Tracking business performance is the first and foremost thing when you want to scale your business from 10 customers to 10,000.🚀
KPIs and OKRs are performance indicators you can track and get to know the secret recipe for business success. While they might sound like complicated acronyms, they really aren’t.
In this article, we will compare OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators), their examples, and how they complement each other.
So let’s take it from the top!
OKR, aka objectives and key results, is a powerful goal-setting method that helps break up big and ambitious missions into clear and achievable milestones.
OKR was first introduced by Andrew Grove, who used it in Intel to track business performance. Today OKRs are used by the likes of Google, LinkedIn, and Netflix to improve business performances.
OKR is a basket term consisting of two parts - Objectives and Key Results.
An objective is ‘what’ you want to do. It describes the inspirational goals of an individual, company, or team that need to be achieved over a short time.
Key results, on the other hand, answer the ‘how’ part. These are the measurable and verifiable methods to reach the objectives.
In other words, you can think of objectives as the final destination you want to reach, whereas key results are like signboards that ensure you’re on the right path.
OKRs are simple yet powerful goal-setting methodologies used by companies and teams to achieve ambitious goals through a framework of constant evaluation.
However, what makes OKRs even more beneficial is the clarity to teams and corporations to execute their strategy with focus and alignment.
So, if you’re wondering why you should use OKRs, here’s the answer to it:
To understand better, let’s look at some examples of OKRs.
Now let’s understand what KPI is!
Key Performance Indicators (KPIs) are one of the most common performance metrics to calculate a company's growth (quantitative), expenditure, retention rate, etc.
Imagine a ship in the water. ⛴️
It needs navigational data to travel in the wild sea. 🧭
Without data and many other metrics like wind speed and weather information, the ship will be lost.
KPIs play a similar role in companies. It guides companies towards success.
Here’s why KPIs are important:
Every business has a unique set of KPIs that helps them review and analyze its growth. Here are a few examples of commonly used KPIs by different businesses:
Customer acquisition cost measures the cost of acquiring a new customer.
For example, if a company spends $5,000 in a month on sales and marketing and acquires 100 new customers:
Then, CAC is $5000 / 100 = $50.
Net profit margin shows the profitability of a business per dollar spent. Understanding this KPI promotes better decision-making and keeps you ahead of your competitors in pricing wars.
NPM is an important cash flow component and can be measured by subtracting total expenses from total revenue.
Net Profit = Total revenue - Total expense
ROI is like a mirror to your investment. It lets you evaluate how well an investment has performed over a certain time.
ROI = (Net income / Cost of Investment) X 100
KPIs are quantifiable metrics used to evaluate a company's progress against some desired results. At the same time, OKR is an effective goal-setting framework that uses defined key results to track the success of a set objective or goal.
KPIs are progress indicators that determine how near or far you’re from achieving your goals. It’s a performance management tool that helps in making data-driven decisions.
OKRs, on the other hand, have nothing to do with tracking. It's a simple method organizations use to set smart goals that a company wants to achieve.
Moreover, it encourages engagement among team members by keeping them aligned to a specific target.
The primary difference between the approach of OKRs and KPIs is the span of vision.
OKRs are qualitative yet measurable goals that are further broken into several key results adjusted within a timeline.
KPIs can be set for extended periods, and they are not bound by any timeline. If the linked objective is changed or the KPI doesn't seem to be the right fit, it can be dropped.
OKRs consist of two parts, objectives and key results. Each objective has defined key results that determine how to attain that objective.
KPIs include specific indicators to measure the growth of an organization or a team towards an intended result.
OKR usually boasts a more ambitious goal for the teams to push beyond their defined limits. On the contrary, KPIs include growth measurements that are quite attainable and realistic.
Now that you’re aware of the basics of OKRs and KPIs and the difference between them, you might be wondering about some best tips to set OKRs and KPIs.
Don't worry; we've got you covered.
