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Introduction
OKR vs. KPI? Both can be considered a type of goal-oriented management system. While KPI simply uses past performance metrics to project future goals, OKR takes it to another level. We will explain this here.
KPI is about the “What”.
KPI or Key Performance Indicators are metrics that gauge the health of a company, similar to monitoring your blood pressure. An example would be monitoring the debt-to-equity ratio – generally you would want to maintain a 1-2 debt-to-equity ratio.
But another way to use KPI is for goal-oriented management. KPIs can show you what happened in the past period, which gives you a benchmark for what you want it to be in the next period.
For example, Revenue can be considered a “Key Performance Indicator”.
If you made $100M in sales last year, you can use that benchmark to project what your goal is for next year, maybe $125M.
KPI: Revenue
2025 Revenue : $100M > 2026 Projected Revenue: $125M
And then you monitor that KPI during the next period to make sure you stay on track to meet your goals.
So a company will identify all the Performance Indicators that are “Key” to ensuring the on-going success of a company.
Other KPIs might be:
- Gross margin
- Cost of Goods Sold
- Customer Satisfaction Scores
- Employee Turnover Rate
- Inventory Turnover
KPIs may accumulate when considering important metrics for the whole company including all the teams, and even individuals. A team could have 10-20 KPI goals that it must meet during a period.
Some companies use KPIs as an important methodology to gauge an entire company’s progress, and that’s why it’s considered a management system.
KPIs are not perfect
A lot of Taiwan companies use KPIs as a useful tool to run their businesses. But without a comprehensive and coordinated management structure, these companies might still exhibit challenges:
- Project Delays
- Departmental Conflict
- Staff dissatisfaction
- Constantly changing project parameters
- Lack of innovation and critical thinking
This is because KPI doesn’t address how goals will be met. That’s determined by individual teams or staff. KPIs are easy to understand and simple to implement, but the complexities of how to achieve your KPI goals as a complex, highly integrated structure of departments, teams, managers and individuals, still need to be addressed. That’s accomplished with a strong management culture.
OKR is the “What” and the “How”.
OKR (Objectives and Key Results) is considered a complete Management System or a Framework, which not only focuses on ‘what’ needs to happen, but also addresses ‘how’ it needs to happen.
It’s easy to understand OKRs.
You establish your Objective, and then you list all the Key Results, which are the metrics you reach in order to validate the achievement of your objective.
Objective: Become the market leader in Athletic Performance Watches in North America.
#1 Key Result: Find 10 Distributors in North America
#2 Key Result : Attract 200,000 users to our online-store
#3 Key Result: Attract 10,000 subscribers to our youtube channel
#4 Key Result: Build a 10,000 user email list, send 3 email articles per week
#5 Key Result: Achieve $10M in sales in North America
In effect, if you fullfill all of your Key Results, you should have attained your Objective. That’s the “How”.
OKR sets goals aligned to company ambitions, not from historical numbers.
The OKR Objective is not determined by historical numerical performance – it is an aspiration to move the company in a positive direction, aligned with the Mission and Visions of the Company.
Become the market leader in Athletic Performance Watches in North America.
The Key Results may appear similar to KPIs because they are measurable, trackable metrics. However, Key Results are also not about improving on historical metrics – they are themselves dedicated targets that help to validate the attainment of the overall objective.
The question becomes, HOW do you achieve the Key Results themselves.
Key Results for an Objective could be a sub OKR.
The Key Result for an Objective can become an OKR itself with its own set of Key Results. This could be implemented laterally or vertically as a sub OKR. It’s all planned, coordinated, and scheduled based on the overall objective.
So the Key Result “Find 10 distributors in North America” could become an OKR itself with its own Key Results.
The OKR structure and it’s components are always aligned to some greater purpose. KPIs, however are often siloed objectives.
OKR is a complete management framework.
The OKR structure diagram in the previous section is important for all teams and staff to understand their place and purpose in helping the company reach important goals. Furthermore OKR contains concepts, strategies, and disciplines that builds a good working culture that promotes teamwork, transparency, and discipline.
- Attention to Company mission and visions
- Company alignment
- Departmental collaboration
- Interproject coordination
- Shorter Planning Periods
- Management Training
- Agile operations
- Growth and improvement
- Employee engagement, accountability
- Critical Thinking
In effect, OKR is a management culture focusing on “what” goals are important to the company and “how” to reach those goals.
For a quick intro to OKRs see “What is OKR?”
Conclusion – OKR vs. KPI
OKR and KPI are both goal-oriented methodologies.
KPIs only determine “what” goals needs to happen from historical metrics. It’s a useful management tool used in a lot of Taiwan companies – it’s easy to understand and simple to implement. But because it doesn’t address “how” goals are reached, a lot of issues and challenges can still surface.
OKR is a complete Management Framework that not only establishes “What” goals are important, but also drives “how” those goals will be met. It contains strategies, concepts and disciplines that establishes a working culture to avoid a lot of the pitfalls of simple goal-oriented management.
OKR and KPI methodologies are not mutually exclusive though. It is possible to use some aspects of both. But overall, OKR is a more robust management system, considering the many facets of company activities, and the importance of a strong management culture.
Look who’s using OKRs!
Are you looking to improve on your KPI system?
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