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KPIs or OKRs: Which One Does Your Business Really Need?

26 October 2021

There are a lot of management tools being used by businesses to increase productivity and measure performance. Two of the latest that have been gaining popularity are KPIs (Key Performance Indicators) and OKRs (Objectives and Key Results). However, there has been a continuing debate on whether OKR vs KPI and which should be used in business. In this article, we will discuss OKRs and KPIs in detail. We will cover the two components, their key differences and how they can help your business excel and achieve its larger vision.

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KPI vs OKR: Your Guide to KPIs

Defining KPIs (Key Performance Indicators)

KPI stands for Key Performance Indicator. Key Performance Indicators are numbers that businesses use to measure success. The most important thing to remember about KPIs is that they show the status of your business goals and allow you to track whether or not you’re meeting them. They also monitor performance and customer satisfaction, a best practice for any organisation. Different types of business have different KPIs because there isn’t one universal standard for all businesses. For an automotive company, the KPI might be how many cars it sells in a month. A hospitality business would have different KPIs to measure success. 

As mentioned above, there are two main types of KPI: leading indicators and lagging indicators. Leading indicators are accountable for making your business grow or falter, but they’re also as valuable as lagging indicators. Lagging indicators, on the other hand, are numbers that show how your business is doing overall, but not what’s driving those overall health metrics.

Common KPI Examples

  • Financial KPIs – Financial KPIs measure the money coming into and out of a business. These KPI examples could include sales, net profit, revenue growth, monthly recurring revenue, depreciation, and more. 
  • Sales KPIs – Sales KPIs measure how well a company is doing in terms of selling its products or services. Common sales KPI examples include average order value (AOV), repeat orders rate (ROP), and conversion rate (CR).
  • Marketing KPIs – Marketing KPIs measure how well a business is selling its products or services and how well a marketing team is performing using key performance metrics. Common marketing KPI examples include cost per lead (CPL), cost per lead quality score, qualified leads and customer acquisition rate (CAR). Great marketing KPIs employed by your marketing team can also boost customer retention, improve performance online, decrease bounce rate and attract new customers.
  • Project management KPIs – Project management KPIs measure the success of your work projects. A project management key performance indicator could be productivity, budget adherence, on-time completion rate, and more.

Read more: 3 Key Figures For Your Mid Year Review

What are the Benefits of Monitoring KPIs?

Most businesses benefit from monitoring KPIs because they help track your business’s success over time, reveal trends that should be rectified, and keep you focused on what matters most. Having KPIs in place can help your team work better together toward goal setting as well as achieving common goals for the future.

When it comes to your business, there are a huge number of daily events and activities that can be monitored. Some of the most common examples include sales figures, social media performance, stock levels and hiring. In order for this data to have any real meaning, it is important that you monitor important statistics on a regular basis. By doing this, you will be able to identify your key business areas and track whether certain tactics are having a positive or negative effect on your business.

KPIs are also an effective way of measuring the performance of your employees. There are often many different people involved in running a successful company, for example accountants, salespeople and managers. By setting key performance indicators for these employees, you can monitor their progress and hold them accountable if necessary.

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What are the Challenges of KPIs?

One of the main challenges with KPIs is that they need to constantly be monitored to ensure that the numbers are on track toward meeting your business goals. If not, then it’s up to you and your team to identify what changes need to be made in order keep your company’s KPI on track.

KPI vs OKR: Your Guide to OKRs

Defining OKRs (Objectives and Key Results)

Objectives and Key Results (OKRs) are a business strategy that is very similar to KPIs. Both OKRs and KPIs measure the performance of a business and help track the progress of goal achievement, goal management and customer retention.

What makes OKRs different is that they’re used more often in start-ups, as well as by larger companies like Google and LinkedIn. The way you approach OKRs is also different, as they are used to measure success on an ongoing basis rather than just the performance of a single month or quarter.

Objectives and Key Results can change on a monthly basis, depending on how your business works with its goals. Businesses that have more flexible OKR plans don’t need to use them on a quarterly basis like some other companies.

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What is an OKR Framework?

A basic OKR framework is set up like an inverted pyramid. This means that your top objective sits on top of several lower-level objectives, each with their own key results. It’s important to note that every objective should align to your company’s overall direction and vision.

Common OKR examples

  • Annual Company OKRs – These are your most important OKRs, which are set for one year.
  • Quarterly OKRs – Quarterly OKRs are used by large companies that need to meet more specific goals during a single quarter or the next quarter.
  • Monthly OKRs – Month-to-month OKRs track your progress on the smaller objectives you need to meet before you can achieve your company’s annual goals.

Why Use Objectives and Key Results?

OKRs are easy to use and can be very effective, especially for larger companies with more employees involved in the process. The people who will benefit most from OKRs are managers and their teams. Having a team focus on a measurable shared goal system that everyone understands can help your business run more efficiently.

What are the Benefits of Objectives and Key Results?

One of the main benefits of using OKRs is that they help employees work better together to achieve common goals. Having such specific success metrics in place allows your team to anticipate each other’s needs and work together to achieve the bigger picture. There are several further benefits to using OKRs, including the following:

  • They give everyone in a large company an opportunity to contribute ideas about how the company should be performing.
  • OKRs are flexible, which means they can change without too much trouble when your business needs to make changes in order to adapt to changing market conditions.
  • OKRs are easy to measure, which makes it easy for managers and team members alike to keep track of how their business is performing with these strategies in place.

What are the Challenges of Objectives and Key Results?

One of the main challenges with OKRs is that they can easily become overwhelming, as you or your team have to constantly be thinking about how well you’re progressing toward hitting those goals. In some cases, it may feel like there are too many OKRs to keep up with, especially if they are constantly changing.

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KPIs vs OKRs

Main Differences

  • Scope: A KPI generally covers a period of one month, with the focus usually being on a specific product or service. On the other hand, an OKR can cover a longer time frame and is often used as an overarching goal for more than one department or division within your company.
  • Possible Uses: Though both KPIs and OKRs can be used in all businesses, KPIs are usually used by small businesses just starting out, while OKRs are more commonly found in larger companies. Each strategy has its drawbacks if your business isn’t using it correctly. If you are trying to make your OKRs more like KPIs, it can be more difficult to measure each employee’s performance against the goals they are supposed to be working on. If you’re trying to make your KPIs work like OKRs, it can become too easy for different departments or divisions of your company to focus on their own goals rather than what is best for your business as a whole.

Which One Does Your Business Really Need?

KPIs can help track performance over time and reveal when issues arise in your business. For example, if you aren’t meeting your financial KPI goals at the end of a quarter or month, you may need to explore different options for boosting your income and supply.

On the other hand, OKRs can help your company more easily track success over time by constantly presenting new challenges and metrics on a monthly or quarterly basis. While it’s up to you which KPI/OKR strategy would best suit what you are trying to achieve, it’s clear that OKRs and KPIs are both beneficial for businesses in their own ways.

Objectives and Key Results can be an effective strategy for larger businesses who want to work toward achieving one overarching goal. If you’re having trouble deciding which strategy is right for you, consider first what effects each might have on other departments within your business.

If you can focus on building a cohesive team that can work toward similar measurable goals without creating too much overlap, you should be able to get the best use out of the two concepts, as OKRs complement KPIs perfectly.

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