The difference between OKRs , KPIs and VGIs is not always clear, but the concept is a great way to measure the progress towards achieving your business objectives. As business analysts, product managers, project or team leaders, it is important to understand the concepts of OKRs, VGIs & KPIs, and what’s the difference between OKR, VGIs and KPIs. In this blog post, we will discuss OKR vs VGI vs KPI and how they can be used for setting goals / objectives and measure different aspects of your team’s and organization’s performance in relation to achieving those goals. We’ll also go over real-world examples for OKRs, VGIs and KPIs 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 towards specific goals on the short-term basis while still having 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 in relation to 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 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 towards 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) in relation to 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:
-
- 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
-
OKR Explained with an Example
Lets say you have an objective to start from Hyderabad in the morning via car and reach to the city Kolkata on the next day.
Here the objective is to reach Kolkata. In real-world scenario, the objective can as well be qualitative in nature. 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 passing through key cities such as some of the following:
- Vijaywada
- Vishakapatnam
- Bhubneshwar
Objective becomes reaching Kolkata. Key results become the milestones such as above cities. In the diagram below, the OKRs (objective and key results) as described above are represented.
Lets take another example of OKR.
Objective: Crack the Google interview in next 6 months
Key results can be some of the following:
- Finish 2 books on data structure & programming fundamentals
- Finish 5 coding test and score “A” in 3 out of 5 tests
- Answered 50 data structure questions on stack overflow and earn badges
What are VGIs?
VGI is a framework that can be applied to both individuals and organizations. It involves setting a vision and goal, and then taking initiative to achieve it. VGI is often used in the corporate world, as it can help organizations to focus their efforts and achieve their goals. For example, a company may set a VGI of becoming the market leader in its industry. To achieve this, it would need to develop a plan and take action to reach this goal. VGI is also relevant to individuals. For example, someone may set a VGI of becoming fluent in a second language. This would involve setting a goal and taking steps to achieve it, such as enrolling in classes or practicing with native speakers.
What are KPIs?
Key performance indicators (KPIs) are numerical indicators which can be used to assess whether the actions taken result in desired output. Key results in OKR require initiatives or actions to be taken by the team. Whether you are doing right activities such that key results will manifest could be measured by these KPIs. From 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 KPI titled as Leading & Lagging KPIs – Concepts & Examples.
You might need both leading and lagging KPIs to determine 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 success of business initiatives. A business initiative may require implementation of one or more projects / products. Thus, leading KPIs can be used to determine whether a project or product is on right track and achieving the desired business outcomes. In other words, leading KPIs are those which indicate that there is positive change happening already as well as reaching key milestones towards success. Some examples of leading KPI for web based product are user adoption and user retention rate. Leading KPIs can be focused around the project output.
- Lagging KPIs: Lagging KPIs can be defined as final indicators of success of business initiatives. For example, sales revenue can be lagging KPIs. Lagging KPIs can be focused around the project outcomes.
OKRs vs KPIs vs VGIs 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 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 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 solution approach to solve the problem.
VGI helps in setting up goals which can be used to realize the long-term visions. These goals can be mapped to initiatives or activities that would be required to be performed in order to achieve the goals. The way it is different from OKR is that in OKR, you set the goal / objective and key manifestations (key results) which can indicate you whether you are progressing towards achieving your goal. The key manifestations or key results can then be mapped to key initiatives. In VGI, you map the activities / initiatives directly to the goals without mapping it to key manifestations (key results).
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 own framework for measuring the progress. It is called as OKR score and measured in the scale of 0, 0.3, 0.7 and 1. If one achieved a score of 0.7 in a KR, it is considered to be a great achievement.
The diagram below represents the relationship between OKRs, KPIs & VGIs:
When to use OKRs, VGIs and KPIs?
When the goal is to set up objectives for the whole team and measure the objectives with the help of measuring key results, you can use OKRs. You can also use VGIs instead of OKR.
When you need some metrics to measure an initiative or say, key results in OKR, you can make use of KPIs.
It is recommended to use OKR and KPI together in order to measure objectives, key results and initiatives taken to manifest key results.
Summary
If you are looking to measure the progress of your business initiatives, KPIs are a great way to do so. A KPI is defined as quantitative measures that indicates the performance of project or product which in turn can be used to measure overall outcome/impact of project or product implementation. You may need both leading and lagging KPIs for success assessment of your business initiative. Leading KPIs indicate positive change already happening on right track towards success while Lagging KPI’s show final result at some point. Leading and lagging KPIs can be used to measure the progress of activities or initiatives for each of the key results associated with the objective. This is how OKRs, VGIs and KPIs are related with each other. If you have any questions about OKR, VGI and KPI, feel free to contact me.
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.
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