Michelle Sheridan, Talent Development Manager at Urbint
As a versatile project manager and HR content writer, Michelle develops successful organizational development programs and shares insights with the world at large to facilitate healthy workplace cultures of diversity, inclusivity, and advancement. She has written about manager development, remote work, project & time management, employee well-being, and other relevant topics to help people excel in the modern workplace.
Pub: September 24 2020
Upd: January 13 2022
OKRs vs KPIs
KPIs, or Key Performance Indicators, measure the success of a variety of initiatives, such as projects, programs, or organizational or individual performance. As a general rule, they are quantifiable metrics that link directly to strategic initiatives. When thinking about KPIs, a good word of reference would be ‘Measure’.
OKRs, or Objectives and Key Results, have been popular with tech companies since their inception, and are now more broadly used across various industries. These metrics define company objectives along with the key results that are needed to measure the achievement. A good reference word for OKRs would be ‘Achieve’. OKRs follow these guidelines:
- They are always quantifiable.
- They typically include 3-5 key results.
- They are on a timeline (usually quarterly, but can be used for annual planning).
- They can function at an organization, team, or individual level.
OKR Software: The Ultimate Guide
Everything you need to know about OKR Software functionalities and how to choose the best for your organization
How They Are Used:
Both KPIs and OKRs need to be customized to fit the organization that they are serving. However, one way to tell the difference is by asking whether or not your metric is a measurement or an outcome. So what's the difference between KPIs and OKRs? KPIs measure, while OKRs drive goals. Take a look at some of these examples:
KPIs exist across all industries - a quick search can show you how they apply to everything from retail, to HR, to technology. In fact, you’re probably using them now at your own company. Here are some examples of what they can measure:
Retail Industry: revenue per square foot, same-store sales, sales per employee
HR Department: attrition rate, employee performance, average recruitment time
Sales Department: customer lifetime value, sales revenue, calls made
Technology Industry: monthly recurring revenue, customer retention or churn, ticket resolution time
Healthcare Industry: patient wait time, average treatment charge, number of educational programs
Project Management: cycle time, budget variance, planned value
People are generally most familiar with KPIs in a financial context - measurements that indicate how well a company is doing regarding generating revenue and profits.
Follow these guidelines when determining what KPIs are right for your company:
- KPIs should be specific and express exactly what you want to achieve by which date.
- They should include a numeric value of what you want to achieve. For example, do you want to increase sales? Increase client retention? Decrease the average employee recruitment time? You need to include the numeric value of what you want to achieve so that you can have an apples-to-apples comparison of your actions.
- KPIs should also indicate frequency - is this a monthly, quarterly, or yearly goal?
- In many ways, KPIs follow the SMART goal framework, and this is definitely something that you can incorporate into your planning.
- *Something to note: KPIs often mention leading vs lagging indicators: Lagging indicators are “output” oriented. They might be easy to measure but hard to improve or influence. Leading indicators are typically input-oriented, and harder to measure but easier to influence.
OKRs support agile project planning because they can be reworked on a quarterly basis and can easily be adjusted to support changing needs. They’re similar to KPIs in that they are metric-based, but they represent aggressive goal-based metrics, instead of just measurements. Here are some examples:
Successfully implement the weekly newsletter
- Finalize the content strategy, key messages, and topic structure for the next 6 months
- Grow subscriber base at least 5% per week, getting to 50000 readers
- Increase the CTR% to above industry average 3.5%
Increase recurring revenues
- Reach monthly recurring revenue ($ MRR) of $250000
- Increase the share of monthly subscriptions vs one-time contracts sold to 85%
- Increase average subscription size to at least $295 per month
- Increase annual renewals to 75%
Achieve record revenues while increasing profitability
- Hit quarterly revenue of over $100000
- Start sales in 2 new countries and achieve first quarter revenues totaling over $100000
- Increase gross profit % margin from 23% to 54%
Refactor our old user management module
- Survey 5 external API users regarding issues with our authentication
- Discuss the user management code usage with 5 engineers having used it in production
- Rewrite and launch a new version of our user management module
- Rewrite the API user authentication for the new version
OKRs vs KPIs: Which is Better?
Whether or not you decide to use OKRs or KPIs depends entirely on your organization’s culture and vocabulary around performance. If your executive team has a clearly defined mission and a strong vision, OKRs can help to align your employees in the same direction and focus their energy on achieving big results. If your organization is more focused on stability rather than growth, then KPIs might be a better fit to ensure that you’re hitting all of the metrics you have set up.
You might even find some overlap - KPIs can be used as OKR measurements! Regardless of which one you choose to use, make sure that you are crystal clear in what you are measuring and why you are measuring it to ensure you receive the maximum results.
Photo credit - wayhomestudio