We could all agree that as a marketing manager, it’s pretty easy to assign a budget for a new marketing campaign. However, measuring its true impact on your business is far more difficult. By learning how to use an OKR vs KPI to analyze your marketing campaigns, you’ll be able to track your progress like a pro. This post will analyze the difference between OKRs vs KPIs and discuss how to merge them together.
For starters, OKR and KPI are two commonly used tools for measuring the performance of marketing campaigns, projects, or businesses. OKR stands for “objectives and key results” and KPI stands for “key performance indicators.”
Here’s the catch:
These acronyms may appear to be similar, but they are actually very different. It’s almost like comparing apples and oranges. But before we dig into the specifics of OKRs and KPIs, we should learn about the roles that both of these play when setting goals and measuring performance.
The primary difference between KPIs and OKRs is their approach to measuring a project’s or organization’s performance. While OKRs outline goals that an organization wants to accomplish in the future, KPIs measure current or past performance.
OKRs are future-oriented goals that drive an organization forward. These are unique and bold objectives that companies create as part of their business strategy. An example could be “growing market share from 22% to 30% in 6 months.”
On the other hand, KPIs measure the performance of a project or company based on specific ratios or metrics such as “inventory turnover” and “return on investment.” This is a direct way to measure an individual component of a grander strategy or objective. For example, if you’re creating a SEO campaign (learn more), you could use KPIs such as “organic traffic,” “search rankings,” “search visibility,” or “bounce rate.”
Business Theory of OKR vs KPI
Referring to business theory, it’s appropriate to classify KPIs as results-oriented and OKRs as process-oriented.
The mentality of a process-oriented approach is that “a good process leads to good results in the long run.” Therefore, consistency of day-to-day operations is the emphasis of a process-oriented approach. For this reason, OKRs are long-term goals that motivate a company to improve how it manages its daily operations, focusing on efficiency.
On the other hand, the reasoning behind a results-oriented approach is that “the end results justify the means,” placing an emphasis on short-term tangible results and flexibility of business operations. Companies that are results-driven tend to exploit market changes in their favor, becoming highly adaptable to the market.
Each KPI could be seen as a separate “result” within a greater objective or strategy. For example, a company struggling with fulfilling its customer’s orders could try to improve a specific KPI metric relevant to this problem, such as “time to market,” “lost sales ratio,” or “sell-through rate.” Each of these KPIs can be viewed as a separate result.
What exactly is an OKR?
Okay, so the phrase OKR is a combination of the two terms “objectives” and “key results.” This helps set and manage long-term performance goals. OKRs are often integrated within your broader strategy as a business. Here’s a video about how Google sets its own OKRs.
While it’s common for larger targets (objectives) to be set for completion during a certain period of time, an OKR doesn’t always need a time element. Some OKRs are more open-ended or ambitious than others. It’s mainly about inspiring growth and moving the organization in the right direction.
However, it’s important to set “objectives that matter.” Then, two to five intermediary milestones (key results) are created to help measure the performance and execution of your main objectives.
Because OKRs span a longer time period than KPIs and are more strategic in nature, it is crucial to define clear and action-oriented OKRs. Ideally, your OKRs should be needle-movers that, once completed, make a real difference to your success.
That’s not all…it’s also a good idea to include a quantitative component in your OKR. That can help objectively track success.
Let’s take a look at a few examples of OKRs:
- Increase social media following by 50% in four months
- Hit the $150 million sales target in the European market by 2022
- Design three new products that are approved by regulators
- Increase labor efficiency by 15%
- Increase close rate from 19% to 25%
What exactly is a KPI?
In business, the term “KPI” stands for “Key Performance Indicators.” KPIs are essential statistics, ratios, or numbers that are used to track the progress of a project or business. They make it easier for businesses to show how their work is going, for example regarding revenue growth or customer retention.
KPIs are universal metrics that many organizations use to measure achievement. These are not defined individually by each company as is the case with OKRs. In other words, there are hundreds of different KPIs that are defined and used across various industries.
These make it easier for stakeholders (and management) to interpret and analyze performance in a uniform manner. For example, the KPI “customer acquisition cost” or “profit margin” is universally understood.
How can you actually use this? Well, KPIs are extremely useful in a wide range of scenarios. Creating a new Facebook ad or email marketing campaign? Presenting your business to investors? Comparing your performance with competitors? Use KPIs!
Here are just a few examples of KPIs:
- Cost per lead
- Bounce rate
- Closing rate
- Customer retention
- Net profit margin
- Inventory turnover
- Time to market
- Monthly website traffic
- Percentage of market share
- Employee satisfaction rating
Pros and Cons: OKR vs KPI
Here’s the real story:
both process-oriented and results-driven methods have benefits and limitations. Moreover, the manner in which a business measures its success will almost certainly have an impact on how the business operates, so it’s critical to understand the pros and cons of using OKR vs KPI.
The primary benefit of process orientation, as is emphasized with OKRs, is the standardization of business operations, resulting in greater business efficiency.
Think about it:
if a company is focused on perfecting its activities and operations, it’s likely to become more efficient at what it does. However, the potential drawback is the greater rigidity of day-to-day operations, making it more difficult to adapt to market changes. The market is constantly changing so companies must keep adapting to new trends or risk losing their competitive advantage.
This brings us to the benefit of using a results-driven approach: a company focused on KPIs generally works on achieving tangible results in the short term which makes it more versatile, dynamic, and attractive to investors. Such an organization learns how to adapt itself to address its weaknesses and take advantage of seasonal market trends.
However, if a company is excessively focused on short-term results, it may fall into the trap of opportunistic behavior and lose sight of its core competencies. By focusing on short-term gains, a company may get distracted with feel-good achievements and neglect the areas that are most crucial for its long-term success.
In addition, KPIs are so narrow that they cannot serve as a backbone for a long-term objective. For example, by focusing on one KPI like “time to market,” a company may inadvertently worsen another KPI such as “right first time” (measuring how many products are produced right the first time without needing corrections). The reason why tracking one KPI may result in a worse metric for another KPI is simple: KPIs are often narrow in focus. That’s why literally hundreds of KPIs exist. So, KPIs alone cannot constitute the backbone of your strategy because they are stand-alone metrics.
Mixing OKRs and KPIs
So how do we balance our long-term growth with short-term results?
We’ve got to incorporate both OKRs and KPIs into our strategy! The best mix is to become efficient (process-oriented) at operating in a way that is also effective (results-driven). In layman’s terms, to be “good (process) at doing the right thing (results).”
You don’t have to choose between OKR vs KPI when tracking the performance of a company or marketing mix. In reality, they both provide unique insights into a company or project. Whereas an OKR is an ambitious medium or long-term objective set by the company to move the needle forward, KPIs are analytical metrics that track performance in various areas of operation.
As a result, try combining these different metrics to produce a comprehensive picture of your company’s performance. So, instead of choosing between OKRs vs. KPIs, integrate both within a business strategy to complement each other.
OKR vs KPI: Summary
The most significant distinction between OKR vs KPI is the methodology of setting goals and measuring performance. Namely, KPIs are practical, analytical, and universal. These are relatively easy to measure and interpret. OKRs, on the other hand, are unique and company-specific objectives that are bold, multi-step, and long-term. Whereas KPIs can be seen as individual results, OKRs are process-oriented.
OKR objectives are daring, and as a result of their ambitious nature, are not usually accomplished at the outset. This does not imply that they are unachievable; rather, it implies that they may need more time and adaptations as you work towards goals under certain circumstances. A key objective of your OKRs is to motivate you and your team to achieve their maximum potential. KPIs, on the other hand, should be targets that are current, practical, and attainable.