OKRs vs. KPIs, how to use them and why do you need both

Both KPIs and OKRs are powerful frameworks in the modern manager toolbox. However, it is also a popular question of what is the difference between them and when it's appropriate to use them.

In this article, we'll dive into the details what are the differences between OKRs and KPIs and how you should use both approaches to achieve the maximum result.

What are OKRs?

OKR stands for Objectives and Key Results. It's a goal management framework that helps companies achieve their strategic goals. OKR history dates back to the 1970s when Andy Grove took the idea of MBO from Peter Drucker and upgraded it with the concept of Key Results.

OKR formula is: "I will __ (Objective), as measured by __ (Key Results)."

The Objective is short, clear, aspirational goal, achievable within a given cycle. The Objective should motivate, provide direction, and challenge the team. No jargon and usually no numbers.

Key Results are metrics that measure progress towards achieving your Objective. Each Objective should have 2 to 5 Key Results.

OKRs should cascade, from the company level to teams and (sometimes) to individuals. OKRs are designed to align the team and focus on what matters.

An example of the OKR:

Objective: Increase user engagement‍

Key Results:

1. Increase 1-month retention from 20% to 40%
   
2. Increase average time in the app from 15 mins to 30 mins
   
3. Increase the number of sessions from 5 to 10 sessions per user per day
   

Check out more examples for Product, Engineering/R&D, Marketing, Sales, HR/PO teams.

What are KPIs?

KPI stands for Key Performance Indicator. KPIs evaluate the performance of the process or activity. That means that KPIs evaluate past success; they are metrics of how well your organization is going.

Each company defines its own KPIs to track what's essential for them. Of course, KPIs change as the organization evolves and faces new challenges.

An example of the KPI is profit, percentage of overdue invoices, utilization rate, the average time to repair, etc.

Some organizations measure KPIs and set the quarterly/yearly goals only in terms of KPIs. But it's not always the best approach for several reasons:

1. Usually, there are too many KPIs, and the team does not know which of them to work on.
   
2. When KPI is the only goal, the teams often become obsessed with it and loses the bigger picture.
   

What's the difference between OKRs and KPIs?

You might be thinking that OKRs and KPIs are identical. Especially KPIs and Key Results. That's true, and they are similar. But they also have significant differences:

1. KPIs are about monitoring past performance.
   
2. OKRs are about future goals.
   

In most cases, you'll need both KPIs (to monitor the performance overall), and OKRs (to set goals, align the team, and achieve a positive shift in performance).

Often, one or several KPIs will become Key Results for the Objectives when the team would decide to focus on improving a particular trend.

To better understand this difference, let's consider an example.

OKRs with KPIs example

The marketing team created an excellent landing page that delivers the product value and converts visitors into customers. Now the team wants to acquire more users to increase the income.

The OKR for the team will be:‍

Objective: Bring new inbound leads to the website‍

Key Results:

1. Increase the monthly visitors to the website from 3k to 7k
   
2. Increase the trial signups from 250 to 500
   

At the same time, the marketing team has a lot of KPIs to monitor:

1. DAU/MAU
   
2. Conversion Rate
   
3. Customer Acquisition Cost
   
4. Domain rating
   
5. Bounce rate
   
6. Visitors by country/browser/language/etc.

The marketing team continually monitors all the KPIs. But depending on where they would want to focus their attention, they set OKRs to improve several of these KPIs. In the example above - it is user acquisition. Still, it as well can be conversion rate, social media followers/comments, time on the website, customer acquisition costs, the funnel optimization, etc.

The marathon analogy

Another way to understand how OKRs and KPIs work together is to examine the analogy with the marathon. Let's imagine you signed up for the challenge to run a marathon by the end of the year.

Your Objectives will be:

1. Run a particular distance every month;
   
2. Improve endurance;
   
3. Stick to a regular schedule, etc.
   

Your KPIs that you'll monitor during all the preparation will be:

1. Heart rate
   
2. Weight
   
3. Hydration
   
4. Pain in the muscles/knees, etc.
   

Based on the feedback from your KPIs and the results of the previous Objectives, you'll select the next OKRs to complete your north star — finish the marathon eventually.

Summary

As we see, both KPIs and OKRs have the context of use and work best together. KPIs serve the role of measuring past performance. OKRs help you achieve your future goals. They are both about focusing the team on what matters. The fewer goals and metrics, the higher team performance. And when everything is a priority — nothing is.

No methodology is a silver bullet to fix any problems. Know the benefits of OKRs and KPIs, and apply them correctly to achieve beyond expectations.

Check out a free OKR tool Plai to help your team track OKRs and focus on what matters.