When I got my first job as a product manager, pleasing my stakeholders was the definition of success. That was over a decade ago. To succeed in the role today requires a different mindset.
Of course, “pleasing stakeholders” means different things at different companies. That said, here are some antipatterns I commonly encounter:
- Figuring out how to deliver on stakeholders’ requirements consumes most of the product team’s time
- An extreme focus on solutions leaves the team far from understanding problems and how to create value
- Success means steadily delivering features
This presents several problems:
- Implementing solutions without knowing the expected result is nonsense, to say the least
- Output means nothing without outcome; teams get distracted with timelines and don’t have time to measure results
- Creativity dies because unbearable pressure puts teams in a frenetic delivery mode
What does that have to do with OKRs and KPIs? Understanding how to combine OKRs with KPIs can help you avoid the problems described above.
In this guide, we’ll highlight the difference between OKRs and KPIs and demonstrate how you can use them both to drive value and better outcomes.
Table of contents
- What are OKRs?
- What’s the difference between OKRs and KPIs?
- What are OKRs?
- What are KPIs?
- Combining OKRs with KPIs
What’s the difference between OKRs and KPIs?
KPIs are business metrics that show you where you’ve been and where you are currently. OKRs are forward-looking and, in broad terms, help you redesign your present and create a better future.
The key distinctions between OKRs and KPIs are as follows:
| OKRs | KPIs | |
| What | Future measurable objectives and goals |
Key business metrics
|
| Goal | Set an aspirational objective and direction |
Evaluate the past and present
|
| Usage | Actions based on potential threats to objectives |
Reative based on metrics
|
| When | Timeboxed (e.g., quarterly) | Ongoing basis |
| Change | Frequent (e.g., quarterly) |
Remains stable for a long time, even years
|
What are OKRs?
Objectives and key results (OKRs) is a collaborative method of setting goals and enabling teams to focus on delivering valuable results.
The invention of OKRs is generally attributed to Andy Groove, former CEO of Intel Corporation. He used OKRs to lead Intel successfully for an extended period (you can learn a lot by reading Measure What Matters by John Doerr).
OKRs are widely used in product management because they allow product managers to concentrate on the objectives their business has set out to accomplish and rally others within the organization to focus on them too.
Using OKRs enables product managers to:
- Keep track of multiple priorities and objectives
- Focus on the most important things
- Communicate product objectives to stakeholders
- Measure progress toward product objectives
Although these are simply a few of the product manager’s many responsibilities, they are usually some of the most important. PMs often dig through data and create reports and dashboards to track progress toward key business goals and communicate updates to stakeholders.
How OKRs work
To get the most out of your OKRs, company leadership should align and set important objectives, which should be inspiring and empowering.
As the objectives are set, leadership aligns with teams and explains the importance of reaching such objectives. Teams are responsible for setting measurable key results. It’s fundamental to continuously evaluate results and adapt the actions accordingly.
Here’s an example of what OKRs might look like for an ecommerce product:
- Objective — Reach a sustainable balance between the customer acquisition cost (CAC) and customer lifetime value (CLV)
- Key Result No. 1 — Reduce general customer acquisition cost by 20 percent by the end of Q2
- Key Result No. 2 — Increase order frequency by 10 percent by the end of Q2
- Key Result No. 3 — Reduce churn rate by 15 percent by the end of Q2
Note that the objective isn’t measurable but it does set the direction for the team. The key results are measurable but don’t define how to reach them. They’re also independent of each other.
What not to do with OKRs
Misusing OKRs is one of the most common mistakes you will stumble upon. Here are some antipatterns to avoid:
Dependencies
Some companies create several objectives that are highly dependent on each other. As a result, teams have to compete against each other.
It’s better to have a few aligned objectives than several dependent ones.
Leadership defining key results
It’s a mistake to leave accountable teams out of key results definition. Leadership should only define the objectives and empower teams to develop key results.
