4 Key Differences Between OKR and KPI
OKR vs KPI is a hot topic when comes to measuring business performance. For any business, organization, or team, understanding and tracking the current state of the work is important. OKR (Objectives Key Results) and KPI (Key Performance Indicators) are two such two professional metrics that help the leaders or project owners know what to do and how the performance of their team workers. This article will explore the differences between OKR and KPI and show some OKR and KPI examples, aiming to help more people use the two performance metrics in their business management and project management.
What Is OKR in Business?
OKR stands for the Objectives Key Results. Derived from the Intel and then promoted and implemented by Google, OKR is a goal-setting framework or management method to achieve specific goals. It consists of three parts: “objectives”, several “key results” and “Initiatives”, which is often used to show the desired outcomes for something throughout the organizations or companies.
Here are several OKR examples:
- Increase the number of high-quality customer
- Improve Brand reputation in the next year
- Optimize current sales methods to get new potential customers
What Is KPI?
KPI refers to the Key Performance Indicators, used to evaluate the performance of an organization, individual, plan, project, action, etc. over a period of time. In short, KPI can demonstrate how effectively your business or team is moving forward to the goals. In short, it is a quantitative measure of the success, status and standards of a team’s performance.
KPI shows the revenue targets and month-on-month growth of various business metrics in most common companies. So KPI is widely used in many companies to track the set goal in companies, teams, or organizations.
Here are several KPI examples:
- Revenue is $100,000 in the first quarter.
- Sell 1000 air conditioners in the second quarter.
- Monthly website traffic is 15,00 new visitors
Differences Between OKR and KPI
OKR and KPI are tightly related to the performance measurement of a team or organization. how adapt them to a team or business company is not easy, because many managers or leaders can not tell the differences between OKR and PKI. So when it comes to OKR vs KPI, here are the main differences you should know.
Different sets of KPIs are adopted in different departments, teams, or businesses. How to set the proper KPIs, implement them and use them to measure business success is a skill that every leader or manager should possess.
Like the KPIs, OKR is also used by different departments, teams, and business units in the company or organization. But the different point is that OKRs are not only used by people in leadership but also used at the personal level. Every person has their own OKR no matter he is a leader or a common worker. Although the KPIs are only created by leadership, it’s everyone’s task to create OKRs and be responsible for them.
To make sense of the differences between OKR and KPI in usually team management, we need to know their basic structure of them. Let’s have a look at the constituents of the two terms:
Consists of KPI:
- Goal or desirable performance – each KPI needs to match a specific goal in a given time.
- Data source – a data source can ensure a reliable and successful measurement standard.
- Frequency of reporting – a regular discussion of the KPI is needed among team members, for example, monthly discussion.
Compared with KPIs, OKR has mainly two parts:
- Goal – A specific goal that an individual, team or department needs to achieve. The goal must be achievable, qualitative, and time-bound.
- Key results – They are quantifiable results that indicate whether the goal has been achieved or not.
The applied scope or range of KPI and OKR is easy to be misunderstood. Usually, KPI can be used for different purposes such as measuring the performance of team members, evaluating the existing workflow, and measuring whether the plan is successful or not. While the OKR is designed to help teams or individuals set goals, aiming to motivate employees and make positive effects on the whole team.
It’s noted that KPI is a part of OKRs, and each key objective can be regarded as a KPI, therefore, KPI can play a role in the implementation of OKRs, especially in the key objectives.
For example, let’s say the key result “Improve margins by 25% by the fourth quarter” is one of your OKRs, then each monthly profit margin can be regarded as a KPI to which your team should pay attention and try to achieve.
The set purpose is the biggest difference between KPI and OKR. The goals of KPIs are often achievable. They represent the expected output of a process, project, or program, or the expected level of performance of an employee. While the OKR’s targets are attainable, but bold and ambitious.
The purpose of OKRs is to decide what exactly your team or business need to improve, and based on that, how you should spend your time or resources in the next specific period time to pursue it. While KPIs are types of business metrics to measure the performance, OKRs show you the business goals, and KPI helps you to analyze the basis for your OKRs.
In simple words, OKR and KPI are different. OKR is a strategic framework. KPIs are metrics within that framework. OKRs set the improvement direction, KPIs are the key results during the process to forwarding to that goal.
Can OKRs and KPIs work together?
Yes, OKRs and KPIs work together nicely. As mentioned above, OKRs are a strategic framework that focuses on where your business or team should improve and change, and KPIs, as the key objectives in that process, can help you forward to the goal step by step.
Can OKR replace KPI?
No, OKRs can’t replace KPIs. OKR and KPIs are two different measurement metrics for business goal achievement. They serve different purposes and levels of users. OKRs show the direction of your business changes or forward, KPIs are the sub-level concrete goals that you and your team should achieve in a specific period of time. They can not replace each other.
Which is better, OKR or KPI?
OKR and KPI are two different metrics in business management. There is no worth comparing two indicators with different levels. They complement each other and should be used together to reach what your business needs to improve.