In the world of goal-setting and performance management, two terms often cause confusion: OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators). Many organizations struggle to understand how these concepts relate to each other and whether they should choose one over the other. In this blog post, we'll dive deep into the relationship between OKRs and KPIs and explore how they can work together to drive organizational success.

The Lack of a Standard Definition for KPIs

One of the primary reasons for the confusion surrounding KPIs is the absence of a standard definition. Some companies use "KPI" interchangeably with "metric," meaning every metric reported is considered a KPI. The number of KPIs varies widely across organizations, ranging from just one to thousands. Additionally, some organizations use KPIs solely for determining incentive compensation, while others use them to evaluate company performance without tying them to compensation.

The Clarity of Key Results

In contrast to KPIs, key results have a clear and standard definition. They answer the question, "How will we know we've made measurable progress on a specific objective by a certain date?" This clarity helps organizations focus on what matters most and track their progress effectively.

The False Choice Between OKRs and KPIs

Many organizations with established KPIs wonder if they should replace their existing system with OKRs. However, this is a misunderstanding. OKRs and KPIs are not mutually exclusive; they work together in harmony. A KPI becomes a key result when it is the focus for near-term improvement. On the other hand, a KPI that is simply monitored but not actively targeted for improvement is classified as a health metric.

The Interplay of Metric and Milestone Key Results

To illustrate how OKRs and KPIs work together, let's consider an example. Suppose a company has the objective "Achieve financial targets" with three key results:

1. Double company revenue from $5M in Q1 to $10M in Q2

2. Increase gross profit margin from 20% in Q1 to 25% in Q2

3. Increase recurring revenue from existing install base from $400k in Q1 to $600k in Q2

Each of these metric key results has a KPI (in bold) built into it. A metric key result refers to moving a specific KPI from X to Y within a set timeframe.

At the team level, milestone key results are more common. Unlike metric key results, milestone key results do not directly translate to KPIs. For example, a marketing department might have an OKR with a milestone key result like "Launch marketing automation system as measured by sending our first set of nurture emails by the end of Q1." While this milestone key result isn't defined as a movement of a numerical KPI, it should be designed to impact a KPI in a future OKRs cycle.

Key Differences Between Key Results and KPIs

To further clarify the relationship between key results and KPIs, let's explore some key distinguishing factors:

1. Defined in context of an objective: Key results are always defined in the context of an objective, while KPIs sometimes lack this context.

2. Achievement tied to compensation: OKRs should be decoupled from compensation, while KPIs are often designed specifically for determining incentive compensation.

3. Made public for everyone to see: OKRs are typically visible across the entire organization, whereas KPIs may be kept private between manager and employee.

4. Focused on maintenance, health metrics: Key results focus on near-term improvement, while KPIs often include health metrics that are already within an acceptable range.

5. Used to communicate strategy: Key results communicate how an organization will measure achievement of a strategic objective, while KPIs often exist in isolation and may not connect to strategy.

6. Intended to increase alignment: OKRs are designed to get employees working together towards measurable progress, while KPIs are often created to measure a single team's performance.

7. Informs focus/prioritization: Key results articulate how an organization will measure progress within a defined OKRs cycle time, while KPIs may not have a specific timeframe.

8. Controllable by your team: Key results often depend on external factors and may not be totally controllable by a single team, while KPIs tend to be fully controllable by the team they measure.

9. Originates bottom-up: Most key results originate from team members through intentional dialog, while KPIs often come from the top as a "corporate mandate."

The Takeaway

In conclusion, OKRs and KPIs are not conflicting systems; they work together to drive organizational success. Understanding the differences between key results and KPIs is crucial for effectively implementing an OKRs framework. By leveraging the synergy between OKRs and KPIs, organizations can align their efforts, prioritize their focus, and achieve their strategic objectives.

Remember, a KPI becomes a key result when it is the focus for near-term improvement, while a KPI that is simply monitored is classified as a health metric. By embracing the interplay between OKRs and KPIs, organizations can unlock their full potential and drive meaningful progress.

So, the next time you find yourself wondering whether to choose between OKRs and KPIs, remember that it's not an either-or decision. Embrace the synergy, and watch your organization thrive.


References: The OKRs Field Book , OKRs: From Mission To Metrics and many others