Goal-setting ensures your employees are working towards a common goal and provides a clear framework to evaluate performance management.
KPIs and OKRs are two different tools for organisational goal setting. The former is used by the majority of Australian businesses, while the latter by tech companies such as Google and Amazon.
But what is the difference between the two, and which should you use in your organisation?
What are KPIs?
KPIs stand for Key Performance Indicators and are a common tool for performance management in both small and large organisations.
So what are KPIs in business? KPIs monitor individual employee performance through a set of agreed-upon metrics. For example, common marketing KPIs may include traffic to a company’s website and advertising ROI. HR KPIs could include employee satisfaction or turnover rates.
They can also be used at the team and company level, or to gage the success of a project, program or product.
KPIs are effective because they provide concrete metrics to monitor and evaluate performance. However, as KPIs are often assigned as an individual target, they can easily be forgotten as workload increases or new priorities emerge. It is often up to managers to keep KPIs top of mind and hold individual employees accountable.
What are OKRs?
What do ‘OKRs’ stand for? OKRs stand for Objectives and Key Results. Similar to KPIs, they are designed to measure and evaluate performance. However, rather than putting the focus on achieving individual targets, OKRs are set at the company and team level. They are collaborative, open, and help focus your employees on a common goal.
All OKRs begin with the objective. This is the aspirational goal an organisation hopes to achieve and acts like a compass which guides the team. From this objective, a company can funnel this down into the measurable steps and milestones. These are the “key results” that need to be fulfilled to reach the overall goal.
The main difference is that OKRs focus on the broader aspiration and objective then identifies the milestones that an organisation needs to hit to reach that goal. KPIs only focus on the results of an action, and often do not consider the overall company vision and objectives.
How to use OKRs and KPIs effectively
While they may seem like two separate tools, OKRs and KPIs complement each other. They have different functions, but both should be harnessed for effective performance management.
OKRs are best used for mid- to long-term goals, or for changing processes. They unite the entire team around a bigger picture and provide a framework for success. At the same time, they allow for flexibility on how to reach the results. Meanwhile, KPIs are beneficial for individual projects or short-term actions.
Another way to use both is to integrate KPIs is as the “KR” part of OKRs. They can be used as a powerful tool within the OKR framework to define and progress and achievement towards the bigger goal.
Finally, regardless of the tool you use, it’s also important to set SMART goals. These help you think carefully and methodically about your desired outcomes and are a key ingredient of business success.
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