Discover more from Michael Goitein's Upstream, Full-Stack Journal
Here Are the Key Differences Between Strategy, OKRs, and KPIs You Need to Know
When one might be better-suited than another, and how to use them together for maximum long-term success
As part of a large-scale Agile Transformation supported by one of the major global consultancies, I was coaching one particular program leader in OKRs.
In this area of the bank, the goal was to transform outreach, revamping how we connected with existing and prospective clients in radically different ways. OKRs would help us measure whether our strategy would help us achieve our goals.
Early on, powered by a well-crafted set of OKRs, the notion of growth and step change was deeply ingrained in everything the program did. Over subsequent cycles, however, the emphasis shifted from targeting innovative breakthroughs through choices and aspirational goal-setting to purely focusing on cost and efficiency.
What we missed here, and what I see every day, is how Strategy, Objectives and Key Results (“OKRs”) and Key Performance Indicators (“KPIs”) are used almost interchangeably, preventing teams from achieving success.
As a twice-certified OKR and strategy coach, I’ll share some helpful ways to understand Strategy, OKRs, and KPIs, and when and how to use each.
How do Strategy, OKRs and KPIs relate to each other?
Let’s use a simple vacation to frame examples from everyday life.
Choices vs. Planning
Let’s say you wanted to make the most of a week-long family trip.
You’ve sat down together and agreed to reconnect and spend quality time driving from the Washington DC area down to Disney World in Florida.
You’ve decided to save money and keep daily expenses to within $200 a day, eat all-day breakfasts, and stay in National Park lodges all along the way, going on hikes and making the most of being in nature.
And every night, you’ve agreed to bring the family together to play board and card games, and use downtime to read books, write, and sketch. This will help achieve your goals of family connection and creativity while also limiting screen time to no more than 30 minutes a day.
We’ve just designed a Strategy, with some OKRs and KPIs thrown in.
Vacation Strategy, OKRs, & KPIs
Your Product: the shared family experience
Winning Aspiration (Objective): Reconnect and spend quality time through a fun family vacation driving from Washington to Disney World
Where to Play: Stay in National Park lodges along the way, spend time in nature
How to Win: Go on fun family hikes during the day and play family board and card games in the evenings
Must-Have Capabilities: More than one driver with a license
Have board games you all agree to play
Have plenty of books, paper and pens
Enabling Management Systems:
Increase time speaking to siblings from ~5 minutes/month to ~1 hour a day
Increase family time spent in nature from 1 hour per month to 5 hours per day
Keep daily expenses within $200 a day
Not spend more than 30 minutes of screen time a day
Follow speed limits
Don’t let the car run out of gas (or electric charge)
Let’s dig more into each with some relevant models.
KPIs are our “Key Performance Indicators.”
The goal with KPIs is to keep things we can measure within agreed upon ranges.
Another great way to think about KPIs is to view of them as Health Metrics– How’s the health of certain important measures we don’t want to forget about?
In a business setting, KPIs can be used to manage the efficiency of your Operational Capabilities — our Service, Support, and Customer Success teams, and our basic “keeping the lights on” operations.
But KPIs can only help us target and measure part of the story.
We definitely wouldn’t want to use them everywhere, to manage every team, in every situation. Why?
If all we use are KPIs, it means the choices of strategy are being made elsewhere, and you’re just being asked to execute.
KPIs might work well for measuring some simple “health” metrics for the operational service and support capabilities we called out above. But it becomes more problematic when they’re being tasked with lagging Business Impact goals. Further, with a focus only on numbers and efficiency, it will be impossible for people to optimize their choices to contribute to meaningful growth and achievement.
And understood, too, that your Strategic Capabilities — the teams you expect to combine Product, Tech, and UX expertise to create new experiences, and expand growth, won’t thrive in KPI-driven environments.
This is where OKRs can provide additional benefits.
Objectives and Key Results are measures of step change, growth, & improvement
OKRs function best to activate our strategic capabilities where our goal isn’t efficiency but achievement.
When set skillfully in the service of a clear set of strategic choices, OKRs can measure the effectiveness of that overarching strategy.
But if we only use OKRs to set “moonshot” goals in the absence of strategy, they become merely a form of “wishing” or “hoping.”
The teams that can take these kinds of “moonshot” goals and turn them into sustainable product and customer success are rare — there’s simply too much context missing, and too many choices left to the teams themselves.
The missing piece of our puzzle is strategy, a critical competency every Product person needs.
But what is strategy?
Strategy is Choice
Strategy is nothing more than collaboratively making a set of choices, where across five different areas, we clearly lay out:
What we choose to do
And, perhaps more importantly:
What we intentionally choose not to do
As a Product Manager, if you’ve ever had to resort to using any prioritization framework, you’ve been a victim of a lack of clarity in your overarching organizational and product strategy.
And because strategy is becoming something of a lost art, it’s probably more likely than not this has happened to you.
A core tenet of great leadership is the willingness to commit to and continuously communicate a set of strategic choices at the top, both in terms of what to do, as well as what not to do. With this clarity, downstream leaders, Product Managers, and their teams can finally have the necessary guardrails for decision-making and a clear foundation for prioritization.
Teams can then “nest” their own sets of choices to support and deliver against higher-level strategy.
