Metrics vs KPI. These terms are often used interchangeably. But do they mean the same thing? Below, we hope to put an end to the KPI versus metric debate.
Metrics are a measure of assessing performance or production according to specific parameters. You can use metrics to assess, track as well as compare performance. Depending on the industry and the objective, there are numerous metrics you can use.
KPI is the abbreviation for Key Performance Indicator. A business relies on numerous metrics, such as financial metrics and operational metrics, to determine various business units’ performance.
Key Performance Indicators vs Metrics
Metrics refers to measuring a wide range of elements across a business, while a KPI focuses only on the performance of a single critical area of the company. KPIs, therefore, offer a deeper insight on a specific issue. But how can you explain KPIs vs. metrics?
As a business, the question should not be a metrics vs. KPI debate but how to utilize both effectively.
Key Performance Indicators vs Metrics Examples
A business is comprised of various departments that play a critical role in the overall success of the firm. To help you to differentiate metrics vs KPI, we offer a few KPI vs metric examples below that capture the diversity of a business operation:
- Fixed costs: this metric indicates the expenses that are constant in a business operation. Fixed costs remain constant irrespective of your operating capacity, hence the reason they are referred to as “fixed.” Examples of fixed costs are rent, salaries, depreciation, insurance, etc.
- Break-even point (BEP): This is the point where the revenue is equal to the costs. When revenue outstrips your expenses, you make a profit, and when it is less than costs, you make a loss. Many new businesses use BEP to track whether their operations are self-sustaining. It is a critical metric when running a business.
- Organic Traffic: This is a KPI used to track the flow of organic traffic on your website. When you optimize your site, such as updating content, a KPI is necessary to measure the impact. With organic traffic as a KPI, you can see the impact of your interventions.
- Customer Retention: This KPI allows you to track the number of customers you have retained over a specific period. Many businesses experience high customer attrition but do not realize just how dangerous it is for the company until it is too late. This metric allows you to stay on top of the situation and proactively manage customer retention.
Metrics vs KPI complement each other and enable you to have a 360-degree view of your firm’s operations.
Objectives and Key Results vs KPIs
OKR is the abbreviation for Objectives and Key Results. KPIs, as mentioned earlier, are Key Performance Indicators. So – what do we need to understand about OKR vs KPI? Is there a difference between KPI and OKR?
Let’s unpack OKRs.
OKR is a method to set goals and track them to see if they are achieved. It is a tried and tested tool used in many successful companies. Google, for example, is a trailblazer in this field and has successfully used OKRs since 1999. From the size and scope of Google, you can tell that using OKRs can significantly improve your performance.
OKRs are usually put in place by top-level management. It is best to ensure that there are about two to five critical results for one objective. Having an objective is essential – measuring it ensures you can track your progress.
There are four types of OKRs:
- Committed: These are the bare minimum targets you are required to attain. Every member of the company knows the target they have committed to and works towards them.
- Aspirational: These are goals set to raise the bar higher. Being ambitious targets, they may not be achieved. However, attempting to attain these goals significantly improves performance across the organization.
- Tactical: These are put in place for individual teams to achieve. For instance, the marketing team may have increasing Facebook page likes as a tactical goal, while the product team may have improving user-friendliness as their tactical goal.
- Strategic: These are set by the top-level management and encompass goals to be achieved by the entire firm. Strategic OKRs require different departments to work in symphony to meet the company goals.
Pros and Cons of using OKRs
A discussion of metrics vs KPI is incomplete without delving into the pros and cons of OKRs. Let’s start with the pros:
- They are flexible. They can be tweaked depending on the periodic goals.
- They push people beyond their comfort zone. With OKRs, employees push beyond their usual target and aim to deliver their best.
- They are simplified, thus easy to understand. There is no complicated language around OKRs – they are often presented in easy language.
- They are all-inclusive. OKRs are achieved when all employees work together as a cohesive unit.
As for the cons:
- They can lack company-wide alignment. Because many organizations allow OKRs to be created with everyone’s input, they can sometimes lack company-wide alignment, especially when employees do not understand overarching priorities.
- They can be too prescriptive. For employees that love autonomy, OKRs can end up being overly prescriptive and be a demotivator.
- Too many OKRs can confuse everybody. In reality, many organizations have OKRs as long as your arm. This can lead to an overload of objectives and poor execution.
Pros and Cons of Using KPIs
Metrics vs. KPI is an important debate. Below is a consideration of the pros and cons of using KPIs. Let’s begin with the pros:
- KPIs enhance decision making. They provide managers with actionable insights to make smart and timely decisions.
- They help in performance evaluation. KPIs are used extensively in human resource management to assess the performance of employees. Conventional management dictates that every employee has a scorecard that periodically measures their attainment of contractual performance targets.
- Employees’ performance is improved. When employees know what good performance looks like, they tend to perform better. KPIs are a great way to let staff know what is required of them.
- KPIs provide a comparison benchmark. KPIs provide a means to compare yourself with your competitors and the industry.
As for the cons:
- The longer-term bigger picture can suffer. KPIs are focused on short-term achievements. Without proper interventions, this can sometimes lead to comprising longer-term strategic business goals.
- KPIs can stifle creativity. Despite all the pros, KPIs have led to a slump in creativity, innovation, and new ideas.
Difference between OKRs and KPIs
So, is there a KPI OKR difference? KPI and OKR are important tools in a business. While they both aim to improve a business, their functions are different.
Often, organizations that have had KPIs for a long time and are toying with the idea of OKRs question whether adopting OKRs implies that they have to abandon KPIs.
Let’s consider how OKRs and KPIs naturally work well together by taking the human body as an example.
Many people take an annual health checkup where the doctor checks the body mass index (BMI), heart rate, blood pressure, blood sugar, cholesterol, etc. All of these are KPIs of the human body. Having a checkup and finding that all the KPIs are in the normal range does not mean you can run the New York City Marathon the next day. If your dream is to run this marathon, that becomes an objective. The key results would include increasing lean body mass by 25%, running 20 miles daily within three months, increasing protein intake to 100 grams per day, etc.
In a business environment, KPIs that require improvement become the starting point for your OKRs. They also become the key results you measure, especially if you are trying to attain velocity in improvement. KPIs also often bring to the surface areas of improvement, and OKRs will solve those problems. OKRs can do this because of the work culture they create. They are collaboratively written by teams and audited for cross-alignment. This creates ownership and a sense of motivation that yields the desired results and improves specific KPIs.
KPIs and OKRs are both essential tools that enable a business to meet its goals.