We’re probably quite familiar with terms like KPI – Key Performance Indicators or OKR – Objectives and Key Results, two metrics that are used in almost every business model around the globe. However, not everyone clearly understands what OKRs and KPIs are or the difference between KPI versus OKR.
In this article, AhaSlides will have a more accurate view of OKR and KPI with you!
What is a KPI?
KPI (Key Performance Indicators) is the use of criteria to evaluate the performance and effectiveness of the work of an enterprise or an individual in achieving a specific set goal in a specific period of time.
Besides, KPI is not only used to evaluate the work performed but also to compare the performance with other organizations, departments, and individuals.
Characteristics of good KPI
- Measurable. The effectiveness of KPIs can be quantified, and accurately measured with specific data.
- Frequent. KPI must be measured daily, weekly, or monthly.
- Concretize. KPI methodology should not be assigned in general but should be tied to a specific employee or department.
As mentioned above, KPIs are measured by specific quantitative indicators. In each industry, KPI changes differently to match the specifics of the industry.
Here are some common KPI examples for a few specific industries or departments:
- Retail Industry: Sales per Square Foot, Average Transaction Value, Sales per Employee, Cost of Goods Sold (COGS).
- Customer Service Department: Customer Retention Rate, Customer Satisfaction, Traffic, Units per Transaction.
- Sales Department: Average Profit Margin, Monthly Sales Bookings, Sales Opportunities, Sales Target, Quote-To-Close Ratio.
- Technology Industry: Mean Time to Recover (MTTR), Ticket Resolution Time, On-time Delivery, A/R Days, Expenses.
- Healthcare Industry: Average Hospital Stay, Bed Occupancy Rate, Medical Equipment Utilization, Treatment Costs.
What is an OKR?
OKR – Objectives and Key Results is a management approach based on specific objectives which are measured by the most key results.
OKRs have two components, Objectives and Key Results:
- Objectives: Qualitative description of what you want to achieve. Requests should be short, inspirational, and engaging. Objectives must be motivating and challenge human determination.
- Key Results: They are a set of metrics that measure your progress toward the Objectives. For each objective, you should have a set of 2 to 5 Key Results.
In short, OKR is a system that forces you to separate what matters from the rest and set clear priorities. To do that, you must learn to prioritize your work and let go of the things that affect your final destination.
Some basic criteria to determine OKR:
- Targets to improve customer satisfaction
- Target to increase recurring revenue
- Employee performance scale indicator
- Increase the number of customers consulted and supported
- Target to reduce the number of data errors in the system
Let’s see some examples of OKRs:
Digital marketing goals
O – Objective: Improve Our Website and Grow Conversions
KRs – Key Results:
- KR1: Grow website visitors by 10% every month
- KR2: Improve conversions on Landing Pages by 15% in Q3
O – Objective: Grow Sales in the Central region
KRs – Key Results:
- KR1: Develop relationships with 40 new targets or named accounts
- KR2: Onboard 10 new resellers that focus on the Central region
- KR3: Offer extra kicker to AEs to achieve 100% focusing on the Central region
Customer Support Goals
O – Objective: Deliver a World-Class Customer Support Experience
KRs – Key Results:
- KR1: Achieve a CSAT of 90%+ for all Tier-1 tickets
- KR2: Troubleshoot Tier-1 issues within 1 hour
- KR3: Resolve 92% of Tier-2 support tickets in under 24 hours
- KR4: Each support rep to maintain a personal CSAT of 90% or more
KPI versus OKR: What’s the Difference?
Although KPI and OKR are both indicators applied by businesses and high-performing teams. However, here are some differences between KPI and OKR that you should know.
KPI versus OKR – Purpose
- KPI: KPIs are often applied to businesses with stable organizations. Designed to centrally measure and evaluate employee performance. KPIs make the evaluation fairer and more transparent between the sentiments of the data to prove the results. As a result, the processes and activities of the organization will be more stable.
- OKR: With OKRs, the organization sets objectives, and defines the basis and results achieved for those goals. OKR helps individuals, groups, and organizations define priorities for work. OKR is usually applied when businesses need to plan a plan at a specific time. New projects can also define OKRs to replace unnecessary elements like “vision, mission”.
KPI versus OKR – Focus
The focus of the two methods is different. OKR with an O (Objective) means you need to define your goals before delivering key results. With KPI, the focus is on the I – indicators. These indicators point to the results outlined earlier.
An example of KPI versus OKR at the Sales Department
Examples of OKR:
Objective: To rapidly develop the business activities of the enterprise in December 2022.
- KR1: Revenue reached 15 billion.
- KR2: The number of new customers reached 4,000 people
- KR3: The number of returning customers reaches 1000 people (equivalent to 35% of the previous month)
Examples of KPIs:
- Revenue from new customers 8 billion
- Revenue from Re-sale customers 4 billion
- Number of products sold 15,000 products
KPI versus OKR – Frequency
OKR is not a tool to track your work every day. OKR is the goal to be achieved.
In contrast, you need to keep a close eye on your KPI every day. Because KPIs serve for OKRs. If this week still does not meet the KPI, you can increase the KPI for the next week and still stick to the KR that you have set.
Can OKRs and KPIs Work Together?
A brilliant manager can combine both KPIs and OKRs. The example below will show the perfect combination.
KPIs will be assigned with goals that are repetitive, cyclical, and require high accuracy.
- Increase the website traffic of Q4 compared to Q3 to 50%
- Increase the conversion rate from visitors on the site to customers who register for a trial: from 15% to 20%
OKRs will be applied to goals that are not continuous, iterative, not cyclical. For example:
Objective: Earn new customers from new product launching events
- KR1: Use the Facebook channel to get 600 potential guests to the event
- KR2: Collect information on 250 leads at the event
The Bottom Line
Whether it is OKR or KPI, it will also be an indispensable support tool to help businesses track each employee’s changing activities in the digital era.
Therefore, KPI versus OKR? It really doesn’t matter! AhaSlides believes that, depending on business requirements, managers and leaders will know how to choose the right methods or combine them, to help businesses grow sustainably.