Coach's Corner Business Tips
Using KPIs and OKRs in Your Business Strategy
One of the most frequently asked questions I get by contractors is, what should my Key-Performance-Indicators (KPIs) be, and how many should I have? Often, they look to other companies in their industry, including suppliers and associations, to see what they may use or recommend to run their business.
The good news is, you don’t need to look for outside data sources to establish the best KPIs for your business to operate efficiently. Proper identification of KPIs begins with defining your organization’s strategy. One of the most effective structures used in strategic planning is called Objective and Key Results (OKR). Using OKRs, you can determine the most critical initiatives to your organization and then focus your energy on a select handful of KPIs that will drive results.
What is The Objective and Key Results?
OKR is a strategic framework, whereas KPIs are measurements that exist within a business structure. OKR is a clear-cut approach that uses specific metrics to track the achievement of a goal. Generally, an organization will have three to five high-level objectives and three to five critical results per target. Key findings are numerically graded to obtain a precise performance evaluation for the goal. OKRs are:
- Always quantifiable
- Able to be objectively scored on a 0-10 or 0-100 scale
Your organization will use the Objective and Key Results framework to define your objectives and the metrics in which the objectives will be measured to ensure your goal has been met. OKRs are also transparent and provide data on the different functions in your business for alignment.
Using OKRs to Obtain an Organization’s KPIs
Once you set the organization-wide Objectives and Key Results, the process can flow down to the companies’ departments. Who then can set their OKRs to meet or exceed those expectations. The KPIs all through your organization should be achieved from an accumulation of the Key Results derived from the OKR underlying concept.
Only looking to external sources within your industry to find appropriate KPIs will lead you to misguided results. The business may be similar in the industry but also can be at opposite ends of the spectrum when it comes to what drives them to results. For example, what if one company was driven strictly by revenue growth while you are focused on bottom-line results? Adopting their KPIs would create unrealistic expectations and lead to burn-out and failure in your company.
When KPIs are only chosen to increase volume or efficiency, you may create an increase in the risk of adverse decision making to meet those metrics. In today’s environment, the speed of business is always increasing. Accordingly, the importance of KPIs will need to change along with your organization’s strategy. The OKR frame of reference should be revisited quarterly to remove KPIs that are no longer relevant or not working. Most often, you find your organization will start with too many KPIs, but over a three to twelve-month period, you will be able to drill down to just a few that will work best for you.
Your organization will be able to set long-term objectives that can be tracked and measured through Key Results while focusing your resources on the areas that will attain the most significant success by following your OKR structured system. Having your KPI’s derived from Key Results will ensure that when deviations from expectations due occur, you can enact mitigating measures that will get you back on track.
By defining clear goals, every member of the organization can focus on, and work toward, the most important goals. OKRs and well planned KPIs keep everyone away from distraction and boost collaboration since every team member is well-informed and understands the priorities.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.