Grow KPI Trees and Reap Better Key Results
Drafting Objective and Key Results (OKRs) can be hard. Defining objectives is challenging, but specifying the measurable effects can be even more demanding. Especially for those that aren’t used to working with OKRs, knowing what variables to measure is almost impossible. More than once, I've seen people settle for one or two high level numbers that are supposed to cover an entire objective. Key results that in itself describe a quantitative goal, but that are too high level to be workable. For these people it can be useful to define Key Performance Indicators (KPIs) and create a KPI tree to assist in defining helpful key results.
KPIs are measurable values that show teams and organizations how well they are doing. KPIs help evaluate progress. A set of well chosen KPIs on a dashboard can show success, or lack thereof, at a glance. It can be used by an organisation, or a subset of it. For instance for teams, projects or individuals.
A very simple - but for most organizations indispensable - KPI is profit. But profit is not the only KPI that is interesting to look at. Depending on your responsibilities and your objectives there are many more. Think about the number of new customers for a sales manager. Or production costs for an operations manager. Different roles have different KPI’s to consider.
Often, KPIs aren't just one number. Most of the times it is a number that is made up by many others. Take for instance profit. Profit is made up of costs and revenue. By subtracting costs from revenue, an organization gets a clear picture of whether it is making or losing money. But it doesn’t end there. Costs, in turn, is made up of variable costs and fixed costs. And these can be broken down in turn as well.
A KPI tree is a visual representation of KPI's and the metrics that underpin them. It shows all the measurements that make up a KPI, including the metrics behind them. In theory a KPI tree can be infinitely deep. KPI trees help to get detailed insight in which elements influence success and how.
The image above shows an example of a simple KPI tree visualizing some of the metrics involved in calculating profit. Included is also the relation of each measurement to the KPI, indicated by the mathematical sign next to the relation.
Although profit is a popular example, it should be noted that KPI trees can be drawn for all kind of KPIs. Take for instance a marketing team. Chances are, such a team cares about content marketing and generating leads from it. At first glance, the number of leads generated might sound like a metric on its own; one that isn’t underpinned by others. One that could be used in a key result. But this isn’t entirely true. The number of leads generated by content marketing is directly correlated with the number of pieces of content published (duh!). But it is also correlated with the conversion rate and the reach of the pieces of content.
Often times, teams and individuals have a tendency to get stuck at rather high level key results. This makes it hard for them to identify multiple key results per objective. But what is worse, this makes it hard for them to actually execute on their OKRs. Their OKRs tend to be too hard to translate to actual actions. On top of that, the net effect of actions that are taken is in many cases invisible.
The above example shows that there are often many more variables that affect success. Instead of defining a key result on increasing the amount of leads, the marketing team in this example could create multiple, much more specific key results. Key results which probably are easier to execute on and that can actually be achieved by taking a series of well chosen actions.
Next time you struggle to set your key results, I challenge you to not settle for the first key result you can think of, but dig a bit deeper. Define one or two KPIs for each objective and create KPI trees for it. What are the metrics you truly are planning to move the needle on, and how much? Did it help you improve your key results?