Choosing the Right Performance Metrics: OKR vs KPI

Running a competitive business in the US can be tough. How do you know you’re doing well? How do you achieve your goals?

Two primary methods of measuring performance are often used: Objective + Key Results (OKR) and Key Performance Indicators (KPI). These three-letter acronyms both help you achieve goals, but OKR focuses more on goal-setting, while KPI is more useful in goal-tracking.

This article will delve deeper into each method, contrast OKRs versus KPIs, and teach you when to use them to maximize their value. Unlock higher organizational performance for your business now!

OKR vs KPI: An Introductory Comparison

If you are an established business in the United States or want to become one, then you need a system for measuring your goals. This is part of what makes a SMART goal strategy: it is measurable.

But even measurability is not as clear-cut as it seems. There are two main ways that projects are measured, and they are often confused with each other: OKR and KPI.

OKR stands for Objectives and Key Results. To simplify OKR metric tracking, it’s a basic level goal-setting framework used for defining and tracking objectives. It helps you set ambitious goals (Objectives) and measure progress through tangible results (Key Results). OKRs encourage alignment and engagement around measurable company goals.

On the other hand, there are Key Performance Indicators. KPIs are business performance metrics used to determine success in achieving your key objectives. You use KPIs to monitor your efficiency and the company’s performance. Proper KPI measurement gives you insights into how well you’re meeting your goals.

Both KPIs and OKRs are vital for strategic planning and performance measurement. However, they have key differences in their uses. The next sections will discuss that in more detail.

OKR: Goals and Key Results Explained

Objective and Key Results describe a framework that helps set ambitious goals and measure your making progress in achieving those goals. The OKR methodology is great for team alignment, improving focus, and driving growth.

When making your own OKRs, you typically fill in the statement: “We will do X, as measured by Y.”

X stands for the goal. This goal is what you want to achieve. It can be immediate or far-reaching, easy or challenging. 

An objective describes more general goals like:

1. Improving brand reach in Jakarta;
2. Increasing your ad conversion rate;
3. Enhancing customer loyalty, etc.

Y is the key result. This stands for the measurable ways that you’ll get to your goal. Unlike KPIs, key results can be qualitative too, not just quantitative – as long as it helps you achieve your goal.

Your results could be:

1. Publish more viral content on your social media pages
2. Create more quality ad copy
3. Implement a customer loyalty program

Combining the objectives with their respective measurable key results, you get:

1. We will improve brand reach in Jakarta by publishing more viral content on our social media pages.
2. We will increase ad conversion rates by creating higher-quality ad copy.
3. We will lead to more customers’ loyalty by implementing a customer loyalty program.

The advantage of the OKR framework is that it’s among the most effective goal-setting methods. It allows ambitious goal-setting while enhancing transparency and accountability.

KPIs: The Essence of Performance Tracking

While an OKR is a goal-setting framework, a Key Performance Indicator is a performance assessment tool. You use it to track progress when reaching targets. 

KPIs are incredibly useful for providing clear benchmarks for performance, making data-driven decisions, and enabling comparison over time. However, KPIs are granular and unique for every goal you’re working towards. You’ll have to determine and set what your KPIs measure for every project.

For example, you won’t have the same leading indicators for a customer loyalty project and a brand perception campaign. Instead, you’ll have to look into each for metric analysis.

For example, in your customer loyalty project for a milk tea shop in New York, you might determine the following KPIs:

• Customer Lifetime Value (CLV);
• Increase customer retention rate;
• Repeat purchase rate;
• Redemption rate of loyalty rewards;
• Average Order Value (AOV) of returning customers, etc.

On the other hand, a brand perception campaign for the same milk tea shop might opt for measuring KPIs like:

• Brand awareness;
• Social media sentiment analysis;
• Brand recall;
• Customer satisfaction;
• Website traffic and engagement, etc.

It’s also important to note the difference between leading and lagging indicators. A leading indicator may suggest future market trends, while a lagging indicator indicates past performances.

Choose KPIs specific to your goals and measurable against a benchmark. A complete KPI dashboard will keep your team on the same page by measuring goal alignment, indicating whether teams or individuals require support, or how on-track or off-track you are to completing your goals.

Selecting OKRs or KPIs for Your Goals

Choosing between the two frameworks depends on what you want to achieve. While both of them deal with goal management, there are certain situations where they are most useful as organizational tools.

What are they commonly used for? How can you determine your needs? And can you use them together? Is there a software reporting tool that can help you automate tracking? This section will discuss how you can use these tools for future success.

OKRs Aligned with Organizational Objectives

OKRs are used to set challenging, ambitious goals that push you forward. They focus on where you want your business to go and how you’ll know you’re getting there.

These ongoing metrics are based on your mission and aspirations. They are aligned with the “why” of your business and fulfill more of a motivational purpose within the status quo. When your marketing team, for example, sees a goal and a clear, key result used to achieve it, they are more likely to go for it.

For example, an education tech startup has a vision to make learning complex topics to every user through their smartphone app. Thus, its Objective is to become the leading app in its category in the country. 

Its Key Results include:

• Increasing user engagement by 50%;
• Doubling the number of daily active users;
• Securing series B funding.

These OKR examples are clear, measurable desired outcomes that guide efforts and resources. It ensures that everyone on the team is motivated to achieve ambitious goals.

