OKR and KPI are fairly common methods of enterprise performance management, yet these two terms are not always understood correctly. In what ways are OKR and KPI different? How can you effectively apply these two methods in your enterprise? Let’s find out with Viindoo in this article.
What are OKRs?
OKRs is short for Objectives and Key Results. Objectives are what the enterprise wishes to achieve, and Key Results are specific ways to achieve such objectives. Specific OKRs are the basis for your business to devise a detailed implementation plan, closely track the progress, and complete the objectives.
OKRs include specific objectives and quantified results so that departments can keep track of them, using them as a “guiding star” for each decision in their tasks.
>>>> See More Details: What is OKR? Steps to implement OKRs for businesses
OKRs is short for Objectives and Key Results
What are KPIs?
KPIs is short for Key Performance Indicators. This is a tool to measure and evaluate work efficiency through data, ratios, and quantitative indicators. KPIs reflect the performance of the organization, departments, or individuals. Through KPIs, managers at multiple levels can regularly update on the health of their business, thereby taking strategic steps to ensure steady and efficient operation.
KPIs is short for Key Performance Indicators
Similarities between OKR and KPI
To avoid confusion between OKRs and KPIs, Viindoo has provided comparisons between these two methods as follows.
OKR and KPI are both performance management methods that help businesses achieve certain objectives.
OKR and KPI both target key factors, which are genuinely critical to the company’s operation and development.
OKRs and KPIs must adhere to the SMART principle, which ensures five factors—Specific, Measurable, Achievable, Relevant, and Time-bound.
Differences between OKR and KPI
OKRs and KPIs have different approaches, businesses can base on that to choose a suitable application direction.
|Basis||OKRs emphasize Objectives. These objectives can be achieved by quantified Key results.||KPIs focus on Indicators. KPIs are set based on the company’s past performance.|
|Mechanism||OKRs are based on coordination, in which all departments collaborate towards a common goal. OKRs allow departments and employees to set their own objectives first, then the company connects and calibrates accordingly.||KPIs are based on imperatives, in which KPIs are imposed top-down, and employees are obliged to complete.|
|Completion threshold||OKR must only reach 70% to be considered accomplished (because OKR objectives are often set higher than the available capacity).||KPI at 100% is considered accomplished (there will be precise rewards for completion and penalties for failure).|
|Amount||For each OKR, there are 3–5 corresponding Key Results. To accomplish this, employees must focus on the most crucial factors. Anything outside of OKRs can be ignored.||The number of KPIs is not limited. This number also depends on the ability of each department and each employee.|
|Duration||OKRs are typically applied quarterly or annually.||KPIs can be applied to different periods (weekly, monthly, quarterly, etc.)|
|Connection value||OKRs support a close alignment of individual objectives with departmental and company objectives, with a consensus towards a common goal.||KPIs are individualistic and personal, sometimes damaging connections.|
|Flexibility||OKR is a tool to help employers empower employees.||KPIs are often based on the leadership’s subjective reasons and imposed on employees.|
To better understand the differences, let’s look at the following example:
In the second quarter of 2022, the business set a goal for “the brand to be promoted to 15,000 people”.
- Key result (1) is: “10,000 new website users”
- Key result (2) is: “Rebuilding brand identity”.
- Key result (3) was “Social engagement increased by 200%”.
Based on this OKR, the administration sets out KPIs for the Marketing department to keep track of the progress and staff performance in achieving the Key Results. Particularly, for Key Result (1) “10,000 new website users”, managers set weekly KPIs as follows.
30 articles are published on the website.
10 backlinks to the website.
5 emails are sent to each customer to navigate to the website.
>>>> Learn More: What is Business As Usual? Should B.A.U be included in the OKR?
Differences between OKR and KPI
OKRs and KPIs - Which criteria should enterprises apply?
KPIs are often seen as indicators to measure and improve work performance. However, applying KPI has left business more vulnerable in terms of financial situation, as the results received may not be as good as expected. What leads to failure is that the business has not clearly defined the goals of the organization in each different stage.
Short-term OKRs will be suitable for businesses operating in the technology sector, which are in need of changing their business scale or preparing to launch new products. With a specific field such as technology, R&D (Research and Development) requirements are very high and must change quickly to adapt. On the other hand, businesses with long-term orientation will need KPIs to measure daily/monthly work progress. However, businesses can flexibly use the combination of KPIs and OKRs to measure work performance more effectively.
Should KPIs and OKRs be combined?
