When it comes to setting organizational goals, finding the right measures to track your success is a crucial part of the process. If you want to keep up with a changing market, you should know how well you’re doing, how you can improve and what effect your actions are having on your overall strategy.
Needless to say, the pursuit for such an important assessment is going to generate various schools of thought. Over the years, there have been many approaches to best monitor, measure and track organizational performance, from Peter Drucker’s Management By Objectives to three of the most popular modern measures:
- Key Performance Indicators (KPIs)
- Objectives and Key Results (OKRs)
- Key Result Areas (KRAs)
So, let’s review some basics of each to help clarify the difference between KRAs, OKRs, and traditional KPIs. Though KPIs, OKRs, and (in many cases) KRAs are methods of gauging performance, you shouldn’t view them as an all-or-nothing choice. Instead, your aim should be to figure out how to balance these complementary measures, as part of your organizational goal setting and monitoring.
Let’s take a look at the role each play in the process, then move on to a discussion of how they might work together.
Key Performance Indicators (KPIs)
Key Performance Indicators (KPIs) are high-level measures or metrics, for one particular strategic objective, which (when measured and reported) give the leadership team an “indication” as to whether the organization is making progress towards achieving that particular objective. Careful attention should be given in defining each of these core strategic planning and management elements.
KPIs are measurable values that demonstrate how effectively a company is pursuing important business objectives, focusing more on existing processes and activities. These are the measures that all the companies in your industry are using in their respective departments, from web traffic to employee satisfaction to total revenue.
For most organizations, KPIs are a means of measuring the current health of the business, and they help gauge performance relative to industry standards or established benchmarks. For instance, email open rates are a common measure of marketing success, and all companies shoot for pretty much the same number: anything over 25% is desirable.
Each department will have its own KPI measures, from marketing to customer support and HR, and the focus of the results will be on those teams without heavy consideration for each individual employee’s performance.
Objective and Key Results (OKRs)
Most likely you have heard of the success by Google (and many other companies) with implementing a system of OKRs (Objective and Key Result) throughout the organization. OKRs have become increasingly popular, especially for companies seeking to build in more agility into their strategic management and performance system. OKRs can be used at the corporate level (Tier 1), department/business unit level (Tier 2), and employee level (Tier 3). The value of a well stated OKR is identifying in very clear language exactly what outcome is desired (objective) and attach to it a quantifiable target (key result) typically within the next 30 – 90 days. While there is much more to be said about OKRs, some of the distinctive features (in contrast to KRAs and KPIs) are:
- Set and reviewed more frequently (typically quarterly)
- Transparent to all in the organization, both vertically and horizontally
- Seek that sweet spot between aspirational and yet realistic
- Expectation that not all OKRs will be met each quarter (if they are, then they most likely are not a “stretch”)
While KPIs provide a measure of the health of your existing processes, OKRs are a way of quantifying the success of increasingly ambitious growth and improvement goals and mapping out the path to achieving them. They’re more about change.
As the name implies, OKRs consist of two parts: 1) Objectives: where you want to go – your goals for a set period (often one-quarter), and 2) Key Results: how far you progressed in the pursuit of these goals.
Like KPIs, OKRs start out at the high level – “What are the organization’s main objectives for this quarter?” – and get progressively more granular. But unlike KPIs, they focus more on internal performance, from the organization to project teams and individual employees.
Here are the basic ground rules for OKR implementation at Google, where this style of measurement was first popularized:
- Objectives are ambitious and should feel somewhat uncomfortable
- Key Results are measurable; they should be easy to grade with a number (at Google we use a 0–1.0 scale to grade each key result at the end of a quarter)
- OKRs are public; everyone in the company should be able to see what everyone else is working on (and how they did in the past)
- The “sweet spot” for an OKR grade is .6 — .7; if someone consistently gets 1.0, their OKRs aren’t ambitious enough. Low grades shouldn’t be punished; see them as data to help refine the next quarter’s OKRs
In the same philosophy as S.M.A.R.T. goals, the specific and ambitious nature of OKRs is the key to their power. The number-based measure of how the group or individual is performing helps to prevent the kind of goal dilution that can occur to qualitative goals like, “launch new referral program.”
You can achieve that goal by publishing a landing page, even if no one ever submits one. But if your goal is to “generate 20 new referrals this quarter,” scraping together just four of those is infinitely more beneficial to your organization than the results of your vague goal, which was technically more successful but didn’t help you improve.
