What is the difference between OKR and KPI? Which indicator should be used?
OKR and KPI are two popular tools used to set goals and measure performance, to ensure business operations are successful. So, what is the difference between OKR and KPI ? Which indicators should be applied to the business activities of the enterprise? In the article below, 1C Vietnam will provide detailed information to help specifically answer the above concerns.
1. Overview of OKRs and KPIs
There are many different methods for setting and tracking goals, the most popular of which are OKR (Objectives and Key Results) and KPI (Key Performance Indicators). Here is an overview of these two methods:
1.1. OKR concepts and examples
OKR stands for "Objective and Key Results", that is, goals and main results. This is a management method that allows businesses to achieve their goals by setting small, measurable goals and tracking progress toward them.
For example:
In the third quarter of 2024, a clothing business aims to increase sales.
When applying the OKR method we have:
Objective (O): Increase business sales in the third quarter of 2024.
Key results (KRs):
- Increase customer conversion rate from 3% to 5%.
- Increase 5,000 new customers to register to use the product.
- Reduce order cancellation rate from 10% to 3%.
In this example, the goal is to increase sales in the third quarter of this year. To achieve this goal, the business has set 3 main specific results. Each result is specifically defined, clear and measurable.
1.2. Concepts and examples of KPIs
KPI stands for Key Performance Indicator, which is a key performance indicator that reflects the current status of an organization. KPIs are widely applied to evaluate projects, products or employees.
For example, the KPI of the Marketing team in business X is the customer conversion rate on the Website. This index can be calculated by dividing the number of successfully placed orders by dividing the number of website visits, multiplied by 100%. If this KPI does not meet expectations, managers need to reconsider their approach and make necessary changes to fix it.
2. Difference between OKR and KPI
OKR and KPI are both effective measurement tools and evaluate the progress of business activities in an enterprise. Both can be used flexibly in both large and small businesses, and both can have a positive impact on business productivity if applied correctly.
However, between these two tools there are fundamental differences in approach, purpose of use and scope of application. Below is a specific comparison table of the differences between OKR and KPI:
OKRs | KPI | |
Basis for determination | OKR focuses on defining Objectives, then breaking them down into measurable Key Results. | KPI focuses on indicators, which are specific figures that show business performance. |
Mechanism of action | OKR is a goal management method that focuses on coordination between departments and employees. OKR allows departments and employees to set their own goals, then link them together to form common business goals. | KPI is a goal management method that focuses on top-down command. KPIs are imposed from top management to lower levels, and employees are forced to accomplish these goals. |
Threshold to be considered complete | OKRs often set ambitious goals, so reaching 70% or more is considered complete. | KPI is considered completed when it reaches 100%. When KPI is completed, you will be rewarded, when not completed, you will be penalized. |
Quantity | For each OKR, about 3-5 Key Results (KRs) are set to measure the level of goal accomplishment. To complete OKRs, employees need to focus on the most important KRs, ignoring irrelevant things. | The number of KPIs is not limited, depending on the nature of work and goals of each department and individual. |
Time application | OKRs are often applied quarterly or annually, to determine goals and direction for a long-term period. | KPI can be applied to many different time periods, such as weeks, months, quarters, years,... depending on the nature of the work and the goals to be measured. |
Connection value | OKR helps connect personal, departmental and company goals, creating consensus towards common goals. | KPIs often focus on individual goals, sometimes leading to separation between individuals and departments. |
Flexibility | OKR empowers employees to take responsibility for their own goals. | KPIs are often set by leaders, based on subjective reason, and imposed on employees. |
To better understand the difference between OKR and KPI , businesses can refer to the following example:
In the second quarter of 2023, a business set a goal of "Brand being popularized to 15,000 people". This goal is general and cannot be measured. Therefore, businesses need to break down goals into more specific key results (KRs).
The key results raised in this case are:
- KR 1: Website has 10,000 new users.
- KR 2: Rebuild the brand identity.
- KR 3: Social page interactions increased by 200%.
These key results have specified the initial goals, helping businesses measure progress and effectiveness in achieving goals. Based on key results, business leadership can set KPIs to track each department and individual during the implementation process.
For example, for key result KR 1: Website has 10,000 new users, management can set the following KPIs:
- KPI 1: Number of articles posted on the website each week is 30.
- KPI 2: The number of backlinks to the website each week is 10.
- KPI 3: Number of emails sent to customers per week is 5.
These KPIs help businesses closely monitor progress in achieving key results KR 1, thereby making timely adjustments if necessary.
3. Should I choose OKR or KPI criteria?
Understanding the difference between OKR and KPI can see that both are important indicators in managing and evaluating business performance of an enterprise. However, these two indicators have their own advantages and limitations, so it is necessary to choose the appropriate indicator based on the goals and characteristics of the business.
New, small and medium-sized or growing businesses often use OKR because this method promotes flexibility and focus on big goals. This helps businesses orient and focus resources on the most important goals, thereby achieving greater efficiency in business operations.
In turn, KPIs are commonly used in large enterprises, listed companies and traditional industries. KPIs are quantitative indicators that measure specific goals in business strategy. KPI helps businesses make accurate decisions and optimize business performance. However, KPIs can also lead to focusing only on metrics, ignoring other important factors.
Therefore, businesses should consider carefully before choosing OKR or KPI. In many cases, businesses will need to combine both OKRs and KPIs to achieve optimal effectiveness. KPIs will then help track overall business performance, while OKRs help create focus on priorities.
4. Conversion process from KPI to OKR
The explosion of technology is causing many business leaders to switch to the OKR management model. This model is more suitable for large businesses, helping them focus on overall goals and promoting cooperation between departments.
The conversion process from KPI to OKR includes three main steps:
- Set goals and generate key results from KPIs
The first step is to identify the main goals of your business. Then, existing KPIs will be reviewed to convert into OKR key results. The number of KPIs for each OKR should be limited to 1-3 to ensure focus and feasibility.
- Identify key results
Identify key results that need to meet SMART criteria as follows:
- Specific: Key results need to be expressed clearly and easily understood.
- Measurable: Key results need to be measurable with specific data.
- Achievable: Key results need to be achievable within the specified time.
- Relevant: Key results should be related to the overall goals of the business.
- Time-bound: Key results need a specific deadline to complete.
- Use the right monitoring tools
To ensure successful OKR implementation, businesses need to use a suitable monitoring tool. This tool will help monitor OKR implementation progress and promptly make necessary adjustments.
5. A few notes when implementing KPIs and OKRs
KPI and OKR are two popular performance measurement methods today. To build these two models effectively, businesses need to pay attention to the following points:
- Goals need to be clearly defined, specific, measurable, time-bound and feasible.
- When developing KPIs and OKRs, it is necessary to consult with stakeholders, including employees, middle and senior management. This helps ensure that goals are aligned with the business's strategy and employees' ability to execute.
- Performance evaluation needs to be done fairly, objectively, based on specific and clear criteria. This is an important basis for motivating employees and promoting business development.
- KPI and OKR need to be applied flexibly, suitable for each business and each stage of development.
- KPI is often applied to businesses that have been operating stably, with specific strategies and a complete human resources management system.
- OKR is often applied to businesses that want to achieve big, ambitious, and inspiring goals.
Thus, the above article has specifically presented the difference between OKR and KPI as well as a few notes when implementing the above two factors. To apply OKRs and KPIs effectively, businesses can use additional support software such as 1C:Company Management. This is a solution that helps automate business management, centrally store information, organize performance measurement and provide a detailed and specific reporting system. For more advice on this software, please contact 1C Vietnam today!