For proper goal management it is of fundamental importance to have a clear understanding of both concepts. This article gives you an overview about the differences and similarities of the OKR and KPI concepts.
What exactly does OKR stand for?
OKR is a popular framework for goal setting and tracking.
To summarise, an Objective shows the point of destination, and a Key Result will be an indicator of whether or not you are there yet.
When working with OKR, you will have to ask yourself three questions:
- Where do you need to go?
- How will you understand you're there?
- What will be the steps to getting there?
The third question will generate initiatives: things you'll do to achieve your OKR. They complete the overall picture and help everyone to understand the difference between Key Results and Initiatives.
Let's explore the following question - "Where do you need to go?"
The answer to this question will be the Objective. It should provide a clear direction, where your company should proceed. Your Key Results will make it more precise by adding some metrics or identification.
Examples:- Improve our customer experience- Grow new business revenue
"How will you understand when you're there?"
The answers will become your Key Results, the results that are to be achieved to complete the Objective.
Examples:- Increase our NPS from 60 to 70- Close deals worth $80 000
"What will be the steps to get there?"
The answers will be your initiatives, the tasks you'll do to achieve your OKRs.
Examples:- Implement in-app live chat- Host 80 product demos
What does KPI stand for?
Key Performance Indicator is a special type of performance measurement, basically aimed at evaluating the success of a particular activity or an ongoing process. There are many different types of KPIs. Choosing the right KPIs depends on such factors like the industry you're working in and the maturity of your company. Each department or team within an organization will use different KPIs to measure success. KPIs are also called health metrics.
Let's look at one KPI example for each department:
- Sales - Customer Lifetime Value
- Support - Tickets per Month
- Marketing- Web traffic
What's the difference between an OKR and KPI?
OKR provides the missing link between reality and ambition. It helps to break out of the status quo and take you to a new level. If you have a blue dream, an inspiring company goal, you need OKRs that will take you there.
A Key Performance Indicator (KPI) measures the output, success, quality or quantity of an ongoing activity or process. It also measures activities or processes in place already.
Usually, if a KPI needs improvement, it will become a starting point for creating an OKR, and it will become a Key Result to an Objective.
How do OKR and KPI interact?
OKRs and KPIs are natural companions because of their complementary scopes. Examples will show the way they work together:
Example: A support team's KPI below target becomes a key result
Let's pretend you want to measure your Support team's success. How does KPI come into play in this circumstance?
First, you create a KPI that measures an average reply time for incoming support tickets. If you verify with a Support team that the average reply time should be about 25 minutes, you'll have an opportunity to quickly see whether your target is being met or not.
If it is being met, you're good to go. But if the KPI indicates 45 minutes to be the average reply time, then you will want to create an objective to improve your customer support performance.
How will you find that you've improved it? Well, if the average reply time reduces from 45 to 25 minutes, this would be your key result.
What will you do to make this happen? You may decide to hire an extra support manager, or perhaps streamline your processes. These would be your initiatives.
As you can see, your KPIs can act as a source of inspiration when defining new OKR. A KPI may be an indication that you have a problem, but you'll need an OKR to fix it. Properly created objectives will allow your company to achieve its overall goal by fixing problems.
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