If you’re part of a fast-growing organization, you likely use key performance indicators (KPIs) to see how departments and teams are progressing with their projects and goals. You might also monitor KPIs to track shifting metrics like profit margins, turnover rates, and customer retention rates.
But perhaps you’ve also been tasked with implementing objectives and key results (OKRs), as the OKR framework has proven to be a powerful tool for companies that want to set and reach ambitious business targets.
OKRs and KPIs are both helpful goal-setting strategies. To educate your team in using them effectively, you need to know how each approach works, how they differ, and how you can use them to inform each other. You should also research examples and best practices for implementing OKRs and KPIs and increasing company-wide alignment.
That’s why in this guide, we explore:
- How OKRs and KPIs work, with examples
- The key difference between OKRs and KPIs
- Best practices for working with OKRs and KPIs
- Common mistakes to avoid
We also provide you with an at-a-glance infographic you can share with your team to explain the difference between these two metrics.
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What is a KPI?
A KPI is a basic success metric that helps individuals, teams, and companies track progress toward a distinct result. When setting specific goals, key performance indicators are an effective method for creating a set of detailed outputs to focus on. The great thing about KPIs is they can work for any organization or department — whether it’s sales, marketing, operations, HR, or IT.
However, it’s worth noting that KPIs can show how you’re performing at a specific time but don’t provide much information regarding your progress; you need to put them in the proper context to drive the desired outcomes.
Let’s look at an example of a KPI to better understand what they are and how they function.
Let’s say your CEO asks your Head of People Ops, “How often and how quickly are employees leaving our company?” Your Head of People Ops can easily find this figure because it’s one of the metrics they consistently track: your company’s employee turnover rate, which is currently 19%. They decide to set a KPI target of 12% aimed at reducing churn.
In this example, the employee turnover rate is the KPI. And it’s one among many KPIs your people ops team tracks, alongside key performance indicators like absenteeism rates, the number of overtime hours worked, and employee satisfaction.
What is an OKR?
An OKR is a goal-setting strategy with two fundamental components: objectives and key results. While an objective is a goal that a company, team, or individual wants to achieve within a defined period, key results are the metrics that show whether you’ve completed the objective. For every objective, you should have three to five key results.
You may have heard that you should make your objectives ambitious — and that’s true. But more specifically, align your objectives with your company’s mission and strategic goals for the future. That way, it’ll be easier to create OKRs that cascade from the top of the company down — also called cascading goals — and develop initiatives, on team and individual levels, that will push the OKRs over the finish line.
Let’s look at the example below to get a better picture of what OKRs are and how they work.
In this OKR example, you’re the Head of Sales, and one of your department initiatives is to convert more prospects into leads. So, you make “increasing the number of qualified leads” your objective, and your leadership team collaborates to come up with three key results:
Objective | Increase the number of qualified leads
- Key result 1 | Reduce the number of steps in the demo request process
- Key result 2 | Guide the sales team to run demos with 15 new leads every week
- Key result 3 | Answer 70% of sales inquiries within 12 hours
“OKR and KPI frameworks must first be understood by every responsible and accountable team member at some level before they can be implemented effectively.
Once a team, department, or company are all on the same page in terms of what OKRs and KPIs are (and have had a chance to discuss and collaborate), there’s a shared fate and purpose in place that lets those teams all operate together effectively.”
— Erik Harbison, President and Co-Founder of The Marketing Help
The key differences between OKRs & KPIs
OKRs and KPIs aren’t interchangeable, but they can complement each other. And knowing the differences between OKRs and KPIs ensures that you use both effectively.
- KPIs are raw performance metrics that tell you how your business performs, while an OKR is a framework for goal setting. When building your OKRs, you’ll determine what KPIs you’ll need to track your progress toward your objective.
- OKRs are always future-oriented, while KPIs tell you how you’re doing at present and in the past. That’s why relying on KPIs alone to measure your business performance won’t help you move the needle forward over time.
- KPIs don’t change; OKRs do (and regularly). You may change what KPIs you rely on as your goals shift over time, but the KPIs themselves remain constant.
- KPIs are standard benchmarks that departments and organizations use within industries. But your OKRs should be unique to your company and mission. You may draw goal-setting inspiration from your competitors or industry peers, but your key results should reflect the specific outcomes your company needs to realize.
- KPIs communicate an opportunity or issue, while OKRs provide a framework to address them. If your employee absenteeism rate is high, it may be time to create an objective focused on increasing employee engagement.
Should you have OKRs & KPIs?
You should have both OKRs and KPIs, but you don’t always have to use them simultaneously. Companies work with KPIs on an ongoing basis to track how they’re doing — it’s like routine maintenance. But you can also put your KPIs to work by using them to build OKRs and track your progress, as in the following example:
Objective | Reduce employee turnover in the next six months
- Key result 1 | Reduce employee turnover from 25% to 17%
- Key result 2 | Increase your employee Net Promoter (eNPS) score from 10 to 20
- Key result 3 | Attain a 90% response rate for 360° feedback surveys
In this instance, your KPIs are turnover rate, eNPS score, and survey response rate. And as you amp up your engagement initiatives, you’ll track how these KPIs change over time to monitor progress.
You can also use KPIs and OKRs in a performance management context to see how your team members perform. And if your company requires employees to set individual OKRs, managers can discuss their current KPIs with them and understand their progress toward personal goals.
🔎 What’s the difference between KPIs and key results? A KPI can be part of a key result, but a key result is more specific.
If you want to improve your eNPS score, your KPI would be your eNPS, and your full key result could be to increase your eNPS from 20 to 30.
