5-second summary
- OKRs and KPIs are popular goal-setting methods that help organizations set meaningful goals and execute effective strategies to reach them.
- While some organizations maintain strict allegiance to a particular methodology, many companies use both OKRs and KPIs.
- Regardless of what framework you use to set goals, they should be SMART, ambitious, and visible across your organization.
Not all goals are created equal. Targeting outcomes – and the metrics you use to determine success – take big-picture and micro-level planning, as well as constant iteration. So, how do you set the right goals? And how can you tell if you’re on a path towards achieving them?
We all know how much the business world loves three-letter acronyms, so it follows that OKRs and KPIs are the two most common goal-setting methods. Used correctly and in the right context, they can help organizations set meaningful goals and execute effective strategies to reach them. But in order to make the most of your organization’s efforts, it’s important to understand the strengths and limitations of each approach.
What are Objectives and Key Results (OKRs)?
Objectives and Key Results (OKRs) is a goal-setting framework used by organizations and teams to define goals and track related outcomes.
As John Doerr, who introduced OKRs to Google in the late ‘90s, describes it – the objective is the what, and the key results are the how.
A well-chosen objective is an explicit description of what the team wants to achieve over a defined period of time – say, by the end of the next quarter or fiscal year. Objectives should be ambitious and serve as a team’s highest priorities while they’re in place.
To measure progress, each objective should have three to five corresponding key results, which are quantitative metrics that indicate whether an objective has been achieved. Key results are often scored on a scale of 0 to 1, where a 1 indicates smashing success – as in, you’ve set an aggressive goal and are knocking it out of the park. Using this scale, a .3 score would likely indicate a high risk of falling well short of the goal, while a .7 suggests you’ve more or less met it.
OKR examples
Developing OKRs should be a collaborative process, across either the leadership team (for company-wide OKRs) or an individual team or department.
Here are some examples of OKRs that teams might design on a yearly basis.
| Company-wide OKRs |
|---|
| Objective: Increase sales revenue Key Result #1: Increase web conversion rate by 25% Key Result #2: Increase average subscription value from $300 to $500 Key Result #3: Reduce average days to sale from 20 to 17 Objective: Reduce employee turnover Key Result #1: Reduce employee churn from 20% to 15% Key Result #2: Score a 4+ on the employee satisfaction survey for 10 out of 12 weeks Key Result #3: Increase employee response to 360 feedback survey from 70% to 90% Objective: Increase market share Key Result #1: Increase page one search result rankings from 6 to 15 Key Result #2: Reduce customer churn by 30% Key Result #3: Achieve four earned media spots |
Each company-wide objective will be accompanied by KRs and will also filter down into team-level objectives with their own KRs.
For instance, the objective “increase sales revenue” will likely require support from multiple teams – not just sales.
| Team-level OKRs |
|---|
| The sales team’s OKRs will be directly related to the company-wide objective of increasing sales revenue. Objective: Increase monthly sales revenue Key Result #1: Increase web conversion rate by 25% Key Result #2: Increase customer retention from 30% to 50% Key Result #3: Generate 40 high-value leads per month Similarly, the marketing team’s OKRs will align with the company’s objective of increasing market share. Objective: Increase brand awareness Key Result #1: Increase number of page one search result rankings from 6 to 15 Key Result #2: Achieve four earned media spots Key Result #3: Increase social media engagement rate from 35% to 55% |
Once teams have created their OKRs, they should meet on a regular basis to determine whether their efforts are moving their key results in the right direction.
What is a Key Performance Indicator (KPI)?
A Key Performance Indicator (KPI) is a quantitative measure of a team or individual’s performance in service of a specific goal.
At the most basic level, a KPI is an indication of how teams are performing against their objectives. If teams aren’t progressing toward their desired outcomes (or aren’t progressing fast enough), it’s an indication that they should pursue a new strategy or reassess their goals.