To solve a problem, first, you need to identify where it lies.
Identifying the areas of business that need the most improvement is the first step to setting OKRs. Looking at your KPIs may reveal those areas with certain problems needed to be solved.
This results in a more focused approach and increases the chance of success.
For instance, if customer satisfaction is lower than expected, the objective will be to improve it.
And key results will be:
Don't set goals that are too vague. Goals like 'More growth' or 'Increase revenue' will not help you achieve anything.
Set clear and quantifiable goals like:
Use numbers and percentages so that you can measure them easily.
Teamwork is always encouraged while setting the right OKRs. Taking inputs from teams and individuals while defining the objective and key results is necessary.
Allow your team members to have a flexible opinion about the objectives and incorporate their vision in reaching them.
This way, you will receive numerous ideas to refine OKRs and achieve them with the best possible strategy.
It’s advised to track the progress of your team within a timeline. This gives you an update about the company’s growth and how much work has to be done to achieve specific goals.
Pro Tip: It doesn’t matter if you don’t hit a home run every time. Every step you take towards the goal demands a little celebration. Celebrate small wins, they will prepare you for bigger ones.
Lastly, knowing when to readjust your OKRs is an important step. When business priorities change, you should align your objectives with the new vision.
It's better to have a flexible approach with the goals when the situation demands change rather than chasing something that ends in frustration.
KPIs can be best explained by taking an example of a car. 🚘
Imagining your business is a car, and KPIs are the headlights.
However, without specific targets, they are worthless.
Here are 5 simple steps to guide you to set the best KPIs for your teams and organizations:
Most businesses are in a rush to track KPIs. But before setting them up, you must list your company's measurable goals.
This means your goals must be clear enough so that you can visualize them.
So, before setting KPIs, you might want to first check that your goals are measurable and not some abstract targets you have in mind.
Before thinking about setting the KPIs, you need to have a solid understanding of your business objectives. Make sure these objectives are authentic and have the potential to drive meaning to your business.
Otherwise, your business will be like a ship in a violent ocean with nowhere to go. Moreover, you will also end up losing your resources with almost zero outcomes.
❌Never Do This: Without knowing your business well, don’t start measuring random indicators you got by spying on your competitors.
Once you have defined the relevant KPIs, it’s time to decide how many of them you should track. You can begin with choosing your priority goals and building KPIs around them.
This helps you to focus on what’s most important and eliminate the rest.
Note: Don’t try to link too many KPIs to a single objective. It increases the chance of leaving out the most important areas which need attention.
After you have decided to set KPIs, ensure you can provide context to the stakeholders and employees about those KPIs.
Your employees must understand why and which KPIs you track.
That way, you can gather valuable inputs from them that can help revamp your approach toward choosing more efficient KPIs.
Make sure to document the progress of the KPIs so that you know what’s working and what’s not. If found irrelevant, scrap and adjust them in accordance with the new set goals.
OKRs help an organization when they have a clear target in mind. That’s because these help you come up with well-defined key results as to how you’re going to achieve those targets.
Look at the OKR below:
Such scenarios demand you to build OKRs and act on them.
KPIs are decision-making metrics that boost your business to the next level. However, if you try to measure something that is not clear and quantifiable, you can be easily lost.
So, to have effective results, first, clarify your goals.
Take the HR department, for example.
Suppose the HR department wants to track the average cost to fill one role. Clearly, it’s a specific and measurable goal. That makes it easier to track.
They can calculate it by dividing total recruitment costs by the number of hires.
But if the department wants to check the quality of those hires, KPIs won’t be of any use as the goal is not specific.
There may be arguments about what a quality hire consists of, which makes the goal hazy and impossible to track via KPI.
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You can set up a dashboard with Datapad in seconds, add KPIs to it, and bring your sales and marketing team on board to track them.
Being a mobile-friendly app, you can track KPIs from a beach, hill, or anywhere in the world. All you need is a stable internet connection.
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