For years now, indicators and objectives have been set for the different areas of our business, because if we do not know how we are performing, how will we know in which aspects we should focus our efforts so that the company continues to grow?
Many businesses have already set their KPIs to address this, but is it enough? Others implement OKRs but sometimes ineffectively, why is that? Do we understand the differences between KPIs and OKRs? Read on to clarify all these questions.
What is a KPI?
KPI is the acronym for Key Performance Indicator. They measure the company’s performance in desired aspects. The keys to these indicators are:
- They define the current company’s strategic framework.
- Realistic objectives should be established.
- It is recommended to set quantitative KPIs, although it is possible to work with qualitative indicators, these are often subject to subjective interpretations that lead to confusion.
What is an OKR?
OKR is the acronym for Objective Key Result. These are responsible for establishing specific metrics to ensure the achievement of goals. These objectives are characterized by:
- Always being quantitative.
- They should be a challenge to achieve. If you get them easily, you are being too conservative.
- Typically, a company has 3-5 objectives and 3-5 key results for each selected objective.
- They are set in a specific time frame.
Both OKRs and KPIs are measurements taken in recent years by large companies that stand out for their target management (Amazon, Google, Spotify, and many others). Most commonly, these metrics are taken by companies focused on growth.
SMART Methodology for an OKR or a KPI
To identify and establish the indicators and objectives that your company needs, you should, as a minimum, know the SMART criteria. These criteria will allow you to identify whether what you want to measure is worthwhile or not.
SMART objectives are defined as:
- Specific: focus your efforts on a specific area of improvement.
- Measurable: quantifies, or at least sets, an indicator to track progress.
- Assignable: clarify who will be responsible for this objective.
- Realistic: set achievable objectives with the resources you have.
- Time-related: specifies when the objectives will be achieved.
This may be confusing, but sometimes there are KPIs that are used as OKRs. Read on and we will clarify this point for you.
Examples of KPIs
There are a large number of performance indicators, and each company can define different ones depending on the industry or business model, among many other factors.
Here are some examples of KPIs by department you can set so you can follow your business performance through, for example, a dashboard:
KPI Project Management
- Task tracking identifies delays to make adjustments in real-time.
- Project delivery efficiency based on on-time milestone deliveries.
- Costs and collections, with budget deviations.
- Resource utilization efficiency.
- Invoicing volume: sales monitoring, with payments and warnings of unpaid invoices.
- Salespersons’ performance.
- Follow-up of sales opportunities.
- CAC (Customer Acquisition Cost).
- Average ticket per customer or sales margin obtained.
KPI Logistics and Supply Chain Management
- Supplier performance.
- Inventory turnover rate and current stock analysis.
- Shipping and transportation costs.
- Inventory monitoring.
- Monitor your factory production.
- Calculate actual vs. theoretical cycle times.
- Track product life cycle and quality metrics.
- Analysis of production costs and operational efficiency.
- Rejection rate or measurement of customer satisfaction and after-sales service effectiveness taking into account the rate of returns.
KPI Human Resources and Talent Management
- Tracking of employee performance and productivity KPIs.
- Analysis of absenteeism and turnover rates.
- Measurement of employee satisfaction and engagement.
- Average recruitment time.
- Talent retention: to measure turnover rate and reasons for employees leaving, and take measures to retain talent.
- Training: to monitor employee training, the cost and effectiveness of training and the impact on skills improvement.
- Productivity: to measure employee efficiency and the impact of human resources policies on productivity.
- Sales: to measure the evolution of sales and profitability, as well as the comparison of results with objectives.
- Costs: to control and analyze production costs, overheads and financial expenses.
- Treasury: to measure the cash position, cash flow evolution and debt ratios.
- Profitability: to analyze profitability by product, by customer or by sales channel and make decisions accordingly.
- Evaluation of key financial ratios and the overall financial health of the company.
KPI Analog and Digital Marketing
- Advertising campaigns: to measure the impact and ROI of advertising campaigns.
- Social networks: to measure the evolution and impact on social networks, lead generation and engagement.
- Web traffic: to measure web traffic, bounce rate and conversion.
- Branding: to measure brand image, brand awareness and brand perception in the market.
- Tracking of lead generation and conversion metrics.
- Inventory analysis (e.g., stock levels, inventory turnover, cost of storage).
- Supplier performance tracking (e.g., quality, delivery, costs).
- Equipment and machinery performance analysis (e.g., downtime, maintenance, repair costs).
KPI Customer Service
- Follow-up of customer service requests.
- Average response time.
- Customer satisfaction level.
- Number of open and closed tickets.
- Average cost per incident.
KPI Research and Development (R&D)
- New product development progress.
- Average development cost per product.
- New product implementation success rate.
KPI Technology (IT)
- Uptime on a website, application, etc.
- The conversion rate of visitors to customers.
- Average technical support response time.
- Performance of servers and critical systems.
- Supplier performance by price or term.
- Spending on purchases broken down by date, supplier, payment term, etc.
- Compliance with delivery deadlines.
- Quality of products received.
- Machinery downtime.
- Number of repairs required.
- Cost of spare parts and maintenance expenses.
- Monitor preventive maintenance.
KPI Quality Management
- Customer returns.
- Customer satisfaction rate.
- Effectiveness of corrective measures implemented…
- Critical customer complaints.
Examples of OKRs
OKRs allow us to connect employees with the company’s objectives and therefore the business gets better results.
Some examples of OKR would be:
- Objective 1: Increase our turnover by 25% in 12 months.
- Key Result 1.1: Acquire 10 new clients
- Key Result 1.2: Increase our customer retention to 95%.
- Key Result 1.3: Increase our leads by 15%.
- Key Result 1.4: Attend 4 new on-site events in the next 12 months.
- Objective 2: set a new profitable business unit in 6 months.
- Key Result 2.1: Detect 3 new favorable trends in the market.
- Key Result 2.2: 4 pre-totype two trends with the highest current potential (two pre-totypes each).
- Key Result 2.3: Launch the product or service detected with the greatest potential to find our MVP (minimum viable product).
Don’t worry if you have a KPI that is very similar to another OKR, it is common for them to overlap in some way since the objectives are defined according to the indicators that the company wants to reach. Here is an example to make it clearer.
To meet the company’s KPIs, the CEO will have to set OKRs to achieve the indicators, in this case concerning several areas.
Other managers will have KPIs established according to the objectives (OKR) that the general manager wishes to achieve, i.e. some of the OKRs of the general manager will be the KPIs of each manager in his specific area and these managers will set new OKRs to achieve their indicators.
This would be the process and is carried out top-down to align the objectives of all members of the organization.
Finally, we leave you our thoughts as a summary.
What is the difference between a KPI and an OKR?
KPIs would be a business metric while OKRs represent how these performance indicators are to be achieved.
The OKRs allow you to strategically align your company at all levels while the KPI will be the “health” indicator of your business.
Common mistakes to avoid with OKRs
Remember that the objectives you set must be ambitious – aim high with your OKRs to drive your business forward! Also, we remind you the key results set must be 100% linked to our goal, and choose them wisely (SMART).
Common mistakes to avoid with KPIs
As with your OKRs, choose indicators that are important and relevant, don’t set them just to make them look good, you will only be fooling yourself and your team. Once you have your KPIs remember to monitor them regularly. Each review, even if it gives bad results, can provide you with information on where you should focus your efforts to reverse the situation.