February 5, 2019
How to Use KPIs with OKRs
One of the most common questions we get asked about OKRs (objectives and key results) is whether or not they can be incorporated with KPIs (key performance indicators). The answer is yes, and it’s easier than you may think because any company that chooses to use OKRs will inevitably also use KPIs by default.
Before we get too far into our explanation, I think a critical first step is to define both OKRs and KPIs.
OKRs is a goal-setting framework. For each OKR, there is an objective to be achieved, along with a set of metrics that will measure the achievement of that objective, called key results.
KPIs determine factors needed to achieve success in an organization.
Now, let’s take a closer look at how these two concepts work together:
OKRs encompass KPIs.
Let’s say you have an objective pertaining to new customer acquisition. You might have the key result: Grow new customer acquisition by 50% by the end of Q1.
We emphasize “new customer acquisition” because it represents the KPI for this specific KR. New customer acquisition is one factor that could determine the success of your company.
Here are some additional examples:
Increase gross profit margin to 30% for Q1. (KPI: gross profit margin)
Increase company revenue to $5M in Q3. (KPI: company revenue)
As you can see, KRs intrinsically encompass KPIs.
With that being said, there are some general concepts that you may want to keep in mind when working with OKRs and KPIs.
Not all of your KRs will include numbers
In some cases, you’ll find that some KRs may not directly include a KPI or a metric. In this instance, you’re more likely working with what’s referred to as a milestone goal; for example, launching a new marketing system, or any other similar concepts that can be measured based on whether or not they’ve been completed but are not associated with a direct number. In those cases, the milestone goal is still an important step that will ultimately contribute towards the success of KPIs.
Define target metrics that reflect your priorities.
When using OKRs, identify target metrics that reflect company-wide priorities and core values. That way, you’ll effectively link the targeted outcomes to concrete metrics so everyone is on the same page as a team.
Create a continuous feedback loop.
In staying on target with OKRs and KPIs alike, you must establish a consistent, ongoing feedback loop so leaders and their teams can check in regularly to discuss progress, expectations, and identify any possible bottlenecks.
Use SMART principles for metrics in KRs.
When you set KRs using metrics, make sure that they follow the SMARTcriteria: specific, measurable, aligned, relevant, and time-based.
Select from 3 types of metrics.
Threshold metrics: These metrics represent a range for which you can aim; falling anywhere in between this range would be acceptable. For instance, if sales needs to generate $200k in recurring revenue each quarter to break even in terms of cash flow, you then determine the metric necessary for revenue to stay positive, such as $220k per quarter. That creates a range of metrics that would be acceptable to hit and still encourages goal- and KPI-driven performance.
Baseline metrics. These represent the number that is considered acceptable; achieving anything less would be considered “missed.”
Positive or negative metrics. This concept is simply an expansion of the baseline metric. For instance, if you are trying to decrease your support response time from 8 hours or more to less than 5, that’s a negative metric. If you’re looking to increase a figure, such as revenue, then you’re using a positive metric.
In time, you’ll establish a rhythm in which KPIs and OKRs work concurrently in your company, because if you use KPIs now and are incorporating OKRs, you’re not “switching” approaches, you’re simply expanding upon and improving them to better facilitate your organizational priorities.