OKRs vs. KPIs: 5 Key Differences and Their Role in Fostering Team Collaboration

Nowadays, it seems that a company feels like it’s falling behind the trend of the times if it doesn’t implement OKRs.

There is an abundance of OKR training, tools, and books available, making it overwhelming to choose from.

In the past year, the topic of OKR transformation has been the most discussed among HR professionals.

However, please be cautious and question whether we are truly doing OKRs or simply disguising KPIs as OKRs.

Today, the theme I want to share with everyone is:

OKRs and KPIs are completely different things.

OKRs are not a policy;

They are not a system;

And they are definitely not a performance evaluation tool solely for calculating bonuses.

Instead, OKRs are:

A mindset,

Encouraging deep thinking about the business and focusing on core objectives;

A work habit,

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Promoting open communication and frequent interactions.

When implementing OKRs, it is essential to clarify the purpose of this tool and, more importantly, understand that it is a cultural shift towards an organization that values open collaboration. It is challenging to achieve an instant and complete transformation overnight.

01-The increasingly awkward situation with KPIs.

KPIs are a product of the hierarchical organizational structure. Hierarchies help businesses continuously divide labor. Division of labor has been the mainstay of management. It helps organizations achieve relatively stable efficiency, generates relatively stable responsibilities (delegation of authority), and subsequently produces relatively stable outcomes (distribution of profits). Taylor’s scientific management introduced a premise that organizations resemble precise large-scale machines, where everything can be accurately measured and quantified with numbers. In this era, the labor output of workers can be calculated through piece-rate systems, leading to compensation. If workers desire higher rewards, they produce a greater quantity of products. Throughout this process, managers are responsible for overseeing the entire process and have the authority to validate the final numbers.

02-The power dynamics at play.

In a hierarchical structure, power can be precisely defined, and everyone is clear about “who is their boss.” However, gradually, this also nurtures the bureaucratic mechanisms that every hierarchical organization cannot escape. Everyone desires growth and development, and in a hierarchical system, employees perceive advancement as “promotion.” Promotion, salary increases, and gaining wealth seem to become the aspirations of every employee within an organization. In most companies, the power to determine whether a person can be promoted lies in the hands of their immediate supervisors. Supervisors wield this power by setting KPIs for employees and evaluating the outcomes, which essentially determines the success or failure of an employee within the organization. It is evident that the reverence employees hold for leaders and the power dynamics make it difficult to establish an open and fair dialogue space. Furthermore, driven by bonuses and personal interests, employees engage in a game with you. If a person remains in a state of insufficient understanding and passive acceptance of their goals for an extended period, how can we expect them to wholeheartedly devote themselves to it?

03-Inability to cope with VUCA due to excessive pursuit of precision and stability.

During the era when KPIs were first introduced, most companies operated in a relatively stable and predictable business environment. Organizations relied on defined capabilities, goals, and resources, and followed established processes to achieve predetermined outcomes. In this era, everything could be standardized, and everything could be quantified. The controllable order provided us with efficiency and a sense of security. People were viewed as tools and resources by organizations, and individuals could be represented by numbers. The HR department was responsible for providing these numbers and conducting complex data analysis. However, today we find ourselves in a VUCA (volatile, uncertain, complex, ambiguous) world. Complexity and ambiguity make it increasingly difficult to make sense of the numbers game. Uncertainty and unpredictability render KPIs unable to keep up, always lagging behind. This is no longer a world where 1+1 equals 2. The idea promoted by KPIs that “parts + parts = whole” is no longer valid.

04-Driven by self-interest, only addressing Maslow’s lower-level needs.

In the past, people worked for wages, for their livelihood and to support their families. Nowadays, money is homogeneous, and wages are the same everywhere. Therefore, employees seek more from their work. They need respect, interest, the opportunity to do what they enjoy, and even challenging tasks. They need a sense of achievement and meaning from their work. If we simply rely on the carrot-and-stick approach to motivate the new generation of workers, they won’t buy into it anymore.

05-Four key points for successful implementation of OKRs

  1. OKRs are for collaboration, not for evaluation.

OKR itself is not a performance evaluation tool, but a team collaboration tool. It is well known that Google learned about OKRs from Intel and further developed them. This is highly related to Google’s talent philosophy. In the early years, Google followed a “genius strategy” in talent acquisition, meaning they only hired geniuses. By bringing these genius individuals together, did they need to assign a leader to manage them? Google was not that foolish; they embraced self-organization! Since everyone was so outstanding, they realized the need for team collaboration. They needed a tool to openly communicate their goals for a certain period and the desired outcomes, in order to better coordinate efforts and ensure they were fighting for a common objective.

From this perspective, it is not difficult to understand that OKR is not an HR tool. It is a management tool needed by any team and its leader. OKRs help clarify team goals, support resource allocation, and resolve conflicts to achieve consensus. The leader bears full responsibility for the success of driving OKRs.

If HR is speaking up, then what is my role? OKRs will prompt teams to hold various meetings, such as OKR setting and alignment. These meetings require professional facilitation, and I believe that HR’s role in this process needs to shift from being a promoter of administrative rules to a cultivator of culture and capabilities.

2.A culture of trust leads to openness.

A culture of trust fosters open communication, and open communication leads to efficiency. This not only requires team members to know each other’s OKRs but also enables them to know the OKRs of their leaders, leaders from other departments, and colleagues. In simple terms, within an organization, you can have open access to anyone’s current OKRs.