To set an OKR, you need to understand your business. You must understand your business’s overall strategy and priorities, as this is where your OKR must align.

Then, involve your leadership team and subteams in defining the clear Objective – it should be qualitative, inspirational, and challenging. After that, determine your Key Results, which must be directly relevant to the objective, realistic, and quantifiable. 

OKRs change once a few specific objectives are achieved, most commonly after one year.

KPIs for Operational Excellence

KPIs (Key Performance Indicators) measure the success of specific activities or processes within your business. They are specific numbers that track your progress toward strategic objectives.

In contrast to OKRs, key performance indicators are more robust measuring tools. Instead of motivating your team and encouraging goal alignment, KPIs are used to evaluate your performance. This measurement framework answers the question “How well are we doing with our goals?”.

You want this question answered in specific circumstances, such as:

• Reporting on how well your business is performing in its chosen goals;
• Assessing which parts of your project/campaign are working, and which are not;
• Helping identify problems and areas for improvement in your project or campaign;
• Reporting productivity and quality of output for individual team members (review performance);
• Determining whether or not you are on track to hitting your periodic KPI target (on a yearly, monthly or quarterly basis).

To set a KPI, you have to identify your specific goals (in contrast to the “broad strokes” of an OKR).

Once you understand what your business wants to achieve, you need to select metrics that are directly related to those goals. These performance measures are usually standardized, especially if your project or campaign fits neatly into a box.

For example, there are only so many ways that a publicity campaign can be formulated – virtually every campaign in this area will share relevant KPIs. It’s up to you to focus on the few critical health metrics that best measure success, as your business defines it. Common KPI examples include conversion numbers, number of qualified inbound leads per period, social media follower gain, net sales revenue, average response time to customer queries, etc.

Once you’ve chosen your KPIs, you need to measure them and adjust them as necessary.

Choosing Metrics for Your Business

Now, you understand the difference between KPIs / OKRs, and what they do for your business. The next question is: how should you use them? Should you use them one by one? Is there a way to make them work together?

Broadly, you should use these tools in the following ways:

• OKRs: Use as a strategic planning framework for results orientation. OKRs are often used when setting ambitious, qualitative goals to align and motivate employees on a team level.
• KPIs: Use for specific standalone metrics for performance evaluation. Use this when tracking progress and performance against quantitative metrics.

In this section, we’ll discuss using both OKRs and KPIs for the best goal-attainment strategy, regardless of your business type.

OKRs vs KPIs: Complement or Contrast?

OKR and KPIs are both tools for achieving business goals – and they fit perfectly together if you know how to utilize them. 

Here are three instances of using both tools for strategic management:

• Strategic alignment: These are used when your business needs to set overarching strategic goals (OKRs) and measure performance against those goals (KPIs).
• Cross-functional collaboration: When multiple teams or departments are involved, OKRs align the collaborative process, while KPIs monitor each team’s performance.
• Continuous improvement: When the business seeks to drive improvement on an ongoing basis, OKRs set the right direction, while KPIs provide real-time feedback for adjustment and optimization.

OKRs replace KPIs when it comes to long-term strategic direction.

Businesses in the USA use them to set ambitious, qualitative goals aligned with their business strategy. OKRs provide clarity and motivation for your team to work towards a high objective that aligns with your business’s mission. This is especially powerful with a sales team.

Meanwhile, your teams can use KPIs to measure their performance against their goals. With KPIs, you can define quantifiable measures to track your progress. You’ll know what metrics to look out for, what numbers are good or bad, and make data-driven decisions.

However, KPI mistakes occur – some companies decide to measure everything they can and even then, they fall into the trap of tracking manually, losing precious time and resources for performance indicators that might not even matter. Additionally, while it’s a great practice to set aggressive goals, make sure to set objectives realistically, as being way out of reach can be a significant blow to the team’s morale.

Real-World OKR and KPI Examples

Google utilizes OKRs for management control, emphasizing ambitious objectives to drive intrinsic motivation. Here’s a summary of how one of the most significant companies in the world uses OKRs and KPIs for key results management, taken from the Google Ventures Startup Lab Workshop.

Objectives are great for challenging and engaging employees, aiming for 70% achievement as outstanding. If they achieve their Objectives 100% of the time, they’re not going out of their comfort zones enough.

Key Results, measured over short OKR cycles, enhance focus and align with Google’s data-driven approach.

Key Results also have specific key result indicators – essentially, KPIs. They differ depending on the goals and teams. Set performance metrics make the Key Results highly quantifiable, which makes it easier to derive outcome-driven insights from their campaigns. Frequently review KPIs to see if they’re adequate as the campaign unfolds.

Transparency is critical to their strategies as well. OKRs are made visible to all employees, enhancing accountability and highlighting contributions to company success. 

Bottom-up goal development ensures alignment with organizational objectives, with teams contributing 60% of goals and adjusting them to target values. This nurtures synergy among both individual and organizational success.require support

Final Thoughts

Being a market leader in the US is challenging. But things get easier when you learn the secret to goal attainment that global companies use to improve business performance.

OKRs and KPIs might sound the same, at first – after all, they are both tools for the objective measurement of corporate goals. However, they are distinct methodologies meant for different parts of the process.

You use OKRs to set the destination and ensure everyone is on the right path.

You use KPIs to measure how far along teams are in this path, based on their capabilities, tasks, and goals.

With both OKRs and KPIs, you can achieve everything you set your mind to.