Product Practice #292: North Star Metrics vs. OKRs vs. KPIs

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When your company wants to get “serious” about using metrics to make decisions, it’s easy to throw around a bunch of three-letter acronyms:

NSMs (North Star Metrics), OKRs (Objectives & Key Results), KPIs (Key Performance Indicators), NCTs ( Narratives, Commitments, and Tasks) – The list goes on.

I have written about NCTs before, so this newsletter focuses on the others. The comparison sounds evident and straightforward, but I observe it as obscured and complicated in practice.

North Star Metrics are continuous measures of experienced value by the audience your product aims to serve. They are explicitly non-financial, can only go up, result from multiple efforts, and don’t have a target value or timeframe associated with them.

OKRs are time-bound measures of progress against a specific strategic priority and product area. They can contain business-, team, or user-focused metrics and are directly influenceable by a team’s actions (with a preference for leading User Outcomes).

KPIs represent the quantified state of various aspects of a product or service. They are monitored continuously but only acted upon reactively and should be directly influenced by a specific team.

While these metrics serve different purposes, they are linked and inspire each other.

It’s essential to know the KPIs that drive your North Star Metric and are driven by it. