09 OKR and KPI - The Differences and Connections #

In the previous lecture, I introduced that the implementation of OKR requires support from organizational processes and mechanisms. By setting OKRs at the beginning of the quarter, reviewing and adjusting them during the quarter, and closing the loop on OKRs at the end of the quarter, we can effectively use OKRs.

However, I often hear people say, “OKRs morph into KPIs as we use them,” and I wonder if you have the same concerns. How can we avoid this problem?

Next, I will analyze and compare the application and implementation of OKRs and KPIs from multiple perspectives. Once you understand the design principles and related practices of these two methods, you will know the similarities and differences between OKRs and KPIs. This will enable you to avoid using KPI-style management methods when applying OKRs, and use OKRs proficiently.

So whether it’s OKRs or KPIs, they are both imported terms, so let’s start with the English concepts of these two methods.

1. Concepts #

OKR: Objectives and Key Results KPI: Key Performance Indicator

The concept of KPIs often misleads us, leading many people who use KPIs to mistakenly believe that the goal management is complete as long as they have the “key performance indicators.” Over time, this has led to a “KPI-only” approach and a “number-oriented” culture, where only the numbers matter and the process is seriously neglected.

On the other hand, from a conceptual perspective, OKRs first focus on the “objectives” as the first dimension we need to pay attention to. Setting a direction and then focusing on the “key results” expected from that direction can at least give us a clear understanding of the context of our work and the corresponding relationship between output and goals. Moreover, based on the previous lesson, I believe you already know that OKR-based goal management is a systematic tracking and management process.

Therefore, starting from the concept, OKRs and KPIs also have differences in their presentation forms. What are these differences?

2. Presentation Form #

Whether using OKRs or KPIs to manage organizational goals and performance, most organizations will have a corresponding performance reporting system. I have written and seen many KPI performances in such systems. Later, I started practicing OKRs myself and found that these two methods have completely different presentation forms.

To help you understand better, I will give an example that almost everyone has experienced.

Example of writing OKRs and KPIs for the goal of a child’s growth over a year:

I chose an example from daily life because we all grow up as children. Children need companionship, especially when they are forming their values and perspectives. Through the companionship of parents, children can truly grow up in a healthy mind and body.

By converting this goal into a KPI, we can see that the presentation form of KPI is overly focused on the numerical results, as long as the child grows to “the key performance indicator of 10 years old,” it doesn’t matter how they grow.

In contrast, the presentation form of OKR includes both the process and the results. The process of a child’s growth is something that cannot be missed; once it’s missed, it’s missed forever. It requires the responsibility of accompanying the child through various activities during the process of growing up.

Similarly, using KPIs that only focus on numbers to manage organizational goals and performance will lead to the situation expressed in the internal saying at Alibaba, “results without process are rubbish.” Therefore, goal management must be a working process and cannot solely focus on numerical results.

In the presentation form of OKR application, the quantification of KR processes requires us to continuously discuss and reach consensus on the specific paths and methods for achieving the goals. We also need to monitor and manage the progress, risks, and changes in the process to generate high-quality actual performance results.

Behind the different presentation forms of OKRs and KPIs on paper, there are deeper reasons for using these two methods in business. So what are these reasons?

3. Business Assumptions #

KPIs emerged in the 1990s when China had only gone through about ten years of reform and opening up. Most businesses were established after the reform and opening up, and back then, any industry had more demand than supply, with many opportunities. As long as you could produce a decent product or provide a good service, there would be people who wanted it and were willing to buy it. I still remember that when my family installed a landline telephone, we had to beg the mobile service representative for an installation slot; otherwise, we wouldn’t have had the opportunity to have one.

Here, I want to explain that at that time, in an era of scarce products, an organization’s performance was determined by the organization itself and could be controlled by the organization. I will use the example of installing a landline telephone in my home to help you understand. For example, if a landline company plans to install 10 landlines in my area, the company expects to achieve revenue performance with these 10 telephone lines. Because products were scarce and everyone wanted them, these 10 telephone line slots would definitely be sold out.

At this time, using KPIs to manage organizational performance, such as installing 10 landlines in a certain area, is straightforward and easy to achieve. This way, organizations can continuously achieve success, and over time, the thinking is solidified into a KPI-oriented management mindset. However, when we turn the timeline back to the present, we have a wide range of products and services to choose from to meet our personal work, life, and learning needs. The era of scarce products is over. At this time, the power to choose products is shifting from companies to users. Users decide whether to use your product, and organizational performance begins to be determined externally. User needs are diverse and constantly changing.

In this situation, it becomes increasingly unlikely for us to achieve organizational success by using a fixed KPI value and then neglecting it. The reason why OKR is designed to be continuously reviewed and adjusted after it is formulated is to manage the process in a timely manner, embrace changes in the process, and adapt to the volatile business environment through the flexibility of OKR management.

Therefore, we can see that the fixed implementation of performance through KPI is based on the assumption that the external environment of organizational management is certain and controllable. On the other hand, the flexible implementation of performance through OKR is based on the assumption that the current organizational operating environment is uncertain and requires exploratory progress.

