How OKRs and KPIs Work Together to Drive Performance

If your organization is already using key performance indicators (KPIs) to evaluate performance or calculate incentive compensation, it is essential to clearly distinguish between KPIs and OKRs. However, many organizations report KPIs even though they do not have a formal performance review process in place. These organizations often wonder how — or whether — they should integrate OKRs with KPIs. Some worry the two systems are redundant. Others worry they may conflict.

In reality, this concern reflects a misunderstanding.

OKRs and KPIs are not competing systems. They are complementary. When used together correctly, they create a powerful framework for managing performance and driving improvement.

What follows is a high-level overview, followed by a detailed comparison to clarify how KPIs and OKRs work together in practice.

OKRs vs KPIs: How They Work Together (and How They Differ)

Organizations often ask whether OKRs replace KPIs. The answer is no. They serve different roles.

KPIs measure ongoing performance.
OKRs define the measurable change you want to create.

Based on experience working with hundreds of organizations, one thing is clear: the term “KPI” does not have a standard definition.

Some organizations use “KPI” interchangeably with “metric,” meaning every reported metric is considered a KPI. In some companies there may be only one KPI, while in others there may be hundreds or even thousands. Some organizations use KPIs primarily to calculate incentive compensation for employees, while others use KPIs only to evaluate overall company performance — without tying them to compensation at all.

Unlike KPIs, key results do have a consistent definition.

A key result answers a specific question:

“How will we know we’ve made measurable progress toward a specific objective by a certain date?”

Organizations with established KPI systems often ask whether KPIs should be replaced by OKRs. This question itself reflects a misunderstanding. Choosing between OKRs and KPIs is a false choice. The two systems work in tandem.

A given KPI becomes a key result when it is the focus of near-term improvement. A KPI becomes a health metric when it is important to monitor but is not the focus of improvement right now. Most metric key results are based on underlying KPIs.

To illustrate how KPIs and OKRs work together, consider the following example.

Example: KPI-Driven Metric Key Results

Objective: Achieve financial targets

Key Results:

1. Double company revenue from $5M in Q1 to $10M in Q2
2. Increase gross profit margin from 20% in Q1 to 25% in Q2
3. Increase recurring revenue from existing install base from $400K in Q1 to $600K in Q2

Each of these metric key results embeds a KPI. In fact, a metric key result is simply moving a KPI from X to Y within a defined timeframe.

Metric vs Milestone Key Results

At the team level, milestone key results are often more common. These do not directly correspond to KPIs, but they are still critical.

Consider the following marketing example:

Objective: Make growth more sustainable

Key Results:

1. Launch marketing automation system as measured by sending our first set of nurture emails by the end of Q1
   
2. Reduce marketing cost per lead from $100 in Q4 to $95 by end of Q1

Here, marketing cost per lead is clearly a KPI. However, “sending our first set of nurture emails” is not a KPI. It is a milestone key result.

Milestone key results are not defined by moving a numeric KPI from X to Y. However, they are designed to influence a KPI in the future.

For example, launching a marketing automation system may not immediately reduce cost per lead in the current period, but it is expected to improve that KPI over time.

This distinction between metric and milestone key results helps clarify how KPIs and OKRs operate together. It can also help to take a step back and see examples of bad OKRs and good OKRs.

KPIs	Key Results
Measure performance	Define desired change
Often stable metrics	Time-bound goals
Operational focus	Strategic focus
Track health of the business	Drive improvement

Detailed Analysis of OKRs and KPIs and How They Compare

A better way to frame the question is:

How do key results differ from KPIs?

Objectives are qualitative statements and should not be confused with quantitative KPIs. The distinction lies specifically between key results and KPIs.

Let’s break down the differences in detail.

Defined in Context of an Objective?

The most obvious difference is that key results are defined within the context of an objective.

Objectives should include a clear explanation of why the goal is important now. Key results measure progress toward that objective.

