OKRsvsKPI
OKRs (or Objective Key Results) is a goalsetting framework used by leading tech companies (like Google, Intel, Amazon) to align their efforts towards an Objective (big goal) by achieving a predefined set of metrics called Key Results KPIs (or Key Performance Indicators) are performance indicators (metrics) that are measured in a pre-defined way and reviewed over a fixed period (frequency) to monitor (measure) the success of an activity, project, employee, team or an organization Short answer OKRs and KPIs are different, but they can play together OKRs define a goal with a set of metrics, while KPIs are metrics that can be part of an OKR’s Key Results or be standalone performance indicators Don’t worry if you don’t quite get it! In this article, we’ll first explain to you what exactly OKRs and KPIs are, then we’ll give you real-life examples, and in the end, we’ll compare them so you can have a better understanding and find answers to your questions Here’s what you’ll learn: What is an OKR? How to write OKRs? OKRs Examples What is a KPI? How to set KPIs? KPI Examples OKRs vs KPIs: Similarities & Differences How OKRs and KPIs can play together? Our goal is this page to be the last page you’ll ever have to read to fully-understand what OKRs and KPIs are and to be able to answer the question, "What are the differences between OKRs and KPIs?" without even thinking So let’s begin! What is an OKR? OKR Definition OKR (Objective & Key Results) is a goal-setting framework helping companies and organizations to align their teams toward achieving an Objective (goal) defined by a set of metrics called Key Results The history of OKRs can be traced back to around 1968 when Andry Groove ("the father of OKRS") co-founded Intel and has upgraded the MBO (Management by Objectives) model into the OKRs we know today The OKR model gained a lot of popularity after Larry Page (the co-founder of Google) adopted OKRs to make Google’s bold mission of "organizing the world’s information" achievable Since that, OKRs have been used at other popular tech start-ups like LinkedIn, Twitter, and Uber The Objective & Key Results (OKR) framework consists of two parts - Objective and Key Results Objective Objectives define where you want to go They should be ambitious, specific, and time-bound goals that inspire employees to move the company forward Objectives are usually defined quarterly or annually Objective (Goal) = What you want to achieve? Objective example: "Achieve record signups in the 1st quarter of 2020 " Key Results Key Results define how you plan to go there They are the metrics required for achieving your Objective (goal) The Key Results must be specific, measurable (quantifiable), achievable, progress you towards your objective, and be difficult but not impossible Key Results (Metrics) = What metrics you have to obtain to achieve the Objective? Key Results example: • KR1: "Generate an extra 2,000 clicks per month on Ora’s blog posts." • KR2: "Increase landing page conversion from 22% to 30%." • KR3: "Get an extra 500 organic website clicks per month on the landing page for ‘project management’ keywords." How to write OKRs? Writing OKRs have helped dozens of billiondollar organizations like Google, Intel, Amazon to align, motivate, and empower their teams towards achieving their goals OKRs are also applicable in small teams and startups, too Considering that, Google and Amazon both started in a garage with a team of few people To write a good OKR, you should begin by setting the Objective (goal/vision that you want to achieve) first For example, let’s take a company that wants to "create a real-life Star Wars lightsaber for everyone" Writing an Objective When setting OKRs, the Objective should always be inspired by the company’s mission/vision and be defined by the highest management It also should be bold, inspiring for everyone, and time-bound What Objectives should NOT be: • Generic (objectives should be specific) • Easy (objectives should be ambitious) • Boring (objectives should be inspirational) An OKR Objective should answer YES to the following questions: • Is it inspiring? • Does it move the company forward? • Does it help to achieve the company’s vision? • Is it time-bound? • Annual or quarterly? Objectives are meant to drive companies and individuals towards their goals while keeping them motivated and focused even during hard times The right objective will serve as the North Star that'll guide your venture to success A good Objective for the Lightsaber OKR can be: O: "Create the first real-life affordable Star Wars lightsaber in 2020." Examples of bad Objectives: • "Make more revenue this year." • "Grow the company." • "Release new product." Once we have a good Objective, the next step is defining the right metrics (Key Results) for achieving it Defining Key Results Key Results are a set of metrics that measure the progress towards your Objective They must be thought carefully