Are OKRs and KPIs the same thing?
To answer this, in this article we'll discuss:
What is a KPI?
What is an OKR?
What’s the difference between the two?
We will also take a closer look at the Objective and Key Results (OKR) goal-setting and goal management system that is used by some of the top companies in the world, including Intel, Google, LinkedIn and more.
Let's get started.
What is a KPI?
KPI stands for Key Performance Indicator.
KPIs are business metrics that are directly relevant to specific business goals and are used to track the progress towards those goals.
For example, here are some industry-standard SaaS KPIs Jesse Mawhinney listed in his article How to Choose the Right KPIs for Your Business:
Monthly recurring revenue
Cost per acquisition
Average revenue per retainer
Customer lifetime value
SaaS companies tend to set MRR (monthly recurring revenue) goals.
The metrics that Jesse listed are directly relevant to the goal of increasing MRR by a certain percentage or to a specific dollar amount.
That means that observing these metrics allows the company to evaluate their progress towards their MRR goal.
KPIs depend on the business model and the main goal of the company. More often than not, however, they tend to be metrics relevant to revenue, profitability, or growth.
It’s important to understand that while all KPIs are metrics, not all metrics are KPIs.
There are countless metrics you can track, from revenue to conversion rates to social media likes—the list goes on. That doesn’t mean that they are all equally important.
In this article we'll focus on OKRs and KPIs, but if you want to learn more you can read about the difference between KPIs and metrics in my previous article: What is the Difference Between a KPI and a Metric?.
What Is an OKR?
OKR stands for Objectives and Key Results.
OKR is a goal-setting and goal management system that was developed by Andy Grove at Intel and popularized by John Doerr who introduced it to several companies including Google.
Within this system, OKR refers to a goal which is comprised of two components:
Objective: This is the goal you want to achieve.
Key results: These are the measurable results that you need to produce in order to achieve that goal.
As discussed in this article on the benefits of OKRs, they help to increase focus, alignment, commitment, and also make it easy to track progress while encouraging the use of ambitious stretch goals.
Keep in mind that a good OKR needs to be measurable—it must be clear whether you achieved your goal or not.
Here’s an example of a company-wide SaaS OKR:
Usually, companies set OKRs at the following three levels:
There are normally 3-5 OKRs set at each of these levels. Having more than 5 OKRs tends to be counter-productive.
There are also two main timeframes for OKRs:
Quarterly OKRs are designed to support the annual OKRs.
OKRs are graded on a scale from 0 to 1 to measure success:
When a key result is binary, it’s graded as either 0 or 1
When a key result is on a spectrum, it’s graded anywhere between 0 and 1
For example, if a key result is “Launch feature X by the end of the quarter”, then it is binary. Did you launch it or not?
Meanwhile, if a key result is “Increase traffic to the homepage by 10,000 unique visitors per month”, then it’s on a spectrum.
If you didn’t get any new visitors, then the grade is 0 and if you got at least 10,000 new visitors, then the grade is 1.
However, if you got 7,000 new visitors, then the grade is 0.7.
Grading isn’t always this straightforward, but you get the idea.
Also, one interesting feature of OKRs is that the objective is supposed to be an ambitious stretch goal. This means that you intentionally set an objective that you aren’t sure that you can achieve.
In his interview with MIT’s Donald Sull, John Doerr says that Larry Page put it best:
"I would much prefer that a team set a goal to go to Mars and know that if they fall short, they are still likely to achieve something extraordinary, like get to the Moon."
At Google, they aim for an OKR score of 0.6 - 0.7, which means that you are expected to fall short despite doing your best. In fact, consistently hitting an OKR score above 0.7 is a cause for concern, since that means that you are not being ambitious enough.
It’s important to note that OKRs are not tied to compensation because the system is meant to encourage risk-taking.
OKRs vs KPIs
As I have just explained, OKRs consist of two parts:
“Key results” is synonymous with “KPIs” as both refer to a business metric that is directly relevant to a specific business goal (objective).
This means that every OKR necessarily includes at least one KPI, although it's usually 3-4 KPIs.
You use KPIs or key results to stay on track and evaluate your progress towards the objective.
How Does Google Implement OKRs?
Okay, so how does implementing this goal setting system look in practice?
Google is the most well-known company that uses OKRs, so let's look at how do they do it.
Rick Klau, now a senior operating partner at GV (Google Ventures), gave a talk on OKRs where he discussed Google’s approach, and below you'll find a few of the key insights from the talk.
He shared some of the OKRs best practices from John Doerr’s deck, these include:
Maximum 5 objectives with 4 key results
60% of objectives from bottom up
All must mutually agree - no dictating
Not a performance evaluation weapon.
