Note: this article is a more developed version of the answer I gave to the question “What is the difference in ROI, KPIs, OKRs metrics?” (see original here). While some of the content might be similar (because I wrote it originally), I think it deserves a little more explanation.
However, we won’t delve very deep on this since it would take a lot more than just a post. Instead, you’ll find some selected bibliography at the end of this article should you need further reading.
Whats is OKR? Definition and Examples
OKR is an acronym for Objective & Key Results. In its simplest definition, a company establishes a goal, and a series of variables (usually between 3 and 5) to measure whether the goal has been achieved or not. In other words, it is a simple Boolean formula with a yes or no condition.
“The key result has to be measurable. But at the end you can look, and without any arguments: Did I do that or did I not do it? Yes? No? Simple. No judgments in it”L. John Doerr
OKR is a framework used by the biggest companies in the world, including Google, LinkedIn, Uber, AirBnB and many more. Its apparent simplicity does not prevent it from being an amazing tool.
How to use OKR: simple example
As we said above, OKR consists of an objective or goal, and a discrete set of initiatives or actions. These initiatives must be easily measurable objectively, using certain variables.
For example, let’s say that the goal set out in our OKR is the growth of our brand. I mention this example because it is VERY COMPLEX.
Brand growth can be measured qualitatively (measuring the subjectivity of users), quantitatively (using absolute figures) or indirectly (measuring indirect signs that do not seem to have an apparent relationship with the brand). Of course, this is all about user research
At OKR, what we are interested in is quantitative measurement. If we take the example of brand growth, we can measure different actions or initiatives, such as:
- number of visits to a website or mobile application
- sales quantity
- user engagement
- total sales in a period
Let’s move on: let’s say our baseline is 100 sales and we want to increase it to 150 per year.
So at the end of the year we review how many sales we had.
Did we get 150 sales?
If so, the goal has been achieved. Otherwise, we have not achieved the goal.
As we can see, it is a simple Boolean yes or no condition. It is as simple as that, there is not much more complication.
OKR usually goes hand in hand with KRI (Key Risk Indicators), but it’s not a requirement.
However, how to master this business strategy, how to define objectives and key results is somewhat more difficult. For a deeper dive, see the recommended bibliography and resources on OKR at the end of this post.
What is KPI? Definition and Examples
KPI stands for “Key Performance Indicators”. And as its name suggests, it is the measurement of key indexes for a project.
Due to the similarity of measurement of values, many people confuse KPI with OKR. However, they are not the same.
As we saw earlier, the OKR concept is really very simple. On the contrary, KPI is highly complex, since it measures many variables at the same time, and can measure qualitative variables, quantitative variables, summative variables, etc.
Since KPIs are performance indicators, they can be part of an OKR strategy. In other words: the measurements we need to determine if an OKR objective has been achieved are (or rather: they can be) KPIs.
KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products and other initiatives) in which it engages.
Often success is simply the repeated, periodic achievement of some levels of operational goal (e.g. zero defects, 10/10 customer satisfaction), and sometimes success is defined in terms of making progress toward strategic goals. Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization. What is deemed important often depends on the department measuring the performance – e.g. the KPIs useful to finance will differ from the KPIs assigned to sales.
Since there is a need to understand well what is important, various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with ‘performance improvement’ initiatives.https://en.wikipedia.org/wiki/Performance_indicator
Another characteristic of KPIs is that they can be applied to a vast array of projects and industries, from manufacturing to digital media, from offline sales to artificial intelligence. And everything in between.
Due to this, there are many different frameworks to manage KPI measurement, some of them specific to the respective industries.
How to use KPI (with examples)
There are many ways to evaluate KPIs in an organization, depending on the type of organization. However, we can define the following KPI constituent elements, which are more or less common to all KPI frameworks.
- input (that is, the values to be entered from a base line)
- output (the values that we will measure as indicators of effectiveness)
- activity (the action to take to achieve the desired performance)
- time (the time span for the KPI)
The last item is very important. We can set the KPI to last one year, but KPI requires to measure and get results for shorter lapses of time in order to adjust (if needed). For example, we can set to measure partial KPI quarterly or monthly or even weekly. Nowadays, big companies using big data and machine learning can measure KPIs by the minute. But that’s another story.
There are other elements such as mechanisms, controls, reporting frequency, owner, compliance, etc., but the most common and indispensable are the 4 mentioned in the list above.
Going back to the example we used from OKR to measure brand growth, we can now say that the KPI we want to measure is the brand image:
- initial image (input): 100
- result to be reached (output): 150
- activity or mechanism: PR campaign
- time: 1 year
As we can see, once we define these items, we can create charts that help us visualize these KPIs in fractions of time, and even generate predictions.
Data visualization is a fundamental part of KPI. It is very difficult (if not impossible) to carry out a KPI strategy without visualizing data. It is what allows us to see exactly what is happening and guides us the way forward.
