Have you struggled to settle the OKR vs. KPI debate at your company? Both are among the most effective management concepts these days. However, people often confuse them because they sound similar and can be used to steer your business.
As a founder, you probably have monthly, quarterly, and yearly goals you’re working toward and measuring with metrics. Key Performance Indicators (KPIs) and Objectives and Key Results (OKRs) are helpful ways to measure progress.
Understanding the difference between the two will help you figure out which is a better measurement type for your company — and how to use it.
What Is an OKR?
An OKR (Objectives and Key Results) is a framework that helps organizations set clear, measurable goals and track progress toward achieving them. Doing this can create a culture of accountability and engagement in an organization.
Businesses and teams use OKRs to measure success and align employee goals with company objectives. Quarterly or monthly feedback sessions allow employees to adjust their plans based on their performance against the expectations outlined in the OKRs.
OKRs often used by startups are:
- Improve User Adoption focuses on improving customer satisfaction and retention by ensuring people who sign up for your product or service have a great experience.
- Improve Profitability Metrics highlight the importance of financial metrics by increasing revenue per user and customer lifetime value while decreasing costs.
What Is a KPI?
A KPI is a measure that helps you manage business performance. Key Performance Indicators can track any number of things, from sales to employee satisfaction. Quantifying your business goals gives an objective way to measure performance.
Here are examples of KPIs that startups commonly use:
- Opportunity: the number of leads generated by your marketing efforts. For example, the number of people who clicked on a link in one of your emails.
- Customer acquisition: the number of new customers you get due to marketing efforts or increased sales.
- Customer engagement represents how customers engage with your company via social media or other channels.
OKR vs KPI: How Do They Differ?
OKRs and KPIs are both tools for setting goals, but they serve different functions. OKRs are typically more general and focus on aligning team members at all levels of the organization around the company’s overall vision.
For example, organizations use OKRs to help identify and rank their goals every quarter and break them into smaller, more specific objectives. These can be anything from increasing sales to improving customer retention.
KPIs are good at measuring the organization’s progress against specific metrics or strategic goals and objectives. More detailed than OKRs, you can use them to gauge progress in any work area—from financial performance to sales targets. They are also useful for comparing performance across different departments or regions.
How To Use OKRs and KPIs Effectively
OKRs and KPIs ensure that you track progress toward your business goals. Yet, they are different in some fundamental ways.
Setting goals
OKRs, are a way to set goals that you can measure using time-bound objectives and quantifiable results. By quantifying your results, KPIs help you determine whether a project is on track and allow you to measure the success of projects by looking at their outcomes.
The result of an OKR is not a number—it’s a measurable outcome that you can use as evidence of success or failure.
OKRs and KPIs both have their place in modern businesses, yet, it’s essential to know the difference between these two measurement systems so you can choose which one works best for your purposes.
Tracking progress
KPIs are quantitative measures that you can track with the help of software tools or spreadsheets. Businesses often use them to measure their performance against predetermined goals and KPIs.
While OKRs may have a quantitative component, they often measure qualitative progress toward specific objectives.
Identifying Gaps
OKRs and KPIs help you identify gaps in your processes by tracking performance against your goals. For example, if you have a sales target of $100,000 but only manage to bring in $80,000, identify a gap between what you want and what you are getting.
The idea is that once you’ve identified where your business is falling short, then you can take steps to fix it. That could mean hiring new staff or training existing staff on new processes. It could also mean adapting your products or services to better align with customer needs.
Advantages of Using Both OKRs and KPIs
The old Peter Drucker saying, “what gets measured gets managed” underpins the biggest advantages of using OKRs and KPIs in your startup.
Improved Goal Setting
Adding metrics to your startup’s goal setting can improve the entire process of setting and achieving targets. By tracking OKRs and KPIs, startups can set more accurate and data-driven goals that prioritize business-critical tasks. Metrics also help track progress toward reaching goals, allowing teams to see how well they meet their targets.
Measurable Objectives
KPIs are essential because they enable startups to measure the performance of their activities and improve their operations so they can achieve better future results.
By focusing the organization on measurable objectives, OKRs, and KPIs can help startups track progress and performance at every step.
Also, with OKRs, startups can set SMART (Specific, measurable, achievable, relevant, and time-bound) goals that focus the organization on what’s critical, and KPIs help track their achievement.
Improved Team Collaboration
Tracking OKRs and KPIs can help startups improve team collaboration by providing clear objectives and expectations for everyone. This allows teams to stay focused and aligned on the same goals.
Besides assisting teams to stay aligned, tracking OKRs and KPIs is a great way to identify areas where things aren’t working out as expected. For example, you’ll know what to fix if your OKRs aren’t being met or your KPIs are deteriorating.
Improved Decision-Making
As a startup founder, you’re responsible for product development, marketing, sales, and customer support. OKRs and KPIs help determine where to focus your resources to stay ahead of the competition and make more strategic investments.
They will give you a clearer picture of what’s working and what isn’t in each business area. Implementing these tools can help you and your teams make more informed decisions about where to invest your time and money.
Leverage OKRs and KPIs Effectively
Key Performance Indicators and Objectives and Key Results can be potent tools for steering your business. They help you set and reach new goals, optimize your financial performance, and ensure that your team is focusing on the right things.
They can also help you grow as a leader and take your business to new heights when used correctly.
Whether you are a startup looking to raise funds or a mid-size company needing accounting services, the experts at Founder’s are well-equipped to help you optimize your financial and strategic management systems. Contact us today and get started using these powerful tools to maximize your business.