Under the influence of these different management assumptions, different management approaches based on OKR and KPI are distinguished. Where can we see this specifically?

4. Management Approach #

Managing an organization with a deterministic mindset means controlling goals and even rejecting goal changes. This management concept is reflected in the KPI performance management system within the organization.

In an organization that implements KPI, once you fill out and submit your KPI in the system, any changes to the KPI must be approved by a higher-level manager. For example, if you find a mistake or want to make an adjustment, you must first ask the manager to “reject” your previously submitted KPI before you can make changes. It should be noted that KPI manages goals, and goals guide individual behavior. If the manager never clicks the “reject” button, it means the goal has not changed, and individual behavior in the organization should not be changed arbitrarily.

Over time, it is not that employees do not want to take initiative, but they are constrained by this doctrinal management mechanism and passively accept the " I only move if my superior moves; I wait if my superior does not move " work mode. No one actively thinks about how to create better performance for the organization, which suppresses enthusiasm and creativity and leads to organizational rigidity and loss of vitality.

Even more frightening is that the design of the KPI performance management system based on KPI cannot respond promptly to changes in the external environment. Whether it is employees or managers, modifying goals is always a hassle and incurs high costs. This makes everyone reluctant to spend too much time on setting and managing KPIs, and it becomes a formality.

Over time, the actual work and the work recorded in the KPI system have diverged greatly. Imagine if a performance management system in an organization cannot accurately reflect the real operational performance of the organization, we will lack a real and reliable basis for talent assessment and fair incentives. At this point, it naturally becomes a top-down, leader-driven situation. We cannot establish a truly performance-driven culture, and no one will really challenge or break through.

Since KPI has brought us so many management problems, let’s see how OKR improves the situation.

Managing an organization with an embrace of uncertainty requires the ability to adjust organizational goals promptly, even allowing frontline personnel who can hear the sound of gunfire to make timely decisions. This management concept is also reflected in the OKR system used to manage internal goals within the organization.

In organizations that implement OKR, the first step is to establish OKRs based on short cycles, such as monthly or quarterly. In addition, frontline employees can add, modify, and delete Objectives and Key Results (OKRs) in the OKR management system at any time, without requiring any approvals. The design of the OKR system focuses more on self-motivation and autonomy in goal management and timely tracking and control of issues and changes in the goal completion process. This OKR management approach has two core reasons:

• In today’s rapidly changing market environment, it is not possible to make long-term plans through pre-defined methods. This requires us to shorten the planning cycle and set smaller goals in order to adjust the approach and resource allocation in a timely manner. This is why OKR goal management practices are typically set on a monthly or quarterly basis.
• The VUCA nature of the business environment is similar to that of a battlefield. Once a plan is made, it is like launching a battle. At this time, frontline personnel must have the authority to respond to changes and make timely decisions to deal with unforeseen events. Instead of reporting every issue to higher levels of management for approval and cascading it down to frontline personnel, this approach allows for faster response to external changes. This is also why OKR goal management practices are delegated to the frontline, allowing them to autonomously adjust goals in a timely manner.

To establish a management model that can flexibly respond to the VUCA business environment and allow those who hear the gunfire to make timely decisions. The rigid and inflexible “command and control” management style of KPI emphasizes compliance, which not only leads to a focus solely on KPIs but also hampers organizational vitality and innovation. The flexibility and agility of OKR management are not only reflected in the short-term iterative small goals set in the OKR cycle but also in the ability to respond and delegate the authority to adjust goals to the frontline personnel. Finally, combined with the OKR process management flow that I discussed in the previous lesson, this ensures timely synchronization and consensus on changes between different levels of management, avoiding organizational risks caused by arbitrary frontline decisions.

Summary #

When we understand the OKR and KPI goal management methods, it is easy to fall into the trap of not distinguishing the underlying management principles and specific practices of the two, without considering the context of the times and the business environment: “OKR transformed into KPI as we use it, and we just end up doing KPI with the name of OKR”.

In this lesson, I focused on the following points.

• In a relatively stable business environment with a sufficiently large market, using KPI can still bring performance success to the organization. In a dynamic environment full of uncertainty, OKR is more flexible in responding to changes.
• In terms of management style, KPI is control-based, “if the boss doesn’t move, I won’t move”, leading to a rigid organization. OKR is authorization-based, “let those who hear the gunfire make decisions”, bringing flexibility and vitality to the organization.
• In terms of process management, KPI ignores processes and easily leads to a focus solely on output. OKR establishes a process management mechanism that embraces change, enhancing the organization’s process management capabilities.

In the VUCA era, OKR clearly has more advantages over KPI in enabling organizations to achieve success. When applying OKR, it is important to consciously avoid continuing to use outdated KPI-style management methods and not to use the name of OKR to simply do KPI management. Only then can OKR truly be implemented without losing its essence.

Now that you know these differences, you can take action and lead your team and organization to practice OKR. I welcome you to share your experiences in the comments. When you apply OKR in your team for an extended period of time, you will find that the team becomes more energized. So, how does OKR motivate teams and inspire voluntary dedication to work?

In the next lesson, I will discuss “How to Activate Your Team with OKR”.