In the data-driven business world, the role of analytics teams has become critical in providing valuable insights. This is because they help in making data-driven decisions. However, relying solely on KPIs to track progress can limit the effectiveness of an analytics team.
To achieve their full potential, they should adopt a goal-setting framework like OKR.
OKRs help align with the broader business objectives and measure progress towards them. They provide a way to set ambitious, qualitative objectives aligned with measurable results. They help ensure that everyone is working towards the same goals.
By tracking progress through a combination of KPIs and KRs, the analytics team can gain an understanding of their impact on the business and identify areas for improvement.
In this article, we will explore the importance of OKRs for the analytics team and why they should use OKRs. We will understand why they should use not just KPIs to track progress. We’ll also understand why they should add OKRs to enhance their decision-making and achieve long-term success.
What are OKRs and KPIs?
OKR, or Objectives and Key Results, is a goal-setting framework that helps businesses align their efforts towards a common goal. They help measure progress and achieve better results.
In the OKR framework, Objectives are specific, time-bound goals and define what an organization wants to achieve. Key Results are specific, measurable outcomes that help track progress towards the objective.
Example of OKR
Objective: Increase monthly revenue by 20% in Q2.
Key Result 1: Launch a new product by the end of April.
KR2: Increase website traffic by 30% by the end of May.
KR3: Achieve a customer conversion rate of 5% by the end of June.
KPIs measure and monitor performance on specific metrics critical to the organization’s success. KPIs are typically quantitative and often track performance over time.
Objective: Increase customer retention rate by 10% by the end of the year.
KPI: Customer retention rate
Target: Increase customer retention rate from 80% to 90% by the end of the year.
How Are They Different From Each Other
KPIs and OKRs are goal-setting frameworks used by organizations to measure and track performance. However, there are some key differences between the two.
KPIs monitor ongoing performance and measure progress towards specific metrics critical to success. KPIs are quantitative and measurable, and track performance over time. They monitor performance on metrics like revenue, profitability, customer satisfaction, or employee engagement.
In contrast, OKRs are used to set ambitious and moonshot goals and drive progress towards specific objectives. OKRs consist of high-level objectives and specific key results. OKRs are qualitative and focus on achieving outcomes rather than measuring ongoing performance. Its purpose is to set a direction and create alignment within the organization towards achieving specific goals.
|Focus||Measure and track performance on specific metrics||Set ambitious but achievable goals|
|Purpose||Monitor ongoing performance||Drive progress towards specific objectives|
|Timeframe||Ongoing||Specific period ( mostly a quarter)|
When To Use KPIs and When To Use OKRs?
Both KPIs and OKRs are valuable goal-setting frameworks. However, they are designed for different purposes and should be used in different situations.
KPIs are best used when an organization wants to monitor ongoing performance and measure progress. KPIs are quantitative and track performance over time. They can be used across the organization or within specific departments to track performance.
On the other hand, OKRs are best used when an organization wants to set ambitious goals and create alignment around it.
How Do OKRs and KPIs Complement Each Other?
While they serve different purposes, they complement each other and work together to help achieve goals. When used together OKRs and KPIs create a robust framework for driving success. OKRs provide the overarching goals and direction. While KPIs provide ongoing feedback for the measurement of progress towards those goals.
By aligning KPIs with OKRs, the analytics team can ensure they track the right metrics and focus on the critical areas for improvement. OKRs add the Why with every action and provide a sense of direction.
Problems When Only Using KPIs
The analytics team uses KPIs to measure the success of the business. However, relying solely on KPIs can lead to a number of problems and limitations.
1. Lack of clarity, specially on what needs to be improved
When only KPIs are used, and OKRs are not incorporated, it can lead to a lack of clarity, particularly around what needs to be improved. It is because KPIs often focus on monitoring ongoing performance on specific metrics. They do not necessarily provide guidance on what actions to be taken to improve that performance.
For example, a sales team may track their performance based on revenue growth as a KPI. While this metric measures sales performance, it does not necessarily provide guidance on how to improve. The sales team may not know whether they should focus on acquiring new customers, increasing sales to existing customers, or improving the efficiency of their sales process.
