Differences between OKR and KPI, practical examples
In this article, I will use KPI practical examples and OKR examples to highlight a rather common approach error: the belief that they are pure Data-Driven systems. Using the empirical method, I would like to try to scratch this concept and arrive at a change of perspective: the data for the verification of OKR processes and for the management of objectives are subordinated to the strategy.
It is the strategic thinking behind the choice of objectives and measurement metrics that generates the value of the numbers.
The differences between OKR and KPI that will emerge from the practical examples reported, will be the starting point to reflect on the increased possibilities that open up when the OKR framework is integrated with the KPI metrics: OKR and KPI are not alternatives to each other, but together they represent two elements of the same strategy.
KPI what they are?
I am not going to dwell too much on what KPIs are because I recently explored the topic, also analyzed some KPI examples on the best product indicators. In any case, I find it useful to briefly review the basics to get better prepared at the focal point of the article, after all, you cannot make the most of something that has not been previously defined and fully understood.
The acronym KPI stands for Key Performance Indicator, which is to be used to monitor and measure progress towards a goal. This objective can be segmented at different levels:
- Macro Level: organization as a whole
- Medium Level: departments or work teams
- Specific Level: single collaborator/employee
The types of objectives are also transversal and can be related to the financial growth of the business, or to customer loyalty, or the satisfaction of stakeholders. We will be able to go into details and understand the practical applications by analyzing the subsequent KPI practical examples.
KPI definition
Nothing better than to borrow the definition of an authoritative source to fix a concept.
Investopedia KPI definition: “Key performance indicators (KPI) gauge a company’s output against a set of targets, objectives, or industry peers”.
The elements of the KPI are therefore indicators, intended as quantitative (not qualitative) data that measure the progress of a process towards an objective. How is the measurement of the effectiveness of the process carried out? By analyzing the input data and comparing them with the output.
To demonstrate the neutrality of the indicator itself, here is an example of a KPI. I want to measure the open rate of emails during an email marketing campaign. The measurement indicator is the open rate in relation to the total number of mailings made.
Out of 2000 e-mails sent (input), 700 were opened (output), with an open rate of 35%. This datum in and of itself is neither positive nor negative, but simply quantifies the process in a neutral way. To understand whether the 35% open rate is a success or a failure, we must refer to the strategic goal that we have set for ourselves.
OKR what they are?
Recently, I dedicated a guide to what OKRs are and it is not my intention to repeat myself. I think it is enough, before going into the merits of the differences between OKR and KPI, to fix only the key concepts. Anyway, if you have time I leave you this link where you can hear directly from the guru John Doerr what OKR are.
OKR, an acronym for Objectives and Key Results, is a framework for defining objectives. Each OKR is made up of a milestone and the intermediate milestones needed to get there.
The Objective (O) is the only goal, while the Key Results (KR) vary from 3 to 5 and are the key results to be achieved along the progress process.
OKR formula
To write an OKR correctly, you can refer to a translatable formula in the form of a mission statement, indicating what you want to do and how you will proceed to do it. Eg:
O = Improve website performance
- KR (1): have a maximum response time of 1 second
- KR (2): lower the bounce rate to 35%
- KR (3): place 3 keywords
Differences OKR and KPI practical examples
After seeing what KPIs are and refreshing our memory on how to write an OKR, it is time to understand the differences and why their integration optimizes the strategy of the objectives.
- KPIs serve as KPIs to measure the performance and output of already known processes
- The OKRs allow us to consider even very ambitious goals
- With KPIs we monitor performance
- The OKRs provide us with a compass towards possible territories to explore
Together OKR and KPI are an exceptional combination: their integration creates a functional link in the unified system of management by objectives.
On the one hand, we have the priorities identifiable with the Key Results and on the other the performance indicators to which we have linked the objective.
OKR and KPI are by no means alternative, but perfectly complementary.
OKR and KPI practical examples of alignment
Let’s say that within a commercial company two different teams are working on the same process aimed at monitoring and possibly implementing the “number of leads generated per month”.
Team A (Marketing Department) uses this reference as Key Results
Team B (Sales Department) uses it as a KPI, having as an indicator a minimum threshold of leads
For the complementary process alignment to work, Team A’s goal must be ambitious enough. If it is not, the KR does not fit into the larger business goal which is to encourage the final conversion or sale.
In the same company, the monthly budget is used by the Management Team from a financial perspective and by the Sales Team with a view to sales incentives.
The Management Team has set the turnover (KPI) at > € 40,000 to respect the monthly margin (KR)
The Sales Team has established the turnover (KR) at € 35,000 to stay on average with the annual goal (O).
The two teams are misaligned. Since one of the founding principles of the OKR Methodology is transparency in communication, on the basis of which everyone knows everyone’s OKR, it is possible to intervene quickly and in advance. The two working groups confront each other and review their strategies, identifying and removing obstacles in the path of compromise.