The Most Important Question
One of Roger Martin’s greatest contributions to strategy thought leadership is a single question.
When comes to either strategy or goal-setting, ultimately the most important question isn’t:
“What is True?”
Arguments about what “is” true or what we believe to be true will always differ because everyone is conditioned to see things differently, usually based on their role, their incentive structures, their experience, or the data they may be looking at.
But if instead we ask what “would have” to be true, we’re opening up the space for others to imagine and share the same conditions that would have to hold for our strategy and goal-setting to remain valid.
Let’s see an example of this in action.
Balancing OKRs and KPIs to measure longer-term viable traction against our strategy
The right side of the Four Square beautifully lays out the tension between these two forces of measuring aspirational strategic effectiveness at the top, balanced by operational efficiency and safety below:
Using the example above, we can make a set of simple, clear statements laying out the conditions under which OKRs and KPIs can work together to achieve sustainable excellence.
OKRs balanced by Health Metrics (KPIs)
Given our strategic choices to:
Completely revamp our whiskey club membership experience for our newly-identified set of target customer personas
Couple the new experience with a focused marketing outreach on these same target customer personas
We express our hypothesis in the following Key Results stating we believe we can:
Move from our current 40% average recurring (“ARR”) membership club retention to 80%.
Increase organic referrals from 10 to 30 per month, and
Increase Average Revenue Per User (“ARPU”) from $30 to $60 per user
In this case, our KPIs/Health Metrics are clear numerical measures of the conditions that would need to hold true while we stretch to achieve our growth goals:
As we strive for the above Key Results, It would have to be true that:
Customer Satisfaction (CSAT) stays within the “green” range
Our Product teams remain happy and engaged
Our Daily Active Users (“DAU”) remain at or near solid levels
It would be useless to achieve any OKR in a single quarter if we end up seriously damaging our trust with either our customers or our employees.
Accurate data, regularly shared
These Enabling Management Systems are entirely dependent on regularly capturing and bringing both sets of these numbers front and center.
One great way to do this is to make specific people accountable for each metric. (And no, making one leader or already way too busy person accountable for all of them won’t work.)
The accountability is not to deliver the numbers themselves, but to facilitate the regular conversations to monitor, and to understand why a Key Result or Health Metric color has shifted, so the group can have collaborative discussions on how to take action and address.
“The conversation is more important than the number.”
An important additional benefit of the Four Square in balancing OKRs and KPIs is what to do when a Health Metric turns “red.”
KPIs can become OKRs
Coupled with this level of regular focus and attention, the Four Square provides a system where anytime one of our Health Metrics goes into the red, we agree to pause our focus on our aspirational growth goals and make that metric an OKR until it’s back in the green.
Should our “What Would Have to Be True” conditions no longer hold, and our “red” status isn’t easily addressed by making it into an OKR, it’s a clear signal we need to go back and adapt our strategy.
The Gold Standard: Strategy + OKRs + KPIs
For us to get the true power of these different concepts, approaches and measures, it’s never a question of which single framework to choose — it’s how to skillfully combine all three together..
Providing we have put the thought into the other key aspects of our strategic choices, beginning with the “heart” of our strategy:
Where to Play
How to Win
And what we might call the “execution” component of strategy:
From this foundation, OKRs and KPIs can work together to balance each other as part of our “Enabling Management Systems.”
When well-balanced, they can both measure the traction our Strategic Capabilities are gaining towards achieving higher-level organizational objectives, while protecting our longer-term so we don’t lose sight of what’s important in our pursuit of the urgent.
Summary & Takeaways — Strategy, OKRs, & KPIs
When we confuse strategy, OKRs, and KPIs, we inevitably create problems for our organizations, teams of teams, that cascade all the way down the teams themselves.
When we understand the differences between:
Making a distinct set of choices through Strategy
Leading growth for your Strategic Capabilities with OKRs
Using KPIs as your “Health Metrics” to protect what’s important while you strive for excellence and growth
Managing your Operational Capabilities with KPIs
But remember that OKRs and KPIs are only one part of our broader Enabling Management System, and no management system can help you, or your teams, if you don’t have the courage to make choices.
I’m indebted to Eva Lotta Lamm and her amazing “Little People” character designs which I’ve adapted for the illustrations throughout this piece. You can read more about Eva and her work here, and purchase the templates here.
Roger L. Martin’s “Playing to Win” Strategy Framework for Product Managers
In Part II, I dig deep into the 7-step process Roger L. Martin calls the “Strategy Choice Structuring Process,” and IDEO calls “Strategy Process Map,” which makes the most of Design Thinking and Divergent and Convergent mindsets to create winning strategies.
Going deeper into the Four Square
Over a few essays, I dug deeply into each quadrant of the Four Square, and how to use it to help your team achieve “Radical Focus.”
You and your team can create your own Four Square to manage your work, your OKRs and your Health Metrics/KPIs, all in one place!
See the FigJam starter template file in the Figma Community here:
If you’re more of a Miro person, you can find the template in the Miroverse here:
Please give them a spin and reach out to me with any advice on how to make them better for your needs!
Wodtke, Christina. Radical Focus SECOND EDITION: Achieving Your Most Important Goals with Objectives and Key Results (Empowered Teams) (pp. 123–125). Cucina Media, LLC. Kindle Edition.