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The simple answer to this question is yes; they are both functional and are used in the implementation and evaluation of key performance and key results when executing all activities in any organization. It provides a GPS and a Dashboard that ensure you stay on the line. Successful competitive businesses have adopted this OKR and KPI in shaping and evaluating their strategies.
While some think that OKR is better than KPI, it is different from what the reality is. They are both crucial to the success of the organization; they are the GPS and Dashboard. First, let’s start by understanding what are the OKRs and KPIs for us to be in a better place of answering this question. In achieving any given goal you have to accommodate every single element that counts or get you to your destination.
Imagine that you’re driving and you ignore that simple road sign that indicates a curve ahead. The fact is that you won't be ready to maneuver by the time you see. You will eventually crash. From our perspective, we add every single (OKR and KPI) and fit them in as long as they count.
OKR simply means a metric of defining the organizational objective and the key results that the organization achieves. It involves defining an objective and what key results you have achieved in every single objective that brings out the whole business goal (serving the customer needs and wants). OKR is the business aggressive goals that define those measurable steps or actions you will take in achieving those goals.
The organization's objective is the subject of all process and day to day activities of the entire business participant toward the organization's goals. Therefore, OKR is then the linking method between the drawing board objective, the measurable action, and what the day to day activities have achieved. It is a way of managing the goals achievements versus the set objective and not as a metrics that tracks the status. I can describe it simply as a quantitative definition of results to organizational objectives based on managing the processes to achieving the desired goal. OKR is then how you track progress, create alignment, and increase your involvement on those measurable goals.
Key Performance Indicator ( KPI ) is an action-oriented method, an indicator of those certain actions or figures that makes the organization goals attainable. It is all about the specific action performed that sparks the attainment of those defined objectives. As the words in it define, Key performance indicator, i.e. those important or notable performance which ignited the whole process of goals realization which give your business the measured status.
It relates the general performance of any action taken or executed to the course results of the organization's objective fulfillment. In short, it shows you how effective you are in achieving your set objectives. It is a metric that shows whether you are hitting your business target or your processes are ineffective.
Talking of what is real and right depends on the world you live in. In the business world, reality simply means something that is attainable or that makes a significant impact and is goal-oriented. OKRs and KPIs are the players that make the business real and meaningful. So they must be real for them to make business a reality.
Before I go to how these two are related or differ, I want to highlight a few logic observations which make them the subject of your business success. These OKRs and KPIs have one common word which is 'Key'. The big question is why Key? Here the two management tools are focused on key elements in your organization; they both revolve in what is crucial to the objectives and the achieved results that give your business those metrics status and not everything. Using this observation I know most of you can mistakenly think they are the same and mutually exclusive!
They are not mutually exclusive and most successful businesses in the world use both of these tools on their day to day processes to attain its objectives. While OKRs are Key results-oriented, it does not mean it ignores the whole process, it also focuses on those specific actions which give the desired results. It manages the processes to attain the expected results. KPIs on the other side also do not ignore results but tie these results to the very key performance which helps yield or produce the expected results.
We often question OKR and KPI on this basis of which is the most important. Maybe because they are both drivers of achieving goals and some of us do think that one is less important than the other one or they are both one thing to start with. These mixed ideas are what raise this question. To satisfy these curiosities in you I would like to highlight the similarities and where the line between the two is drawn, (their differences).
They are not the same but they have similarities as far as a management concept is concerned. They both give that business purpose of existence and make those goals and objectives realistic and attainable. Below are the few important similarities we can discuss which clearly explain they are not the same but similar.
Since OKRs and KPIs are not substitutes and works together, it tells you that there is a line in between them that makes the difference. I am going to talk about some specific elements of the two that will help you draw that line.
KPIs' goal setting is simple, attainable and obtainable. They are results-based, that is they essentially represent the output of the process. They analyze data based on know results that are direct to the process; their performance evaluation is base on already obtained results. It simply evaluates whether the processes and strategy implemented have achieved the defined objective.
On the other had, OKRs also set goals, they are ambitious and aggressive. They are action-oriented and expectation based on a desired set of the outcome. It places its probability of success on the employee's aggressiveness and ambition to attaining the defined objective. OKRs set goals and guide your processes or department to attaining those results while evaluating it partially for example quarterly evaluation to see that everything is going as planned.
It is simple to make a u-turn and divert to a different new direction. Like I said before OKRs shape the strategy toward the right course of action requires for the attainment of the objective. In other words, OKRs manipulate the outcome through step by step guidance of the processes while KPIs are evaluating the key performance that has fulfilled the obtained results.
KPIs are the main player for a business to success; it is the figure for the business drive to success while OKRs are the objective definer and key results correspondence to the business goals. As the strategy defines the goals and objective OKR shape this strategy towards certain perceived results that correspond to the goals of the organization.
KPI indicates where you are and that the results attained but remember business is all about growing and expanding. You cannot use KPIs to increase productivity or performance in your business. With OKRs you can change the direction and redefine your objective and new key results.
They both have the same overriding objectives but the difference is that KPIs size or evaluates the achieved results against the set objectives. It then analyzes the data and presents the key performance from various areas or departments. OKRs are like defining the objectives and works along the course process while evaluating the attainment of these results towards the organization's goals.
