How OKRs and KPIs Work Together to Drive Performance (8/10)

Many organizations already track KPIs and wonder whether OKRs replace them, duplicate them, or conflict with them. In this episode, Ben explains why this is a false choice. OKRs and KPIs work together. The key is understanding how they differ and how they connect.

High Level Overview

KPIs do not have a universal definition. Some companies call every metric a KPI. Others use KPIs only for performance evaluation or compensation. Some track a few KPIs, others track thousands.

Key results, however, do have a clear definition. A key result answers the question:

How will we know we have made measurable progress on a specific objective by a certain date

OKRs focus attention. KPIs monitor performance.

How OKRs and KPIs Work Together

A KPI becomes a key result when it is the focus for near term improvement. A KPI becomes a health metric when it is important to monitor but not the focus right now.

Metric key results typically move a KPI from X to Y within a timeframe. Milestone key results may not directly move a KPI but are designed to influence one in the future.

Example:

Objective: Achieve financial targets Key Results:

• Double revenue from 5M to 10M

• Increase gross margin from 20 percent to 25 percent

• Increase recurring revenue from 400K to 600K

Each key result moves a KPI.

Metric Versus Milestone Key Results

Metric key results directly move a KPI. Milestone key results create future impact on a KPI.

Example:

Objective: Make growth more sustainable Key Results:

• Launch marketing automation system

• Reduce marketing cost per lead from 100 to 95

The first is a milestone. The second is tied directly to a KPI.

Key Differences Between KPIs and Key Results

Defined in context of an objective Key results are always tied to an objective. KPIs often appear as standalone metrics.

Linked to compensation KPIs are often tied to bonuses. OKRs should not be used to calculate compensation.

Visibility KPIs are sometimes private. OKRs are typically visible across the organization to promote alignment.

Maintenance versus improvement KPIs monitor performance. Key results drive improvement.

Timeframe KPIs may be ongoing with no deadline. Key results always include a timeframe.

Cross functional alignment KPIs often measure a single team. OKRs often align multiple teams toward shared outcomes.

Controllability KPIs are often fully controllable by a single team. Key results may involve dependencies and stretch beyond direct control.

Origin KPIs often come from leadership. Key results often emerge through collaboration between leadership and teams.

Practical Guidance

• OKRs and KPIs are complementary not competing

• A KPI is a key result when it becomes the focus for near term improvement

• A KPI is a health metric when it is monitored but not actively improved

• Use clear training examples to help teams distinguish KPIs from key results

Contact Ben@OKRs for a free 1:1 OKR Consult!