KPI’s – Key Performance Indicators are the business performance dashboard metrics you use to keep track of business performance (sales metrics, finance metrics, HR metrics – they vary by industry), and sometimes progress to strategic goals if you link KPI’s to a Balanced Scorecard or similar Tool. That’s what they are built for.
OKR’s – Objectives and Key Results are a tech industry-born tool for communicating strategy and getting strategy alignment. If KPI’s are the dashboard on your car (speed, fuel, engine temp), OKR’s are the map to let people know where you are going.
Both are important, but it’s important to keep them separate. KPI’s are mostly about business health (i.e. revenue), and if well-crafted can also reflect strategic effects and trends over the long term albeit often indirectly (like when cultural change management increase productivity, or process improvements improve gross margin, or when market disrupting eats your revenue).
OKR’s are completely separate, and are used for enterprise wide, team and individual strategic alignment. And even though OKR key results are meant to be quantitative measures that measure success along strategic accomplishment – OKR’s are a communication and motivation tool, written to measure strategic alignment and strategic progress. The are not a red/yellow/green tool used to measure performance.
If HR or accounting starts looking at your OKR’s, burn them before somebody decides to tie OKR’s to performance, KPI’s and compensation. KPI’s tend to be the game where people game the numbers to get bonuses and raises. Just like earnings numbers and stock prices. How often do executives or do layoffs to make the balance sheet look better to hit a KPI and get their stock incentive award, only to hire half the people back 6 months later? How often have you seen teams manipulating accounting – timing on purchase orders, invoices, vendors and clients to hit financial metrics and get their bonuses? I’ve seen that at too many companies to count.
Basic game theory and rational choice. You know people are going to game the system, abuse what power they have, to feed their own self interest and greed. If managed properly this can actually be a feature that can work to a win-win advantage if you understand how and why people manipulate KPI metrics. Just realize the gamification of KPI’s will lose productivity as hours and effort go from producing results, to gaming the system. There is compromise in everything, and that is the compromise with KPI’s.
But OKR’s are just a simple strategic alignment and communication tool to make sure everyone is on the same page, going in the right direction, and is capable of strategically supporting each other. That’s not something you want to be gamed by greed, and abuse of power. OKR’s have to be siloed from KPI’s and compensation – otherwise they just become individualized KPI’s and another game to play instead of focusing on strategic results that benefit everyone. OKR’s are what are we doing to reach our strategic goals, as a group and as individuals, and how far are we getting?
KPI’s are to get everyone to understand the survival metrics and hopefully influence behavior that hits target metrics in a good way to keep the company in business, and out of the red.
OKR’s are just letting everyone know what is going on and asking them how they can best contribute, and then having them measure themselves on their success every month.
Hope that helps. What do you think?