What’s the difference between OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators), and does it really matter?
Not long ago, the OKR acronym entered the language as if it was a “revolutionary” new way of tracking goals. It got a lot of press because the term was being used by Google. But you can ignore the hype. In simple terms, OKRs are just project goals with measurable outcomes attached. We call them “Strategic Projects”. You might call them Key Initiatives, Big Rocks, Quarterly Priorities, etc.
There’s nothing new or revolutionary to see here. But the difference between an OKR and a KPI is truly important to your business success. So it’s worth the time to go a little deeper.
In essence, the marketing approach being used is, “Google uses OKRs and they are a great company. And so, if you use the same approach, you will become a great company just like Google.”
To my jaded eyes, this is a classic case of “Survivor Bias”, a common cognitive error made by business leaders, and business authors. It’s an analysis that focuses only on successes and that ignores the many failures that used the exact same approach.
Using the same “Survivor Bias,” you could say that since Steve Jobs and Bill Gates dropped out of college and became billionaires, then if you drop out of college you will become a billionaire too. To give you another example, Jim Collins’ book, Good to Great, sold nearly 3 million copies because it shared the business practices common to eleven then-great firms that had outperformed the stock market. Does this mean if you follow their example your firm will become great too? No. Actually, if you invested in those eleven firms at the date the book was published, your portfolio would have subsequently underperformed the S&P 500 stock market index. And two of the firms went on to financial ruin.
Thus, just because Google used OKRs doesn’t mean that OKRs are some sort of magic elixir that produces business greatness.
That said, the essence of the OKR concept is full of sound goal-setting practices that have gone under different names for a long time:
Objectives (projects) need to be (SMART). Specific, Measurable, Achievable, Relevant, Time-Bound
Objectives (projects) are cascaded into a series of action steps, with measurable outcomes
Company goals are linked to functional team goals, which are linked to individual goals
Progress is made visible so everyone can see how things are tracking
Progress is discussed every week
Objectives (projects) are reviewed and updated every quarter
It is worth noting, that the OKR approach does not help you choose the right projects in the first place. They’re just an organized way to track projects you have already chosen. To determine whether or not your projects are strategically sound requires a disciplined, well thought out strategic planning methodology.
OKRs are not KPIs.
Your organization already has a business model that covers the things you do every day to create leads, make sales, provide your products and services, keep your customers happy, grow cash and make profits. Let’s call this stuff “Business As Usual”.
Strategic Projects are about “creating what will be”, whereas “Business As Usual” is about “improving what is.”
KPIs (Key Performance Indicators) are what you use to measure the critical success factors that drive your current operating model. KPIs drive Business As Usual.
That’s not to say that your operating model is always going to be the same. Your strategic planning may identify the need to transition to a new operating model in order to ensure your future success and survival.
If you lack of a well-crafted strategy for your future success, it will eventually cost you. But regardless of whether you have a strategic plan in place right now, or not, you absolutely should be measuring KPIs to track and drive the success of your current operating model.
How to identify your KPIs
To keep things simple for now, figuring out your KPIs starts by looking at the key elements of your current operating model and asking yourself the following questions;
1. What are the key functional areas of our current operating model?
2. What result or outcome are we looking to achieve in each functional area?
3. What “activities” or “actions” drive this outcome?
4. What “effectiveness” measures let us know how well these activities are being performed?
Results are important, but you can’t manage results. Activity and effectiveness measures are things you have the ability to manage and improve. These two areas are where your KPIs are to be found. OKRs are good-to-have. KPIs are must-haves, because they drive your business success. Each functional area of your business will have a small handful of KPIs that drive the outcomes you seek. Keep these scores in front of your team, and discuss them every week in your team meetings.