How do I combine OKRs with KPIs?

"How do I combine OKRs with KPIs?"

I'm going to let you in on a secret: this is both the question I get most often about OKRs and a question I dread.

I groan internally when someone asks. Unfortunately, its one of the most common questions I get. So while it has been on my list of "Things to blog about" for a year I've been putting it off.

Dragan Jojic ask me this last year and I spent weeks digging up articles and reading. I kind of got an answer, but its not a great answer, it was about 10 pages long.

So why do I hate this question?

The thing is, KPIs - key performance indicators for those who have been lucky enough to avoid them - are something of a moveable feast. That is to say, they mean different things to different people in different places. To make this worse, it turns out that KPIs lack a foundational text.

When I began my research last year I assumed that I could find the original book or journal article were KPI were described. But, it doesn't exist.

The expression seems to have just arisen in management talk and stuck. So there is no commonly agreed definition. So let me give you three ways the I see it being used, and thus, three answer to the original question.

First "Informal KPIs". Teams and companies talk about KPIs and many numbers are called Key Performance Indicators but there is no agreement on what the important, key, KPIs are. Nor is there any definition what a so-called KPI actually measures or how it is measured.

Worse the increasing use of dashboards is making means KPIs are proliferating. Increasingly the term is just applied to any old metric that somebody wants to aggrandise.

If you are using informal KPIs like this then go right ahead and use OKRs. Hopefully OKRs will, in time, help bring order to your KPIs.

The second type of KPI are Formal and Targeted. There are a recognised limited number of well defined KPIs. Not only does the company set targets for KPI measurement but they may well draw up action plans to achieve those targets. I found David Parmenter's "Key Performance Indicators" book a pretty wise here.

Used like this KPIs aren't actually massively different from OKRs. If this style of KPI is working well for you then why add OKRs? You need to understand why you would use both because they overlap. Adding OKRs may simply increase costs and bureaucracy, at worst OKRs might set up conflicting goals.

However, while many companies are undoubtedly using many informal KPIs there are very few who are using this style of formal KPIs.

Finally, the third type of KPIs are my preferred sort. This style of KPIs is closer to Balanced Scorecard approach style. Here KPIs are well defined but they are not targeted directly. Rather, KPIs are used to monitor the organisation and check it is moving in the right direction and not getting out of balance.

This model is akin to hospital monitoring instruments. The instruments tell you patient heart rate and blood pressure but have no control over those measurements.

OKRs are the mechanism to change those measurements. OKRs on change and action, they also help individuals and teams plan and align. You don't say "Lets target lower blood pressure" you say "Lets target a healthier diet" or "Reduced stress." That in turn reduced the KPI.

So there you have it, in order to answer the question "How do OKRs fit with our KPIs?" I need to ask you first "How are you using KPIs?"