What is ROI? Definition and examples
ROI stands for “Return of Investment”. It’s the simplest of these three concepts, and doesn’t require much explanation.
According to Wikipedia, we can define ROI as follows:
Return on investment (ROI) is a ratio between net profit (over a period) and cost of investment (resulting from an investment of some resources at a point in time). In economic terms, it is one way of relating profits to capital invested.https://en.wikipedia.org/wiki/Return_on_investment
Or in easier words: if we invest 10 and we earn 30, the ROI will be 20.
Now, while ROI is really simple to understand, it could get really complicated in some cases. For example, when we start to add services bills, real estate, some type of financial operations and so on.
ROI will be influenced by KPI actions. Take the ROI table below:
|Month||Investment||Return||Return on Investment (ROI)|
In the above example, the business started with a $100 invertion, which returned $80. Therefore, the ROI is -$20 (or in other words: a $20 loss).
However, you can see that there are differences in investment. Since the business owner is really smart, he noticed that taking some specific action will improve his ROI. So you can see how when the ROI was negative, low, or stable, the business owner did nothing. However, when ROI improved (from whatever action he took, such as a growth hacking campaign, a SEO strategy or a costs strategy), he invested more, which returned even more money (in absolute amounts).
Since we said KPI relies on DataViz, let’s add a graphic for easy visualization
If you compare the KPI graphic above, it’s easy to relate how KPI actions influenced the ROI, as we can see in this graph.
To explain all 3 playing together
Usually, OKR comes first. It basically sets a plan for a business on quarterly basis (most commonly, although some companies may set different time frames), which goes like this:
- Objective (what do you want to reach)
- follows with Key Results (how do you know you reached it).
- then adds Initiatives or Steps (what do we need to do to reach the Objective)
Then we have KPI or Key Performance Indicators. These are metrics that we develop to measure the success of a project. For example, let’s say that we have defined a successful value for a variable to be 100.
We will use the KPI tools to define if that value has been reached.
If this value is not reached, we need to review the activities in order to re.define a plan to reach this value.
Finally, ROI is just return on investment, which is just a variable you can set as KPI.
In summary, we could start with a framework (OKR) and once the project starts its cycle, use a process or toolkit (KPI) to study the values of different variables, of which one of them can be ROI.
KPI and OKR in UX: The HEART framework
So you may be wondering: how do these terms relate to UX?
The simplest answer: everything relates to UX.
The most comprehensive answer: UX is based on research and data. Even though many people believe that it is related to the visual, the visual is only the end product of the UX process. In fact, this final product may not be visual. It can be physical, olfactory, tactile, auditory, psychological, procedural, residential, urban, clinical, and more.
As we said: everything relates to UX.
And since UX is a data driven science, measurement metrics of all kinds, especially business, usability, behavior, marketing, etc. are of fundamental importance for UX research.
As an example of the type of business metrics interpolated with UX research, we can take almost any UX framework. In this case, we will see an example with HEART.
HEART is a user experience framework developed by Kerry Dorren, at the time lead UX researcher at Google (now YouTube).
Unlike previous frameworks, which are business or marketing frameworks and processes, HEART focuses on UX (user experience).
Although we can obviously configure these business processes as part of UX measurements, it is necessary to recognize the nature of this process, as it is purely dedicated to user experience.
HEART measures the following:
- Task Success
(hence the acronym HEART)
You can use KPIs in a HEART-based process, but OKR is a very different story as the values you will need are usually financial.
An example: using HEART, you can measure the usability of an app.
You can define the KPI values that you want to achieve in terms of usability. If these values are not reached, you can modify the application until they are reached.
However, in an OKR process, the most common scenario would be just defining “we need an application to reach the goal”
KPI, OKR and ROI Bibliography and Resources
Developing a UX KPI based on the user experience questionnaire by A. Hinderks, M. Schrepp, F. Domínguez Mayo, M. Escalona, J. Thomaschewski
Development of a framework for UX KPIs in Industry – a case study. by Larsen, Lars Bo; Øvad, Tina; Stec, Kashmiri; Nellemann, Lucca Julie; Czapla, Jedrzej. OzCHI 2020: 32nd Australian Conference on Human-Computer Interaction (HCI). 2021.
Lean UX. Mindset & delivery by Dong, Chuqing, ARC III – Scuola del Design, 2019
User-eXperience (UX) meets Return-on-Investment (RoI) Gocheva, E., Göring, K., Hinderks, A., Kneisel, B. O., Krämer, C. & Siegmund, O., 2012
The ROI of HCI by Churchill, Elizabeth, 2017
We can improve your business!
Let us help you with the best solutions for your business.
It only takes one step, you're one click away from getting guaranteed results!I want to improve my business NOW!