Objectives and Key Results (OKRs) have become an increasingly popular framework for setting goals and measuring progress over the last five years. However, there is still some confusion about what exactly OKRs are meant to accomplish, especially when compared to other performance metrics like Key Performance Indicators (KPIs).
In this post, we’ll take an in-depth look at OKRs, KPIs and their differences.
What is a KPI?
Key Performance Indicators (KPIs) are critical quantitative measures that help organisations understand how well they are progressing towards important business objectives. KPIs distil volumes of data into a limited set of the most essential metrics that can indicate performance successes or shortfalls.
To conduct effective KPI analysis, it's important to focus on a select few indicators instead of tracking an endless list of KPIs. Ideally, organisations should choose 5-10 metrics that have the closest correlation and analytical ties to core operations. Spreading efforts too thin across too many KPIs can dilute insights and make it difficult to gain meaningful insights. Therefore, it is crucial to zero in on a small subset of KPIs that have direct relevance to the business operations.
For example, an organisation that intends to broaden its market reach should focus on tracking customer acquisition rates rather than irrelevant metrics like electricity expenditures. Although it's important to monitor expenses, these have no influence on strategic direction. Carefully chosen KPIs can highlight areas of strong growth or emerging decline.
KPIs can exist at the company-wide level, division level, team level, or project level. More granular KPIs can roll up into higher-level KPIs. For instance, the sales team KPI tracking closed deals per quarter contributes directly to overall company revenue KPIs. Both views are important.
Strong KPIs should pass a straightforward test of relevance: If this KPI declines or improves, would it change our operational approach? If the answer is no, it is likely not a good KPI. Useful KPIs consistently have a direct influence on decision-making.
While KPIs may not have specific quantitative targets, they often act as guiding rails for establishing "success metrics", which combine KPI measurement with target threshold values. For example, if a standard KPI is quarterly customer renewals, the success metric would define a particular renewal percentage considered satisfactory.
High-quality KPIs stand the test of time, maintaining reliability and consistency year over year. Only through enduring relevance can KPIs produce insights to calibrate an organisation’s direction. With careful curation and analysis, KPIs form the quantitative backbone of strategic progress.
Examples of KPIs
- Monthly Recurring Revenue (MRR) - Measures monthly sales from ongoing subscriptions
- Sales Qualified Leads (SQLs) - Tracks number of sales ready leads passed to sales team
- Sales Cycle Length - Calculates average time from initial contact to closed deal
- Win Rate - Percentage of quoted deals that are won
- Customer Acquisition Cost - Costs involved per new customer obtained
- Site Traffic - Volume of visitors to company site over time
- Bounce Rate - Percentage leaving site after only viewing one page
- Email Open Rate - Percentage of emails sent that are opened by recipients
- Cost Per Lead - Marketing spend required to generate a sales lead
- Social Media Engagement - Likes, clicks, shares, comments on social posts
Customer Service KPIs
- First Contact Resolution - Percentage of inquiries resolved in first interaction
- Customer Satisfaction Score (CSAT) - Survey feedback rating from customers
- Wait Time - Average time customer waits to have inquiry addressed
- Calls Handled per Agent - Daily average calls per service team member
- Escalations - Percentage of issues needing management involvement
- Active Users - Number of customers actively using product in set time period
- Churn Rate - Percentage of customers ending subscriptions in time frame
- Adoption Rate - Speed at which new features are used after launches
- Uptime - Percentage of time platform is accessible without downtime
- Defect Density - Bugs discovered divided by lines of code
- Cash Flow - Net cash generated from business operations
- Burn Rate - Speed at which available cash is spent per month
- Operating Costs - Overhead costs involved in running operations
- Gross Margin - Profitability after accounting for production costs
- Working Capital - Cash available to fund business expenses
How to create KPIs
Creating KPIs is a crucial step in assessing and monitoring the success of an organisation, team, or project. The process involves careful consideration of the specific goals, objectives, and activities that need to be measured. Here is a detailed explanation of how to create KPIs:
1. Define your objectives
Start by clearly defining the objectives of your organisation, team, or project. What are you trying to achieve? Identifying clear objectives will serve as the foundation for determining the relevant KPIs.
2. Align with strategy
Ensure that your KPIs align with the overall strategy of your organisation. They should reflect the key areas that contribute to the success of your strategic goals. This alignment helps in maintaining focus on what truly matters.
