The Difference Between

OKRs and KPIs Explained

David Pereira 5 mins Jun 28th

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The Difference Between OKRs and KPIs Explained

Learning how to benefit from OKRs and KPIs

David Pereira Jun 28

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When I got my first job as a Product Manager, pleasing my stakeholders was the
definition of success. That was over a decade ago. Seeing the same misconception
nowadays shocks me.

You may interpret “pleasing stakeholders” differently than I did. But what I
commonly face is the following aspects:
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Figuring out how to deliver requirements from stakeholders consumes most

of the time of product teams

An extreme focus on solutions leaves teams far from understanding

problems and how to create value

Success means steadily delivering features

What’s the problem with that? Several, I’d say.

First , implementing solutions without knowing the expected result is nonsense,

to say the least.

Second , output means nothing without outcome. Teams get distracted with
timelines and don’t have time to measure results.

Third , creativity dies because unbearable pressure puts teams in a frenetic

delivery mode.

Now you may wonder, what does that have to do with OKRs and KPIs? You can
avoid the problems I’ve just described when you understand how to combine
OKRs with KPIs.

Let me help you understand the difference between OKRs and KPIs and how to
apply them. I hope that helps you.
Photo by Luke Chesser on Unsplash

What are OKRs?

Objective Key Results is a collaborative method of setting goals and enabling

teams to focus on delivering valuable results.

The invention of OKRs is generally attributed to Andy Groove, former CEO of

Intel Corporation. He used OKRs to lead Intel successfully for an extended period
(you can learn a lot by reading Measure What Matters by John Doerr).

How OKRs work

Now, let me share with you how it works. To use OKRs well, the company
leadership should align and set important objectives, which should be inspiring
and empowering.

As the objectives are set, the leadership aligns with teams and explains the
importance of reaching such objectives. Teams are responsible for setting
measurable key results. It’s fundamental to evaluate results and adapt the actions
accordingly continuously.

Here’s an example of e-commerce:

Objective : Reach a sustainable balance between the customer acquisition

cost and customer lifetime value

Key Result #1 : Reduce general customer acquisition cost by 20% by the

end of Q2, 2023

Key Result #2 : Increase order frequency by 10% by the end of Q2, 2023

Key Result #3 : Reduce churn rate by 15% by the end of Q2, 2023

Note that the objective isn’t measurable but sets the direction for the team. The
Key Results are measurable but don’t define how to reach them. Also, they are
independent of each other.

What not to do with OKRs

Misusing OKRs is one of the most common mistakes you will stumble upon. Here
are things you must avoid:

Dependencies : Some companies create several objectives but are highly

dependent on each other. As a result, teams have to compete against each
other. It’s better to have a few aligned objectives than several dependent
ones.

Leadership defines Key Results : It’s a mistake to leave accountable

teams out of Key Results definition. Leadership should only define the
objectives and empower teams to develop Key Results. Yet, the leadership
can challenge the team but not define its goals.

Solution-oriented : Key results should leave room for creativity. It should

set what success is and let the team figure that out. Defining solutions will
trap the team.
 Binary Results : The result must be measurable. If you set binary results,
seeing progress is impossible, and OKRs lose their power. The team needs
to know how far they can reach the ultimate key result.

“We must realize — and act on the realization — that if we try to focus on
everything, we focus on nothing.”
― John Doerr, Measure What Matters

What are KPIs?

KPIs stand for Key Performance Indicators. KPIs are used to understand the
health of an organization according to pre-defined indicators. The most common
KPI types are:

Financial : Revenue growth, profitability, cash flow, etc.

Customer : Satisfaction, retention, churn rate, lifetime value, acquisition

cost.

Product : Conversion rate, session time, unique users, new users, etc

Tech : Down-time, availability, response time, error rate, etc

While OKRs point to the future, KPIs help you understand the status quo based
on past results. It’s imperative to define actionable KPIs. Otherwise, you will
identify a problem once it’s too late.

For example, revenue growth is an important KPI for many organizations, but it’s
slow to measure. If you realize you missed your target growth, it might be too late
to act on it. That’s why you must understand the actionability of KPIs:

Laggard : A laggard KPI shows you a problem happened, but you may not
be able to change it. It takes too long to measure the result. Example,
Revenue Growth.

Leading : Different than a laggard KPI, a leading one is highly actionable.

You define leading metrics by asking, “What would lead to this laggard
 KPI?” By answering this question, you come up with actionable KPIs. For
example, increasing basket size, recurrence, product availability, or new
customers will increase your revenue.

Common Mistakes with KPIs

The most common mistakes I’ve seen are:

The KPI Madness : I’ve seen many companies going wild with
dashboards, and they relied solely on numbers. While that has value, you
must exchange it with your customers personally. Some insights won’t come
from data.

Too Many KPIs : More KPIs don’t mean better decisions. It might lead to
confusion and analysis paralysis. Understanding which KPIs will make a
difference in your goals is crucial. Less is more.

Non-actionable KPI : Looking at KPIs to make you happy or mad isn’t

helpful. Great KPIs trigger action. Focus on leading metrics instead of
laggard ones.

Nothing can replace contact with real customers.

Combining OKRs with KPIs

By now, I hope you understand that OKRs point to the future while KPIs look at
the past. Combining both will help you progress in the right direction.

Working with OKRs without measuring progress isn’t valuable.

Working with KPIs without having a goal in mind is unwise.

When you learn how to work with OKRs and KPIs, combining them is powerful in
creating valuable products. Here are my tips for you:

1. Set a valuable strategy : Before talking about OKRs or KPIs, you must
have a strategy. Otherwise, everything is arguably a priority.
 2. Define what matters now : Leadership decides what matters most based
on the strategy, sets objectives, and empowers teams to work on Key
Results.

3. Define success : Teams work on crafting and committing to Key Results

based on the objectives. In collaborating with leadership, the team finalizes
the Key Results and is ready to thrive.

4. Set leading metrics : Continuously measuring progress is fundamental to

succeed with OKRs. That’s where KPIs come in handy. Based on the
committed Key Results, the teams come up with KPIs that enable them to
act fast and understand their progress.

5. Inspect and adapt : The team continuously adjusts their actions

according to the established KPIs and focuses on reaching the Key Results.

Final Thoughts

It’s easy to mess around with OKRs or KPIs. I learn that simplicity and
collaboration are essential to thrive in product management.

Keep it simple, and you will rock it.

Start small, learn from your actions, and adapt them accordingly. Progress is
what matters most.

You’re set to succeed when you have a valuable OKR and learn to measure with
KPI.

The first version of this article was published at LogRocket

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© 2023 David Pereira

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