60% - 70% “grade = good
40% “grade” = bad
Continue incomplete key results ONLY if they are still important
Here’s one of the sample of his personal OKRs that he shared with the audience:
I’d like to draw your attention to the best practice of “60% of objectives from the bottom up”.
Rick said that he thinks that it’s not the exact percentage that is important, but the overall idea that more than half of the company’s objectives need to be coming from the individuals up through the organization. As he explains:
“If there’s too much top-down dictation, it’s going to be hard to inspire a lot of those people to be working on things, because they are going to be told what to do instead of telling you what they think is the best use of their time and talent"
This is another key element of the OKR system.
Intelligent people don’t appreciate being told what to do. You need to empower them to make their own decisions. This will not only increase their motivation but also decrease your workload because it will require less management on your part.
Of course, the CEO of the company still needs to lead the organization towards their vision, which is why the top-down and the bottom-up OKRs balance should be around 50/50.
Rick also explained that one shouldn’t get carried away with grading their OKRs.
According to him, the point of grading is to provide feedback to the individual, the team, and the company. He feels that the grades themselves don’t matter except as directional indicators of how you’re doing.
“If you’re spending more than a few minutes at the end of a quarter summarizing your grades then you’re doing something wrong. The work should go into delivering the OKRs, not grading them.”
Here’s the grading of the OKRs in the previous image:
Taking OKRs Seriously
Rick said that at Google it was always clear that from the senior management all the way down OKRs mattered.
In fact, when he was in a product team, Jonathan Rosenberg sent this email calling out product managers who haven’t posted their Q4 OKRs:
Apparently, at the beginning of every quarter, Jonathan Rosenberg would send out a public shaming email similar to this one. Rick pointed out that when you get an email like this, you know that OKRs matter.
“As an individual, I never wanted to be on that list. I never wanted the person who was responsible for my team to identify me as holding the rest of the group back,” he remembers. “Pretty powerful. And simple.”Transparency
At the beginning of the lecture, Rick pointed out that: “everyone’s OKRs, from Larry and Sergey on down, are public within the company”.
Towards the end of the lecture, when discussing the timeline of setting OKRs, he emphasized that this process will fail unless everyone in the company can see what everyone else is working on.
That said, it’s important to note that transparency is essential for the OKR system.
Should You Implement OKRs in Your Own Business?
It's likely that you're in a very different situation than Google...so you may be wondering whether it’s worth bothering with OKR as a small-medium sized business.
In the talk mentioned above, Rick Klau said one should implement OKR goals in their company as soon as possible because the sooner it is part of the company’s DNA, the better off you’ll be.
“The longer you wait, the longer you are going to have habits form within the company about how things are done, the more inertia you are going to have to overcome,” he explained. “So even if it feels a little artificial if you are a company of five, the discipline it brings is immeasurable.”
There’s absolutely no reason to wait. You can start implementing OKRs even if you are a company of one. That will only make things easier once you start hiring people.
If you already have a team, then it’s probably safe to say that implementing OKRs will help you achieve more.
There’s also no law that says that you must have 4-5 OKRs at each level, so if that seems overwhelming, just start with one OKR per level, meaning:
One company-wide OKR
One OKR per team
One OKR per person
If you want to see an example, check out this startup OKRs template created by Niket Desai.
Also, remember that if you want to get the most out of OKR, you need to take it seriously.
In the previously mentioned interview, John Doerr said that OKR fails because the leader is not committed. And what shows that commitment?
“Does the CEO write down her objectives and key results every quarter? The personal ones. And are those different than the ones for the company overall?” he asks. “And will she stand up in front of the entire organization every quarter at an all-hands meeting and review their personal successes and failures?”
So if you do decide to use OKRs in your business, don’t approach it in a half-hearted manner. If you want your team to take OKRs seriously, then you need to take them seriously yourself.
Summary: OKRs vs. KPIs
As discussed, KPIs are business metrics that are directly relevant to a specific business goal and are used to evaluate the progress towards that goal.
Meanwhile, OKRs are combinations of those business goals and the KPIs relevant to them.
Objectives and Key Results (OKRs) are a powerful goal-setting and goal management system that can help you take your business to the next level.
Looking for more clarity, focus, and discipline in your business? Give the OKR system a try.
Want to learn more about OKR?
Here are four resources (two of which I have referenced in this article) that will help you understand and implement this system better.
John Doerr’s “Measure What Matters”: In this book, the man who popularized OKR explains how to implement this system in your organization.
John Doerr’s interview with MIT’s Donald Sull where he explains the basics of OKR in less than 30 minutes.
Rick Klau’s talk “How Google Sets Goals: OKRs” where he discusses OKR implementation by Google.
The What Matters website, which provides OKR inspiration and OKR examples.
You can also use these resources to bring your team up to speed on OKRs.
Have any questions about OKRs vs. KPIs?
Let us know in the comments below.