Summary:
- Much of a leader’s effectiveness rests on their ability to collaboratively set direction for their team.
- Two popular goal setting frameworks – Objectives & Key Results (OKRs), and Key Performance Indicators (KPIs) – are widely adopted throughout the business world due to their utility and ease of use, however, there are key differences between the two frameworks which are less intuitive and often overlooked.
- Leaders who learn the strengths and weaknesses of these two frameworks are better able to create buy-in and realize the mid and long term vision for their organization.
In the course of our day-to-day work, it’s easy to take for granted how we set goals. KPIs and OKRs are two different mental models or frameworks for goal setting which structure our thinking, our team’s thinking and situational effectiveness, and to some extent, our organization’s culture. While it’s not a matter of one method being universally better or worse than the other, we’ve come to prefer (and recommend) OKRs in most contexts.
Reason #1: OKRs provide greater context
Example KPI
Generate $100k in gross revenue from new accounts in Q3
KPIs are, as their name implies, metrics of performance. They are (with rare exception) quantitative in nature and to the point, leaving much room for interpretation on what means can or should be taken to reach the target.
Example OKR
Objective: Generate $100k in gross revenue from new accounts in Q3
Key Result #1: Increase new account visits by 20% compared to Q2
Key Result #2: Host an on-site training with senior sales reps to share best practices
Key Result #3: Run 3 new account promotional offers (share results with marketing by end of Q2)
OKRs are action-oriented statements which connect larger scale and smaller scale goals; objectives speak to a larger scale goal, and each objective has 3-5 key results which speak to smaller scale goals.
When it comes to context, OKRs provide upper management – as well those responsible for execution – with more context on the route towards the destination rather than a single-pointed focus on the destination itself.
Reason #2: OKRs provide greater engagement
Example KPI
Generate $100k in gross revenue from new accounts in Q3
The figure of $100k may come from a collaborative discussion, but just as likely, such targets are decided at the top without consulting those responsible for the work.
Example OKR
Objective: Generate $100k in gross revenue from new accounts in Q3
Key Result #1: Increase new account visits by 20% compared to Q2
Key Result #2: Host an on-site training with senior sales reps to share tips
Key Result #3: Run 3 new account promotional offers (share results with marketing by end of Q2)
It would be difficult to imagine upper management drilling down into such detailed directives on their own. More likely, these key results came in part or in full from those who will end up doing the work.
The greater level of context – including opportunities for quantitative and qualitative goal statements – means that OKRs tend to more easily lend themselves towards collaborative planning and meaningful feedback, and therefore engagement. When individuals experience greater engagement in their work, the benefits extend to their team and the organization.
Reason #3: OKRs facilitate learning & development opportunities
Example KPI
Generate $100k in gross revenue from new accounts in Q3
If the target above is achieved, what actions were instrumental in doing so? What didn’t go well in the process, which could have gone differently?
If the target above isn’t achieved, will there be some sort of formal or informal punishment or withholding of benefits? If so, would that be justified?
Example OKR
Objective: Generate $100k in gross revenue from new accounts in Q3
Key Result #1: Increase new account visits by 20% compared to Q2
Key Result #2: Host an on-site training with senior sales reps to share tips
Key Result #3: Run 3 new account promotional offers (share results with marketing by end of Q2)
Whatever the end result of the objective, there is a clear path to insight. These insights can be used to make the organization less dependent on outlier high and low performers, design effective trainings, promote from within, and navigate new challenges such as new markets, products, or processes.
A lack of participation in setting KPIs — combined with a lack of context — means that there are far fewer opportunities to learn from failure or success, and more opportunities to make unchecked assumptions. On the other hand, the additional learning and development opportunities associated with OKRs aid engagement in the short term and organizational resilience and performance in the long term.
Reason #4: OKRs are considerably slower
Example KPI
Generate $100k in gross revenue from new accounts in Q3
Setting a KPI like the example above need not require a great allocation of time or attention. While very little in business is simple and straightforward, sometimes what needs to be done is clear enough – or urgent enough – that quick arrival at highly focused goals is what’s most important.
Example OKR
Objective: Generate $100k in gross revenue from new accounts in Q3
Key Result #1: Increase new account visits by 20% compared to Q2
Key Result #2: Host an on-site training with senior sales reps to share tips
Key Result #3: Run 3 new account promotional offers (share results with marketing by end of Q2)
The collaboration, critical thinking, and feedback required for effective OKRs takes time, energy, and skill, and often benefits from additional training. Sometimes, that’s not possible.
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When speed and extreme focus on straightforward goals is paramount – or when key individuals or teams lack the capacity to effectively use the more robust OKR framework, KPIs reign king. On the other hand, nearly all of our clients agree that they would benefit from taking the necessary time and investing necessary resources to build such capacity.
In an era defined by innovative technologies such as artificial intelligence, as well as powerful swings in political and macroeconomic conditions, it appears few companies are as well-insulated from volatility as they would like to be. The discipline of slowing down and investing in collaborative and critical thinking processes can quickly pay dividends in a team’s successful navigation of a foreign or volatile work landscape.