3. Involve stakeholders
Collaborate with key stakeholders such as executives, managers, and team members. Their insights and perspectives can provide valuable input in identifying the most relevant KPIs. This collaborative approach ensures that KPIs are well-rounded and reflect the priorities of the entire organisation.
4. Select quantifiable metrics
Choose metrics that are quantifiable and measurable. KPIs should provide clear, numerical data that can be tracked over time. Avoid vague or subjective indicators, as they can lead to ambiguity in the assessment process.
5. Prioritise KPIs
While there may be numerous metrics to consider, prioritise a select few that truly represent the most critical aspects of your performance. It's recommended to limit the number of KPIs to avoid dilution of focus. Focus on 5-10 key metrics that best capture the essence of success for your specific activity.
6. Establish baselines and targets
Set baseline values for your selected KPIs to provide a point of reference for future assessments. Additionally, establish realistic targets that signify the desired level of performance. These targets provide a benchmark against which actual performance can be measured.
7. Create a monitoring system
Implement a robust system for monitoring and collecting data related to your KPIs. This may involve utilising software, tools, or dedicated personnel to ensure accurate and timely data collection. A well-established monitoring system is crucial for ongoing evaluation.
8. Regularly review and adjust
KPIs are not set in stone. Regularly review the relevance and effectiveness of your chosen metrics. As the organisation evolves, so too should the KPIs. Be open to adjusting or adding new KPIs based on changing circumstances and strategic priorities.
9. Communicate KPIs across the organisation
Ensure that all relevant stakeholders are aware of the chosen KPIs and understand their significance. Clear communication fosters a shared understanding of organisational goals and encourages collaboration towards achieving them.
10. Continuous improvement
Treat the creation of KPIs as an ongoing process. Solicit feedback, learn from experiences, and continuously refine your KPIs to better align with the evolving needs and priorities of the organisation.
What is an OKR?
OKR stands for Objectives and Key Results, a goal-setting framework that has gained popularity in the business world for its effectiveness in aligning teams and driving performance. Created by Andy Grove at Intel and later popularised by John Doerr, OKRs are widely used by organisations, from startups to large enterprises, to set ambitious goals and track progress in a transparent and measurable way.
Here's a breakdown of the two components of OKRs:
Objectives are clear, concise, and ambitious statements that define what an organisation, team, or individual aims to achieve within a specific timeframe. Objectives provide direction and purpose, guiding the focus of efforts toward overarching goals.
Key Results are specific, measurable, and time-bound outcomes that indicate progress toward achieving the stated objectives. They serve as quantifiable benchmarks that help in assessing success. Key Results are often numeric and provide a clear indication of whether the objective has been met.
Key characteristics of OKRs include:
- Alignment: OKRs are designed to cascade down through an organisation, ensuring that individual, team, and departmental goals are aligned with the overall strategic objectives of the company.
- Ambition: Objectives are meant to be challenging and aspirational, pushing individuals and teams to strive for significant accomplishments. The idea is to set goals that require stretching beyond the status quo.
- Measurability: Key Results are specific and quantifiable, allowing for objective measurement of progress. This clarity helps teams stay focused and provides a basis for evaluation.
- Transparency: OKRs are typically shared openly within the organisation. Transparency fosters a sense of accountability and allows everyone to understand how their work contributes to the larger objectives of the company.
- Regular review: OKRs are often set for a specific time period, such as quarterly or annually. Regular check-ins and reviews help teams track progress, make adjustments as needed, and ensure that efforts remain aligned with organisational priorities.
Examples of OKRs
Here are some example OKRs that demonstrate the methodology across different business functions:
Objective: Launch 3 new lead generation campaigns
- Implement content syndication by end of Q1
- Achieve 10% month-over-month growth in qualified leads
- Reach 100,000 visits to landing pages
Objective: Expand enterprise customer success
- Onboard 5 new Fortune 500 logos
- Achieve 130% booked revenue renewal rate
- Maintain 98% customer retention rate
Objective: Launch self-service user analytics
- Ship beta analytics dashboard by mid-quarter
- Document analytics methodology and best practices
- Gain user adoption with 50% MAU
Objective: Manage cash flow for growth goals
- Extend runway by raising $10M in capital
- Keep burn rate under $3M per quarter
- Reduce days sales outstanding below 30 days
For a complete list of KPIs, you can check our list of 100+ examples.
