OKRs vs KPIs: A Comparison That Misses the Point
The Proliferation of a Flawed Debate
A cursory search of business publications, management blogs, and consulting whitepapers reveals a curious preoccupation: the comparison of OKRs and KPIs. "OKRs vs KPIs: Which is Right for Your Organisation?" "KPIs or OKRs: Choosing the Best Goal-Setting Framework." The articles proliferate, each offering frameworks for decision-making, comparison tables, and recommendations for when to use one versus the other.
Yet this entire discourse rests upon a flawed premise. Comparing OKRs and KPIs is rather like comparing a vehicle and a speedometer. One is a complete system designed to achieve a purpose; the other is a measurement instrument that can be employed within that system or indeed within many others. The question is not which to choose, but rather how each serves its distinct purpose and how they might be deployed together.
This distinction matters because firms that misunderstand it risk making poor decisions about their performance management architecture. They may adopt OKRs believing they have replaced their need for KPIs, only to find themselves lacking the operational measurements necessary for day-to-day management. Alternatively, they may resist OKRs believing their existing KPIs are sufficient, failing to recognise that KPIs alone, however well-constructed, do not constitute a strategy execution framework.
In this article, we shall examine the fundamental nature of both OKRs and KPIs, explore their distinct purposes, and articulate how they can and should work together within a coherent performance management approach.
Understanding the Nature of OKRs
As we explored in the previous article on OKRs, Objectives and Key Results represent a complete management framework for strategy execution. Developed by Andy Grove at Intel and subsequently popularised by Google, OKRs provide a methodology that encompasses goal-setting, alignment, measurement, and review.
The framework operates through the combination of qualitative Objectives (what we want to achieve) and quantitative Key Results (how we will know we have achieved it). But OKRs are far more than a goal-setting template. The framework includes:
A defined cadence: OKRs typically operate on quarterly cycles with weekly check-ins, creating a rhythm of planning, execution, and review.
Alignment mechanisms: OKRs cascade and align across firm's levels, connecting individual efforts to team goals and team goals to firm's strategy.
Transparency principles: OKRs promote visibility across the firm, enabling coordination and a shared understanding of priorities.
Cultural elements: The OKR philosophy embraces stretch goals, learning from failure, and separating goal achievement from compensation.
Review and retrospective processes: OKRs include structured approaches for assessing progress and improving the practice over time.
In essence, OKRs represent a paradigm for how firms set direction, focus effort, measure progress, and learn from results. This is not merely a measurement approach; it is a management system.
Understanding the Nature of KPIs
Key Performance Indicators, by contrast, are exactly what their name suggests: indicators. They are metrics selected to provide insight into performance in areas that matter to the firm. A KPI is a measurement, not a methodology.
The concept of KPIs emerged from the broader field of performance measurement, which has roots extending back to the early days of scientific management. Frederick Taylor's time-and-motion studies were, in a sense, early performance indicators. The term "Key Performance Indicator" itself gained prominence in the latter decades of the 20th century as firms sought to identify the vital few metrics, from among the many available, that would provide genuine insight into firm's health and progress.
What distinguishes a KPI from an ordinary metric is its significance. A KPI should measure something that genuinely matters to firm's success, that can be influenced by management action, and that provides timely insight for decision-making. But a KPI, however well-chosen, is simply a number. It tells you where you are; it does not tell you where you should be going, how to get there, or how to organise your efforts.
KPIs can be deployed at multiple levels and across diverse domains:
Strategic KPIs measure progress toward a high-level firm's objectives. Revenue growth, market share, customer satisfaction indices, and employee engagement scores are common examples.
Operational KPIs measure the performance of business processes. Cycle times, defect rates, throughput, and utilisation rates fall into this category.
Technology KPIs measure the performance of systems and infrastructure. System availability, response times, incident volumes, and security metrics are typical.
Third-party KPIs measure the performance of suppliers, partners, and outsourced service providers against contracted service levels.
This versatility is both the strength and the limitation of KPIs. They can be applied almost anywhere, to almost anything. But this ubiquity does not make them a management framework. A collection of KPIs, however comprehensive, does not constitute a strategy execution system.
The Balanced Scorecard: KPIs Within a Framework
To understand how KPIs should properly be employed at a strategic level, we must examine the Balanced Scorecard methodology developed by Robert Kaplan and David Norton in the early 1990s. The Balanced Scorecard represented a significant advancement in performance management, addressing the limitation of purely financial measurement by incorporating perspectives on customers, internal processes, and learning and growth.
Within the Balanced Scorecard framework, KPIs serve as the measurement mechanism for strategic objectives. An firm might establish an objective to "Improve Customer Retention" within the customer perspective. The associated KPIs might include customer churn rate, Net Promoter Score, and customer lifetime value. The objective provides direction and meaning; the KPIs provide measurement and accountability.
This relationship between objectives and KPIs within the Balanced Scorecard illustrates the proper role of Key Performance Indicators at the strategic level. They are not the framework; they are the instruments of measurement within the framework. The Balanced Scorecard provides the structure, the perspectives, the strategy map, and the cause-and-effect logic. KPIs provide the quantification.
Importantly, this same relationship can and should exist within an OKR framework. Key Results, by definition, must be measurable. In practice, many Key Results are KPIs by another name. When a firm establishes a Key Result to "Increase Net Promoter Score from 45 to 65," they are employing a KPI as their measure of success. The difference is not in the metric itself but in the framework within which it sits.
Why the Comparison Persists
If the distinction between OKRs and KPIs is as clear as we suggest, why does the comparison persist in business literature? Several factors contribute.
Superficial similarity: Both OKRs and KPIs involve measurement and both use acronyms that sound similar. To the uninitiated, they appear to occupy the same conceptual space.
