You may have heard the popular saying, “What gets measured gets managed.” The truth behind that statement is likely the reason you’re interested in the difference between key performance indicators (KPIs) and objectives and key results (OKRs). Regarding their differences, the short answer is that KPIs are used to measure performance (as indicated by their name), and OKRs are used to measure progress toward an objective (as indicated by their name). The long answer is a little more complicated, but don’t worry—that’s what we’re here to explore.
What makes a KPI, and how do you use them?
KPIs are an important tool for measuring success at any stage of business. One of the most common stages where KPIs are necessary is when an owner/entrepreneur tries to hand off some of the tasks they perform. They’ve typically built their business with hard work and good instincts—what we like to call “muscle and feel.” The challenge comes when the owner tries to hand off what they’ve instinctively learned to someone who doesn’t share those same instincts. Unless some essential KPIs are defined, this handoff almost always fails. Defining KPIs, in this instance, serves two purposes:
- It gives the person performing the task a goal to meet or a mark to hit and a way to tell if their performance will be good enough for a successful outcome.
- It gives the owner/manager an objective way to see if the person performing the task is successfully doing it and if their work indicates a successful outcome.
These KPIs for one person can be used just as easily with a team, unit, division, company, etc., for the same two purposes. Let’s use an example.
Service level agreements (SLAs) are a great way for service departments to measure if they are delivering service in a way that is aligned with what the business advertises and what their customers expect. SLAs use KPIs to help create a foundation for stronger client relationships. (Learn more in this eBook.) Typically, with an SLA, there are three KPIs defined:
- Time to respond. This KPI measures the time between when a ticket is submitted and when you get back to the client. This is a quantitative measurement of the time elapsed between two events.
- Time to plan. This KPI measures the time between when a ticket is submitted and when you have diagnosed the problem and determined the proper next course of action to remediate the issue. This is another quantitative measurement of the time elapsed between two events.
- Time to resolution. This KPI measures the time between when a ticket is submitted and when the issue is resolved. This is yet another quantitative measurement of the time elapsed between two events.
These measurements give an indication of performance relative to what a client should expect.
KPIs are a measure of performance. There are many KPIs that managed service providers (MSPs) can (and should) use to run their business. The general rule of thumb is to measure a lot of things but only focus on a few within your team. And don’t be afraid to use business management solutions, such as BrightGauge™, a ConnectWise solution, to make tracking KPIs even easier.
What are OKRs, and how do they work?
OKRs measure progress toward an objective or goal. As a business matures, it’s likely that they’ll frequently find themselves with tangible objectives they want to achieve that are outside of business as usual. For these objectives, KPIs fall short of properly measuring the progress toward achievement. That’s where OKRs come in. With an OKR, you define the objective you are trying to achieve and then define the key activities needed to bring about that objective. Once you’ve done so, you’ll define the results of the key activities that would indicate a strong possibility of success in achieving your objective.
Let’s take a look at another example:
Let’s say your objective is to take your service team and create a separate project team to deliver projects more professionally and profitably. The process of defining your OKR might look like this:
Objective: Deliver projects in a more professional and profitable way
Key activities to achieve the objective:
Activity 1:
Identify and move two techs—one who is a Level 1 and one who is a Level 3—from your service team to dedicated project roles. Make the Level 3 tech the project lead and the Level 1 tech the project support.
Activity 2:
Hire a project manager to professionally manage your projects—build project plans, manage scope, communicate with all relevant parties, coordinate projects, engage in vendor interactions, etc. Let the techs do the technical work while achieving a 50% gross margin on each project.
Activity 3:
Properly scope and price projects, including the salesperson, project manager, project lead, and client.
Results that indicate success:
Result 1:
Two techs whose time is 100% dedicated to project work.
Result 2:
Project gross margin is at or above 50%
Result 3:
Customer satisfaction on projects is at or above 90%.
This definition of an OKR is a discreet time measurement of successfully achieving the outcome, which in this case is creating a professional, profitable project team.
You may have noticed that the performance measurement part of the OKR is two KPIs: gross margin % and customer satisfaction. Much of the confusion between the two stems from this, as KPIs are almost always used in OKRs to help quantify success.
Both KPIs and OKRs can help measure business success
The difference between OKRs and KPIs comes down to this—KPIs measure ongoing performance, and OKRs measure the attainment of an objective. KPIs are often used within OKRs to measure progress toward a goal, but KPIs are also frequently used to measure things outside of achieving an objective.
The most critical factor in deciding which to use is understanding what kind of metrics will offer you the most value. OKRS and KPIs both have their place when they are well thought out and managed appropriately—it’s up to you to decide what makes the most sense for your business.