and planned in a way that if all of them are met, your Objective (goal) will get accomplished Note: Key results are not tasks Key Results should not be tasks They are meant to be measurable metrics (similar to KPIs) that support the OKR objective, not a to list items An OKR Key Result should answer the following questions positively: • Is it specific? • Important for achieving the Objective? • Is it measurable (defined by numbers)? • Is it hard but achievable? The purpose of the key results is to serve as milestones to the Objective Set correctly, they should define a rationale and measurable plan (which progress can be tracked) towards achieving the objective Good Key results for the Lightsaber OKR can be: • KR1: "Gather a team of the top 30 leading physicists in the world." • KR2: "Create a 3,000° plasma blade prototype that can cut through metal." • KR3: "Achieve a product cost of $79." • KR4: "Get 5,000 pre-orders from the landing page." • KR5: "Legalize the product in 35 countries." Tip: For each Objective, define a set of to Key Results More than that and no one will remember Writing OKRs The last step to setting great OKRs that’ll transform your company is to write them down A good way to so is using the Doerr’s Formula (John Doerr is a venture capitalist who invested in Google, and introduced them to the OKRs model) Doerr’s OKR Formula: I will _ as measured by _ Or to bring more clarity: I will (Objective) as measured by (Key Result metrics) Star Wars Lightsaber OKR using the Doerr’s formula: "I will create the first real-life affordable Star Wars lightsaber in 2020 (O) as measured by gathering a team of the top 30 leading physicists in the world (KR1), creating a 3,000° plasma blade prototype that can cut through metal (KR2), achieving a product cost of $79 (KR3), and getting 5,000 pre-orders from the landing page (KR4)" If done correctly, your OKRs should roll off the tongue and excite your listeners! To set OKRs in a multi-level organization, start by setting an OKR on the C-level and then spread the OKRs across the whole organization Star Wars Lightsaber OKR Objectives in a multilevel organization: • HR team: "Recruit the top 30 leading physicists in the world." (O1) • Science team: "Create a 3,000° plasma blade that can cut through metal." (O2) • Business team: "Achieve a product cost of $79." (03) • Marketing team: "Get 5,000 pre-orders from the landing page." (04) OKR Examples In this section, we'll give you OKR examples that you can use as inspiration for setting your own ones We've also included two public OKRs set by real businesses in 2020 OKR Example 1: Software Team Objective: "Build the cleanest SOLID codebase in the world by Q2." • KR1: "Refactor 135 classes using the latest best practices in 2020." • KR2: "Fix 99% of the minor warnings (including code formatting)." • KR3: "Cover 80% of the executable code with unit and Integration tests." OKR Example 2: Marketing & Sales Team Objective: "Accomplish record revenue growth in 2020." • KR1: "Increase (quality) leads generated per month by 25%." • KR2: "Achieve closing ratio on sales opportunities of 45%." • KR3: "Generate an extra of 10,000 organic website visitors per month." KPI Components KPIs have four components - a measure, a target, a data source, and a frequency • Measure - defines what you want to measure • Target - the value of the Measure that you want to achieve • Data Source - from where would you be gathering the data for the KPI • Frequency - how often will you monitor the KPI KPIs serve as the core pillars of monitoring the success of your business, initiatives, or employees Now we’ll go through each of the components of a KPI and explain their meaning Measure The Measure represents what you want to monitor and defines how it would be measured Remember this for now, and we’ll get in more detail in How to set great KPIs Target The KPI Target is the desired value that you want your Measure to be For example, 10k monthly traffic, 30% conversion rate, 5% revenue increase, and so on Tip: Make sure your KPI Targets are both challenging and realistic Data Source The Data Source defines how you’re going to obtain the data for the KPI For example, common data sources can be Google Analytics, CRM, Database, Project Management Software, and so on Tip: Writing a Data Source for your KPIs is important because it makes sure that your pulling data in the same format and from the same source throughout the period of tracking your KPI Frequency KPI’s Frequency defines how often you're going to pull the data and review your KPI It can be daily, weekly, monthly, quarterly, or yearly depending on the measured metric and business specifics In the section, we’ll show you how to set great KPIs by choosing the right Metric to monitor from the right Data Sources with the right Frequency towards achieving the right Target Now that you know what KPIs are, it’s time to set ones for your business Start by choosing what you would like to know about and monitor in your business If you have trouble coming up with ideas, imagine that Siri or your Google Assistant got all the data about your business What would you ask? For example, I’d like to know: • Siri, how much revenue would we make this month? • Are our sales going up or down? • Is our website attracting more visitors compared to the last months? • What’s the average amount of money a client is spending with us? So knowing what metrics we’d like to track, let’s set KPIs for them! For the sake of simplicity, we’ll be setting an e-Commerce Website KPIs as an example Setting the right Measure The first step in setting a KPI is defining how you would measure it When choosing the right metrics (measures), it’s important for them to be quantitative or said simply - defined by numbers For the e-Commerce website example, you might want to measure: • # of monthly website visitors • % decrease of bounce rate (visitors who left the website w/o looking) • % of visitors who buy an item (conversion) • $ monthly revenue • CLV (Customer Lifetime Value) or avg of money ($$$) earned from each acquired customer KPIs ≠ Goals KPIs should always measure something recurring For example, you can’t pick "# of Facebook page’s likes" for a measure That’s because once hitting the target number of likes, the KPI wouldn’t exist anymore, and the idea of KPIs is to be indefinite performance indicators (e.g "# of new FB likes per week") Tip: When measuring your KPIs, try to be as specific as possible (e.g "website traffic" → "monthly website traffic from social media") Aiming for the right Target The second step for setting great KPIs is to choose both ambitious and reasonable Target to aim for To so, first establish your baseline (through previous data, industry averages, or educated guesses) and decide what’s possible to be achieved for your KPI Frequency KPI Targets for the e-Commerce website example may sound like: • Increase the # of monthly website visitors from 8,000 to 10,000 • Decrease bounce rate by 5% • Achieve a 35% conversion of visitors to buyers • Increase monthly revenue from $25,000 to $30,000 • Increase CLV from $8,50 to $12 Tip: When choosing the right Target for your KPI for the very first time, industry averages can be a good starting point Pulling data from the right Data Sources On this step, you might have to get more creative In an ideal world, you’ll be able to pull all the data for your measures directly from your analytics without doing extra work However, that doesn’t work like that in reality Get creative and find the most accurate and cost-effective way to track your Measures with your resources Good Data Sources for the e-Commerce store are: • Google Analytics (GA) • Payment Processor’s Statistics (Braintree, Pay pal, Stripe, Shopify) • Google Search Console Changing the Data Sources changes the KPI Stick with the same Data Source (and data format) to the ones you’ve chosen initially; otherwise, your KPI metric will become inaccurate Also, try to involve as little different Data sources as possible Reviewing the KPI with the right Frequency The last step to setting a great KPI is to decide how often you should review it (or the right frequency) To calculate it, you should take the following facts into consideration: • How often can you pull the data from your Data Source? • How often your Measure fluctuates? • How often it’s practical to monitor this metric for your business? (KPI frequency can be daily, weekly, monthly, yearly, or even longer) For example, the frequency of the KPIs of the eCommerce website example would be daily, weekly, or maximum monthly because it has high volume and low margin Simply said, things happen fast, and it matters whether you have 132 or 248 sales a day However, that’s not always the case Take, for example, a company that sells custom made yachts - it takes years until a deal is signed and the product is delivered As a rule of thumb: • High volume + Low margin (selling a lot of cheap stuff) = High KPI Frequency (monitor often) • Low volume + High margin (selling expensive stuff slow) = Low Frequency (monitor between longer periods of time so your KPI doesn’t fluctuate) Tip: When setting the frequency for your KPI, take your product’s sales cycle into consideration Now that we know how to define our KPIs (Measure, Target, Data Source, and Frequency), it’s time to write them down A good way to so is to write them on a whiteboard that everyone can see, in your project management software, or using specialized software for setting KPIs A good formula to for writing KPIs is: measured by _ monitored every Meaning: (Measure + Target) measured by (Data Source) monitored every (Frequency) Here’s how the eCommerce store KPIs would sound: • Increase the # of monthly website visitors from 8,000 to 10,000 measured by Google Analytics New Users monitored every month • Decrease the website bounce rate by 5% measured by