If you’re like me, you hear (and perhaps even think) about OKRs constantly. While everyone wants to hit their OKRs, not many of us stop to think about what they are, where they come from, and how best to use them.
OKRs, or Objectives and Key Results, are a tool used by organizations to define and track goals and their associated measurable results. Businesses use OKRs to align individuals, teams, and entire organizations around a set of clear and ambitious goals.
The concept of OKRs was introduced by Andy Grove, the former CEO of Intel, in the 1970s. Andy Grove developed the OKR framework as a way to manage rapid growth and innovation at Intel. Grove believed that traditional management practices, which focused on hierarchical command and control, were not suitable for a rapidly changing competitive environment. He wanted a system that would align and motivate employees towards common objectives while allowing flexibility and adaptability.
The OKR framework was inspired by management theorist Peter Drucker's management by objectives (MBO) concept but was designed to be more agile and measurable. OKRs consist of two main components:
- Objectives: ambitious, qualitative goals that an organization or team wants to achieve. They are typically high-level and answer the question "What do we want to accomplish?" Objectives should be challenging, inspirational, and provide a clear direction and focus.
- Key Results: specific, measurable outcomes that define how progress towards the objectives will be evaluated. They answer the question "How will we know we've achieved our objective?" Key Results should fit the idea of SMART goals or Specific, Measurable, Achievable, Relevant, and Time-Bound.
The key characteristic of OKRs is that they are set collaboratively, with input from both managers and employees. They are typically defined on a quarterly basis, although the time frame can vary depending on the organization. Progress on OKRs is regularly tracked and reviewed, providing a framework for continuous improvement and alignment.
OKRs are intended to be aspirational, encouraging teams to set challenging goals that push the boundaries of what they believe is possible; in fact, you’ve come up with a sufficiently ambitious set of OKRs if you’ve hit 75% of goal achievement. They also emphasize transparency and alignment, as OKRs are often shared across the organization, fostering a sense of accountability and collective effort.
Google played a significant role in popularizing OKRs after John Doerr, a former Intel employee who joined Kleiner Perkins Caufield & Byers as a venture capitalist, introduced the framework to the company in the late 1990s. Since then, many other organizations, including startups, tech companies, and established enterprises, have adopted OKRs as a goal-setting methodology to drive focus, accountability, and alignment within their teams.
Now that we understand OKRs, my mind always jumps to the question: “How do KPIs fit into all of this? Are they the same as or a substitute for OKRs?”
Let’s begin with a similar overview of KPIs. KPI stands for Key Performance Indicator. It is a quantifiable metric used to evaluate the performance or progress of an individual, team, department, or organization towards achieving its objectives or goals.
The concept of KPIs dates back to the early 20th century when Frederick Taylor, a pioneer in scientific management, introduced the idea of using data and measurement to improve productivity and efficiency in industrial settings. Taylor emphasized the importance of defining standards and measuring performance against those standards.
However, the term "Key Performance Indicator" was coined later, and the modern understanding and usage of KPIs have evolved over time. In the 1950s and 1960s, Drucker’s MBO approach influenced the development of KPIs as a means to measure performance against predetermined objectives. (Note that both OKRs and KPIs are offshoots of Drucker’s original work!)
Over time, the use of KPIs evolved as management practices advanced. In the mid-20th century, management theories such as Total Quality Management (TQM) and the Balanced Scorecard further contributed to the development and adoption of KPIs.
TQM, popularized by management thinkers like W. Edwards Deming and Joseph Juran, emphasized continuous improvement and customer satisfaction. It introduced the concept of statistical process control and performance metrics to ensure consistency and improve quality.
Then, in the early 1990s, the Balanced Scorecard framework, developed by Robert Kaplan and David Norton, gained prominence. It expanded the concept of KPIs beyond financial measures to include a balanced set of indicators across various perspectives, such as customer, internal processes, and learning and growth.
Today, KPIs are widely used across industries and organizations of all sizes. They are customized based on the specific objectives and priorities of each organization and play a crucial role in performance management, strategy execution, and decision-making. With the increasing availability of data and technology, organizations can collect, analyze, and monitor KPIs in real-time, enabling more informed and proactive decision-making.
KPIs should be relevant, measurable, aligned with organizational objectives, and provide meaningful insights into performance. They can cover various areas, including financial metrics, customer satisfaction, employee productivity, operational efficiency, and more. The selection and tracking of KPIs are critical for organizations to assess progress, identify areas for improvement, and make informed decisions to drive success.
With our introduction of OKRs and KPIs out of the way, we can acknowledge that they’re both important tools for measuring and tracking performance. However, they have different purposes and are used in different ways.
OKRs are a goal-setting framework that helps organizations set ambitious goals and track their progress. OKRs are typically set quarterly and are cascaded down to individual employees. OKRs are typically qualitative, and they are not meant to be exhaustive. Instead, they are meant to provide a high-level overview of the organization's most significant goals.
KPIs are metrics that are used to measure progress towards an OKR. KPIs are typically quantitative, and they are specific, measurable, attainable, relevant, and time-bound. KPIs are used to track progress over time, and they can be used to identify areas where improvement is needed.
In general, OKRs are more strategic in nature, while KPIs are more tactical. OKRs are used to set high-level goals, while KPIs are used to measure progress towards those goals. OKRs are typically set quarterly, while KPIs can be used to track progress continuously over a longer period of time. OKRs are used to align teams and individuals around common goals, while KPIs are used to identify areas where the organization is doing well, and to identify areas where improvement is needed.
OKRs and KPIs can be used together to create a more comprehensive performance management system. OKRs can be used to set the goals, and KPIs can be used to measure progress towards those goals (i.e. you can use KPIs as the KRs).
Here are some examples of how OKRs and KPIs can be used together:
A company might set an Objective to increase sales and a Key Result to increase revenue by 10% in the next quarter. The company could then use their leading and lagging revenue KPIs to track progress towards this goal, such as the number of new customers acquired, the average order value, and the customer churn rate.
- A team might set an Objective to improve customer satisfaction and a Key Result to improve Net Promoter Score by 5% in the next month. The team could then use customer KPIs to track progress towards this goal, such as the number of customer complaints, the ratio of daily active users to all users, and the number of positive customer reviews.
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