What Are KPIs and OKRs? A Simple Guide to Complex Metrics

Not every business wants to grow, expand, or even improve its position. It’s a surprising statement, but nonetheless true, and for some businesses, that’s absolutely fine.

Consider your average local high-street dry cleaners: they provide jobs, offer a valuable service, and contribute to the local economy. They have no ambitions of scaling up; their aim is simply to sustain their existing operation and income level. In their case, there’s very little they need to measure, only to keep an eye on costs and profitability.

But what if your goals are more ambitious?

Suppose you own a couple of fitness gyms and plan to expand to ten within five years. Or perhaps you run a small creative design agency with the goal of becoming a high-profile, full-service agency with an internal team of a dozen or more within two years.

Growth plans like these mean merely ‘keeping an eye’ on the business will be nowhere near enough. Understanding your performance becomes not just beneficial but crucial. And, while there are numerous tools available to aid business growth, from SWOT analyses to lean canvas frameworks, the real success lies in detailed, specific measurements across multiple areas of your business operation.

Why measurements matter in business

Business owners often see numbers and metrics as the domain of accountants, financial analysts, or data scientists. However, that perception undersells the true power of measurements in shaping the direction and success of a business.

Metrics are a universal language for business strategy. They are essentially quantifiable measures that assess various aspects of business performance. They convert your abstract ambitions into a structured framework, providing the vocabulary needed to transform nebulous goals into concrete, actionable plans.

Metrics are a diagnostic tool for gauging the health of different facets of your operation. They enable you to pinpoint what’s working effectively, flagging areas that are meeting or exceeding expectations. On the flip side, they also highlight elements that may fall short or benefit from adjustment. This diagnostic capability empowers you to make what are commonly referred to as data-driven decisions, which are more likely to yield better outcomes.

Numbers also give you the data to make educated decisions rather than relying on gut feelings or intuition. By identifying trends, predicting outcomes, and testing theories, metrics let you decide with a higher level of certainty what changes to implement and how to execute them. This is critical, whether you are deciding on budget allocation, marketing strategies, or even future product development.

Regardless of your business type – be it a decades-old family business, a disruptive tech startup, or any other venture with ambitious plans – embracing the use of metrics, including KPIs and OKRs, can provide you with a competitive advantage.

The power of KPIs and OKRs

Key Performance Indicators, commonly known as KPIs, have been around since the early 20th century. Originally used in manufacturing to gauge performance and improve efficiency, they’ve become instrumental in nearly every industry. In essence, a KPI is a measurable value that shows how well a company is performing in a specific area.

There are a set of fairly standard business KPIs, but most companies will decide what they need to monitor and measure specifically. This might include:

• The number of contracts signed over a given period
• The value for new contracts over a given period
• The number of qualified leads generated per month
• The time spent on follow-ups
• Average time taken to convert a lead into a sale
• Total revenue generated over a given period

A security firm’s KPIs might include response times, successful incident detections, and employee training levels. A digital printing company’s relevant KPIs could be printer downtime, material wastage, and order turnaround time. Or, indeed, anything you feel needs regular monitoring and tracking.

What are the key elements a good KPI needs to include?
KPIs are at the core of your monitoring and management processes, so they need to be tailored to your business and be of direct value. You will learn to live by them as they will drive every aspect of your business.

Every KPI should include the following:
Something it directly and specifically measures.
A target – typically a number that you want/need to achieve.
A clearly defined data source. Where is the information coming from?
A recurring reporting date, typically monthly.
Accountability. It’s not always required, but assigning a named person to the management of specific KPIs helps ensure they are taken seriously.

How do OKRs fit in?

Objectives and Key Results (OKRs) are newer than KPIs but less impactful. Popularised by tech giants like Intel and Google, OKRs aim to align a company’s efforts around a strategic objective. Unlike KPIs, which are more operational, OKRs focus on the bigger picture.

OKR example for a security company:

• Objective: Become the most reliable security service in the city.
• Key Results: Reduce response times by 15%. Achieve a 95% customer satisfaction rating.

OKR example for a digital printing company:

• Objective: Transform into an eco-friendly printing solution.
  Key Results: Reduce paper waste by 20%. Incorporate 50% recycled materials in all products.
• Another objective might be to increase brand awareness, with key results such as achieving 2,000 social media followers and increasing website traffic by 20%.

A more complex approach might be an objective to expand market share in the 18-25 age group, with key results involving multi-channel campaigns, partnerships, and customer engagement metrics.

KPIs vs OKRs: Why choose one over the other?

The primary distinction between KPIs and OKRs is in their application: tactics vs. strategy. KPIs are the way to go if you focus on operational efficiency and immediate impact. If you’re looking at long-term growth, market leadership, or other broad goals, OKRs offer a more fitting framework.

In the context of business, tactical measures are short-term and action-oriented. They focus on immediate tasks and quick wins that contribute to larger objectives. In terms of KPIs, tactical measures might include metrics like ‘daily active users’ for a mobile app or ‘weekly sales targets’ for a retail store. These are immediate, quantifiable measures that can be quickly acted upon. In a tactical setting, you’re concerned with how to best use your available resources right now to achieve specific outcomes.

OKRs are more effective for strategic, big-picture goals, planning, and focusing your team’s efforts.

