OKR vs KPI

OKR vs KPI: Which Goal Setting Framework is Best?

What is KPI?

KPI stands for Key Performance Indicator. It is the quantifiable measure of performance over some time. Every organization needs KPIs to see how well are the employees performing. These indicators provide targets for the team and milestones that need to be gauged.

KPIs are important because they help to ensure that the employees are aligned with the goals of the business organization. Some of the major reasons if its importance is:

  • Keep your teams aligned
  • Provide a health check for your organization
  • Anticipate risks
  • Make adjustments
  • Hold the team accountable

KPI Examples

Every business department uses different performance indicators to analyze progress. There are a few examples of KPIs used by the departments in an organization.

Finance

The finance department is all about cost, revenues, expense, and profit margins. The KPIs used are:

  • Gross profit margin
  • Net profit margin
  • Operating capital ratio
  • Operating expense ratio
  • Working capital ratio

Sales

This department uses KPIs to track whether the team can pull the desired sales to meet the goals of an organization.

  • New inbound leads
  • Qualified opportunities
  • Sales volume by location
  • Average Order Value

Customer Service

Customers are an asset to every organization. It is very important to have KPIs to evaluate their feedback and behavior. Some of the KPIs used are:

  • Active support agents
  • Cost per conversation
  • Average response time

What is an OKR?

OKR stands for Objective Key Results. This is a tool that is used to communicate clear objectives of an organization to the employees and what milestones need to be achieved to accomplish them. This tool is used by well-known organizations to create an engaging environment at the workplace.

 Importance of OKR

  1. Give clear goals and objectives to every team and individual
  2. Align and connect your employees to your corporate goals
  3. Use regular updates to gain vision
  4. Increased productivity because of the focus on goals

OKR Examples

OKR’s main purpose is to align the goals of a business organization, so it starts from the top. Every individual or team must have OKR to achieve the key results. Some of the examples are given below of OKRs for CEO.

Key Results:

  • Collect feedback from 20 customers/per month
  • Boost customer retention
  • Maintain NPS

OKRs vs KPIs: What’s the Difference?

OKR is goal setting framework where for each OKR an objective needs to be achieved. Those objectives are then measured with the key results that have been achieved. This means every objective is measured separately on how well has the goal been. While KPI determines the factors that need to be achieved in an organization.

OKRs encompass KPIs. KPIs are factors that can help determine the success of your company. You can have an example like:

  • OKR: increase the Gross profit margin by 30%
  • KPI: Gross profit margin
  • This indicates how an OKR specifies a specific objective while KPI shows how to evaluate the results.

OKRs – How to Build OKRs?

These are the 8 steps that can help you in creating an effective OKR for an individual, a team, or a company.
Understand your company’s goals

  • Choose the right tools
  • Involve your whole team
  • Write an OKR objective statement
  • Develop key results
  • Plan your initiatives
  • Track them consistently
  • Celebrate your success

OKR vs. KPI: Which is Better?

Most business organizations are familiar with KPIs. KPIs are standalone metrics that tell you about what measure is good or bad but do not communicate how the objective needs to be reached or the key results. While OKRs complement KPIs. OKRs state an objective, and the direction that needs to be taken. It dictates a clear goal that needs to be achieved and the key results show how well has been the progress.

Conclusion

Flowhcm – Concluding, we cannot say which is better; both play a vital role in the proper functioning of an organization. They both play their part in measuring the performance of the organizations, whether it’s a team or an individual. Try avoiding mistakes while creating KPIs and OKRs to have accurate results.

OKR shows what they want to accomplish and how will they reach there. The key results and objectives create a path that needs to be followed. Whereas, KPIs do not convey the purpose or ‘how to reach a point. However, they both have the same purpose which is to measure and identify the performance of the business. If you still do not use KPIs and OKRs to evaluate the position of your business, it is time when you should!

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