and motivates people to complete complex and creative tasks. This is why Google deliberately decouples OKRs from performance review and appraisal processes. Googlers work together with a set purpose and mission, making them more productive and attaining almost 60-70% of their targets. It helps Google grow at a rapid pace.
The transparency while setting an OKR helps people make realistic demands, focus on activities supporting their colleagues, and avoid duplication of effort. All teams are aligned towards a shared goal without having any siloes.
“Goal setting is a powerful tool when done right. Every team member can link their goals to the corporate goals, knowing that their work directly impacts the company's success, " John Doerr told Betterworks.
Transparency in OKRs helps foster strategic alignment. Every employee can see how they have contributed towards their team’s objectives and visualize their efforts in conjunction with the organization’s growth.
Thomas Edison said vision without execution is just a hallucination, which inspired Doerr and the OKR methodology: good ideas with poor execution will forever remain ideas.
The biggest lever in execution is goal setting - which translates to OKRs. It streamlines our attention, establishes accountability, and provides us with a purpose that drives progress.
We mentioned this earlier, but we will repeat it, OKRs are your prioritization frameworks, whereas KPIs are for your dashboards.
