One of the biggest challenges when introducing new goal and performance management processes is a clear delineation and differentiated working with Objectives and Key Results (OKRs) and KPIs. For a well-working goal management a clear understanding of both concepts is of fundamental importance though. This article gives an overiew about the similarities and differences of the OKR and KPI concept.
What are OKRs?
The term OKR consists of the two words “Objectives” and “Key Results” and describes a method for the definition and the management of goals. For a defined time period, usually a quarter, several goals (Objectives) are defined. These goals are each divided up into 2-5 smaller Key Result. While the overarching goals should be defined qualitatively and ambitiously, the Key Results have to be above all measuravle. You can define OKRs on all organizational Levels: for the whole company, a department or the individual employee.
For a more detailed explanation read our introductory article on Objectives and Key Results (OKRs).
What are KPIs?
The term KPI stands for and is an abbreviation of Key Performance Indicators. KPIs are key figures to make success factors of an organization measurable. For example, the revenue per employee can be an important KPI in the service industry that reflects, how efficiently employees are with regards to processing customer requests and orders. Because of their performance relation, KPIs are used to control and evaluate organizational processes, single projects or departments.
OKR vs KPI – similarities and differences
At first sight the two concepts seem to be very similar. KPIs as well as OKRs are used as management tools, help to make goal attainment measurable in organizations and can be defined for different levels and functions of an enterprise. However, there is a fundamental difference between OKRs and KPIs. To understand this difference, a differentiation into lead and lag goals is very helpful.
Lag Goals define the results of a process that is to be attained and they equal KPIs. An example for a lag goal and thereby a KPI is the increase of market share by 10%.
Lead Goals measure directly manipulatable target values that lead to the achievement of lag goals and rather equal the Key Results of the OKR logic. For example, the increase of market share by 10 % (KPI) can be reached with the help of the Objective “having an excellent customer service”. Corresponding Key Results could be the introduction of a workshop for the call center or the reduction of waiting time by 10%.
OKRs ergo define manipulatable success drivers of a goal while KPIs rather verify a result. This makes clear that OKRs and KPIs are not identical and furthermore not mutually exclusive. For a comprehensive goal management you should use both concepts in a coordinated manner. KPIs, the tool most leaders exclusively use to lead, therefore rather serve controlling purposes and not active management, planning and design. On the other hand, OKRs and the understanding of leadership connected with the concept, focus on the human factor and create a better activation of employees by conveying motivating and attainable goals that give employees an understanding of context and purpose as well as highly frequented feedback.
OKRs are not equal to KPIs. While KPIs are a key figure for the success driver of a company, OKRs define quarterly goals (Objectives) and corresponding Key Results. To understand the interplay of the two concepts, a differentiation into lead and lag goals is helpful. KPIs are lag goals, which describe and verify the desired, measurable final result. Most often with a certain time lag. OKRs are lead goals, which define goals as success drivers for the achievment of the lag goals. This makes it indispensable for every organization to understand both systems and put them into practice in a well-directed manner.