Last updated: 21st Feb, 2024
The difference between OKRs , KPIs, and KRAs is often confused, but the concept is a great way to measure the progress toward achieving your business objectives. As business analysts, product managers, and project or team leaders, it is important to understand the concepts of OKRs, KPIs, & KRAs and what’s the differences between them. In this blog post, we will discuss OKR vs KPI vs KRAs and how they can be used for setting goals/objectives and measuring different aspects of your team’s and organization’s performance in achieving those goals. We’ll also go over real-world examples so you can get a better understanding of how these metrics work in real life.
What are OKRs?
OKR stands for Objectives and Key Results. This is a method for setting business objectives, aligning your teams around them, measuring your performance against those objectives (O) by evaluating or assessing the key results (KR), and re-aligning whenever necessary. OKRs allow teams to measure their progress toward specific goals on a short-term basis while still having a long-term vision which can help keep everyone motivated throughout the year. OKR framework was started by John Doerr at Google in 1999 and is used by many companies today.
The following concepts need to be understood about OKR.
- O stands for Objectives. Objectives are qualitative goals that you want to achieve. Objectives represent the final change you want to see, your vision for the future. Objectives are always aspirational, challenging but realistic at the same time. For example, an objective can be increasing the sales revenue by 20% in the next 1 year.
- KR stands for Key Results. Key results represent some of the key or most important measurable milestones which when achieved will indicate that you are making progress in the right direction towards achieving your objectives. In other words, key results represent the quantitative measurements of progress toward an objective that can be measured with a number or a percentage value. If objectives represent change, key results indicate what would need to be accomplished (progress) concerning those changes. In other words, key results represent the measurable output of action taken or effort made against each objective. These should be clear and specific results, not vague outcomes. They need to be easy to measure so they can also act as a performance metric at times. You can always go deeper into analysis but these results should be clear enough to work with initially. When increasing sales revenue by 10% within a year is an objective, the key results can be some of the following:
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- Improved social media engagement with 50% greater followers in Twitter, Facebook & Instagram
- A team of 2-4 digital marketing professionals
- 30% increase in the number of leads showing interest in the product
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OKR Explained with an Example
Let’s say you have an objective to start from Hyderabad in the morning via car and reach the city of Kolkata on the next day.
Here the objective is to reach Kolkata. In real-world scenarios, the objective can also be qualitative. How do you decide whether you are heading in the right direction to achieve your objective? The key results will represent measurable milestones. Here the key results can be passed through key cities such as some of the following:
- Vijayawada
- Vishakapatnam
- Bhubneshwar
The objective is to reach Kolkata. Key results become the milestones such as the cities shown below. In the diagram below, the OKRs (objective and key results) as described above are represented.
Let’s take another example of OKR.
Objective: Crack the Google interview in the next 6 months
Key results can be some of the following:
- Finish 2 books on data structure & programming fundamentals
- Finish 5 coding tests and score “A” in 3 out of 5 tests
- Answered 50 data structure questions on stack overflow and earned badges
What are KRAs?
The concept of KRA (Key Result Areas) is an integral part of performance management and goal-setting frameworks within organizations. KRAs outline the essential areas where an individual or team needs to deliver results to achieve their primary job responsibilities and contribute to the company’s success. These areas are broad fields within which Key Performance Indicators (KPIs) or Key Results (from OKRs) can be defined to measure success. KRAs are typically broad, ongoing responsibilities that do not change frequently. They are aligned with the strategic objectives of the organization and are critical for its success.
Relationship with OKR and KPI:
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KRA and OKR: KRAs provide a broad framework that can house OKRs. An Objective in the OKR framework can be seen as a specific goal within a KRA. The Key Results under an Objective would then be specific outcomes that indicate success in that KRA. For example, if a KRA is “Improve Product Quality,” an Objective might be “Launch a new quality assurance initiative,” with corresponding Key Results like “Reduce defect rate by 50%” and “Achieve 95% customer satisfaction on product quality.”
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KRA and KPI: KPIs are metrics used to evaluate the success of achieving KRAs. They are quantifiable, allowing for the measurement of performance against key business objectives. A KRA might have multiple KPIs attached to it to gauge various aspects of performance within that area. For instance, if a KRA is “Enhance Customer Service,” KPIs might include “Average response time to customer inquiries,” “Customer satisfaction score,” and “Number of repeat customer support issues.”
What are KPIs?
Key performance indicators (KPIs) are numerical indicators that can be used to assess whether the actions taken result in the desired output. Key results in OKR require initiatives or actions to be taken by the team. Whether you are doing the right activities such that key results will manifest could be measured by these KPIs. From a project/product perspective, KPIs can be defined as a quantitative measure that indicates the performance of a project or product which in turn is used to measure the overall outcome/impact of a project or product implementation. Each of the key results, hypothetically speaking, can be termed a project itself and thus, can be measured using KPI. You can check out my related post on KPIs titled Leading & Lagging KPIs – Concepts & Examples.
