OKR vs. KPI: Which goal-setting framework is better?

Summary

OKRs and KPIs are both methods of performance management, but they can help you reach your goals in different ways. OKRs are a goal-setting framework, while KPIs track goal performance. In this piece, we explain how to combine the benefits of these frameworks to improve business performance.

OKRs and KPIs may look a bit like alphabet soup at first glance, but these acronyms are valuable ways to set and achieve goals. As a project manager, it’s important to set ambitious goals to keep everyone feeling challenged and motivated. Knowing how much progress you’re making toward those goals makes it easier to identify problems and celebrate wins.

In this article, we discuss the differences between objectives and key results ( OKRs ) and key performance indicators ( KPIs ). Once you understand these frameworks, you can combine their benefits to plan and monitor your business goals .

What is an OKR?

Objectives and key results (OKRs) combine business goals with a set of measurable ways to achieve them. You can use OKRs for virtually any purpose, whether it be a long-term career goal , a quarterly team goal, or a personal goal.

When setting OKRs , fill in the following sentence:

I will [objective] , as measured by [key result] .

Objectives are any goal you want to achieve, whether they’re easily attainable or far-reaching. An objective can include things like:

Improve our customer retention

Increase our website conversion rate

Gain qualified leads

Key results are the measurable ways you plan to achieve your goal, and you can have more than one key result for each objective. Unlike KPIs, key results don’t necessarily have to be quantitative. A key result can include things like:

Implement a loyalty rewards program

Add quality content to our website

Upgrade our CRM software

The OKR framework is flexible, but company OKRs are more effective when they’re connected to the OKRs of other departments and team members. 34% of team members said they’d feel more motivated at work if they understood how their work connected to the company's mission. You want motivated team members because they’ll work harder and reach goals faster.

What is a KPI?

Key performance indicators (KPIs) are quantitative success metrics that track business goals or projects. You can use KPIs to track projects, programs, or any other company initiative.

While KPIs have a range of uses, the metrics you choose for each KPI should be unique to the goal you’re working towards. For example, you shouldn’t use the same KPI to monitor the progress of a social media campaign and an IT project. Instead, make sure you’re researching relevant metrics for every initiative to ensure they measure relevant targets and connect to business goals.

Choose KPIs that:

Tie to your strategic goals

Can be measured against benchmarks

Inform resource planning

Track something you can control and influence

Once you’ve set your KPIs, monitor them for the entirety of your initiative. This can help you understand if you’re on track towards your goals, at risk of completing them, or off track of where you want to be. Use project management software to track your KPIs and share them with project stakeholders . By providing real-time progress updates , everyone can follow the initiative’s progress—without having to sit through another endless status update meeting.

The difference between OKRs and KPIs

OKRs and KPIs are both methods of performance management, but they help you achieve your goals in different ways. OKRs are a goal-setting framework, while KPIs track goal performance.

You can set any goal using OKRs, but companies often use OKRs for bolder, more aggressive goals. Although OKRs represent big goals, they should be less ambitious than Big Hairy Audacious Goals ( BHAG ). While some OKRs last years, try to stick to a one-year maximum for most of your OKRs or they could grow bigger and hairier with time.

Companies use KPIs for more quantifiable goals. These metrics can be useful when:

Monitoring the health of your business

Analyzing patterns in growth over time

Measuring the progress of marketing campaigns

Addressing problems with underperforming projects

Identifying opportunities for improvement

Making adjustments to outdated initiatives

Staying on track to reach future goals

Typically, you should start your goal setting process by brainstorming your goals and setting the “O” part of the OKR—in this case, a business objective . Then, identify the actionable steps you need to take in order to achieve it. These steps are your key results. Once you’ve set a good OKR, assign KPIs to each of your OKRs to measure the progress toward reaching your objective.

OKRs and KPIs can work together, but they can also stand alone. For example, if your objective is to enhance customer satisfaction, then your key results may be to hire more customer service representatives and document customer reviews. These OKRs aren’t quantifiable and don’t require support from KPIs.

OKR examples

When your company sets a big-picture OKR, you can make the goal more attainable by breaking it down into departmental and personal OKRs. Creating this OKR structure also ensures that everyone’s OKRs lead back to the main objective.

For example, if your company sells software as a service (SaaS), your OKR might be to become a market leader in the industry. You would then work with company leadership to come up with a variety of actionable ways to achieve this goal depending on the department. In this  example, two OKRs supporting the main company OKR to might include upgrading the current website (product team) and gaining more customers (marketing team). The marketing and product departments will then separately support the company OKR with their own OKRs. These include building the new website and launching a campaign to attract customers online.

Company objective: Become a market leader in SaaS industry

Key Result 1: Launch 2.0 version of website

Key Result 2: Gain 1,000 new customers in Q3

Marketing team objective: Expand reach to target audience on all digital platforms

Key Result 1: Set up paid advertising campaigns on Facebook, LinkedIn, and Instagram

Key Result 2: Create quality SEO content for website and social media

Product team objective: Build a high-performing website

Key Result 1: Debug current website by using a product backlog

Key Result 2: Work with designers to revamp website layout

Within the respective departments, team members can create individual OKRs that support their departmental OKRs. These smaller objectives might apply to tasks like website coding or content development.

KPI examples

A KPI needs four components to be effective. These components include a measurable target, a timeframe for target completion, a data source for monitoring, and a set frequency of monitoring.

You’ll often see KPIs listed as just the target metric, for example capacity utilization rate or new inbound leads , but without the context from all four components, you won’t know why you’re monitoring the metric in question or even how to measure it.

Below, you’ll see a list of KPI examples categorized by department. Each of these examples includes the four components mentioned above.

Example sales KPIs:

Obtain 20 new inbound leads by the end of Q4. Use customer relationship management (CRM) software to track progress weekly.

Improve lead response time by an average of two days in Q4. Use reporting software to track lead response time daily.

Example marketing KPIs:

Reduce cost per lead by $0.50 in Q4. Calculate cost per lead when planning every project.

Obtain 100 new customers in Q4. Use project management software to record the ongoing status of our customer base.

Example project management KPIs:

Keep capacity utilization rate above 85% in Q4. Use UDN Task Manager Workload to track capacity utilization rate weekly.

Achieve at least 10% return on investment (ROI) for every project in Q4. Use UDN Task Manager to track estimated project budget against actual project costs, then calculate ROI.

Which is better, OKRs or KPIs?

There’s no right or wrong option when choosing between OKRs and KPIs. To decide which framework is better for you, you’ll need to get clear about your intentions. If you want to improve a current project or past initiative, then KPIs will suit you best. You can customize these metrics to your needs and watch your progress in real time.

If your company has bigger goals to achieve, then OKRs are a better option for you. You can break those goals down into actionable components that everyone in the organization can take part in. OKRs also help your team stay motivated while you progress toward your goals.

It’s important to remember that you don’t have to choose between OKRs and KPIs. When you combine these two frameworks to set and measure goals, you can achieve optimal business performance.

Use OKRs and KPIs to align your organization

OKRs and KPIs help you measure success and spark excitement for growth. These methods of performance management can also motivate teams and ensure everyone stays focused on what’s ahead.

When you input your initiatives and performance metrics into your work management software , team members will get a clear idea of how their work connects to the larger picture. This can ultimately reduce internal conflict and align the teams within your organization.