What KPI means
Key Performance Indicators (KPIs) are specific metrics used to measure efforts made towards accomplishing an organisation's strategic objectives. These business performance indicators are assessed at regular intervals, either annually, quarterly, monthly or weekly, but are not changed and are usually set on an annual basis or over a longer term.
KPIs are used to measure performance, but do not tell us what needs to be changed or improved to drive growth in the figures.
KPIs: where to use them
KPIs are typically set in relation to the following areas:
- Financial aspect: metrics for revenue, net income, sales and return on investment.
- Customer aspect: metrics for customer satisfaction, retention rate and market share.
- Aspect of internal processes: metrics for operational efficiency, quality control, marketing activities and innovation.
- Workforce aspect: metrics assessing employee turnover, absences, employee training and development, employee satisfaction and organisational culture.
Benefits of using KPIs
KPIs objectively reflect the company's performance, revenue targets and month-to-month improvement in various business indicators. KPIs can be used to monitor all ongoing business activities of the company. Analysing business performance against KPI targets enables managers to understand where the business stands and how it can be maintained. Without KPIs, a company can quickly lose direction and purpose. Simply put, it is difficult to run a functional and well-organised company without KPIs.
However, these numbers never really tell you directly how to achieve or improve business results. You cannot develop a business just by saying "we need to achieve higher revenue targets".
What OKR means
OKRs (Objectives and Key Results) is a goal-setting framework adopted by companies such as Google, Netflix or Amazon to help align individual, team and corporate goals with the results they want to achieve in order to accomplish their goals. The point of OKRs is simple: to break down larger business and strategic goals into achievable and measurable outcomes that can be monitored and reviewed over a period of time, usually once every quarter.
Objectives: "what" we want to achieve:
Defining ambitious, qualitative, inspiring and clear objectives based on corporate strategy. Objectives should be motivating and challenging for the team.
Key results: "how" we achieve objectives and measure success:
Key results are measurable outcomes at a point in time that indicate progress made towards the objective. Results are assessed on a regular basis, e.g. quarterly, and adjusted where necessary, and innovative solutions are used to support the achievement of objectives. Two to five key results will usually be set in order to accomplish objectives.
An example:
Objective: Improve employee engagement.
Key results:
• Increase the employee satisfaction index from 70% to 85%.
• Achieve 90% participation in company-wide feedback surveys.
• Reduce employee turnover by 10% in the next 6 months.
OKRs: where to use them
OKRs help ensure that everyone is focused on the most critical goals, providing clarity and direction through measurable results.
If you want to meet a target or if you are falling short of your KPI targets, you need to know exactly what needs to be done to accomplish your goal. This is where OKRs enter the scene. OKRs raise the stakes for teams and employees, so to speak.
OKRs are often used to push boundaries and achieve ambitious goals. Goal setting is effective if the objectives inspire teams to continuously improve, challenge themselves and innovate.
Similarities and differences between KPIs and OKRs
- In essence, OKRs stimulate growth, while KPIs determine company performance.
- KPIs can be embedded into OKRs, defining certain key results.
For example, improving customer satisfaction can be an OKR.
• One key result could be to improve the customer satisfaction score by a certain percentage. The metric for customer satisfaction is a KPI. This approach yields a clear and measurable objective while aligning long-term operations, through the KPI, with ambitious growth through the OKR.
3.OKRs can help achieve a KPI.
If, for instance, you want to achieve a sales growth target (KPI) or are falling short of the target, you can create an OKR to address the issue, e.g. for launching a new product or expanding into new markets, with specific key results that will help you reach the KPI in question, i.e. the sales growth target.
Of course, KPI growth may not necessarily happen immediately. This is why it is important to analyse, on a quarterly basis, where you are and what you might need to change in order to achieve your objective.
OKRs and KPIs are complementary tools that, when used together, can lead to innovation and stability. OKRs provide ambitious targets to drive progress, while KPIs provide an objective measure of performance. By aligning the two, you can ensure that your business is successful and improves continuously.
