OKR vs KPI: How Both Help Us Thrive In Challenging Times
MentorMate is a growing, thriving, award-winning company that enjoys high employee satisfaction. We also have an excellent reputation for delivering quality, consistent services for our clients. How do we do it, especially in the context of global economic uncertainty? In part, it’s because we use goal management frameworks like “Objectives and Key Results” (OKR) and Key Performance Indicators (KPI) to help manage our business. Let’s take a look at OKR vs KPI.
But, first:
Goal Management Frameworks — What Are They?
Running a business is hard. Business, environment, and economic climates keep changing and competition for both talent and clients continues to increase. These factors make it incredibly important for company management to make data-driven decisions and for company staff to understand the priorities of the business.
To meet these needs, management theory and philosophy migrated over the past 70 years into something called “Management By Objective” (MBO). Peter Drucker originally introduced this concept to the world in his 1954 seminal book, The Practice of Management.
At a high level, MBO means that management and employees work together to define the objectives of the company. They also decide how to achieve each objective and monitor progress along the way.
OKR Overview
The history of OKRs is well documented, but they weren’t always called OKR. They were just how former Intel CEO Andy Grove managed the company. One of Intel’s employees, John Doerr, took the idea with him when he left, gave it the name OKR, and started utilizing it wherever he went.
Big names like Google, Amazon, Adobe, Spotify, LinkedIn have since used OKR to help run their companies. But what exactly does OKR mean?
In OKR, “Objective” answers the question “Where do we want to go?” while “Key Results” answers “How do we see if we’re on track to get there?” Good objectives clearly express the goal, intent, and value of the objective. Good key results express outcomes that, when achieved, result in meeting the objective.
Here’s an example of an OKR that any company might have:
Objective: Become a top employer of choice in every location we operate
First Key Result: Reduce overall turnover from 15% to 10%
Second Key Result: Improve employee satisfaction survey results by 5 points
Third Key Result: Offer on-site child care options for employees at each location
What’s So Special About OKR?
As using OKR spread from company to company over the past 30 years, the business world learned a lot and a set of best practices emerged. Some of them are contrary to what you might expect or have experienced working with other MBO frameworks.
You shouldn’t achieve all of your objectives when using OKRs.
If you are, you’re not doing it right. Take a second to read that one more time and try to digest it before reading on. It really is a key reason why OKRs are so successful.
The reason businesses adopt OKRs is to unlock the talent and innovation in their workforce and enable them to achieve great things. That is, they want to accelerate innovation across the company.
By setting lofty objectives and empowering their employees to strive towards them, they’ll accomplish far more than they thought possible when they first set them. They won’t get these same results by setting “achievable” objectives and punishing their workforce if they don’t meet them.
Make OKRs visible to everyone in the company.
All company OKRs should be visible to everyone in the company. This includes department, team, and individual OKRs as well. This “radical visibility” helps everyone in the company understand what everyone else is working on and why. It results in improved collaboration and efficiency across the workplace.
Finally and, I must admit confusingly, OKRs are not to be used during personal performance reviews. That is, they aren’t meant to replace the traditional career goal setting that managers and employees often use to drive individual performance.
If OKRs are used in performance reviews, employees shy away from the aspirational foundations of OKRs in deference to their personal preference of getting a good performance review. Truly unlocking innovation in the workforce requires divorcing OKRs from personal performance reviews so employees feel safe taking risks and reaching high.
Wait, what about KPIs?
I’m glad you asked. KPI stands for key performance indicator. KPIs are by definition a measurement. They measure the success of something important (aka Key), and that measurement is an indicator of the performance of the business.
Businesses come up with different KPIs based on specific circumstances. However, it’s fairly common to see financial and production KPIs such as “Revenue per week” and “# widgets sold per month”. These are important things for the business to monitor over time, identify trends, and take corrective action when the KPIs reach certain thresholds (sometimes called “controls”).
MentorMate uses a whole bunch of KPIs to track the ongoing health of our business and our employees.
Things like turnover rate are a lagging indicator of job satisfaction, for example. Utilization rate, on the other hand, is a leading indicator of job satisfaction. Keeping talented people busy working on important client projects keeps them happy. Too long on the bench and they get bored, and, eventually, will go look for work elsewhere.
As a management team, we use these and many other KPIs to track the health of our business over time.
The interesting thing about KPIs is they fit very nicely as a “Key Result” in the OKR framework.
In fact, quite often, changing the value of a KPI is used as a key result in an OKR. That is, apply a target value to any KPI, and you can use it as a Key Result.
In our OKR example, we leverage two existing KPIs and apply target values to them in support of achieving the overall objective of becoming an employer of choice.
Objective: Become a top employer of choice in every location we operate
First Key Result: Reduce overall turnover from 15% to 10%
Second Key Result: Improve employee satisfaction survey results by 5 points
Third Key Result: Offer on-site child care options for employees at each location
OKR vs KPI — You Need Both
In the end, it’s not OKR vs KPI, it’s OKRs and KPIs. You need both. You use KPIs to measure the overall health and performance of your business, and you drive improvement and accelerate innovation through OKRs.
If you want to make something bigger, better, faster, more efficient, create an OKR that’s lofty and unleash the innovation of your workforce to achieve them. In the meantime, however, you have to make sure the rest of the business is still operating as it should. For this, you monitor your KPIs.
At MentorMate, we use OKRs to prepare ourselves for rapidly changing business, environmental, and economic climates. We use them to make offshore easy, build bigger ideas together, and become a strategic advantage for our clients. Along the way, we use KPIs to make sure our clients and employees remain delighted.
Want to learn more? There are plenty of resources available online and in print on OKR vs KPI. I recommend starting with Andy Grove’s book High Output Management and following it up with John Doerr’s Measure What Matters. And if you’re in the product development business, toss in Inspired by Marty Cagan.
Original post can be found here.
Authored by Ian Good:
Ian is MentorMate’s Director of Delivery and is responsible for making sure our projects are delivered on time and on budget. He establishes best practices, policies, tools, and procedures and works with our project management team and technical manager team in Bulgaria to achieve successful results. Over the course of his career, he’s worn many hats including Software Engineer, Development Manager, Operations Manager, and Program Manager so he’s very familiar with many aspects of the software industry. In the spring, summer, and fall, you can find him running, biking, walking, and hiking while in the winter he spends more time indoors working on his Diablo III physique.
