OKRs vs. KPIs: How CTOs Can Leverage Both for Lasting Improvement

A common question about OKRs is how they are different from KPIs. At first glance, they involve measurement, so they may look similar, but there are key differences and they work well together.

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Why do OKRs and KPIs confuse?

I work primarily with executive teams as a coach and consultant. Although many executives are familiar with one of the OKRs or KPIs, they may not have experience working with both. As a result, they often can’t confidently describe the differences or what situations best suit them.

Some of the challenge lies in their initial resemblance. This could be due to both involving measurement, and to add to the confusion, they sometimes use the same or similar measures.

This post will explore some differences to help you grasp why organisations use KPIs or OKRs, ensuring you feel confident about using either approach when the situation arises.

Then, we can focus on how some organisations utilise these two approaches to enhance each other's strengths, what benefits they might offer to an organisation, and what needs they may be aiming to address.

What are OKRs and KPIs?

What are ‘Objectives and Key Results’ (OKR)?

OKRs have often been featured in this publication. They are highlighted not necessarily because they are the best option available but because they represent the fastest-growing and most widely adopted method (beyond ‘no approach’) for aligning on shared goals. Additionally, they are the most likely approach to be considered. I have extensively written in this publication about various ways to complement and enhance the use of OKRs, aiming to avoid common pitfalls and maximise their benefits.

OKRs are a goal-setting approach.

OKRs are often described as a goal-setting framework at their most basic level. Because they are informal, many implementation variations exist, and even the definition of how they should be formed and the practices surrounding them can differ significantly.

Therefore, referring to OKRs as a framework is a stretch, as they lack the formal characteristics that actual frameworks typically provide, such as more definitive documentation of methods and practices. The results achieved by companies using OKRs can also vary widely, partly due to the numerous different formulations of OKRs available and how well they adapt their usage to their organisation’s context.

In my experience working with companies, whether an organisation faced these challenges appeared primarily dependent on the problem the organisation had engaged OKRs to address.

OKRs primary purpose is alignment.

The primary purpose of OKRs is alignment. They provide a structure that regularly fosters a greater degree of confidence that groups of people share a similar understanding of the problem they are collaboratively tackling, thereby enabling them to direct more of their collective effort towards making progress. Additionally, they establish a common understanding of the changes that will occur if progress is achieved and serve as a mechanism for agreeing on when to adjust their course.

Furthermore, OKRs can assist teams in understanding what other teams aim to achieve and how this can collectively benefit the organisation, generating potential triggers for collaboration or coordination.

OKRs have been utilised as a management or performance management tool, and the issues related to using OKRs for this purpose are documented here:

'Are OKRs Management Malpractice?' Part 4: It strongly depends on what you hire OKRs for—management vs alignment.

OKRs are easy to grasp, and it’s a small jump from the concept to using them for the wrong reasons. Maybe it’s because many have worked in corporate settings where objectives are tied to individual performance management, or perhaps it's because if the manager sets a clear goal, then that's something they can measure their team against, such as reprimanding for lack of progress or forming judgments on each team member’s performance.

Using OKRs in this manner often leads to unintended adverse side effects and undermines the empowerment intentions for which they were initially designed. I’ve discussed some of OKRs’ history in a few posts, the most detailed being this one:

'Are OKRs Management Malpractice?' Part 2: It’s hard to know which flavour of OKRs we are discussing

OKRs have a mixed history. Some organisations are confident that using them has resulted in significant benefits. In contrast, others view their introduction as a catalyst for poorer outcomes due to problems such as decreased agency, local maxima, and a sense of added bureaucracy.

Common characteristics of OKRs:

Below are some common attributes linked to OKRs. I’ve also included some perspectives in italics that echo this publication’s views, which may not align with the widely accepted norms regarding OKRs.

• There is a regular period for setting and tracking OKRs. This is often quarterly but can be on a different cadence, such as triannually.

• 2-5 objectives are set per period. Less is better.

• A sentence represents each objective. Objectives are even more helpful when they represent an outcome.

