Many companies have found the benefits of running their business using key metrics. Some companies tend to use the term KPIs, while others call them OKRs. So, what’s the difference?
Let’s start with the definition of KPI.
KPI is an acronym for Key Performance Indicator and is a numerical target set to achieve specific goals. Using measurable goals, the company can track its effectiveness in achieving its desired results. By setting clear targets, departments, teams, and individuals can monitor their progress toward those values, which ultimately help the company achieve it desired results.
KPIs might be tracked annually, quarterly, monthly, weekly, daily, or even hourly, depending on what is being measured and decisions that might be needed to course correct if the numbers are coming in off target.
There are two different types of KPIs:
1). Forward looking, predictive, or leading indicators and
2). Backward looking or lagging indicators.
As an example, revenue is considered a lagging indicator, as the transaction has already happened, and it does not help you change the direction of the business in a future period. While the number of sales calls made would be considered a leading indicator. The more sales calls achieved, the more revenue the company might enjoy in the future, which would be a leading indicator of future revenue.
So, what’s an OKR?
An OKR is an acronym for Objectives and Key Results. OKRs are ‘objectives’ to achieve ‘areas of improvement’ to help you ultimately achieve your KPIs. OKRs are measured by ‘key results’ a business area would like to pursue that might ultimately impact a KPI. Areas of improvement might include:
Objective: Reduce the cycle time to onboard new employees to meet manufacturing KPI
Key Results:
KR1: Interview 10 recently hired employees about onboarding experience
KR2: Interview 5 department leads about their current onboarding process
KR3: Research and report onboarding best practices by end of Q1
Implement a CRM tool to improve Forecast Accuracy KPI
Key Results:
KR1: Investigate, interview, and provide top 3 systems solutions
KR2: Recruit 3 CRM Integration Specialist candidates
KR3: Identify and create sales funnel stages
Improve new product introductions to achieve Revenue Growth KPI
Key Results:
KR1: Create Customer Panel with 10 lead customers
KR2: Create development roadmap to reduce time to create products by 50%
KR3: Create Sales Plan to improve New Product Sales by 60%
Each OKR should have one person assigned to the objective to drive the initiative and track progress. Additionally, each objective should be time based, with quarterly initiatives being the most common.
What's the Difference?
KPIs are business metrics that reflect performance, while OKRs are goal-setting methodology to help improve performance and drive change.
KPIs are high-level business performance metrics that you analyze on a standard cadence, annually, quarterly, etc. OKRs are created for areas that need to be changed, fixed, or improved to help ultimately achieve the company KPIs. OKRs are often tracked on a quarterly basis as ‘sprints’ to improve an area of the business.
KPIs provide the dashboard for a company to help understand the current performance of the business and identify areas in need of improvement. While OKRs identify what specifically needs to happen to improve the KPI performance. If you are missing a KPI, you would want to put an OKR in place to close the gap.
Many companies struggle identifying which KPIs to track within their business. This may vary by company or by department. Here is a free comprehensive list of various types of KPIs to get you started.
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