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Arun Raghunathan – Co-Founder (Strategy and Products), Zapilio
“Measure twice, cut once” is a popular adage.
The ability to measure progress and success is more crucial than ever. Two acronyms that frequently pop up in product management are OKRs (Objectives and Key Results) and KPIs (Key Performance Indicators). They serve as pointers for growth and excellence. While they are often mentioned in the same breath, their distinct nuances can create a world of difference in strategic planning and execution.
Key Performance Indicators, or KPIs, serve as the pulse check of an organization’s health. They are quantifiable measures used to evaluate the success of an organization, employee, or process in meeting objectives for performance. Think of KPIs as vital signs in a medical check-up; they tell how well the body (or business) is functioning at a specific point in time.
In product management, a KPI is a measurable value that indicates how effectively a product is achieving key business objectives. KPIs are used by product managers to evaluate the success at reaching targets, guiding product strategy, and making data-driven decisions. KPIs vary depending on the product’s stage in the lifecycle, the company’s goals, and the specific aspect of the product being measured. For instance, early-stage products might focus on user growth and engagement, while mature products might track profitability or market share.
Objectives and Key Results (OKRs), on the other hand, are a goal-setting framework that helps companies define goals (objectives) and track the outcome (key results). OKRs are about setting ambitious goals and then breaking them down into specific, measurable actions that propel an organization toward its vision. They are designed to push boundaries and encourage employees to aim high.
Imagine a tech company aiming to “revolutionize the customer experience through innovation.” The objective is bold and inspirational. The key results could be quantifiable milestones like “increase customer satisfaction scores by 20%” or “launch three new user-centric features by Q2.”
While KPIs and OKRs may seem similar, they serve different purposes.
KPIs are indicators for measuring performance and are often used to ensure the current business processes are aligned and running effectively. OKRs are used to set and communicate future goals and the steps to achieve them. KPIs tend to be more operational and can be narrowly focused, while OKRs are strategic and often broad. KPIs are typically monitored continuously over time. OKRs are usually set quarterly or annually, representing a cycle of evaluation and renewal. KPIs are about meeting targets, often based on past performance or industry standards. OKRs encourage setting challenging goals that stretch the organization to achieve more.
Aspect | KPIs(Key Performance Indicators) | OKRs(Objectives and Key Results) |
Definition | Metrics used to measure the efficiency and success of ongoing operations or processes. | A goal-setting framework that defines objectives and tracks measurable steps to achieve them. |
Purpose | Monitor and measure performance, typically against established benchmarks or business goals. | Set ambitious goals intended to push companies towards substantial progress and growth. |
Scope | Often specific and narrow, focusing on particular aspects of performance. | Broad and strategic, encompassing higher-level organizational aspirations. |
Timeline | Tracked continuously or over specific periods relevant to the business cycle. | Set for specific time frames, often quarterly or annually, and reassessed regularly. |
Nature | Tend to be more incremental and expected to be met or maintained. | Aspirational and challenging, designed to encourage reaching beyond current capabilities. |
Focus | Reflect past and present performance, aiming for consistency and improvement in existing processes. | Future-oriented, focusing on achieving progress and encouraging innovation. |
Flexibility | Generally more stable over time, unless significant changes in strategy occur. | Designed to be flexible and adaptable, with objectives being re-evaluated at set intervals. |
Examples | Percentage of customer support tickets resolved within 24 hours.
Monthly sales growth percentage.
Net Promoter Score (NPS). | Launch a new product feature that achieves a 15% adoption rate by Q3.
Increase market share in a new region by 10% by the year’s end.
Grow annual recurring revenue by 30% by Q4. |
Intel utilized OKRs effectively long before Google made them famous. Under the leadership of Andy Grove, Intel was able to navigate the competitive landscape of the semiconductor industry and emerge as a leader. The company’s OKRs helped to align the organization during the critical shift from memory chips to microprocessors in the 1980s.
Wells Fargo provides a cautionary tale of how misaligned KPIs can lead to a company’s downfall. In the mid-2010s, the bank was embroiled in a scandal where employees created millions of fraudulent accounts to meet aggressive sales KPIs. The KPIs in place incentivized the wrong behavior, leading to widespread misconduct and, ultimately, damage to the bank’s reputation, legal fines, and a loss of consumer trust.