KPIs, by contrast, often lack context. They frequently appear as standalone metrics used to quantify performance, without clearly connecting to a specific improvement priority. So, in this case OKRs and KPIs are clearly not the same.

Achievement Tied to Compensation?

KPIs are often used to determine incentive compensation. OKRs should not be.

OKRs should be decoupled from compensation.

While OKR progress may be considered qualitatively during performance reviews, OKR scores should not directly determine bonuses or compensation. One of the primary reasons for separating OKRs from compensation is that OKRs are intended to be stretch goals.

When compensation is tied directly to OKR achievement, teams tend to reduce ambition and avoid setting challenging targets. Again, compensation shows how OKRs and KPIs are different.

Visible to All Employees?

Management by Objectives (MBOs), which inspired the OKRs model, is often used to determine compensation and is therefore frequently kept private between manager and employee. Similarly, KPIs tied to compensation may also be kept confidential.

Andy Grove took a different approach. He insisted that OKRs be visible across the organization.

Visibility enables alignment. When everyone can see clearly defined goals in a consistent format, teams can coordinate efforts and work toward shared outcomes.

Some organizations initially restrict OKR visibility to leadership levels, but most eventually make OKRs visible to all employees. Transparency is a foundational element of effective OKRs.

Focused on Maintenance Work and Health Metrics?

Many organizations label every measured metric as a KPI. However, not every KPI should become a key result.

If we view KPIs as the full set of metrics a company tracks, then each KPI falls into one of two categories:

• A KPI becomes a key result when the organization chooses to improve it in the near term.
  
• A KPI becomes a health metric when it is important to monitor but already within an acceptable range.

For example, website uptime may be a KPI. But if uptime is already at 99.99%, it may not be appropriate to set a key result focused on marginal improvement. Not every metric requires active optimization at all times.

Intended to Increase Alignment Across Teams?

KPIs are often designed to measure the performance of a specific team. Teams tend to focus primarily on their own KPIs and may have limited visibility into how other teams are performing.

OKRs, in contrast, are designed to promote alignment.

OKRs are often shared across teams and may even lead to the formation of cross-functional groups working toward shared outcomes. The OKRs framework encourages collaboration rather than isolated performance measurement.

Informs Near-Term Focus and Prioritization?

KPIs do not necessarily include a timeframe. They are ongoing metrics such as revenue, customer satisfaction, or operating margin. Lists of KPIs can become extensive and are often presented in dashboards rather than used to communicate priorities.

Key results, however, always include a defined timeframe. They articulate how progress toward an objective will be measured within a specific period.

KPIs tend to remain stable over time, while key results evolve as part of the regular OKRs cycle of reflection and reset.

Controllable by a Single Team?

KPIs are frequently used to evaluate a single team’s performance and are therefore often fully controllable by that team.

Key results, however, often represent ambitious outcomes that may not be fully controllable by any single team. Stretch goals frequently depend on cross-functional collaboration and external factors. This is intentional — OKRs are designed to push organizations beyond incremental improvement.

Originates from Team Members?

Because KPIs are often tied to performance evaluation and compensation, they frequently originate from top-down management.

While many objectives are set by leadership, key results often emerge through dialogue between leadership and teams. In many organizations, key results are shaped collaboratively, allowing teams to contribute insight into what measurable progress should look like.

This combination of top-down direction and bottom-up input strengthens both alignment and ownership.

Coaching Takeaways

• OKRs and KPIs work together; they are not conflicting systems.
  
• Unlike key results, KPIs do not have a standard definition.
  
• A KPI becomes a key result when it is the focus of near-term improvement.
  
• A KPI not targeted for improvement becomes a health metric.
  
• Clear distinctions between OKRs and KPIs improve training, clarity, and execution
  

For real company implementations, see our OKR Case Studies and Examples.

Contact Ben@OKRs for a free 1:1 OKR Consult!