How to create OKRs
Creating effective Objectives and Key Results (OKRs) involves a thoughtful and collaborative process that aligns organisational, team, and individual goals. Here's a step-by-step guide on how to create OKRs:
1. Understand the organisational strategy
Begin by gaining a deep understanding of the overall organisational strategy and long-term goals. Aligning OKRs with the overarching mission and vision ensures that every level of the organisation contributes meaningfully to its success.
2. Identify key focus areas
Determine the key areas or themes that need attention during the specific time period for which you are setting OKRs. These areas should align with the strategic priorities of the organisation and reflect the most critical aspects for achieving success.
3. Set clear Objectives
Define clear and aspirational Objectives that articulate what you want to achieve. Objectives should be inspiring and provide direction. They answer the question: "What are we trying to accomplish?" Make sure to keep them concise and memorable.
4. Ensure measurability with Key Results
For each Objective, establish 3-5 Key Results. Key Results are specific, measurable, and time-bound outcomes that indicate progress toward the Objective. They should be quantifiable and provide a clear indication of success. Avoid subjective or vague metrics.
5. Make Key Results challenging yet achievable
Key Results should be ambitious but realistic. They should require effort and dedication to achieve but remain within the realm of possibility. Striking the right balance ensures that teams are motivated to push their limits without feeling overwhelmed.
6. Link Objectives and Key Results
Ensure a direct and logical connection between Objectives and their corresponding Key Results. The Key Results should directly contribute to the accomplishment of the Objective, creating a clear cause-and-effect relationship.
7. Align OKRs throughout the organisation
OKRs should align from the top level of the organisation to individual teams and employees. This alignment ensures that everyone's efforts contribute to the achievement of higher-level objectives. Each level of OKRs should support the level above it.
8. Foster collaboration and input
OKR setting should be a collaborative process involving key stakeholders. Encourage input from team members, managers, and other relevant parties to ensure diverse perspectives and insights are considered. This fosters a sense of ownership and commitment.
9. Review and adjust
OKRs are not set in stone. Schedule regular check-ins to review progress and adjust Key Results if necessary. This flexibility allows for adaptation to changing circumstances, priorities, or market conditions.
10. Celebrate achievements and learn from setbacks
Celebrate successes when Objectives are achieved and Key Results are met. Equally important is learning from setbacks or failures. Use these experiences to inform future OKR setting and continuous improvement.
11. Iterate for continuous improvement
After completing an OKR cycle, conduct a retrospective to gather insights on what worked well and what could be improved. Use these learnings to refine the process for the next cycle, fostering a culture of continuous improvement.
Key differences between KPIs and OKRs
The key differences between KPIs and OKRs are:
- KPIs measure ongoing performance efficiency
- OKRs drive strategic growth and new capability development
- KPIs track functionally-specific metrics
- OKRs align efforts across entire organisations
- KPIs quantify historical performance
- OKRs calibrate future outcomes
- KPIs have defined success thresholds
- OKRs have aspirational stretch goal levels
- KPIs take rear-view mirror perspective
- OKRs look towards the road ahead
- KPIs persist over years
- OKRs are time-bound in short cycles
The core meaning of OKRs is alignment, while the core meaning of KPIs is monitoring.
Can you use both KPIs and OKRs?
Yes, KPIs and OKRs can be used together in a complementary fashion.
While OKRs power disruptive thinking and breakthrough objectives, KPIs provide guardrails on performance efficiency. Organisations need both stretching vision and secure foundations in tandem.
KPIs give early warning signals when foundational activities linked to OKRs trend negatively. For example, if website traffic as a marketing KPI starts declining rapidly, it will compromise achieving ambitious OKR lead generation targets.
Likewise, if audacious OKRs around new product features compromise software reliability KPIs, disciplined product and engineering teams would rebalance efforts.
KPIs quantify the cost of progress towards moonshot OKRs. They help teams understand if permanent damage is being done chasing temporary results. KPIs call for consideration before ambition turns to recklessness.
Used together, KPIs will indicate when OKR tradeoffs cut too deep while OKRs prevent KPI compliance from becoming complacent. KPIs support the viability of an organisation's endeavours as reflected in OKRs.
The balanced interplay of the methodologies breeds both financial sustainability and industry trailblazing. With KPI vigilance and OKR vision, teams possess the metrics to reach for the remarkable while staying grounded in reality.