Setting effective OKRs and KPIs is crucial for aligning a team’s efforts with the company’s strategic goals. Here are the steps for setting both OKRs and KPIs:
1. Define Clear Objectives
Start by identifying what needs to be achieved. Objectives should be ambitious, qualitative, and inspirational. They should align with the company’s vision and mission.
2. Determine Key Results
For each objective, set 2-5 key results. These should be quantifiable, measurable outcomes that, if achieved, will signify the objective has been met.
3. Ensure Alignment
OKRs should cascade from top-level organizational goals down to individual teams and employees, ensuring alignment across the company.
4. Set a Time Frame
OKRs are typically set for a specific period, such as a quarter or a year. Define the timeline for when the key results should be achieved.
5. Track and Review Regularly
Regularly check progress against key results. This can be done in weekly check-ins or monthly reviews. Adjust OKRs as needed based on these reviews.
6. Encourage Collaboration
OKRs should be set with input from various stakeholders to ensure buy-in and to leverage diverse perspectives.
7. Reflect and Reset
At the end of each OKR cycle, reflect on what was achieved, learn from what wasn’t, and use these insights to set the next cycle’s OKRs.
1. Identify Key Business Goals
KPIs should be directly tied to business objectives. Determine what success looks like for a company or project.
2. Select Relevant Indicators
Choose KPIs that will provide insights into the performance towards these goals. They should be actionable, providing clear indications of where changes or improvements are needed.
3. Make KPIs Specific and Measurable
A KPI must be measurable. Set specific targets for each KPI that are achievable and relevant to the goals.
4. Set Benchmarks
Establish benchmarks for performance, either based on past company data or industry standards, to give context to the KPIs.
5. Assign Ownership
Each KPI should have an owner who is responsible for tracking performance and initiating actions based on the KPI’s results.
6. Review and Adapt
Regularly review KPIs to ensure they are still relevant to the goals and adjust them as the business and market conditions change.
7. Communicate Clearly
Make sure everyone involved understands the KPIs set, why they are important, and how they contribute to the company’s success.
The best OKRs and KPIs are those that not only track progress but also inspire action and foster a culture of continuous improvement.
When setting KPIs and OKRs, there are pitfalls to keep in mind:
The journey of a thousand miles begins with a single step. It is vital to make sure that the first step is guided by the right metrics. Whether charting a course with OKRs or steering with KPIs, the key is to keep moving forward.
Performance metrics are quantifiable measures that are used to track and assess the status of specific business processes. They are essential because they provide an objective way to evaluate the effectiveness and efficiency of operations, guide strategic planning, and help organizations gauge their progress toward achieving their business goals.
OKR stands for Objectives and Key Results. It’s a goal-setting framework where objectives are set as qualitative, ambitious goals, and key results are the measurable outcomes that track the achievement of these objectives. An OKR typically includes 1-3 high-level objectives, and each objective has 2-5 key results that are quantifiable and time-bound.
A KPI, or Key Performance Indicator, is a specific type of performance metric that is crucial for the success of an organization. KPIs differ from regular metrics in that they are key indicators of progress toward an intended result and are critical to the success of the organization. They are used to focus attention on what matters most, driving operational improvements and strategic decision making.
To set effective OKRs, start by ensuring they align with your company’s strategic vision. Objectives should be challenging yet achievable, and key results should be quantifiable. Engage team members in the goal-setting process for buy-in and clarity. Set OKRs on a quarterly basis to maintain agility, and ensure regular check-ins to track progress and adapt as needed.
Common mistakes include setting too many KPIs that can overwhelm and dilute focus, not aligning KPIs with strategic business goals, failing to communicate the importance of KPIs to all stakeholders, using vanity metrics that look good but don’t drive action, and not regularly reviewing and updating KPIs to reflect changes in business strategy or the market environment. It’s also crucial to avoid setting KPIs in isolation without considering the broader context and interdependencies within the business processes.
