KPI and OKR are mandatory for a business to function effectively and successfully. Both KPI and OKR help an organization to perform competently. In this article, we are going to look at:
KPIs are defined as performance metrics that evaluate the success of an activity, project, product, or organization as a whole. KPIs can measure the success of almost anything ranging from the success of a recently launched product or service to social media metrics. KPIs have been adopted by various organizations all over the world as a robust practice to measure performance and they have indeed helped the organizations to keep track of their performance periodically.
Let’s look at an example to understand the concept better:
A telecom company wants to improve its customer retention rate. So, the KPI would be like below:
What: Increase the customer retention rate by 20% this year
Why: Achieving this target would help the company to sail through turbulent times
How: Offer better pricing plans than competitors to its existing customers, discounts, and offers, reducing the turnaround time for customer complaints
Who: The VP is responsible to keep track of these metrics
When: The KPI has to be reviewed on a quarterly basis
How would this help?
Setting a well-defined KPI with the specific metrics in place helps the organization to evaluate its performance and helps to understand- where do they stand currently and what they have to do to achieve their goals.
OKRs, in a broader sense, can be defined as metrics that layout the objectives associated with the key results which specifically define the achievement of those objectives. In most of the cases, KPIs form a part of the OKRs.
An example of how they work:
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.
So, an objective is defined broadly and the key results constitute the specific metrics that help achieve the desired objectives for organizational success.
The key difference between KPIs and OKRs is the intention behind the goal setting. A business needs to determine which processes need to be measured and often the KPIs represent the output of the already existing business process whereas OKRs reflect the business goals, which can be quite ambitious and aggressive. The idea behind setting up OKRs is to drive the business towards the attainment of aspirational business goals.
So, you may wonder which is better – KPI or OKR?
KPI is a measurement system for the existing business processes while OKR can give you the right direction or insight towards your business vision- as to where you want to see your business five years down the line.
If you are seeking to enhance your existing business process or a project, KPIs can help you achieve the desired result by adding a specific measurement system to a business process. However, if you are planning to scale your business exponentially over a period of time, OKRs can prove to be beneficial as they tend to have a greater depth and give you a clear picture of how to achieve your goals in the near future.
KPI and OKR work together to drive a business towards its final objectives. Thus, a high-performing organization needs both for the successful implementation of business plans.