In the context of business, strategic measures are long-term and vision-oriented. They often focus on achieving broader business goals and require a more complex approach. OKRs fit nicely into the strategic bucket, as they usually comprise an Objective (the broader goal) and Key Results (specific metrics to gauge achievement). Strategic initiatives often require the alignment of various departments, resources, and timelines.

What’s in it for SMEs?

If you run a smaller enterprise, both KPIs and OKRs can provide you with invaluable insights. They can help you prioritise tasks, allocate resources, and encourage a culture of accountability. These frameworks can be tailored to suit the needs and scale of SMEs.

The key to successfully implementing KPIs and OKRs lies in a few fundamental principles:

• Simplicity: Don’t bombard your team with dozens of metrics. Start with two or three critical KPIs or OKRs that everyone can wrap their heads around. For example, a small digital printing company might start by tracking ‘Order Turnaround Time’ and ‘Customer Satisfaction.’ Allow people to get used to working with what’s measurable first.
• Realism: Choose achievable yet challenging targets. If your security company’s ‘Response Time’ is currently 15 minutes, don’t instantly aim for 5 minutes. A more realistic reduction to 12 minutes as a Key Result would be advisable.
• Transparency: Clear communication is vital. Ensure these metrics are visible to your entire team, perhaps through a shared dashboard or regular updates in team meetings. The aim is to make everyone feel invested in the outcomes.
• Review and adapt: Neither KPIs nor OKRs are set in stone. Conduct regular reviews to see if they are still aligned with your business objectives and modify them as needed.
• Celebrate wins, and learn from losses: Don’t just focus on hitting targets. Celebrate when Key Results are achieved and dissect the data in a positive way when performance falls short. Each will provide immensely valuable lessons.

Can solo business owners benefit from KPIs and OKRs?

Solo business owners, or even those with a micro-team, may feel these metrics are too much for them, as they’re really designed for larger businesses and corporates. But KPIs and OKRs can be incredibly beneficial to the smallest of businesses and even freelancers.

How to make the most of KPIs:

Focus on what matters: KPIs can help solo entrepreneurs concentrate on essential business metrics like cash flow, customer acquisition costs, or lead conversion rates.

Set short-term goals: KPIs are often tactical and short-term, making them well-suited for quick decision-making processes required in a solo operation.

Make them easy to implement: Due to their straightforward nature, KPIs can be more straightforward for a single business owner to implement and track. For example, if you’re a freelance writer, KPIs could include the number of articles written per week, income generated per month, or client satisfaction rates.

How to make the most of OKRs:

Think about the long-term vision: OKRs help you to set, follow, and measure long-term objectives, keeping you aligned with your ultimate business goals.

Consider flexibility: OKRs can be adapted and changed according to how the business evolves, offering a flexible framework for single operators who often pivot or adapt.

Take a holistic approach: OKRs can help you look at the big picture and not get lost in day-to-day operations, which is easy to do when you’re managing everything yourself. For example, if you’re a solo consultant, an OKR might be to “become a thought leader in the industry,” with Key Results such as publishing a certain number of whitepapers or earning speaking engagements.

Potential drawbacks of KPIs and OKRs

While KPIs and OKRs offer myriad benefits for tracking and achieving business goals – even for solo entrepreneurs – they’re not without their shortcomings. Like any tool, they’re only as effective as the hands that wield them, and there are pitfalls to be aware of.

KPI drawbacks:

1. Narrow focus: KPIs can make you concentrate too much on a single metric, possibly to the detriment of other important aspects. For example, if a security company solely focuses on ‘fast response times,’ the quality of the intervention might suffer.
2. Data misinterpretation: A KPI without context can be misleading. High ‘customer satisfaction’ rates are excellent, but if only surveyed from a small or selective customer base, they may not represent the whole picture.
3. Short-term focus: KPIs can drive a focus on immediate results, which may not be sustainable or beneficial in the long term. Quick fixes to achieve KPIs might undermine comprehensive strategies.

OKR drawbacks:

1. Complexity: With multiple objectives and key results, OKRs can sometimes be too intricate, leading to confusion or lack of focus.
2. Over-ambitious goals: While OKRs are meant to be challenging, setting the bar too high can actually demoralise rather than motivate your team.
3. Misalignment: If OKRs are not well-communicated or are formulated in isolation by senior management, different departments might interpret them differently, leading to divergent and even conflicting efforts.

Final thoughts on using metrics as your business compass

Far from being buzzwords of corporate boardrooms, KPIs and OKRs serve as your business compass. They provide a navigational framework to guide your venture from its current state to your ultimate vision, translating abstract aspirations into tangible, measurable achievements.

One of the remarkable aspects of metrics is their universal relevance. Whether you’re a solo entrepreneur, a small business owner, or a seasoned expert running a large corporation, metrics offer indispensable insights. They cut through the complexity of business operations to highlight what truly matters, giving you a clear roadmap to success.

Metrics are a journey, not a destination.

Understanding and implementing KPIs and OKRs is not a one-off activity but an ongoing process. As your business evolves, so will your metrics. They are dynamic tools that adapt with you and should evolve over time. They will keep you aligned with the changing landscape of your industry and the shifting needs of your customer base.

It’s often said that a journey of a thousand miles begins with a single step. In the context of business, that first step is almost always rooted in knowledge and awareness. In a similar way to how you work with your business plan, knowing your course, understanding your metrics, and continually refining your approach are the stepping stones to achieving your business goals.