How do OKRs help here?
Incorporating OKRs alongside KPIs provides clarity around what to improve. It provides clarity on what actions should be taken to achieve specific objectives. This will help the teams to focus on the important initiatives and take action to achieve their goals.
2. Uncertainty about the appropriate number of KPI metrics
It can be difficult to determine which metrics are most important to track and which are less critical when only using KPIs. KPIs focus on monitoring ongoing performance on specific metrics. This leads to uncertainty around the appropriate number of KPI metrics to track.
Without a clear understanding of which KPIs to focus on, you may end up tracking too many metrics. Alternatively, you may track too few metrics, leading to a lack of visibility into other important aspects of the business.
For example, the marketing team might track KPIs like website traffic, conversion rate, etc.
While these metrics provide valuable insight into marketing performance, they may not be sufficient to understand the impact of marketing efforts on the business. There may be other metrics, such as ROI, that are not tracked and could be critical to the success of the marketing efforts.
How do OKRs help here?
By incorporating OKRs here, you can create clarity around which metrics to track. You can get clarity on the metrics most critical to achieving your objective. It can help reduce uncertainty around the appropriate number of KPI metrics to track. It can help ensure that teams are tracking the most important metrics.
KPIs focus on performance, but they do not necessarily assign ownership of performance. Without a clear understanding of who is responsible for the KPI, there may be confusion and ambiguity around ownership.
Team members may not know who to turn to when they encounter challenges or need support. There will be a lack of accountability around improving performance.
For example, if a company has a KPI for customer satisfaction, it may be unclear which team or individual is responsible for that KPI. The customer service team may assume it is their responsibility, while the product team may think it is theirs. This can lead to a lack of ownership and accountability and may cause confusion and chaos.
How do OKRs help here?
You can create more clarity around ownership by including OKRs as they set clear accountability. By assigning clear ownership for objectives and KRs, you can ensure that team members know who is responsible for what. You can hold individuals accountable for their performance.
How To Combine OKRs and KPIs for Larger Business Impact
1. Set OKRs for ambitious KPIs
One way to combine OKRs and KPIs for business impact is to set OKRs for ambitious KPIs. It means setting objectives focused on achieving significant improvements in specific KPI metrics.
For example, a company may have a KPI for customer satisfaction which is currently 75%. They may set an OKR to improve customer satisfaction to 90% within the next quarter. This ambitious goal requires significant effort and focus and is achievable with the right strategy and execution.
By setting an OKR for an ambitious KPI, organizations can create a clear objective that is aligned with their overall business goals. This helps create a sense of purpose and direction for team members and ensures that everyone is working towards the same goal.
2. Drive informed decision-making with OKR and KPIs
Combining OKRs and KPIs can help drive informed decision-making and take targeted actions to improve their performance. By setting clear objectives and measuring progress against specific metrics, they can gain valuable insights into their performance and make data-driven decisions to improve business outcomes.
For example, a company has an OKR to increase customer satisfaction scores by 20% within the next quarter. To measure the progress of this objective, they may have a KPI for NPS. By tracking changes in NPS over time, they can gain insights into what is driving improvements in customer satisfaction and make data-driven decisions to further improve this metric.
As the business landscape continues to evolve, it is becoming increasingly clear that OKRs are the future of goal-setting. They provide a more dynamic and flexible approach to goal-setting, essential in today’s fast-paced and rapidly changing business environment.
By working together with other business units, the analytics team can ensure that KPIs are aligned with OKRs, and that progress towards those goals is measured accurately and objectively. This will enable informed decisions about where to focus efforts and allocate resources.
If OKRs are the future, KPIs are the roadmap to that future. For the analytics team, this means leveraging data and analytics to provide valuable insights, identify the right KPIs, and provide actionable recommendations for improvement.
By combining these two tools, businesses can drive larger business impact, identify new opportunities for growth, and create a culture of continuous improvement.