GA’s Bounce rate monitored every • Increase monthly revenue from $25,000 to $30,000 measured by Shopify’s Invoices monitored every month Tip 1: Have between and KPIs to monitor (Having more will lead to monitoring none.) Tip 2: Done correctly, each KPI should tell a story KPI Examples We'll give you 20+ KPI examples so you can get better understanding and ideas on how to implement them in your business KPIs for Marketing • FB Growth: Increase Facebook's new likes from 345 to 500 measured by FB Page Admin monitored every day • Social Media Engagement: Increase social media engagement from 28% to 32% (measured by FB, Insta, LdIn) monitored every month • Leads Quality: % of leads not showing up on sales calls < 15% measured by CRM monitored every day • Organic traffic monthly growth > 12% (Google Search Console) KPIs for Sales • # of new closed deals per employee > (data from CRM) monitored every week • % conversion from lead to deal > 30% (data from CRM) monitored every month • Good calls: Avg minutes per call with a cold lead > 3minutes (data from CRM) monitored every day • # of contacts (email, call, meeting) per day > 100 monitored through CRM data daily • % increase of new sales per week > 5% (data from accounting) measured weekly KPIs for IT (software developers) • # of avg shipped story points per developer > 80 monitored in ora.pm every Sprint (2 weeks) • Issues opened vs Tasks created (Ora Sprint Review) < 0.1 • Avg time for developing a user story < 6h (the time from "In Progress" to "Shipped") Gitlab’s public KPIs • GitLab.com Availability > 99.95% • Sales efficiency > • Runway > 12 • Hires vs plan > 0.9 • 12 month team member retention > 84% Issue Ora’s public KPIs • # of new monthly signups (from database) > 2,000 • % active users > 65% measured by GA (weekly) • NTS (Net Promoters Score) > user surveys every month • Monthly organic traffic increase > 10% every month (GA) measured by OKRs vs KPIs: Similarities & Differences OKR is a goal-setting framework consisting of Objective (big goal) and Key Results (milestones, metrics required for achieving the big goal) KPI is a key performance indicator (metric) used for monitoring the success of a given activity, employee, team, project, product, or the entire company Similarities • Both OKRs and KPIs are used in big and small companies (e.g., Google, Amazon, Intel) to progress towards their goals and vision • OKRs and KPIs have a positive effect on a company’s productivity • Both OKRs and KPIs must be specific and quantifiable (be defined by numbers) Differences • KPIs measure and monitor OKRs motivate and move • KPI is a metric with a target; OKR is a goal-setting framework that has multiple metrics (key results) • OKRs > KPIs (OKRs can include KPIs as a metrics for their Key Results) • KPIs pay more attention to measuring and monitoring the results, while OKRs focus on achieving the results OKRs vs KPIs Comparison OKR KPI Goal-Setting Framework Yes No Performance Metric Can have metrics Yes Specific Yes Yes Measurable Yes Yes Achievable (realistic) Yes Yes Time-bound Yes Yes Goal Yes No Performance Indicator No Yes Data source defined No Yes Has deadline Yes No (it’s on-going, indefinite) Frequency to monitor No (has fixed deadline) Yes Purpose Setting business’ Measuring business’ direction health KPIs are standalone key metrics that can be part of OKRs as key results OKRs and KPIs are substantially different, but they have one common purpose - to make you more productive and help you reach your goals faster In the last section, we’ll show how you can use both OKRs and KPIs to empower your team, company, or your personal life How OKRs and KPIs can play together? As you probably already noticed, OKRs are Objectives (goals) represented by Key Results (metrics) On the other hand, KPIs are performance indicators expressed by strict metrics compared to desired targets That makes KPIs a perfect candidate for OKR’s Key Results KPIs fit in the definition for KR (Key Result) - specific, measurable, ambitious but not impossible, and also defines precisely how it’s measured (data source & frequency) Use KPIs as OKRs' key results For maximum results, my suggestion is to define both OKRs and KPIs Using KPIs as Key Results for your OKRs This way, you’d be able to move consistently towards your Objective while at the same monitoring the health (the performance) of your team, employees, organization, or already achieved OKRs Tip: Use relevant to the OKR’s Objective Key Result Otherwise, your key results wouldn’t unlock your goal (objective) Conclusion OKR (Objective Key Result) is a goal-setting framework adopted in companies like Google, Amazon, and Intel Its main purpose is to set the business’ direction and align teams toward achieving a goal OKRs have two components - Objective (goal/vision) and Key Results (set of metrics required for achieving the Objective) It’s recommended each Objective to have a set of 2-5 key result metrics