KPI vs. OKR: two acronyms that every leader should know. Small businesses use KPIs and OKRs to make informed decisions based on data, so it’s no surprise these two concepts are essential for business growth. 📈
In this video, you’ll learn what these two acronyms mean, their key differences, and when each should be used.
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Not a video person? No worries! We’ll cover all the main points in this article.
What is the difference between OKR and KPI?
KPI vs. OKR: what’s the difference, really?
Are these just fancy acronyms? Why are they used in the same sentence? Are they synonyms? Antonyms?
So many questions!
We hope that by the end of this article, you’ll know exactly what these two acronyms mean, the key differences, and when to use them. Let’s dive in!
What is a KPI (Key Performance Indicator)?
Let’s start by breaking down the acronym:
KPI = Key Performance Indicator
A Key Performance Indicator is something important (hint: “key”) and is indicative (hint: “indicator”) — meaning it tells us something — about performance.
A Key Performance Indicator is a metric that can be used to understand how well we’re doing at whatever it is we care about.
For example, if we were racecar drivers, a good Key Performance Indicator could be Time Around Racetrack. The time it takes us to drive around the racetrack is our KPI because speed is our main performance unit.
Another Key Performance Indicator for racecar drivers might be the speedometer (the miles/kilometers per hour on the car itself) since that will indicate our pace.
Anything that lets us measure our performance and is a key driving measure (it must be the most important measure) is considered a Key Performance Indicator.
The tricky part about KPIs is the “Key” part, so we can’t stress it enough!
Not every metric is a KPI.
A lot of times, leaders believe every number is essential. Sure, numbers are important — but to have that special hierarchy of KPIs vs. other random numbers, we need to have some discretion.
Only the numbers that tell us how we’re truly performing and truly matter should reach the KPI status. Everything else is either a metric, vanity metric, or just something that’s good to know — but doesn’t reach that KPI status.
Examples of KPIs
Additional examples of KPIs include:
- # of Leads that Book Sales Calls
- Customer Satisfaction Rating
- # of Reviews on the Google Business Profile
Each of these are metrics because they’re measurable things we’re looking at.
If we know a particular metric, such as Customer Satisfaction Rating, will have a lasting impact on the department’s success, then it deserves that KPI status!
To watch this explanation in video format, watch the video at the top of this article at timestamp 00:28.
What is an OKR (Objective & Key Result)?
OKR = Objective and Key Results
We can think of OKRs being split into two parts:
Part 1: Objectives
Part 2: Key Results
The first part, Objectives, refers to an overarching destination, goal, or big vision we’re chasing.
For example, let’s say our Objective is beating a video game. In every game, there is an ultimate victory where we win the whole game and the end credits appear. This is a good way to start thinking of Objectives.
We are trying to get to the end destination. This destination might move as our ambitions change, but let’s say our destination is reaching the end of the video game Pac-Man.
The second part, Key Results, are like the goalposts we need to get past to reach our end destination.
Let’s continue with our video game example. If our Objective is to beat the entire video game Pac-Man, our first Key Result might be to beat Level 1. Then, our next Key Result might be to beat Level 2. And so on, until we eventually beat the whole game.
We have to get through these levels — or Key Results — to reach our end destination — or Objective.
Examples of Key Results
One key thing to know about Key Results (no pun intended) is that they are things we can influence but do not directly do.
Returning to our video game example, a Key Result might be beating Level 1. Beating Level 1 is something we can influence and work towards. We can’t just do it and check a box saying we’re done the first time — we have to work really hard and continue trying to beat Level 1 until we can get to Level 2.
For a more business-y example, a Key Result might be to acquire ten new clients. We can’t force ten new clients to work with us — we need to take numerous actions like cold calling hundreds of leads, knocking on doors for weeks, or whatever else we need to get to that Key Result.
Key Results tend to be a lagging indicator we can influence but not directly do on our own.
To watch this explanation in video format, watch the video at the top of this article at timestamp 03:06.
How can KPIs work with OKRs?
So how do OKRs relate to KPIs?
Good question!
KPIs measure our performance. The OKR goal-setting framework is a ripple effect of our performance. The actions and tasks we do (performance) lead to those Key Results, which ultimately lead to the Objectives.
So while KPIs and OKRs are not synonyms, we may have KPIs that lead to a Key Result or KPIs that measure our tasks and initiatives.
These two acronyms are complementary, but they do not replace each other.
Now that we’ve tackled KPI vs. OKR, it’s time to start building out some! 🛠
Until next time, enjoy the process!
To watch this explanation in video format, watch the video at the top of this article at timestamp 05:56.
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