[Podcast] Understanding the Difference Between OKRs & KPIs

"What's a Key Result?  I already track KPIs?" If this sounds like you, give this podcast a quick listen for clarity on how these two concepts relate.  

Podcast Transcript

KJ 

I did write, like a page of stuff on the difference between OKRs and KPIs yesterday. If I know, I don't know how that would fit in with the customer lifecycle somewhere, but I just, it's in my head. So if you need me to riff for 10 minutes on that sort of stuff, I can do that.

Stephen N. 

The difference between OKRs and KPIs?

KJ 

Yeah. Or is there something else that you're looking at?

Stephen N. 

How about the difference between committed goals, stretch goals, and moonshot goals, you know?

KJ 

Yes. I think that lies within that topic. I mean, because I think I looked at what are the similarities with OKRs, and KPIs, but the difference is primarily being the intent of those measurable like, they're both quantifiable measurements and frameworks to measure performance. But a KPI is often it's taken commonly across businesses are quite common, and they're quite, they're not as adaptable. You know, they're, they're always committed. They come from the place where the HR people set them to determine compensation. So they have this emotional attachment, because they're connected with money. With an OKR, as you say, could be a moonshot where you're not connecting someone's comp, to hitting 100% of the moonshot, you're simply setting it to encourage one's ambition.

Stephen N. 

Right, which is where I think having that distinction you can still use. I believe you can still use KPIs within OKRs. There's a school of thought that says to keep those separate separation of church and state, right, yeah. But the people will always gravitate towards what's going to be incentivized for them. Yeah. Which will be your typical day to day KPIs, revenue generation, customer satisfaction. I think that's where a committed a key result can be basically a KPI in disguise, versus a stretch. key result is something that pushes the limitations versus the moonshot. That's, that's my opinion of how those three should be categorized. But yeah, that's a big problem with a lot of these implementations, because they just think, why why would I? Why do I care about some stretch OKR? I'm trying to hit my number.

KJ 

Yeah, I dealt with it, man, like I lead our team of sales engineers, and we got given mandate in the KPI from our Chief Revenue Officer down. And then I wanted to try out OKRs with the team, because there was six of us, and I thought I'd give it a go. And people really found it difficult to say, I was pitching them like OKR is this great framework where you can prioritize what you need to focus on. It's like, KJ, here's our KPIs. And here are OKRs. Now, which one do we do? Like, do we do the one that gets us paid the bonus? Or do we do the one that you're telling us to do? And ultimately, they all chose the bonus. So they wanted to get their bonus. Right? So it's really difficult to ask people, and you will undermine your argument where OKRs will help you focus? Well, they won't, if you have this other force called KPI which is pulling you in a different direction. So do you have to have a reconciliation between boats, but what I was going to say about KPIs is that I read this great good hearts law statement, which is any observed statistical regularity will tend to collapse once pressure is placed upon it for purposes of control. So in essence, if you take a case, an observable measurement, like you know, revenue or some sort of KPI And you place a lot of pressure on it, for the purposes of micromanaging or controlling someone underneath you, it immediately collapses. So that's what KPIs I feel tend to be for the purposes of command and control. Whether if you perceive OKRs in that way, it's not going to work, you have to use OKRs, to empower people. And that should be autonomy of the measurements. And the quantifiable measurements should be given to the person creating the OKR. It shouldn't be your boss telling you to hit 100%, that should be them deciding what they want to hit. It's a different different sense, or a different intent. It's not for commanding you and controlling you. It's for empowering you.

Stephen N. 

Yeah, that makes sense. And the other piece in terms of like, how do you reconcile the two is really, at the end of the day, like a KPI is a lagging indicator. While Key Results and OKRs can be a powerful leading indicator, can we execute just on these simple things? Can we use a marketing example? Can we improve our conversion rate from four to 8%. That's a that's a leading indicator, because you can go off and you can execute any number of projects and initiatives to see if you are moving the needle on that. Now your ultimate KPI might be the number of leads that you've generated. Right. And that's that number is what it is. But to before you get to that number, this is a great bridge to get there. And it's incremental to say, it's bite sized chunks if you're not trying to, like boil the ocean. Like, what are the you know, our ultimate objective here is we want to have a full pipeline. Okay, great. Are we want to hit these revenue numbers? That's fine. The to get there, it's gonna take a series of smaller steps to get to the bigger picture. Yeah, that's how those two are combined.

