In January, the leadership team sets the year’s objectives: grow 15%, improve margins, reduce turnover. By March, every department is busy with its own work and nobody is quite sure how their job moves those numbers. By November, someone asks “how are we doing on our objectives?” and the answer arrives late and full of explanations.
The problem is rarely the objectives themselves. It’s the cascade: the step from “what the company wants to achieve” to “what each department has to deliver this quarter.” In this guide we explain how to make that step work and how to use two tools that are often confused: OKRs and KPIs.
What is a KPI and what is an OKR?
A KPI (Key Performance Indicator) is a metric you track continuously to know whether operations are running as they should: gross margin, days of inventory, employee turnover, on-time delivery, overdue receivables. KPIs don’t “end”; you watch them month after month and act when they drift out of range.
An OKR (Objectives and Key Results) is a way to set goals for achieving a change within a short period. It has two parts:
- Objective: what you want to achieve, written in clear, motivating language.
- Key results: 3 to 5 concrete metrics that tell you whether you got there.
According to What Matters, John Doerr’s site, the methodology was created by Andy Grove at Intel, and Doerr brought it to Google in 1999. The same source sums up the difference in one line: OKRs measure change; KPIs measure health.
OKRs vs. KPIs: key differences
| KPI | OKR | |
|---|---|---|
| Question it answers | Are operations healthy? | Are we achieving the change we set out to make? |
| Time horizon | Ongoing | Quarterly (sometimes annual) |
| What it measures | Process performance | Progress toward a new objective |
| Target level | Realistic: expected to be met | Can be ambitious: not always hit 100% |
| How often it changes | Rarely | Every cycle |
| Example | On-time delivery ≥ 95% | Objective: “Become the most reliable supplier in the region.” KR: on-time delivery from 88% to 96% |
Notice the last row: a KPI can become a key result when you need to move it significantly. While it’s in range, it’s a KPI you monitor. When it needs to improve, it becomes part of an OKR.
Which one should your company use?
You don’t have to choose. In practice they work together:
- Use KPIs for everything that already works and needs to keep working: each department’s “health.” They’re your day-to-day dashboard.
- Use OKRs for the few things that must change this year: the strategic objectives that came out of your 3–5 year strategic plan.
A simple rule of thumb: if a goal can be met by doing the same thing with more discipline, it’s a KPI. If it requires doing something different (a new process, a new market, a capability you don’t have today), it’s an OKR.
How to cascade annual objectives into department goals in 5 steps
1. Start with a few company objectives
The cascade starts at the top. If the company has twelve objectives, every department will end up with thirty goals and nobody will know what matters most. Google’s re:Work guide to OKRs recommends picking three to five objectives with around three key results each. For an SME, three is usually enough.
2. Ask each department, “How do you contribute?”
Don’t hand objectives down as orders. Each department head should answer: what has to happen in my area for the company to hit this objective? That produces a cascade that combines direction (what the company needs) with know-how (what the department knows it can move).
For example, for the objective “Grow 15% with better margins”:
| Department | Contribution (department OKR) | Key result for the quarter |
|---|---|---|
| Sales | Open a new customer segment | 12 new accounts in the industrial segment |
| Operations | Free up capacity without buying equipment | Cut changeover time from 90 to 45 minutes |
| Finance | Know which products actually make money | Margin by product available for 100% of the catalog |
| HR | Have the team in place to grow | Fill 6 critical openings in under 30 days |
Illustrative figures.
None of these goals is “grow 15%,” yet all of them make it possible. That’s a good cascade.
3. Separate what changes from what you monitor
For each department, build two lists:
- Its OKRs for the quarter: one or two objectives with their key results. What has to change.
- Its ongoing KPIs: four to six health indicators (for operations, we explain which ones to track). What can’t slip while everything else changes.
This split prevents a very common mistake: the team focuses so hard on the new initiative that day-to-day operations quietly deteriorate.
4. Give every number an owner and a baseline
Every key result and every KPI needs a single owner (a person, not a department) and a measured starting point. Without a baseline, “cut changeover time” is an intention; with one, it’s a goal you can review.
This step also helps you institutionalize decision-making: when each person knows which numbers they’re accountable for, not everything has to go through the owner.
5. Review on a fixed rhythm and grade honestly
- Weekly or every two weeks: each department reviews progress on its key results.
- Monthly: KPI review in the leadership meeting; only the ones out of range get discussed.
- Quarterly: OKRs are graded, lessons are captured, and the next cycle’s OKRs are set.
When grading, remember that ambitious OKRs aren’t designed to be hit at 100%. Google’s re:Work guide puts the sweet spot at 60% to 70% on average. If you always hit 100%, your goals are too conservative.
Common mistakes when cascading objectives
- Turning every task into an OKR. “Install the new software” is an activity, not a result. The result is what changes because of the software.
- Tying OKRs to bonuses. If people get paid for hitting 100%, they’ll set easy goals. Google’s guide is clear that OKRs are not a performance evaluation. For compensation, use KPIs and committed targets.
- Tracking too many indicators. A dashboard with 40 KPIs doesn’t get reviewed; it gets filed.
- Cascading without a conversation. Goals imposed without asking the department produce compliance, not commitment.
- Keeping goals hidden. If departments don’t know what the others are working on, dependencies get missed. OKRs work best when they’re visible across the company.
Frequently asked questions about OKRs and KPIs
Do OKRs work for SMEs or only for large companies?
They work, and often better, because SME teams are small and communication is more direct. The key is to start simple: a few objectives, quarterly cycles, and a spreadsheet before any software.
How many OKRs should each department have?
One or two per quarter, with three or four key results each. More than that dilutes the effort.
Can I use OKRs to evaluate my team?
It’s not advisable to use them as the only basis for performance reviews or bonuses, because that punishes ambition. Evaluate with KPIs and committed targets, and use OKRs for direction and learning.
Where does the Balanced Scorecard fit in?
They’re compatible. The Balanced Scorecard helps balance objectives across four perspectives (financial, customer, internal processes, learning and growth); OKRs and KPIs are how you translate them into department goals each quarter.
Conclusion
An annual objective only gets met if every department knows its part. KPIs tell you whether operations are healthy; OKRs tell you whether you’re achieving the change you set out to make. Used together, with few objectives, clear owners, and a fixed review rhythm, they turn the annual plan into each week’s work.
At Total Consulting we help companies cascade their strategy into department goals and KPI dashboards through our Strategy and Finance service. If your annual objectives aren’t reaching day-to-day work, schedule a free diagnostic session.