OKR & KPI best practices
Knowing how KPIs and OKRs work is the first best practice for creating effective, sustainable goals. Now, let’s explore other suggestions for what to do (and what not to do) when setting and tracking KPIs and OKRs.
OKR best practices
- Give your employees time to learn, absorb, and workshop their OKRs before they set them: Sometimes, OKRs take a couple of tries to get right. Work with your staff members to experiment and play around with some ideas before officially establishing their OKRs.
- Make your objectives ambitious, but your key results specific and attainable: Your key results are the action steps allowing you to reach your goals. If you make them too hard to reach, you’ll be less likely to achieve your objectives.
- Register your OKRs with a system everyone can access: The goal isn’t to micromanage your people, but to facilitate collaboration and accountability. This is where an OKR setting and tracking software can help. Organizations use Leapsome’s OKR software, for example, to keep their OKRs in a centralized space where they can set them, collaborate on them, track them, and report on them.
- Schedule regular OKR check-in meetings with your staff: We recommend running OKR check-ins biweekly or monthly. That’s often enough to ensure accountability and give everyone time to review progress and priorities.
Common mistakes to avoid
- Not setting a time frame for each OKR: Having a deadline for your goals makes tracking — and achieving — them easier.
- Drawing inspiration too closely from your competitors: Your competitors may move in the same industry, but they most likely don’t share your strategic vision nor face the exact same challenges.
- Not checking OKRs regularly: It often happens that companies set and forget their OKRs. Setting OKRs is a good starting point, but you won’t make progress without regular check-ins and revisions.
- No communication between managers and employees about OKR progress: It’s a manager’s responsibility to help reports set OKRs — but after that, it should be a shared effort. Managers must encourage their teams to take initiative with their OKR upkeep.
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KPI best practices
- Schedule regular KPI check-ins: Ensure every department understands which KPIs are essential to success, and designate someone who will review them regularly.
- Make your KPIs transparent in your organization: Making company KPIs available for everyone doesn’t just help with cross-departmental alignment. It makes accountability easier, too.
- Incentivize hitting KPIs: Put your employee rewards and recognition program to work. Offer monetary or non-monetary rewards to employees or teams that consistently meet or exceed their KPIs.
- Use your KPIs to discover where to improve and set your OKRs accordingly: If you have difficulty meeting one of your KPIs, you can address that issue with your next OKR. And if you regularly have a hard time meeting your KPIs, you may need to reassess them.
Common mistakes to avoid
- Tracking KPIs without your OKRs in mind: You may, for example, have noticed a decrease in absenteeism over two months. That’s great! But is the decrease significant enough to get you closer to your objective of reducing your absenteeism rate by 2%?
- Measuring KPIs without taking action: If you notice a KPI heading in the wrong direction, don’t wait. Flukes happen, but you shouldn’t count on them; it’s best to diagnose and address issues before they get out of hand. You can also investigate when KPIs are on track so you can replicate what’s working.
- Too much reliance on industry norms: Industry targets are helpful to a point, but they may not help growing companies. Keep them in mind when setting your own KPI targets, but don’t make them your sole guide.
- Not celebrating KPI wins: Celebrating wins is essential for boosting morale and motivating your employees. KPI wins are always worth celebrating, even if it means a quick announcement in your company’s Slack channel.
Improve your KPIs & meet OKRs with Leapsome
Educating your leadership and teams about the differences between OKRs and KPIs is crucial to get buy-in and generate effective, sustainable outcomes. But once you have company-wide support, where will you record and track your goals for easier collaboration and transparency?
That’s where Leapsome comes in. Our platform makes it intuitive for companies to set goals they can align all their people behind, and our tools ensure it’s simple for teams to analyze and track their progress.
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FAQs about OKRs vs. KPIs
Should you have OKRs & KPIs?
Yes, you should have both objectives and key results (OKRs) and key performance indicators (KPIs) — you need both to drive outcomes and measure success. If you have OKRs but no KPIs, you’ll have a goal and direction for your work but no metrics to show if you’re on the right track. And if you have KPIs without OKRs, you won’t know if your success metrics are getting you where you want to go.
For example, if one of your company’s OKRs is to reduce employee turnover, you can use KPIs to help you create a roadmap to get there. If you use employee attrition as a KPI, your first key result could be reducing employee attrition from 25% to 17%. Your second KPI could be your eNPS, with a key result of increasing your eNPS from 10 to 20.
Can OKRs replace KPIs?
No, objectives and key results (OKRs) cannot replace key performance indicators (KPIs) — but they can encompass them. Let’s illustrate this with an example.
Let’s say you want your social media team to increase your company’s brand recognition. So you come up with a few OKRs, like the following:
Objective | Increase brand recognition
- Key result 1 | Increase LinkedIn engagement from 25% to 40%
In this example, your KPI would be LinkedIn engagement. So, while necessary, KPIs are incomplete unless you put them to use in your OKR structure.
Why are OKRs better than KPIs?
Objective and key results (OKRs) aren’t necessarily better than key performance indicators (KPIs), but they are more comprehensive. KPIs are independent metrics, and you can use them to build effective OKRs. Examples of KPIs might be social media engagement, customer retention, leads per month, conversion rate, or cost of materials, to name a few.
It sometimes happens that teams and leadership don’t fully understand the difference between OKRs and KPIs, or they lose sight of it.
Let’s say your marketing team’s OKR for the next quarter is to increase brand recognition. To meet this goal, your marketing team decides to increase their content output on LinkedIn because of social media KPIs they’ve utilized in the past. At the end of the quarter, they report that they’ve increased their content output but haven’t increased engagement; this is because they failed to align their KPIs with their objective (increasing brand recognition).