You can see that they are both depending on each other although you may think they cannot works simultaneously. The most successive business is the ones that incorporate these two and utilize them. The business should grow and therefore you need them so that you are always prepared for anything new and challenging.
Like any other aspect that matters, they are important and essential in the day to day activities of your organization. It will be hard to implement your strategies well without a lead, principle to follow or a guideline. You will not know that you are doing something when you cannot quantify your measurements in a more presentable and tangible data that can be used in decision making. Tracking your business process and success gives you strength and experience in perfecting you art (success) and even exceeds everyone’s expectations. I say it takes a business intelligence to outsmart the always stiff competition which is always poking on your face every day. You will never rest if you want to be at the top, be outstanding, and therefore you need to understand various analogies that will set you on the move and point you in the right direction.
Constant review and performance appraisal is what gives every single success you see in all the successful organization. KPIs, when initiated in the first place, serve its primary purpose, to evaluate how effective your performance is. Now let me take you back to the Strategy; it where everything starts. When designing your strategy you are simply drawing a route you are taking to your destination. Take it as a journey, you can start going if you don’t know where you are headed and at what time you want to arrive, which dictates when to start. This is the strategy knowing your destination (goals). Now you have the goals you draw the bearing on which route you will take and to what direction.
The journey has started now that you have the strategy. Already on the move is when you need OKR (GPS) and KPI an indicator (dashboard) to tell you are going as per your strategy. While the two are essential, OKR is the map to where you are headed and KPI as a dashboard indicating how well you are doing. To bring these two on focus so that you understand better let’s look at the following example.
There are quite a few numbers of KPI examples you can implement in your business to be the KPIs dashboard and alert you on any change that needs attention
This KPI helps you track the number of contracts your business sign in a given period and its effectiveness to the subject of those contracts.
The dollar is a dynamic variable that affects every business and if not tracked and address you will probably quit the game. Business intelligence track every change I the dollar value and respond fast in order to adapt to the impact imparted by its change.
The efficiency and effectiveness of every spend resource should be worthy and therefore this KPI tracks it to establish a link otherwise you will be doing something which’s not worth doing.
The defined and projected results are said to achievable if they are time bond and so this is important.
Knowing the revenue generated will help you make an informed decision.
The correspondence sales flow from each action done is important so that you will be doing every little thing that counts.
Note that financial indicators come first and are the most commonly used metrics key performance indicators. It including revenue growth rate, net profit, and return on investment, among others. Sometimes a goal may need one measure or KPI. But you can sometimes need two or three KPIs to measures for a single goal. Below are four types of indicators which KPI will measure and indicate its performance;
OKR is an objective key result that is focused on the periodic results makes the overriding goal real and achievable. Since OKR is objective and key results I will base my example on the metrics that the underlying objective defines my OKR examples.
Let’s take it easy and think within the box, something which is common and that everyone has gone through, be a student or a teacher. Let me say am a teacher and my objective is to wind up the syllabus before the last two week of every semester. The key result;
K1: to do more than a quarter of the syllabus every month in a four-month semester. When this key result is attained it means being in the right direction.
K2: to finish the three-quarter of the syllabus by the end of the second month.
K3: to complete the remaining and summaries the whole unit.
Another good example I can use is a production organization where the main objective is to produce optimum, the key results will be:
K1: to utilize all the available resources.
K2: to achieve percentage production per hour or day or month depending on the overall objective.
K3: to hit Quarterly project production if the overall production is it a yearly.
At this point, I know you are well informed about the importance these tools are to the metrics status of your business. Knowing that OKRs and KPIs are linked and not the same put your business in a better position of implementing the core strategic objective.
In concluding OKR and KPI, I do like to say that Success is About Creating Lasting Change and that change is inevitable so is our management tools. The relation between these is that the existing KPI is the then OKR, that is those KPIs matter most and they will be part of your OKR. Business is widely affected by various factors and statistically, a change in 'A' affects 'B' thus becoming a continuous process that needs tracking.
When current KPIs become part of your OKRs it means you start evaluating a new or an existing variable in a new perspective directed by the OKR. Remember OKR is GPS guiding you towards your objectives while KPIs are a driver dashboard indicating the condition of your vehicle (business). Whenever the external environment changes you need to adapt and OKR is adaptive and can shape your strategy to focus on what the market wants or what matters now.
With time, OKR responds to the change and tunes, the business to what is priority KPI becomes useless or starts presenting bad merits or starts tracking processes and activities instead of the outcome. Without OKR your KPIs will end up doing nothing and so is the KPI (dashboard) they tell its time to review your OKRs.
This is the relationship between them and are both essential and drives in your business to success if you pay attention to it. Doing things right is a change that brings success and to do that it needs a vigorous transformation where everyone involves understands what is behind the OKR and responds to the KPIs to ensure that nothing is overlooked.
The only simple difference finally is that KPI is a lag goal while OKR is a lead goal but they are both working hand in hand to achieve the overall organizational objective. Think of KPI as a lag goal and OKR as the lead you follow in attaining this lag goal hence the conclusion that they are both functional and essential as every single important element in the whole system of the business. OKRs and KPIs working hand in hand to the success of your business so start implementing it. Be ‘SMART’ in your goals.