As an HR manager, when introducing OKRs, your team members almost certainly will ask you what’s the difference between OKRs and KPIs. Do you need them both? In this article, I will show the difference, offer examples and explain how to successfully apply them.
KPI is a metric of the past performance
KPI stands for Key Performance Indicator. They are designed to evaluate the performance of the organization, process, or activity. In other words, KPI is your health metric.
Each team or organization can have its own KPIs. Moreover, as the team grows or the market changes, the team would most likely have different KPIs to measure. For example, the potential KPIs of a consulting organization can be revenue, profit, cash in the bank, profit per employee, client NPS (Net Promoter Score), the number of sales-qualified leads, etc.
Most likely, as an HR professional, you’re already measuring several KPIs and monitoring them regularly on the company/team dashboard. It will give you the initial data and create the basis for data-informed decision-making. Typical HR KPIs are turnover, absenteeism, engagement, overtime, training and diversity.
It’s important to emphasize to your team that KPIs are about past performance. They are lagging indicators of how successful your organization is doing. KPIs have nothing to do with the plans.
OKR is a goal-setting methodology
OKR stands for Objectives and Key Results. It’s a goal-setting methodology that helps companies implement their strategy. OKRs were invented at Intel in the 1970s by Andy Grove and popularized by Google in the 2000s.
The key principles of OKRs are:
- The team sets an inspirational, ambitious objective that they’ll be working on. It should be something beyond the team thinks is possible. Each team should have 1 to 3 objectives per period, usually a quarter.
- To know if they achieved it or not, the team chooses 1 to 5 measurable Key Results.
- OKRs should cascade, from the company-level to departments, to teams and (sometimes) to individuals.
Here’s an example:
Objective: Increase team engagement and motivation
- Increase the team member engagement score from 75% to 90%
- Reduce the number of complaints per month from 4 to 1
- Make sure 100% of team members receive feedback this quarter
OKRs are about future goals. They are designed to align and focus the team towards common objectives, increase transparency, engagement, and motivation.
How KPIs and OKRs work together
Now, you might be asking what’s the real difference between OKRs and KPIs? Especially between KPIs and Key Results.
To see the difference, let’s look at an example:
A customer support team has a lot of KPIs that measure their effectiveness: number of tickets, the average time to respond, the average time per call, etc.
When brainstorming the strategy for the next year, management determines to decrease the number of tickets and the average time to close the ticket, saving the company money. This objective becomes an OKR for the next year.
Objective: Increase the efficiency of the support team
- Decrease the average number of tickets per customer per month from 1.5 to 0.5.
- Decrease the average time to resolve one ticket from 5.5 to 3.0 minutes.
- Maintain the customer support satisfaction score of 9.0+. This key result is essential so that the increase in efficiency does not come at the expense of the quality of the service.
Here’s how they might work together for human resources:
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The HR team managed created a pleasant atmosphere in the team; the employee retention and satisfaction are excellent. Now they want to focus on education and training.
- Achieve 80% completion rate for PDPs (Personal Development Plans)
- Achieve 80% attendance for the training programs
KPIs to monitor:
- Team member turnover rates.
- Employee NPS/engagement score.
- Onboarding effectiveness and pass rate.
- Hiring funnel conversion rates.
Notice that KPIs measure the trend regardless if it’s stable, increasing, or decreasing. OKRs, on the other hand, is about creating a positive change in the metric that the team decides is important right now. KPIs serve the role of monitoring the past performance, and OKRs serve the purpose of achieving the positive shift in the performance. Without KPIs, the organization wouldn’t know what to fix or improve, and without goals or OKRs wouldn’t be able to focus during the given period.
Now you see that KPIs and OKRs do work together. Your organization will most likely monitor several KPIs. And one or several KPIs would become a focus to improve when the team:
- Wants to strengthen a particular KPI.
- Notices a decline and want to get back on track.
- Notices an external trend and want to make a change.
Then these KPIs would translate into Key Results under the relative Objectives. As a manager, you need to make sure to communicate this clearly to your team.
Prioritize both KPIs and OKRs
When introducing OKRs or KPIs, managers tend to make a widespread mistake of setting too many of them. Interesting that both acronyms have the word “Key” in them. Focus is essential to get the work done. OKRs and KPIs should help you set clear priorities and achieve great results. You’ll need to say “No!” to all the other activities that do not contribute to your top objective. And believe me, it is hard.
“When everything is a priority — nothing is.”
Don’t forget it!
Fewer goals will help your team focus on what matters, be more productive, and achieve better results. That’s why it is recommended to have only 1 or 2 objectives per team with up to 5 Key Results each.
The same with KPIs — measure what’s important for the organization, and nothing more. It’s an illusion that the dashboard with 30+ metrics helps to keep everything under control. Everyone gets lost in such amount of data.
Steps how to make KPIs and OKRs work
Here is a recommended plan on how to make KPIs and OKRs work in your organization:
- Start with measuring a few most important KPIs. They are metrics that will show your past performance.
- Based on the data you collect, pick 1 or 2 most important KPIs and set goals (OKRs) to improve them. OKRs are about the positive change in your bottom line.
- Regularly update the OKR progress. This will keep your team in sync and help you resolve blockers (if any) promptly.
- Evaluate your OKR achievement at the end of the period, set scores, analyze what worked and what didn’t, review how your KPIs changed, and set OKRs for the next period.
- Take into account the OKRs progress during the performance reviews (but not only OKRs). Make sure you still leave a safe space for wise risk-taking.
- Don’t forget that “Key” is essential in both KPIs and OKRs. Focus on fewer metrics and goals.
No methodology is a silver bullet and solves all your problems. Know the benefits of all of them and apply them where they are applicable. Stay on track of how your team is going with KPIs and achieve your strategic goals with OKRs. Your team and top management will thank you for your efforts!