KJ 

Yes. Yeah, you're right. And combined, you get a more holistic view of performance, you know, to like, if you want to really evaluate someone's performance at their job. Don't just take the lagging indicator. That's what most people do. They'll obsess over the KPI like, did this sales man hit this KPI quota? And if you did not, that's, then you're out whether you have to take a more holistic view of this person's contribution, not just the KPI. But how did they contribute to the OKRs, which, as you rightly said, facilitate and foster communication about how we're going to get to that KPI. They facilitate collaboration with other people that how to get there. They facilitate experimentation. Because you set an OKR. And you experiment and you say, maybe our hypothesis is, if we put a cart button here, we might drive behavioral change to increase conversion rates on the car. Let's try it out. Let's develop it. Let's do it. Let's design let's put it in, did it work? Okay, it didn't. Okay, great. Well, we'll just try something else, oh, coolers allow for that are the KPI is the commander going, you have to hit 100. The OKR is the one that kind of allows you to be agile to get there.

Stephen N. 

Yeah. And the beauty of all this is when you look at it all through the lens of the logic model. If you are empowered to select your own OKRs, select your key results, the things that you believe will move the needle, that's great. You still need to pick the right activities, and you can't do everything, you have to be very selective. And it's it's a game of prior prioritization really, like what are the top three or four things that I can actually tangibly work on today, this week, this month, this quarter, whatever, to move the needle, but even going before that is that's all well and good, but you're only one individual or small team, you have the resources that you need to do the activities that you desire to drive the impact on the key results to ultimately lead to your KPI. So if we, you know, as a little startup said, Hey, guys, our revenue goal for 2022 is $10 million. We would say well, we just don't have the resources to do that at all. It's a non-starter. And that's where a lot of frustration happens with like tech companies, marketing people, SaaS salespeople, they just don't have the resources or they don't have the features and functionality or they don't have the manpower or whatever to do the things they want to do. And so there's a disconnect. And I think the logic model helps bridge that gap. And I think the key results leading into KPIs helps to bridge that gap to.

KJ 

Great. That's great. Yeah, I agree. But tell everyone what, what that logic model is, and illustrate to us an example.

Stephen N. 

Yeah, so every, every impactful outcome starts with resources and resources as people, technology, finances, any sort of asset, capital. The resources, the things that you can use at your disposal to do the activities, the actions, we want to create, you know, this number of articles, or we want to build these types of features and functionality and that those activities lead to output. So the number of activities that you've done, and so we've created 10 integrations, that's all well and good. But that leads to the outcomes, which is the behavioral change that you're seeking, you can build 10 integrations to keep using that example, if nobody actually uses them, it's kind of a moot point doesn't matter. And then ultimately, the outcomes lead to impact. So those are longer term. And those are related to economic impact, environmental impact, societal impact. So if you look at any sort of nonprofit company, they're really tied to this model, because they're trying to drive long term impact, like, how can we create a more sustainable planet? How can we prevent climate change? How can we provide water and health care to you know, the globe, whatever? How can we put a man on a different planet, like these are all long term, like three to 510 20 year impact? Things are trying to move the needle? It always comes back to the resources. Do they have the money? Do they have the people? Are we working on the right things? Are we producing the right outcomes? Are we driving change? And if we do all those things, we will make an impact? Yeah, that's the logic model.

KJ 

It's great. Yeah, I can start with sort of what assets they have. Activities, how you deploy those resources and assets. The outcome is the quantifiable measurement, we deliver 10 integrations out the output is the quantifiable performance 10 integrations, outcome is the quality, the behavioral change, and the impact is closest probably to a company's mission of impacting society by delivering better health care, whatever that's great said really sums up everything in a very linear, logical way.

Stephen N. 

That's what that's called the logic model.

KJ 

That's what it's called the logic model.

Stephen N. 

Maybe we can get into that one, separately, because there's more there that we can unpacked, especially from a business standpoint, because every business leader wants the the impact of their business to be higher valuation. How can the value of my company be higher and higher and higher, but you got to put in the work beforehand?

KJ 

Yeah, it'd be great. We could do a session on diagnosing the most common pitfalls of the model or where people really struggle with that. I have a sense that people really struggle with resources and activities, like they want or maybe resources and outputs, they want a certain output. They want 10 integrations, but they don't pile up the resources or plan the resources necessary to deliver the output. You know, there's the there's probably maybe there's the chink in the chain.

Stephen N. 

There's more we can unpack there. But I think for now, it's pretty good. By the way, this day in history, Ford Motor Company, under Henry Ford in 1915, manufactures its 1 millionth automobile at the river rogue plant in Detroit. So, 1 million automobiles. That's output.

KJ 

Yeah, 1915? They had a million cars built by 1915?

Stephen N. 

Yeah, that's the model probably the Model T. So that's your output. So your resources are your people and your assembly line and your factories and then you create that many. That's the output and then but the behavioral change the outcome is do people make the decision to buy these cars and yeah, is an overwhelming? Yes. And what is the impact of all that? Well, it's the Industrial Revolution.

KJ 

I like to say it's just about to say, have you mobilized the earth's population?

Stephen N. 

Yeah. Good job, Henry.

KJ 

Henry. That's pretty shitty impact, to be honest, like I could do that.

Stephen N. 

Yeah. I'd prefer to be running around on a horse. Less chance of an accident.