What Is the Difference Between OKRs and KPIs—And Which One Should I Use?

As a small business leader, you’re always looking for ways to improve your operations, align your teams, and measure performance, and you’ve probably heard the terms OKRs and KPIs. Often, they are used interchangeably, but they serve different purposes.

While both of these types of metrics help track objectives, OKRs focus on aligning teams and leaders around strategic goals and desired outcomes but don’t provide benchmarks. KPIs, on the other hand, provide benchmarks to measure how technology solutions are performing but don’t necessarily create alignment. Using the wrong one or trying to make one fit both needs could lead to frustration.

In this article, we’ll clarify the difference between OKRs and KPIs and provide tips on when to use which one. Once you understand how OKRs and KPIs work together, you’ll be set up for better alignment across your company and have effective metrics in place to improve operations.

What are OKRs?

OKRs use specific, measurable, achievable, relevant, and time-bound (SMART) objectives to track progress toward a desired outcome. For small and medium businesses, OKRs offer a simple, flexible way to set objectives across the organization and break down how to achieve them through specific and measurable key results. Rather than a broad vision statement, OKRs focus everyone on tangible goals for the next quarter or year.

OKRs have two parts:

• Objectives: Objectives are statements that define what the organization or team wants to achieve within a specific time frame. They should be ambitious, qualitative, and provide a clear direction for everyone involved. They should not be overly detailed or prescriptive but serve as guiding principles.

• Key Results: These are outcomes that can be measured to indicate progress toward the achievement of the objectives. Key results should be specific, quantifiable, and time-bound targets that provide a way to track and determine performance. They’re often expressed as numerical values or percentages, making it easier to measure progress.

Here is an example OKR:

With this OKR, you can see the objective the business wants to achieve is clearly stated, but in general terms. The key results, however, have very specific numbers that allow the business to track progress toward the objective.

When should I use OKRs?

OKRs work well for aligning multiple teams across an organization and driving strategic initiatives forward. They provide the best results when careful collaboration and transparency into progress are needed to accomplish major objectives.

OKRs can be used to:

• Communicate the organization’s strategic goals across departments: Setting organization-level OKRs and sharing them with teams like IT, marketing, sales, etc. helps align everyone to overall business priorities. Each group gains visibility into how their objectives should ladder up.

• Improve agility for teams: The flexible OKR process allows for continual check-ins so that any department can review changes in organizational needs and adjust their efforts accordingly.

• Facilitate cross-functional engagement: Collaborative OKR setting fosters shared objectives across business units and functions. Teams gain clarity into expectations and can jointly work toward goals. This enhances communication and collaboration between previously siloed groups.

However, OKRs should not be used for business-as-usual tasks. They should be reserved for major strategic initiatives or critical priorities that require multiple teams to be involved because OKRs require focus, alignment, and the ability to track and adjust.

An example of where OKRs should be implemented is when a company wants to overhaul its customer service approach. This initiative will require coordination across departments like IT, customer support, and marketing. OKRs become invaluable for alignment in this scenario. They enable a focused strategy discussion for how each team can work toward the shared vision. Rather than broad objectives, OKRs describe tangible goals for improving customer service along with key results that can be measured. Each department can own and track results through centralized OKR software.

What are KPIs?

KPIs stand for key performance indicators and are used for measuring and evaluating the performance of a specific activity, initiative, or ongoing process. KPIs help businesses of all sizes to track their progress towards their goals and to identify areas where improvement is needed.

Just like the key results of OKRs, KPIs should also be specific, measurable, relevant, and time-bound (SMART). This is why they are usually expressed as numbers, percentages, ratios, or scores that reflect how well you are achieving your goals or meeting your standards. KPIs can be categorized into different types, such as:

• Financial KPIs: These focus on the financial aspects of a business and help assess its profitability, revenue growth, cost management, and overall financial health. Examples include revenue growth rate, gross profit margin, return on investment (ROI), and cash flow.

• Customer KPIs: Customer-centric KPIs measure the satisfaction, loyalty, and engagement level of customers. These provide insights into customer acquisition, retention, and overall customer experience. Examples include customer satisfaction score (CSAT), customer churn rate, net promoter score (NPS), and average order value.

• Operational KPIs: These help businesses measure the effectiveness of operational processes. They often focus on productivity, quality, and resource allocation. Examples include product cycle time, defect rate, inventory turnover, and employee productivity.

• Sales and marketing KPIs: These KPIs help businesses measure the reach, lead generation, conversion rates, and revenue generated through sales and marketing activities. Examples include lead-to-customer conversion rate, customer acquisition cost (CAC), marketing return on investment (ROI), and website traffic.

These are just a few examples of the different types of KPIs that businesses use. The specific KPIs relevant to your business will depend on factors such as its industry, goals, and operational processes. In the next section, we’ll help you determine when you should be using them.

When should I use KPIs?

Measuring the performance of technology stacks, processes, or strategies within a business isn’t just about crunching numbers. It’s about creating a narrative that speaks to how well technology is supporting operations or enhancing overall business performance. KPIs are the supporting evidence that backs up this narrative.

Because of the story-telling aspect of KPIs, the technical types of KPIs we introduced in the last section can be simplified into three categories of value, cost, and risk that will make more sense to executives who view them:

• Value: Value KPIs measure the benefits or outcomes and include revenue, profit, customer satisfaction, and market share.

• Cost: Cost KPIs measure the expenses or resources involved and include budget, time, staff, or equipment.

• Risk: Risk KPIs measure the potential challenges and include security breaches, downtimes, errors, or compliance issues.

We can take an example of how all three of these categories can be used to report to senior executives from Gartner. [1] In this example, a CIO has been asked to share performance metrics of a new technological initiative using KPI software. To support this narrative, the CIO focused on a set of KPIs that cover various aspects of value, cost, and risk:

Each of these KPIs serves different purposes. Lagging indicators reflect past outcomes: how much new revenue has been generated, expenditure levels, and any major issues that may have occurred. Leading indicators guide future decisions, assisting executives in identifying where to invest resources for further growth and improvement.

OKRs vs KPIs: Which is best for my business?

Though sometimes combined, OKRs and KPIs serve different but complementary purposes. OKRs are aspirational goals that are used to drive change, while KPIs are metrics that are used to measure performance. OKRs are typically set for a quarter or a year, while KPIs are typically tracked on a daily, weekly, or monthly basis.

OKRs are often used by technology companies, in startups, or for new business initiatives, while KPIs are used by all types of businesses. However, there is a growing trend of businesses using both OKRs and KPIs. For example, a company might use KPIs to maintain and optimize its existing operations and OKRs to achieve ambitious goals, like launching a new product. Or they might use OKRs to set goals for their teams and KPIs to track the progress toward those goals.

Next steps

If you were feeling confused about how to implement goals and metrics at your company, you’re not alone. Many businesses combine OKRs and KPIs or rely on only one when both would be beneficial:

• Use OKRs to define strategic objectives across departments and outline the key results that will lead to success. They keep everyone aligned on the most important initiatives.

• Use KPIs to consistently track the performance of technologies, processes, and operations through quantitative metrics. They provide visibility into progress.

Rather than making it an either/or decision, using both OKRs and KPIs positions your company for better alignments on objectives and the ability to monitor outcomes.