A KPI’s usefulness is limited without the addition of some context – a measurable outcome (referred to as a KPI target), a time frame. In fact, teams often use KPIs in conjunction with OKRs (more on that later).
KPI examples
As with OKRs, the elements that feed into a company-wide sales KPI could filter down to specific departments and teams. For example, these could be KPIs and their corresponding targets for a variety of teams:
- Sales team: The KPI is average contract value, and the target is to increase average contract value from $250 per month to $350 per month
- Marketing team: The KPI is conversion rate, and the target is to increase conversion rate by 30%
- Customer service team: The KPI is average ticket resolution time, and the target is to decrease average ticket resolution time by 50%
- Operations team: The KPI is materials cost, and the target is to reduce materials cost by 5%
Where OKRs don’t translate particularly well on an individual level, individual KPIs can be an effective way for employees to stay on track and work together to meet a specific goal.
For instance, each member of the sales team may have a personal KPI target – perhaps the number of high-value contracts they sell before the second quarter.
When to use OKRs vs KPIs
While some organizations maintain strict allegiance to a particular methodology (Google is notoriously committed to using OKRs), many companies, including Atlassian, use both OKRs and KPIs. John Doerr’s organization What Matters continues to publish extensively about OKRs, suggesting that OKRs and KPIs can complement each other.
OKRs…provide that much needed direction and context. We like to call them ‘KPIs with soul.’ The Objective describes what you want to accomplish and the Key Results describe how you know you’re making progress. Since KPIs are measurable, they can make great Key Results. In other words, rather than talking about OKRs versus KPIs, we prefer to think of them as complementary.
Danielle Hughes for What Matters
KPIs are a simple process for measuring programs you already have in place. So, if you’ve been enacting a social media strategy for the last six months, but you’re not sure how effective it is, a KPI can help you gauge a baseline level of performance.
On the other hand, if you’re planning to launch a new product or try out a new strategy, an OKR might be a better option. OKRs are designed to be ambitious and encourage learning by reaching for super ambitious goals (even if you don’t meet them). In explaining why his organization ONE uses OKRs, Bono described them in Doerr’s 2019 Ted Talk as creating “an environment for risk, for trust, where failing is not a fireable offense.”
One place where OKRs aren’t quite as successful: individuals. Asking individual team members to come up with their own OKRs often results in task-oriented KRs that don’t effectively measure whether actions are having the intended impact. For instance, a marketer might be inclined to give themselves a KR of “A/B test 10 copy variations” to meet the objective of increasing landing page conversions by 12%. The problem is that the KR focuses on a task rather than the impact of that task. And very often, a stated objective can’t be met by a single individual. It requires all team members to work together to achieve a certain impact.
How Atlassian teams use OKRs and KPIs
At Atlassian, teams are encouraged to think innovatively and to set ambitious goals, using the methods and measures that work best for them. We’ve designed a five-step process that any team can follow to develop OKRs that will push them to achieve more than they might have thought possible.
How to run a team- or department-level OKR session:
- Prep. Set a meeting time and share any relevant information. For remote teams, that means setting up a Trello board or Confluence page that everyone can use during the meeting. In-person teams can present these boards on a screen.
- Set the stage. Ask “where can we bring our customers the most value in the upcoming quarter?” and brainstorm objectives.
- Set key results. Choose 1-3 objectives, and decide on key results that would confirm you’ve achieved the objective.
- Assign owners. Make one team member responsible for tracking each KR.
- Review. Ensure the objectives are challenging enough and can be scored on a sliding scale from 0 to 1.
We set OKRs at the company level, which then cascades down to all our teams. It’s no small feat to set company-wide OKRs, but it ensures that all our teams are focused on the most important things for the year.
And when it comes to measurement, we’re big believers in tracking our progress transparently, somewhere anyone can see, like Confluence or Atlas.
Whether you’re using KPIs, OKRs, or both, make sure everyone on your team understands and is aligned with your goals. Engaging employees in the process of creating and tracking goals keeps the whole company on the same page and better poised for success.