Key Result Areas (KRAs)
Some of the confusion of OKRs and KRAs is due to the usage of the phrase “key result” in both acronyms. While there are some similarities, there are also some major differences.
Organizational-Level (Tier 1) KRAs
In 2010 Randall Rollinson and Dr. Earl Young introduced the concept of “Key Result Areas” in their book Strategy in the 21st Century, to help organizations identify key drivers of success. At the highest level of the organization, a key result area is not a measurement at all, but rather is a strategic factor either internal to the organization or external, where strong positive results must be realized for the organization to achieve its strategic goal(s), and therefore, move toward realizing the organization’s longer term vision of success. Key result areas are sometimes referred to “critical success factors” or “key drivers of success.” When used at this altitude in your strategy development process, KRAs are not performance measurements, but rather scaffolding to help break down your vision and goal into specific categories that will drive success.
Once 6-9 KRAs are defined, a leadership team can move on to spelling out (and eventually selecting) a set of feasible strategy alternatives for positively impacting each Key Result Area. These strategies can then be incorporated into the organization’s long-term strategic plan with appropriate responsibilities and time frames assigned. This set of longer term strategies must then be translated into a balanced set of operational objectives, which are foundational to building and implementing the near-term operating plan.
Employee-Level (Tier 3) KRAs
When Key Result Areas are used regarding individual employee performance, it is a tool to help align each employee’s day-to-day responsibilities with the higher-level strategy of the organization. Key result areas are those things that you, as a staff member, absolutely, positively must do to fulfill your responsibilities and achieve your business goals. It is a tool to help align each employee’s day-to-day responsibilities with the higher-level strategy of the organization.
A good KRA includes ongoing tasks and activities of the position, and the purpose and desired results of performing those tasks. The natural tendency of many people is to focus on the activities of each day instead of the end results expected of them. You can soon become so busy with the daily activities of the job that you lose sight of the bigger picture.
The major goal of setting Key Results Areas is to improve communication and increase productivity on your team because everyone knows what winning looks like in their role. You may follow the following guidelines when setting your KRAs:
- It is clear, specific, and measurable. You can determine exactly if the result has been achieved, and how well.
- It is something that is completely under your control. If you do not do it, it will not be done by someone else. If you do it and do it well, it can contribute significant value to your business and to your career.
- It is an essential activity of the business. A key result is an important output that then becomes an input to the next key result area, or to the next person.
Putting It All Together:
In a sense, you can differentiate between OKR and KPI measurements by how they relate to time. With KPIs, you’re trying to figure out how well you’re doing right now – how healthy your company is, and how your current initiatives are performing. OKRs are more about development and growth – whether you’re on track to reach the goals you set for organizational and employee improvement, or not.
While the objectives that KPIs typically measure – revenue and engagement – tend to remain static, OKRs often evolve from quarter to quarter, as executives and employees challenge themselves to set new, ambitious goals that focus their effort and align their work with the company’s objectives. KPIs are a constant companion, the same measurement monitored continuously, while OKRs have a deadline after which you evaluate how well you did in achieving your objectives.
Ultimately, KPIs and OKRs are not mutually exclusive, and you should expect to see some KPIs nested within your OKRs – in fact, for some companies the KPIs are the “Key Results” of OKRs. The main philosophical difference is that while KPIs persist over time, the “Objective” part of OKRs puts performance measurements in the context of the limited period in which they are measured. As a result, it should come as no surprise that OKRs are more heavily emphasized at companies like Google and Uber, where rapid development and the evolution of ideas requires a rolling review of performance metrics, rather than focusing on the same few goals over long periods of time.
It would be a mistake, however, just to adopt OKRs just because cool companies use them. In the end, the approach you take will depend on your company. If you’re in a rapidly evolving field, where targets are shifting and you need a high degree of agility, then it may be a good idea to give OKRs a shot. If you have a single core product or service, and you have a solid history of KPI accuracy, then you don’t have to jump on OKRs just because they’re becoming popular. The more important consideration is the individual measurements you’re taking, regardless of approach, because they are going to be the heart of either strategy.
If you would like to learn more about KPIs, OKRs or performance measurement in general, then contact LBL today or sign up for our online Strategic Management Performance System course. You’ll learn the required phases, practices and tools used in effective strategic planning, implementation and assessment, as we break down the strategic management process into well-defined manageable steps.
- Niven, P & Lamorte, B Objectives and Key Results: Driving Focus, Alignment, and Engagement with OKRs (Wiley Press: 2016).