You might need both leading and lagging KPIs to determine the success of your business initiatives (activities done to manifest key results (KRs) in OKRs) . KPIs can be of the following two types:
- Leading KPIs: Leading KPIs can be defined as early indicators of the success of business initiatives. A business initiative may require the implementation of one or more projects/products. Thus, leading KPIs can be used to determine whether a project or product is on the right track and achieving the desired business outcomes. In other words, leading KPIs are those that indicate that there is positive change happening already as well as reaching key milestones towards success. Some examples of leading KPIs for web-based products are user adoption and user retention rate. Leading KPIs can be focused on the project output.
- Lagging KPIs: Lagging KPIs can be defined as final indicators of the success of business initiatives. For example, sales revenue can be lagging KPIs. Lagging KPIs can be focused on the project outcomes.
OKRs vs KPIs vs KRAs Differences
KPIs can be used to measure the success of key results (KRs) from time to time which in turn can be used to assess whether you are getting closer to achieving your objectives. Recall that key results are the output of activities that you perform towards achieving your objective. KPIs can be used to track the performance of these activities whose output manifests as key results. While OKR is a framework for measuring progress towards your goals and hence can be termed as a goal-setting framework, KPIs are means to track the performance of effort made towards achieving your goals. KPIs are used to verify the hypothesis set out as a solution approach to solve the problem.
KPIs can be associated with one or more KRs in OKR and used to measure the key results. Also, KPIs would need to be mapped to initiatives to assess whether the initiatives is resulting in desired output or not. OKR comes with its framework for measuring progress. It is called as OKR score and is measured in a scale of 0, 0.3, 0.7, and 1. If one achieves a score of 0.7 in a KR, it is considered to be a great achievement.
KRAs, or Key Result Areas, serve as a foundational element in understanding and delineating the scope of responsibilities and expected outcomes within an organization, forming a crucial link between individual roles and the organization’s strategic objectives. Unlike KPIs and OKRs, which are often used to measure performance and progress toward specific goals, KRAs define the broad domains within which these goals and performance indicators are set. This means that while OKRs outline what an organization or individual aims to achieve within a specific time frame, and KPIs provide measurable metrics to gauge the performance of these objectives, KRAs establish the overarching areas of focus that guide the setting of these objectives and metrics. For example, in a sales role, a KRA might be “Market Expansion,” under which relevant OKRs and KPIs are structured, such as achieving a certain number of new client acquisitions (an Objective) and measuring the conversion rate of leads to clients (a KPI). In this way, KRAs provide a structured approach to aligning day-to-day activities and strategic initiatives with the broader goals of the organization, ensuring a cohesive and integrated approach to achieving organizational success.
The diagram below represents the relationship between OKRs, KPIs & VGIs:
When to use OKRs, KRAs, KPIs & VGIs?
OKRs (Objectives and Key Results) are best utilized when setting specific objectives for your team or organization and tracking their progress through measurable key results. This framework encourages alignment and focus by defining clear, measurable outcomes that contribute to broader goals.
KRAs (Key Result Areas) define the primary areas of responsibility and expected outcomes within a role or department. They set the stage for more detailed goal-setting by outlining the broad fields where objectives, like those in OKRs, and performance metrics, like KPIs, should be focused. KRAs help in understanding the bigger picture and ensuring that individual and team efforts are aligned with the strategic priorities of the organization.
KPIs (Key Performance Indicators) are crucial for quantifying the performance of specific actions, initiatives, or the achievement of key results within OKRs. They serve as measurable values that demonstrate how effectively the company or its employees are achieving key business objectives.
Incorporating OKRs, KRAs, and KPIs together provides a comprehensive framework for strategic planning, goal setting, and performance measurement. KRAs establish the broad areas of focus, OKRs set specific objectives and measurable outcomes within those areas, and KPIs offer the metrics to assess the effectiveness of these efforts. This integrated approach ensures that all levels of the organization work cohesively towards achieving its strategic objectives, with a clear understanding of their roles and contributions.
Summary
If you are aiming to track the advancement of your business initiatives, KPIs (Key Performance Indicators) are an effective tool. KPIs are quantitative metrics that reflect the performance of a project or product, which can then be used to gauge the overall outcome or impact of its implementation. To thoroughly assess the success of your business initiative, you might need both leading and lagging KPIs. Leading KPIs provide early indicators of progress and positive movement towards success, whereas lagging KPIs reveal the ultimate outcomes after a certain period.
These KPIs can be applied to monitor the advancement of activities or initiatives linked to each of the key results under an objective, within the framework of OKRs (Objectives and Key Results). KRAs (Key Result Areas), in this context, define the broad fields of responsibility and expected outcomes, which set the stage for specific objectives and KPIs. Together, OKRs and KRAs, with the measurement capabilities of KPIs, create a comprehensive approach to strategic planning and performance tracking. If you have any inquiries about how OKRs, KRAs, and KPIs interrelate, please don’t hesitate to reach out.
If you are a business analyst, a product manager, or someone associated with building products, you may want to check out my latest book on Reasoning by first principles titled – First principles thinking: Building winning products using first principles thinking. You may as well check out the related blog – First principles thinking explained with examples.
Check out my latest book titled as First Principles Thinking: Building winning products using first principles thinking.
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I found it very helpful. However the differences are not too understandable for me