• There should be 2-5 key results for each objective, which are measures related to the goal. These collectively represent progress towards the objective and should be balanced. Key Results could represent positive or negative progress—both what should and should not happen. It is best when these reflect evidence that we are progressing towards achieving the objective.

• Many approaches to OKRs suggest scoring the values of Key Results to give an overall progress score.

• They are designed to draw focus and effort on a few step changes rather than tackling too many things at once. They are also designed to create alignment so that the right people with the skills necessary to make progress can collaborate.

The above is a generalisation across different OKR documentation I am familiar with. In this publication, I have a more specific definition of what reflects well-formed objectives (Os):

Writing OKRs: How to write an objective focused on an outcome

And also specifically for key results (KRs):

Writing OKRs: How to write key results focused on an outcome

What are Key Performance Indicators (KPI)?

Organisational performance measurement has been evident at various historical points, from the Wei Dynasty in China to its applications in warfare, healthcare settings, and beyond. The ideas that form the basis of Key Performance Indicators (KPIs) can be traced back to Frederick W. Taylor's work and his principles of scientific management over a century ago. However, the term itself was introduced much later.

There’s a variety of usage and formulation of KPIs as the concept appears in many frameworks in different forms, including:

• Balanced Score Card (BSC)

• Management By Objectives (MBO)

• Six Sigma

• Performance Measurement Process (PuMP)

• ISO 9001

• Total Quality Management (TQM) did not originally use the term KPI but does encourage some practices synonymous with modern KPI use.

• PMI, PRINCE2

• Economic Value Added (EVA)

This ubiquity has led to a lot of casual use of the term KPI when measuring in a business or organisational context.

What are the common characteristics of KPIs?

While there are various Key Performance Indicators depending on whether they are used as part of one of the frameworks mentioned above or independently of any specific framework, some characteristics of KPIs still apply to most situations:

• Are linked to strategic objectives—either directly to an objective or, by association, categorically (e.g., BSC lays out four key categories for KPIs: financial, customer, internal process, learning, and growth).

• Represent something measurable.

• It tells us something about the state of an aspect of the business.

• Sometimes, a stable, desirable threshold is defined for something being measured. Anything outside the threshold range often indicates something that needs investigation and may represent an unhealthy state.

• Note: Frameworks such as BSC and PuMP define leading and lagging KPIs with the leading ones and thus perform a similar role to how OKRs are used.

OKRs and KPIs: Different ways to understand where we are at and progress

One key similarity between OKRs and KPIs, given both are grounded in measurement, is that they can act as feedback mechanisms.

Comparing OKRs vs KPIs

When they are set

New objectives are set each period, usually quarterly. If they are achieved in that period, they will likely cease being tracked in favour of the next set of objectives. In contrast, once established, KPIs tend to have some longevity as long as that aspect is important to the organisation.

Tracking progress

Changes in the values of Key Results may indicate positive or negative progress towards our chosen objectives. The rate of change within the current period may suggest whether the progress is enough to be valuable or at least on track to be beneficial by the end of the period.

A new target threshold is typically established for the measures in question, often represented by a range between 70% and 100% of achieving a desirable target.

A criticism of OKRs is that they use targets that can overly influence behaviours, often with adverse side effects. A qualification is that these are soft targets, as 70% of achievement would still be considered a success. Secondly, key results are encouraged to be viewed in balance rather than viewing the value of any single metric as success on its own.

Use of Targets

The approach to scoring OKRs is likely to soften the effects of using targets and de-emphasise any single Key Result for the collective movement of a set of Key Results. My experience is that this is better in theory than practice. I found it better to educate teams in measurement theory and then use more ideas from PuMP about treating Key Results more like vectors where movement in the desired direction represents success and to apply judgment about what movement of Key Results in concert was telling you about progress towards the objective.

Some frameworks that utilise KPIs encourage target-setting, while others, like PuMP, advocate for alternatives, such as perceiving directional movement as a success and using various statistical control charts known as XmR charts to detect statistically significant changes in a measure's performance.

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How can OKRs and KPIs complement each other?

1. Work moves between OKRs and KPIs depending on its state.

2. How to use OKRs to help KPIs

3. How to use KPIs to help OKRs