Vendor marketing: Software vendors selling either OKR tools or KPI dashboards have incentives to position their offerings as complete solutions, which necessitates comparisons with alternatives.
Oversimplification: Business publications seeking accessible content often reduce complex topics to simple comparisons and decision frameworks.
Genuine confusion: Many firms have implemented "KPI programmes" that include goal-setting, target-setting, and review processes. These programmes blur the line between measurement and management framework, creating legitimate confusion about where KPIs end and OKRs begin.
The consequence of this confusion is that firms make suboptimal decisions about their performance management architecture. Some adopt OKRs and abandon KPIs, losing valuable operational measurements in the process. Others reject OKRs believing their KPIs already serve the purpose, missing the benefits of a true strategy execution framework. Still others attempt to implement both in parallel without integration, creating redundant systems and conflicting signals.
A Coherent Approach: OKRs and KPIs Together
The question firms should ask is not "OKRs or KPIs?" but rather "How do we construct a coherent performance management architecture that serves our strategic and operational needs?" In most cases, the answer will include both.
At the strategic level, OKRs provide the framework for setting ambitious objectives, aligning effort across the firm, and maintaining focus on what matters most. Key Results within the OKR framework should be measurable, and many will be KPIs. There is no conflict here; Key Results are simply KPIs employed within the OKR methodology.
At the operational level, KPIs provide essential visibility into business processes, technology systems, and third-party performance. These operational KPIs may not appear in any OKR; they are the vital signs of firm's health that must be monitored regardless of strategic priorities. An firm may not have an OKR related to system availability, yet system availability remains a critical KPI that demands attention.
At the tactical level, specific initiatives or projects may employ KPIs that measure progress and outcomes without being formalised as OKRs. A process improvement initiative might track cycle time and defect rate as KPIs without these appearing in the firm's OKR structure.
The key is integration rather than competition. Operational KPIs should inform Strategic OKRs; improvements sought in Key Results often require attention to underlying operational metrics. Conversely, operational KPIs should be understood in the context of strategic priorities; a decline in a process KPI matters more or less depending on the strategic importance of that process.
Practical Implications
What does this mean for firms seeking to improve their performance management practices?
Do not abandon KPIs when adopting OKRs. Your firm needs both strategic focus (OKRs) and operational visibility (KPIs). The former does not replace the latter.
Recognise Key Results as KPIs. When constructing OKRs, draw upon your existing KPIs where appropriate. If customer satisfaction is a strategic priority, your customer satisfaction KPI may well become a Key Result. This is not duplication; it is integration.
Maintain operational KPIs outside the OKR framework. Not every important metric needs to be an OKR. Operational KPIs for processes, technology, and third parties should be monitored continuously, reported regularly, and acted upon when they indicate problems, whether or not they relate to current OKRs.
Create a clear line of sight. Ensure that those responsible for operational KPIs understand how those metrics connect to strategic objectives. A warehouse manager tracking order fulfilment KPIs should understand how those metrics contribute to customer satisfaction objectives and, ultimately, to the firm's strategy.
Avoid framework proliferation. Some firms find themselves with Balanced Scorecards, OKRs, KPI dashboards, and various other performance frameworks operating in parallel. This creates confusion, redundancy, and often conflict. Rationalise your performance management architecture into a coherent whole.
Conclusion: Transcending a False Dichotomy
The debate over OKRs versus KPIs reflects a fundamental misunderstanding of what each represents. OKRs are a management framework for strategy execution, complete with goal-setting, alignment, cadence, and cultural elements. KPIs are measurement tools that can be deployed at strategic, operational, and tactical levels across diverse domains.
Comparing them as alternatives is akin to asking whether a firm needs a strategy or a spreadsheet. The question makes little sense because the two serve entirely different purposes and operate at different levels of abstraction. An firm needs both a coherent approach to strategy execution and robust metrics to measure performance. OKRs can provide the former; KPIs contribute to both OKRs (as Key Results) and to operational monitoring.
The proliferation of articles comparing OKRs and KPIs has, unfortunately, obscured rather than illuminated this reality. Firms would be better served by articles exploring how OKRs and KPIs work together, how to integrate strategic and operational measurement, and how to build performance management architectures that serve the full range of firm's needs.
A More Meaningful Comparison
If we are to compare OKRs with anything, the comparison should be with another strategy execution framework, not with a measurement tool. The Balanced Scorecard methodology, developed by Kaplan and Norton in the early 1990s, represents precisely such a framework. Like OKRs, the Balanced Scorecard provides a complete system for translating strategy into action: it includes strategic objectives, measurement mechanisms (KPIs), alignment processes, and review cadences.
Both OKRs and the Balanced Scorecard are genuine management frameworks designed to solve the same fundamental problem: how to execute strategy effectively. Both combine objectives with measures. Both require cascading and alignment. Both demand regular review and adaptation. Comparing these two approaches is genuinely meaningful because they occupy the same conceptual space and represent alternative solutions to the same firm's challenge.
This comparison raises substantive questions. How do the two frameworks differ in their approach to goal-setting? How do they handle alignment across firm's levels? What are the implications of the Balanced Scorecard's four perspectives versus the OKR's simpler structure? Which is better suited to different firm's contexts? These are the questions that merit exploration.
For those navigating an age of STORM, characterised by Speed, Turbulence, Opposition, Reversals and Magnification, clarity on these matters is not merely academic. The ability to set ambitious strategic direction, align effort across the firm, and maintain visibility into operational performance is essential for survival and success. This requires not a choice between OKRs and KPIs, but a thoughtful integration of KPIs within whichever strategy execution framework the firm adopts.
The real question is not OKRs versus KPIs. The real question, for those seeking to choose or refine their approach to strategy execution, is OKRs versus the Balanced Scorecard. I’m going to explore that comparison in our next article.