Goal Setting: What OKR, KPI, SMART & Co Mean

Goal setting is a crucial component of many companies’ strategies – but actually achieving those goals is a different story. There are dozens of goal-setting methods out there, and we often read in the media about how top international companies multiply their growth thanks to the right approach to goal-setting.

However, goal setting isn’t just for global corporations – small and medium-sized businesses can also benefit significantly from well-structured goals on their path to success.

In this article, we’ll explain popular methods like OKR, KPI, and SMART and show you how successful goal-setting can be achieved in your company.

Practical Example

Let’s use a practical example to compare the different methods. 

Goals are often set in departments whose performance is critical to the business’s success, such as sales and marketing.

For instance, a salesperson is assigned the goal of making 300 sales within one year, which amounts to US$ 300,000 in revenue and represents a 2% increase in annual growth compared to the previous year. 

If the employee achieves this target, they receive a 5% bonus.

Setting Goals Using the SMART Method

SMART is one of the most well-known goal-setting methods, commonly used in project management and leadership.

The core principle of this method is that goals must be 

• Specific
• Measurable
• Attractive / Attainable
• Realistic 
• Time-bound
  

 Analysis
The goal in our example aligns with the SMART method. It is specific, measurable, realistic, and time-bound – and thanks to the bonus, it is also attractive for the employee.

The advantage of the SMART method is that goals are clearly defined, measurable through data, and time-bound. Based on past experience, goals can be formulated in a way that’s realistic for both the employee and the company.

However, there are several drawbacks to the SMART method, especially when used in teams. Individual goals can lead to internal competition within the company – whether through conflicting goals or the pressure to outperform colleagues.

Additionally, because SMART goals are very specific, they offer little flexibility. Positive or negative changes in the company (e.g., pricing strategy, marketing efforts) or in the market (e.g., increased competition) can have significant impacts. For example, the sales targets in our scenario could become unrealistic if market conditions change.

While the SMART method is useful for defining goals, it doesn’t offer much guidance on how to achieve those goals.

KPI for Goal Setting

KPI (Key Performance Indicator) is a term that is increasingly used when discussing goal setting. KPIs represent performance metrics that are essential for achieving a specific goal. Whether it’s revenue, the number of sales, or profit, KPIs immediately show whether a goal has been met or not. The simplicity of these metrics makes KPIs popular with managers because they provide a fast and straightforward way to assess goal achievement.

Analysis
With KPIs, it’s very clear whether the employee in our example has achieved their goal.

The advantage of KPIs is that they make it easy and quick to measure whether a goal has been met.

However, the simplicity of KPIs is also a drawback. KPIs don’t take into account the conditions surrounding the goal. The work required to meet the goal, as well as any changes in the company or market, are ignored.

Like the SMART method, KPIs don’t address the path to achieving the goal, nor do they incorporate past successes or failures, which can make finding the right path to success more difficult.

KPIs are excellent for measuring performance but aren’t suitable for promoting the actual achievement of goals.

OKR (Objectives and Key Results)

OKR (Objectives and Key Results) is a goal-setting method that has existed since the 1950s. It focuses on defining goals and assessing the key metrics related to those goals. The OKR method became widely known thanks to Google, where it is associated with exceptional company growth, as well as employee satisfaction and efficiency.

Analysis
The OKR method enables the establishment of clear, specific goals for the employee in our example and offers a structured framework for assessing their achievement.

Unlike other goal-setting methods, OKR encourages the use of interim goals. This flexibility makes it easier to adapt goals to changes within the company or market. As a result, OKRs enhance communication between managers and employees, positively impacting motivation and productivity.

A major advantage of OKRs over other methods is that they don’t rely on a binary approach to success – “goal achieved” or “goal not achieved.” Instead, OKRs are often measured in percentages (e.g., 0-100%), meaning that achieving 90% of the target sales is considered a success rather than a failure.

The OKR method typically involves 3-5 Key Results – key outcomes that contribute to the achievement of the main Objective. By considering the various factors that influence success, OKRs allow you to learn from past successes and failures.

Which Goal-Setting Method Is Best?

Do you want to set concrete goals in your company that are both lucrative for you as a leader and motivating for your employees? Do you want to measure, adjust, and learn from past successes and failures?

A combination of OKR and KPI is a precise, flexible, and transparent method for goal setting. KPIs serve as a measurement tool, allowing you to easily track the progress of a goal using key metrics. The OKR method, meanwhile, promotes communication between managers and employees, motivating your team instead of fostering competition. Depending on how KPIs develop, OKRs allow you to set new goals (typically per quarter) and adapt to changes in real-time.

The greatest challenge with any goal-setting method is change. If you’ve been working for years without formal goals or only review goals once a year, adopting a new system will require significant adjustments. Whether you use OKR, KPI, or SMART, goal setting will only work if you as a leader take several key aspects into account.

If employees perceive goal setting as a tool for control or pressure, you’re likely to encounter resistance. But if you use methods like OKRs as part of your company culture, aiming to empower employees, you’ll enhance both motivation and performance.

As a leader, it’s important to implement goal setting in a structured way, communicate with your team, and create a vision. Foster an open company culture that embraces change, development, and flexibility, paving the way for long-term success.