The combination of KPIs and OKRs will help the administrator to manage the business effectively. KPIs will often be assigned to operational goals that are repetitive and require high accuracy. On the other hand, OKRs will be applied to goals that are not continuous. In particular, managers need to consider and combine measurement methods for the business to develop more in the future.
When applying OKRs and KPIs, businesses should keep in mind that these are two separate concepts, meaning KPI completion does not always ensure the achievement of objectives. Instead, during the implementation, companies should observe the KPI – OKR correlation to see whether the proposed KPIs can accomplish their key results. From there, they can make appropriate adjustments (e.g. increase or lower KPIs in accordance with the decided course).
>>>> See More: 11 effective steps to build OKRs for business
Example of KPI and OKR combination
There are two cases where KPIs require OKRs to identify and solve specific problems, for example:
- If the business is too difficult to achieve the target KPI, the business needs OKR to give the right direction;
- If you want to achieve a more ambitious KPI goal (such as a large sales figure), you need OKRs to guide, set small goals to achieve the KPI step by step.
For example, the Sales and Customer Relations team is tasked with reaching $600 million in revenue in the fourth quarter of 2022. This is a much higher number than the previous quarter's revenue of 300 million.
Once the KPI target has been defined, the Sales team can move on to discuss OKRs, what goals can be set to improve and achieve that KPI. Questions the Sales team can ask and identify areas for improvement to reach the $600 million revenue goal:
- Will the team focus on new customers or old customers?
- Are the methods of reaching customers effective? What points can be improved?
- If the number of customers declines, is it because of a bad first impression? Should sales changeovers consider improving sales methods and introducing product demos?
From these questions, the team can identify the existing problems and the points that need to be optimized to achieve the KPI, thereby setting the OKR.
Performance Management by Objectives and Key Results with Viindoo
Understanding the needs of enterprises in building an efficient management strategy, Viindoo has developed Viindoo OKR—Business Performance Management by Objectives and Key Results—as an effective “assistant” for business management and orientation. With Viindoo OKR, principles of business management by Objectives and Key Results will be methodically and thoroughly enforced.
While OKRs are merely about setting lofty objectives as well as delivering quantifiable results and a clear cross-department workflow, Viindoo OKR serves as a tool that breaks down objectives into different Key Results, records them in the system, and connects these Key Results to each specific task.
OKR hierarchy structure
Viindoo OKR not only allows companies to build a link from tasks and projects to each set of Key Results and Objectives but also offers an intuitive view of their OKR system through the OKR hierarchy structure.
Key results of the master objective are displayed as objectives of the lower stage. The progress towards each objective is also measured based on the progress of the key results. When big objectives are broken down into detailed tasks, the enterprise can perform and measure results easily.
The OKR hierarchy structure
Measure completion with Success Score Threshold
OKRs are often applied by businesses that aim at ambitious objectives, which are higher than their capacity limitation. Employing this principle in the software, Viindoo OKR allows businesses to measure completion with a Success Score Threshold, where businesses can choose one type of goal from the following two:
- Commitment: Objectives that need 100% completion to be considered accomplished.
- Aspiration: Objectives that need 70% completion to be considered accomplished.
With these two performance measurement methods, enterprises get an overview of their goals, thereby managing and arranging work corresponding to each type of goal.
Set weights for resource allocation
With Viindoo OKR, businesses are flexible in setting different weights corresponding to every Key Result in each Objective. On that basis, administrators and employees can prioritize and allocate resources, as well as set up a course of action for each specific task.
The weight-setting feature helps companies prioritize and allocate resources.
Fully integrate with Project Management and Timesheet apps
In addition, Viindoo OKR can link and integrate with Viindoo Project and Viindoo Timesheets, thereby visualizing tasks with detailed information about progress, the person in charge, timesheets, etc. Therefore, managers can monitor the company’s implementation of OKRs.
Update and evaluate regularly
Viindoo OKR also keeps the company updated accurately about objective completion rates and project progress, as well as helps evaluate work results on a scale of 0.0 to 1.0. In that, 0 means nothing is completed, 0.6-0.7 means it’s on the right track, and 1 point is goal completion. These data are updated quickly for businesses to monitor the project, identify bottlenecks, and come up with appropriate implementation plans.
Enterprises can establish task evaluations with Viindoo OKR
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Hopefully, the above article has provided businesses with an overview of OKR and KPI. Administrators can sign up for a trial of Viindoo OKR today so that businesses can set up OKRs and realize their mission and vision through specific steps and a methodical roadmap.