In most of the organizations we support, “publicizing one’s own OKRs” has become an obligation for everyone in the collective. They also allow peers to provide feedback on each other’s OKRs, which, in my opinion, is an interesting process that stimulates more team dialogue and collective thinking. Some companies have even developed a culture of integrating OKRs into team meetings, where OKRs are the first item on the agenda.

3.Failure is not embarrassing, nor costly.

OKRs are meant to be open and not tied to performance evaluations, but they also serve a very important purpose: to encourage people to set challenging goals.

In organizations with such a culture, the focus is on personal development rather than using people’s abilities solely for performance and profit, with development being just a byproduct. When such a culture is established within an organization, employees no longer feel ashamed if they don’t achieve their goals. Instead, it becomes an opportunity to help employees and teams reflect and learn together.

O – Objective: Where to go. I will…

  • The objective is what I want to achieve. What do I most want to accomplish? If I achieve it, it will be meaningful for the organization.
  • The setting of objectives needs to be challenging, inspiring, meaningful, and valuable.

KR – Key Result: How to get there. Measured by…

  • Key Results are the paths to achieving the objective.
  • Key Results provide a comprehensive explanation and interpretation of the relative achievement of the objective.
  • If KRs do not serve the objective and are merely isolated numerical indicators (similar to KPIs), then they lack meaning.
  • If a leader’s KRs are delegated to subordinates, then the leader at that level loses their purpose.

Today, let’s not delve into the specific details of OKRs and how to set them. What I want to share is whether as an employee or a team, when an Objective is set, do people feel excited, energized, motivated, eager, and ready to take action? The objective should not lead employees to think about whether they will achieve it, what percentage of their bonus they will receive, and start calculating and planning how to negotiate with their leaders. The objective should also not be so far-fetched that people feel it is impossible from the start, causing them to lose motivation and give up. Only in this way can OKRs truly mobilize the potential of individuals and organizations, shifting the focus from performance management for KPIs to team motivation and efficient collaboration. It is crucial to first achieve this, and autonomous determination of OKRs is essential.

4.I am responsible for my Objective and Key Results, and my boss and colleagues are here to help me.

The internet has only one face, and that is the outside. If the purpose of organizing people together in the industrial age was efficiency, then in the internet age, the more important purpose is innovation, to stimulate the potential and creativity of every individual. Organizations also need a broader and more diverse perspective, close interconnection, and an open mindset to keenly capture the tension brought about by rapid changes. This enables them to continuously meet customer needs and create value.

To achieve this, the internal structure of the organization needs to be loosely coupled. Loose coupling means that the organization can consciously, skillfully, and actively break the stable power structure of “superior-subordinate.” Otherwise, imagine in the logic of KPIs, the goals set by the boss for employees, due to power and hierarchy, cannot be effectively challenged by employees or any changes made. In such a hierarchical relationship, power makes the leader authoritative when communicating with employees.

Without self-organization, OKRs are difficult to fully realize their value. The mode of autonomous management allows each person to truly take responsibility for their own role, rather than just working for the boss. People start to develop the mindset of being a “leader” in their own role, consciously setting goals for the roles they are responsible for and openly sharing them. Of course, when other team members focus on their OKRs, they can continuously provide tension and iteratively refine their respective OKRs.

06-Having a systemic view and focusing on OKRs.

If you want to successfully implement OKRs, it is not enough to just master and implement the OKR tool itself. Leaders also need to start from the following dimensions, self-assess the current organizational management situation, and consider how to promote and support OKRs in order to unleash their value.

  • Corporate culture – Providing the foundation for OKR implementation.
  • Business leadership – A management tool for strategic business.
  • Execution principles – Building the road for OKR implementation.
  • Organizational structure – Empowering, delegating authority, and fostering an open organization as the foundation.
  • System tools – Ensuring the efficient use of OKRs.

07-What about performance evaluation?

At the same time, many organizations struggle with the question of how to handle performance evaluations and bonuses when implementing OKRs. They wonder what to do without using KPIs, and if they use OKRs, it becomes vague as to how OKR results should be used for performance bonuses. Some teams propose “direct evaluation” or “indirect evaluation” methods, but often these end up circling back to using KPIs.

We also see some organizations adopting a dual-system approach, using OKRs for goal management and collaboration while still using KPIs for performance evaluation and bonus distribution. Personally, I don’t recommend this approach. It can confuse employees and increase operational costs for organizational management. It’s like trying to drive a Ferrari at full speed while following both racing rules and city traffic regulations. Clearly, the driver of such a car would be overwhelmed and find it difficult to accelerate.

So, what should we do? If we decouple OKRs from the performance bonus system, it can provide teams with enough safety space to give their full effort. At the same time, it can provide another pathway for the organization to calculate bonuses. Our suggestion is to be open, transparent, and value-based. Below is a new approach we propose in the field of organizational innovation. We can try to break free from the concept of “fixed salary + year-end bonus,” which is essentially a question of value creation and distribution. If we can think out of the box, there are many solutions available.

Conclusion

Both KPI and OKR are merely tools. While the sharpness of the sword is important, what matters even more is how the person wielding the sword dances and why they dance.


Author: Leona Smith

Certified Global Holacracy Coach

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