Why OKRs dominate KPIs
KPIs have become the de-facto way that businesses look to manage and analyse their data & business performance, however there are some serious faults with how many businesses implement and analyse their KPIs that are often ignored or underestimated. In this article, I’m going to share some of the common traps businesses fall into with their business performance tracking with KPIs, and why the OKR framework offers far more benefits than KPIs (and has a far stronger track record).
What are business KPIs?
If you don’t know what business KPIs (standing for ‘Key Performance Indicators’) are, you’ve probably been living under a rock. Businesses rely on KPIs to track how their business is performing based on their own internal data (and sometimes external data).
The idea behind a KPI is to capture something of interest to the right audience.
What’s wrong with KPIs?
Well, to be frank, nothing is wrong with KPIs specifically, however the implementation of KPI tracking in businesses is often seriously flawed.
KPIs can be (and routinely are) created for anything that any individual person in a business might be interested in. This freedom is often abused, leading to dashboards cluttered with hundreds of graphs and trend lines that lead to something called “KPI overload” also known as “Analysis Paralysis”. Some twenty or so years ago, businesses began to realise the value of their own data, however it seems now as though many businesses have overstepped the sweet spot and now believe that “more data and KPIs are better” which is unfounded.
While having many KPIs might seem helpful, in general it is actually detrimental to a businesses ability to identify, analyse and react to what matters effectively, since it is hard to see the “forest for the trees” with so many numbers detracting from the insightful numbers that might be hidden in the data.
The issue is that when managers are interested in analysing KPIs, they often put “the cart before the horse” by thinking first about what they want to see and second about why they want to see it. The result is a whole lot of information that is not used to support any impactful decision making. It’s ultimately pointless. If a KPI is never used to support doing anything differently, there was no reason to measure it in the first place.
What are OKRs and why do they dominate?
OKRs are a framework for business strategic performance tracking that stands for “Objectives and Key Results” proposed by John Doerr, a legendary VC credited by Larry Page himself with helping Google to achieve 10 times growth year on year for ten years.
The idea is surprisingly simple, put the cart back behind the horse and decide on business objectives first, then, decide exactly how you will measure against those business objectives second (the key-results).
Lets consider an example
Suppose a business is introducing a new and superior style of shampoo product to compete with industry leaders, under the KPI framework the team responsible for the campaign might request a dashboard to include KPIs showing; Sales by month and sales growth on year, the number of products shipped, the sales by store and sales by bottle size.
Now don’t get me wrong, these KPIs all could be useful to measure against some business objectives, however often, in practice, they’re not aligned to the specific objectives for the project.
Under an OKR framework, we start with the first question — what is the business trying to achieve? Well, considering this is a new and superior product, the business in this case is probably most concerned with trying to get a large number of customers to try their product. Their objective could therefore be to get 50% of the active shampoo market to purchase their product in a month within a year from now, since the business is confident that if customers try their product, they will become long term customers given their product is so much better than competitors. Note that of the KPIs shown above, none of them are even indicative of how the business is doing at achieving this objective. Also note that the achievement or failure of this business objective will, in this case, be a much healthier indication of the long term success of the product than the KPIs above.
Now, armed with this information, under the OKR framework we would consider what to measure before we start measuring anything. What KPIs give a good read on the share of the active shampoo market that is purchasing our product? The best KPI for this is known is market penetration, and it is a simple calculation of the number of unique purchasers of our product out of the total number of shampoo purchasers (of any product) in the same period as a percentage.
This single KPI will now give us a true read on how well our business is growing our share of customers in the shampoo market. It’s far more indicative of the long term health of the brand than just “Sales” since sales could all be coming from very few customers hoarding shampoo at a good price (for example due to a sale), which doesn’t bode well for how the product will sell next month.
Now, considering the original KPIs the team wanted to see on a dashboard, we can see that none of them give a good read on how well they’re meeting their true objective (Sales by month and sales growth on year, the number of products shipped, the sales by store, sales by bottle size).
Although, this example might seem simplistic, and you might be reading this thinking “who would do this?”, it’s more commonplace than you might think.
Businesses have fallen in love with KPIs, and being data and implementation experts at synogize, that’s great for us from a workflow perspective (more KPIs means more work). However sometimes I do wonder whether the approach is truly in the best interests of the businesses we’re working with.
The OKR framework has been shown to be hugely successful for some of the worlds most successful companies. OKRs help take businesses to the next level with utilising data and KPIs to achieve stellar business growth. Take the advice of the businesses that are succeeding — only measure what matters.