You may have noticed we’ve been talking about OKRs (Objective and Key Results) quite a lot recently. If you’re still a little unsure about what OKRs are, read this first. Then if you want to know more about why the world’s leading companies choose this framework, read this. In today’s journey along the OKR path, we’ll be talking about OKRs vs. KPIs. Is there a difference? Let’s explore 🔎
Get excited, ’cause we’re diving in.
What are KPIs?
Key Performance Indicators (KPIs) have been the flavour of choice for performance management for some time now, so they really need no introduction… however, in case some youths have found their way to this blog, we’ll include a definition anyway. KPIs vary from role to role and goal to goal, but essentially, they are the metrics that best define your success. In HR, common KPIs can be absence rates or costs, employee satisfaction or turnover rates. For business owners, they’re likely keeping an eye on the total profit margins, revenue growth rate or inventory turnover – on top of everything else! KPIs monitor individual performance from employees. In the above example, a cashier isn’t going to be concerned with profit margins – their KPIs might be the number of customers they serve in an hour, or the results of a customer satisfaction survey. The main benefit of KPIs is that they identify areas that need improvement, but they rely on managers to ensure that KPIs are kept front of mind. Because KPIs are individual targets, they can easily be forgotten if managers don’t hold their team accountable.
What are OKRs?
Like KPIs, OKRs also brings focus to the areas of the business that make the biggest difference. Unlike KPIs, they are collaborative, operating on a company, team and individual level that promotes transparency and accountability for all employees. OKRs switches the focus from results, to aspirations or goals (aka ‘objectives‘) that can be achieved by fulfilling a number of important tasks (aka ‘key results‘). OKRs require businesses, teams and employees to define their desired destination, the achievements that will confirm (or deny) their arrival and the time they must arrive by. It also requires companies, individuals or teams to articulate what initiatives they will take to get there (yes, there’s another step not included in the acronym, but OKRIs just doesn’t have the same ring to it!). Remember; objectives aren’t measurable. They are a goal or aspiration that is attained by completing the key results.
Should I use KPIs or OKRs?
So which is better? Well, we hate to sit on the fence, but the truth is both KPIs and OKRs have their uses; you just have to know what to use when… Luckily, that’s what we’re covering next! OKRs are about changing processes. Whether you’re troubleshooting a problem within the business, or wanting to grow and innovate, use OKRs as a strategic framework to enact change. Your KPIs may help you decide on what the key results for new objectives will be, but they aren’t part of the process. Consider your KPIs as a baseline; they indicate that everything is going well and there are no issues that need to be addressed. If your KPIs start to slip, that means something’s going wrong – you can use ORKs to get back on track. After you identify an area of the business that needs improving, it can become its own OKR. For example, if an HR manager noticed that the company’s retention rates were dropping, he or she could make their objective to make employees more loyal. Key results could include:
- Conduct weekly employee happiness surveys with a 50% participation rate,
- Implement a peer to peer recognition program with over 100 individual pieces of recognition over the quarter and
- Reduce turnover by 20%
Note that the objective (to make employees more loyal) isn’t measurable, but the key results are. An HR Manager would then break down the key results even further into initiatives. For example for the first key result,
- Research best employee engagement survey tools
- Make the business case for an employee engagement tool
- Launch surveys and communicate the ‘why’ to employees
- Monitor participation
Without monitoring the turnover rates, the HR Manager wouldn’t have known a change was needed. The business would have lost more and more staff. Turnover is expensive, so the more it happens, the more it eats into your margins. Of course, the problem with only using KPIs is that there is a lack of visibility. If the CEO wasn’t meeting regularly with the HR Manager, and the HR Manager wasn’t engaged enough to monitor their KPIs, the business would have suffered. Using KPIs to accurately measure productivity is only possible if employees and managers alike are on the ball. OKRs, on the other hand, are collaborative. Each employee should have at least one goal that contributes to the team goal, and team goals should have at least one goal that contributes to the company goal. And because key results are assigned to owners, employees are more accountable for their output. If you’re using Employment Hero’s Goals module, then anyone in the company can view their colleagues OKRs, as well as the company Goals. This also improves employee engagement, as the goals and vision for the company are easily communicated.
Not ‘either/or’, but both
As you can see, comparing OKRs and KPIs is like comparing apples to oranges. OKRs and KPIs serve different functions. KPIs measure performance (or lack thereof), whereas OKRs are a framework that businesses can use to change processes or outcomes for the better. You should always keep an eye on your KPIs, but OKRs are your pathway to growth.
You tell em’ kid.