As Program Managers on our organization ’s monthly leadership OKR review, we often receive questions from stakeholders along the lines of: “What is the difference between our Key Performance Indicators and Objectives and Key Results? Why do we need both?” These questions are more common than you might expect and have led to interesting chats with colleagues on why we track and review both KPIs and OKRs with our leadership team.
When I joined our organization’s monthly OKR review process, I brought a grounding from years in Sales Consulting, in the value of KPIs as a gauge of business health and success.
KPIs felt familiar, like a compass, faithfully orienting us to the state of the business. I know I am not alone in this grounding. Historically, many executive leaders have utilized KPIs to measure impact and results. OKRs landed on my radar when I joined the IDEAS team here at Microsoft two years ago. Among other things, the IDEAS team are facilitators and drivers of Microsoft’s Experiences and Devices (E+D) OKRs. I quickly began to see the motivation and value in this program, designed to align thousands of colleagues across teams to a single set of shared organizational OKRs.
My experience has given me visibility into the effectiveness of OKRs at the leadership level, and the importance of having both KPIs and OKRs in a business health ecosystem.
I assure you that KPIs and OKRs can do more than simply co-exist. They can and should bolster each other, and work in harmony to drive progress towards a team’s goals.
How does this happen? Where can the harmony be found? Let’s start with some definitions and understandings.
“KPI” is the acronym for Key Performance Indicators.
KPIs are a readout on performance, are informative, and can be measured anytime. KPIs should be completely aligned to your company strategy and are often (but not always) financial metrics.
“OKR” is the acronym for Objectives and Key Results.
Objectives are aspirational, brief in nature (like a slogan), are not measurable, provide purpose and direction, and can take a year or more to achieve. When written well, they should stretch your thinking.
Key Results are measurable outcomes nested under Objectives. They describe success criteria, are actionable, necessary, and essential to fulfill the Objective. Both Objectives and Key Results can change year over year (or even quarterly depending on the organization).
Applying these understandings, let’s look at a few creative examples of how KPI and OKR relationships can live in harmony using some scenarios from my promising (and highly fictional) Rain Town Iced Tea business.
2024 OKRs for my fictional Rain Town Tea business
Note that both my Objectives and Key results are aspirational in nature and focus on specific actions to take to drive the business forward.
2024 KPIs for my fictional Rain Town Tea business
You will notice my KPIs are an “always there” roadside guardrail to assess the health of my business. They act as a readout- not an action to take, and I am not actively working to improve them.
KPIs just “are.” They are consistent, steady, measurable, non- subjective. They are neutral compasses, telling me simply what is or is not occurring within my business.
Objectives and Key Results behave differently. They state specific goals and steps to take, (did you notice that my OKRs included verbs?) with a longer, full year view (vs right now). Whereas OKRs bias towards input metrics and measurements, KPIs bias to output metrics.
As my sales year progresses, perhaps it will become apparent that I need to reset my Objectives and Key Results. Should I set higher stretch goals? Did I run into a bump in the road and need to scale my aspirations back? Measuring progress towards goals are a main function of OKRs, while the measurements from KPIs provide the know-how to make sound business decisions.
Moving back to our E+D OKR program here at Microsoft. Believe it or not, our team actually kicks off our monthly OKR leadership review meeting with a KPI readout before diving into the health of our Objectives and Key Results.
Sure, the bulk of the meeting focuses on OKRs and we earmark time for a deeper spotlight review of a handful of Key Results and products monthly. But, by starting with a KPI run through, we lay the framework for a productive executive OKR review.
A component of our OKR program’s successful is the grounding that the KPI and OKR relationship brings to the table, right from the start of each meeting.
You aren’t going to find a better example for both the worthiness of OKR adoption, and the harmony between KPIs and OKRs than the value our organizational leadership places on this program, and the alignment it brings to all 50,000 of us in the broader organization.
In summary, you may currently have more experience with the concept of KPIs, like I did. You may be questioning the value of layering OKRs to your teams’ goals, or trying to work out how they can live harmoniously with your team’s existing KPIs. KPIs are an excellent start to an OKR program, as they serve as the building blocks to an actionable strategy to drive change…otherwise known as OKRs. Once your OKRs are established your KPIs will still be there, your faithful readout on the health of your program and business.
I encourage you to consider bringing an OKR program to your team this year to bring specific goals and actions to your Key Performance Indicators. KPIs will always be your faithful compass, that won’t change. But OKRs will bring the action (see: verbs!), the plan, the transparency and accountability to your organization. They encourage group goal-setting and aspirational thinking. They move teams from measuring what simply is to what’s next. The existence of both is where the harmony can be found.
In my next post I will discuss a few best practices from a PM perspective to keep your new OKR program running smoothly.
But, in the meantime, I have some tea to sell…