OKR Explained – Guide to Objectives & Key Results: Strategic OKR vs. KPI

Strategic OKR vs. KPI

OKR (Objectives and Key Results) is a framework for setting up stretch goals and objectives. Based on defined objectives and goals, progress and results can be monitored. OKR is getting utilized by many of the big companies, including Google, Airbnb (etc.). 

John Doerr joined Kleiner Perkins in 1980 and brought with him a radical new goal-setting framework that would revolutionize Silicon Valley as he had learned as he had done while working under management guru Andy Grove. This framework enables the organization to align itself and its growth with ever-changing market conditions and also support the organization’s resources to work in the same direction to achieve the defined goals.

“Andy had created this system for goal setting that was deceptively simple, but also the polar opposite of the conventional management by objectives (MBO) systems, which tend to be top-down, hierarchical, annual, and linked to compensation.” 

One important thing that needs to be clarified is that OKR is not related to performance review or compensation. Usually derived by the upper management and leadership, OKR helps the organization keep its business on track and remain on the positive path to achieve the defined vision and objectives.

Previously we discussed that Objectives and Key Results are SMART goals (Specific, Measurable, Actionable, Relevant, Time-bound). OKR is a method companies use to communicate the organization’s strategic goals to their employees and team members. There are three OKR components: Objectives, Key Results, and Targets. Setting OKRs works best when they are kept simple.

 

Strategic OKR

 

To define and monitor OKR properly, the following significant steps need to be carried out.

  1. Ultimate Goal: Define the ultimate goal at the top level. As an example, it can be defined as “I will (Objective) as measured by (Key results).”
  2. Defining Objectives: At this stage, start by defining 3 to 5 objectives aligned with the ultimate goal. These should be short and concise. Also, these objectives should be transparent, flexible, ambitious, and simple to understand.
  3. Defining Key Results: To measure the progress and key results against each objective, 3, 5, or 7 key results can be defined against each objective which needs to achieve at the organization level. These should be quantifiable and achievable.
  4. Cascading: After defining the objectives at the organization level by the leadership, the cascading should take place where teams and management should determine OKRs which should be aligned with organization-level objectives and must be supporting them.

These objectives and results should be measurable after agreed frequency or intervals like quarterly or annually (etc.) Also, the following can opt as best practices for adequately defining OKRs.

  1. Create a long-term goal/ objective and then divide it into smaller ones. This will not only help in defining long and short-term objectives but also will provide vision, clarify, and focus.
  2. As a first step, the organization’s top-level objectives should be defined. This will help set up the top priorities, and everyone will be aligned to contribute to it accordingly.
  3. OKR should be defined at the Shared department or team level and not on an individual level only.
  4. Don’t forget to assign a reliable resource to each OKR. It will also help in driving achievements for OKRs.

 

KPI (Key Performance Indicators)

 

KPIs (Key Performance Indicators) are the measure which is used to evaluate and analyze performance. It enables the organization to assess the business performance on defined parameters (or indicators). KPIs are defined as business metrics and which present the business performance. It is defined on a high business level and monitored at regular intervals like monthly, quarterly, etc.

 

OKR vs. KPIs

 

OKRs and KPIs are both used to measure the performance of the team and are also measurable. Even though the similarities can be confusing, but both are pretty different. KPIs are used to measure performance and perform relevant analysis, but it does not provide us the transparency of what needs to be addressed or improved for positive progress or growth. They are also high-level business performance measures that can be analyzed monthly, quarterly, half-yearly, or yearly.

Compared to KPIs, OKRs are different as they provide us the performance measure and help us decide what needs to be improved or changed for the organization’s positive growth. This provides us with the areas of improvement, and then by defining the objectives and key results, we can work on the progress and monitor how much we are getting close to that objective. OKR is a strategic level framework, whereas KPI is the measures that are not defined at the strategic level but exist within the strategic level framework.

 

Significant differences in OKR and KPIs are detailed in the table below:

 

Key Performance Indicators (KPIs) Operations & Key Results (OKRs)
A metric to reflect business performance Goal Setting methodology emphasizes improved performance
Utilize for performance management and measurement Emphasize alignment within the organization, collaboration, and focus
Top-Down Approach Two Way Approach – Top-Down and Bottom-Up
Once identified and set, not changeable for a long duration Flexible and Agile – Can be changed
Defines the performance level which needs to be achieved Specifically related to an area of improvement to focus on

 

Even though there are similarities and differences between OKRs and KPIs, both are critical for any organization. When both are appropriately defined, they add an important layer that measures the performances of processes and initiatives/ objectives, and that’s how organizations enable themselves to monitor that if they are moving in the right direction.

PPM Express has the most effective solution for setting, tracking, and achieving your OKRs. Once your objectives are set, you’ll be able to track how projects contribute, track progress, encourage alignment, and encourage participation around measurable outcomes.