Leadership can challenge the team, but it should not define the team’s goals.
Solution-oriented
Key results should leave room for creativity. It should establish what success looks like and let the team figure that out.
Defining solutions will only trap the team.
Binary results
The result must be measurable. If you set binary results, it’s impossible to see progress, and OKRs lose their power as a result.
The team needs to know how far they must go to reach the ultimate key result.
“We must realize — and act on the realization — that if we try to focus on everything, we focus on nothing.”
― John Doerr, Measure What Matters
What are KPIs?
KPIs stands for key performance indicators. KPIs are used to understand the health of an organization according to predefined indicators.
The most common KPI types are:
- Financial — Revenue growth, profitability, cash flow, etc.
- Customer — Satisfaction, retention, churn rate, lifetime value, acquisition cost, etc.
- Product — Conversion rate, session time, unique users, new users, etc
- Tech — Downtime, availability, response time, error rate, etc
While OKRs point to the future, KPIs help you understand the status quo based on past results.
It’s imperative to define actionable KPIs. Otherwise, you won’t be able to identify problems until it’s too late.
For example, revenue growth is an important KPI for many organizations, but it’s slow to measure. If you realize you missed your target growth, it might be too late to act on it.
Types of KPIs
That’s why it’s important to understand the actionability of KPIs. In this regard, there are two types of KPIs:
Laggard KPIs
A laggard KPI shows you a problem happened, but you may not be able to change it. It takes too long to measure the result. For example, revenue growth.
Leading KPIs
A leading KPI is highly actionable. You define leading metrics by asking, “What would lead to this laggard KPI?” By answering this question, you come up with actionable KPIs.
For example, increasing basket size, recurrence, product availability, or new customers will increase your revenue.
What not to do with KPIs
When it comes to KPIs, the most common mistakes I’ve seen are:
KPI madness
I’ve seen too many companies going wild with dashboards. These organizations rely solely on numbers to make decisions.
While that has value, you must exchange it with your customers personally. Some insights won’t come from data.
Too many KPIs
More KPIs don’t mean better decisions. In fact, having too many KPIs can lead to confusion and analysis paralysis.
It’s crucial to understand which KPIs will make the difference for the goals you’re pursuing. Less is more.
Non-actionable KPI
Looking at KPIs to make you happy or mad isn’t helpful. Great KPIs trigger action. Focus on leading metrics instead of laggard ones. Nothing can replace contact with real customers.
Combining OKRs with KPIs
To reiterate, OKRs point to the future while KPIs look at the past. Combining both will help you progress in the right direction.
Working with OKRs without measuring progress isn’t valuable. Neither is working with KPIs without having a goal in mind.
When you learn how to work with OKRs and KPIs, combining them is a powerful way to ensure your products are driving value.
Here are some best practices for using OKRs and KPIs in tandem:
- Set a valuable strategy — Before talking about OKRs or KPIs, you must have a strategy. Otherwise, everything is arguably a priority
- Define what matters now — Leadership decides what matters most based on the strategy, sets objectives, and empowers teams to work on key results
- Define success — Teams work on crafting and committing to key results based on the objectives. In collaboration with leadership, the team finalizes the key results and is ready to thrive
- Set leading metrics — Continuously measuring progress is fundamental to succeeding with OKRs. That’s where KPIs come in handy. Based on the committed key results, the teams come up with KPIs that enable them to act fast and understand their progress
- Inspect and adapt — The team continuously adjusts their actions according to the established KPIs and focuses on reaching the key results
Final thoughts
It’s easy to mess around with OKRs and KPIs. I’ve learned that simplicity and collaboration are essential to thrive in product management.
Keep it simple, and you’ll rock it. Start small, learn from your actions and adapt them accordingly. Progress is what matters most.
You’re set to succeed when you have a valuable OKR and learn to measure with KPI.
Featured image source: IconScout
The post OKRs vs. KPIs: What’s the difference? appeared first on LogRocket Blog.
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