01 Oct
When it comes to successful Performance Management, goal setting plays a very important role. Even high-performing individuals and teams start to slack and lose sight when they are presented with arbitrary or subjective goals. Even after you set relevant goals, if the right tools and techniques to monitor and track results are missing, the urge to achieve these goals fades. However, the good news is that tools like KPI and OKR are here to make things better. They are two of the most popularly used systems or tools to set goals, measure results, and make performance management holistic and effective. But how do you choose between them?
Read on to figure out.
What is OKRs or Objectives & Key Results?
This is a goal-setting framework that provides the team with set objectives, suggests initiatives for achieving the goals, and makes use of feedbacks, communication, and frequent check-ins to help your employees achieve the objectives.
Key Results (KRs) are ways in which employees can achieve the objective. Ideally, every objective can have 2-5 KRs.
Usually, smaller and specific goals make a part of the OKR framework, so it is easy to understand and achieve them. To make the framework quantifiable, you should always include metrics that can help you understand your team’s progress. Vague objectives don’t help at all.
Here is an example of a good OKR
Objective: Increase brand recognition and awareness of a popular website that sells beauty products to women all across India
Key Result 1: Invest in content marketing by creating and posting two blogs per week describing the utility of the products.
Key Result 2: Create YouTube videos and increase user engagement by 25% this quarter
Key Result 3: Extend social media reach by creating compelling posts to develop user-affinity towards the brand.
What is KPI or Key Performance Indicator?
A Key Performance Indicator (KPI) is a performance measurement tool that helps understand how the business is achieving its already set objectives. You can apply KPIs in all aspects of work including projects, programs, and initiatives. There can be different levels of KPIs too. High-level KPIs focus on overall business goals and strategies while lower-level KPIs focus on department/individual goals.
KPI needs to be designed to exactly match your organizational needs. That is why picking up KPIs of competitors or industry leaders may not work for you.
Here is an example of a KPI set for the sales department.
Given below are the possible KPI based goals.
- 50 New leads
- 10% Percentage change in website traffic
- 30 days Sales cycle time
These KPIs and their values will determine how fast you are moving towards your overall goal.
What is the difference between Strategic and Tactical performance management?
Strategic performance management is all about first identifying the “Where do we want to go” and then identifying the “How to get there”. Tactical plan is the overall plan of action that mentions what employees need to do to achieve a specific goal. OKR as a performance management approach is more strategic in its outlook.
Strategic Performance Management processes are designed to support the vision and mission of an organization. It helps you to set an objective and decide what needs to be done for the overall growth of your organization.
Tactical performance management, on the other hand, is more focused on the “What” part.KPI based performance management is more tactical and therefore operations and execution oriented.
Tactical Performance Management processes help you understand how to achieve these goals. They are specific, more inclined towards individual goals, and give an idea of what every department needs to do to achieve these overall goals set by the management.
Can you use OKRs and KPIs interchangeably?
OKRs and KPIs are both goal-setting frameworks. However, they serve different purposes. According to experts, KPI is preferred when there is a goal already in place and you want to monitor its progress and measure the result. OKRs are chosen when you want to achieve something considerable and want to create process changes to achieve it.
KPIs are top-bottom processes. The management sets KPIs and dictates them to the lower-level teams. OKRs can be both top-bottom and bottom-top. They can also be horizontal approaches, passing on among teams.
KPI and OKR: How to make the most of them and run a successful business?
As an organization wanting to create high-performing and effective teams, you can use both OKRs and KPIs to your advantage. Create OKRs for driving startegic outcomes at the leadership level and complement these with KPI based goals for teams which have repetitive goals which are operational in nature.
KPI and OKR: The Pros and Cons of each
Pros of OKR
- OKRs help set ambitious goals
- You can easily align organizational goals with individual/team goals
- It is easy to set priorities and create transparent processes
- Provides an opportunity for continuous feedback, communication, and coaching
- Helps create objective-based performance assessment
Cons of OKR
- Needs a little understanding on how to define effective OKRs before you realize the real benefits
- Setting too many OKRs can dissolve the purpose and make it difficult to achieve them
Pros of KPI
- KPI helps achieve goals faster and at the right pace
- This framework helps employees take control of their goals
- Makes it easy to achieve goals one step at a time
- Easy to measure results
Cons of KPI
- Intelligence gathering is challenging
- Setting too many goals can get complicated
- It takes time to set KPIs, train employees, and learn the process
How do you know which is right for you?
Both OKR and KPI are management tools that help handle organizational and individual goals. If your organization wants to make drastic changes and set ambitious goals, you might want to choose OKRs to achieve these. OKRs are equipped to handle larger goals and bigger visions better. OKRs also make other beneficial changes to the work environment by making processes more transparent, opening regular communication channels, and driving engagement within the workplace.
If you have already set goals but your team is struggling to achieve them, then setting KPIs can make things clearer and easier. Since KPIs are very simple yet specific, it is easy for all employees to follow them to achieve the intended goal.
A successful organization makes use of both KPIs and OKRs to achieve goals.
Put simply, if OKR is the destination that your car needs to reach, then KPIs are the vital values showing on your dashboard, like the remaining fuel, miles crossed, and speed. When you keep a close eye on these vital values, you can safely and surely reach your destination.
Conclusion
If you haven’t thought of OKRs and KPIs at all or have used these terms interchangeably for so long, we are sure this article will make a lot of sense to you. It is very important to know where you should be focusing your efforts. Without the right objective, your team will have no idea where to go. Even with the right objectives set, if the path is not laid clear, your team will end up in a world of confusion.
So, make use of both OKRs and KPIs to set the right goals and monitor the results time-on-time to grow together as a team. If you need help creating a holistic OKR or KPI framework, do get in touch with us.