KPI practical examples
Using an objective management system effectively doesn’t just depend on knowing what KPIs are or what OKRs are. The determining factor is identifying the best KPIs and the most suitable metrics.
The key performance indicators must be put at the service of contingent needs and specific needs, in order to select the right KPIs to have a complete and updated picture of the organization’s health, customer behavior, and customer satisfaction. employees.
Since the types of KPIs are classified according to the scope of application, I have chosen the main ones to propose the related KPIs practical examples.
KPI practical examples for sale
- Number of SQL (Sales Qualified Lead) generated
- The currency value of new contracts signed within a given month
- Average conversion rate
- Cost per SQL acquisition
Financial KPI examples
- Gross or net profit margin
- OCF (Operating Cash Flow)
- Receivables or debts
- GIR (Growth In Revenue) or growth in terms of revenue
Customer KPI examples
- Number of customers retained over a period of time
- Customer abandonment rate over the same period of time
- NPS (Net Promoter Score), i.e. the data, expressed as a score, relating to how much customers appreciate a product/service
- Calculation of the LTV (Lifetime Value)
Business KPI examples
- Average time to reach the work goal
- Employee satisfaction rating
- Employee churn rate
KPI practical examples for Web marketing
- Monthly website visits
- Number of social media or blog posts made on a weekly / monthly basis
- Number of Marketing Qualified Leads (MQL)
- The conversion rate for social media promotional campaigns
- PPC / ROI for paid ads
OKR and strategy of objectives
As for the KPIs, also for the OKRs, we must never lose sight of the strategic aspect. Which, as mentioned, means identifying the goal to be pursued and the metric to measure to get us closer to the goal.
Knowing what we measure and above all why we are doing it is crucial. Conversely, trying to measure everything and “throw data” at random is, at best, a distraction of resources.
If the Objective is the goal (and it is!) In principle, it will have a qualitative and not a quantitative value. Conversely, the Key Results, which mark the approaching stages, must always contain data that allows us to understand if and how far we are approaching the finish line. KRs are specific, measurable, and limited in time.
Once again: the positive impact will be greater the more weighted is the choice of the number that is included in the Key Result.
Examples of how to write OKR
O = satisfy our customers
- KR (1): Collect feedback from at least 20 customers per month
- KR (2): raise customer loyalty rate> 90%
- KR (3): maintain an NPS (Net Promoter Score) of not less than 9
O = strengthen the corporate culture
- KR (1): Implement the feedback loop through weekly surveys
- KR (2): set the minimum employee/collaborator satisfaction score at 8/10
- KR (3): Launch a new mentoring program by the end of the second quarter of each year
O = improve the corporate blog
- KR (1): have at least 50 new posts published every two months
- KR (2): Make at least 5 posts per quarter with interviews with industry experts
- KR (3): reach 2,000 subscribers to the newsletter within the next semester
O = launch a successful new product
- KR (1): Complete website updates for the new product
- KR (2): finalize the technical data sheets and information for the sales network
- KR (3): collaborating with marketing to develop the technical specifications to be promoted
- KR (4): creates a pre-launch for top clients and partners
How to write a strategic OKR
In this last chapter, I want to deepen the importance of the approach. Asking “What do I want to measure?” and knowing how to choose the actually impacting data makes all the difference in the world. Obviously, there is no single and absolute answer: it all depends on where you want to go.
It is the arrival point that determines the success of the path: I fix the goal, I identify which metric I want to move, I study the steps to be taken.
OKRs are undoubtedly the preferred framework of the Product Manager, who is used to thinking first about the metric and only later about the features.
Conclusion on: OKR and KPI practical examples of strategy
I close with a final example of OKR, which I will write from a strategic thinking perspective.
I noticed that the number of processed leads has increased, but this increase does not correspond to an increase in the conversion rate. Conversely, the deal closing rate has decreased. The problem has not yet been identified. I decided that my key indicator is the conversion rate. I do two calculations and realize that reasonably increasing the conversion rate by 15% can have a high positive impact.
The first number I identify is, therefore, + 15% of the conversion rate. This number is the first Key Result I have identified and, based on my analysis, the most important in terms of improvement. To get to the identified milestone, I decide to:
- Focus on the chosen data and consider the other marginal data
- Identify the initiatives and tasks to be carried out
- Consider every task I carry out to reach the milestone as a working hypothesis to be verified in the field.
Among the actions to be carried out I aim to:
- Segment the processed leads that have had a conversion rate higher than X% in order to trace the common elements.
- Schedule a one-to-one meeting a week with the sales representatives of the sales network to study the feedback received from the main target segments.
- Create at least one product Q&A tutorial per month for the customer.
- Lower post lead generation direct contact time to less than 24 hours.