Goals that work: OKRs, KPIs and SMART goals compared

OKRs, KPIs and SMART goals often get treated as rival systems, and teams argue about which one to adopt. They answer different questions. KPIs tell you whether the business is healthy. OKRs say what you will change this quarter. SMART is a checklist for writing any single goal clearly. Used together, they cover most of what a small team or a large company needs from goal-setting.

This guide explains where each comes from, how they fit together, and the mistakes that make each one fail.

KPIs: measuring how things are going

A key performance indicator is a measure of how well an organisation, team or process is meeting its objectives. Wikipedia’s article on performance indicators describes good indicators as easy to understand, closely tied to goals, and based on reliable data that is hard to manipulate.

KPIs come in two kinds. Lagging indicators measure results that have already happened, such as monthly revenue. They are easy to measure but hard to influence directly. Leading indicators predict future results, such as the number of proposals sent. They are easier to act on but harder to link to the outcome. A sensible set mixes both.

KPIs run all the time. You don’t finish them. They are the dials on the dashboard, and most of the time the job is to keep them in a healthy range.

OKRs: deciding what to change

OKR stands for objectives and key results. According to What Matters, an OKR resource site, Andy Grove created the method at Intel and taught it to John Doerr, who introduced it to Google’s founders in 1999. Doerr also coined the name.

• An objective is what you want to achieve. It should be significant, concrete and ideally inspiring.
• Key results are how you will know you got there. What Matters describes them as specific, time-bound, ambitious but realistic, and verifiable: you either meet one or you don’t. It suggests three to five per objective.

Google’s re:Work guide to OKRs adds detail on how Google ran them. Teams pick three to five objectives with about three key results each. Each key result is graded from 0.0 to 1.0, and the sweet spot is around 0.6 to 0.7. Hitting 1.0 every time suggests the goals weren’t ambitious enough. OKRs are public, so everyone can see what others are working on, and Google says they are not the same as employee evaluations.

What Matters also separates committed OKRs, which you are expected to hit in full, from aspirational ones, which are stretch goals that may take more than one cycle.

SMART: writing a single goal well

SMART was introduced by George T. Doran in the November 1981 issue of Management Review. As Wikipedia’s SMART criteria entry records, his original letters stood for specific, measurable, assignable, realistic and time-related. Most modern versions use achievable, relevant and time-bound instead.

SMART isn’t a goal-setting system. It is a quality test you can apply to a key result, a personal development goal or a project milestone. Its weakness is that it says nothing about ambition. A goal can be perfectly SMART and still too small to matter. Wikipedia also notes that the framework lacks a strong research base and that its usefulness depends on context.

How they fit together

What Matters puts the relationship simply in its comparison of OKRs and KPIs: KPIs reflect your current state, while OKRs are a framework for setting and achieving goals. When a KPI needs to move a long way, it becomes the subject of an OKR. Once the OKR is achieved, the measure goes back to being a KPI you monitor.

A workable routine is to keep a short list of KPIs for the business, pick one or two of them each quarter that need a step change, write OKRs to move them, and use SMART to check that each key result is specific and dated.

An example (illustration only)

An online homeware shop tracks five KPIs every month: revenue, conversion rate (1.8%), average order value (£46), returns rate (6%) and repeat purchase rate within 90 days (22%). Four are steady. Repeat purchase is well below where the owner wants it, so it becomes the focus for the quarter.

Objective: Make first-time buyers want to come back.

• Key result 1: Raise the 90-day repeat purchase rate from 22% to 30%.
• Key result 2: Lift the open rate of the post-purchase email series from 35% to 50%.
• Key result 3: Get 300 first-time buyers to leave a product review.

The marketing assistant’s personal goal is written to SMART: “Launch a three-email welcome series for first-time buyers by 15 February, with the first email sent within an hour of delivery.” It is specific, measurable, assigned to one person, realistic and dated, and it feeds key result 2. At the end of the quarter, if repeat purchase reaches 28%, the score is about 0.75 on that key result, which is a good result for a stretch goal. Repeat purchase then goes back to being a monitored KPI.

Common mistakes

• Too many OKRs. Ten objectives means no focus. Three to five is the usual ceiling for a team.
• Tasks dressed as key results. “Launch a welcome email” is an activity. “Lift repeat purchase to 30%” is a result.
• Tying OKRs to bonuses. If pay depends on scoring 1.0, people set safe goals. Google’s guide keeps OKRs separate from performance evaluation.
• KPIs with no owner or no threshold, so nobody knows when to act.
• Only lagging KPIs, which tell you about problems after it’s too late to fix them.
• Gaming the measure. A target on calls answered can reward short, unhelpful calls.
• Using SMART as a reason to set small goals. Clear and ambitious can go together.

When to use which

Every business needs a handful of KPIs, whatever its size. OKRs earn their keep when a team has more ideas than capacity and needs to agree what matters most for the next few months. A five-person business might run one company OKR a quarter. A larger firm might cascade them from company to teams. SMART is useful at any level, whenever a goal needs to be clear enough that two people would agree on whether it was met.

If you’re starting from nothing, start with KPIs. You can’t decide what to change until you know where you stand.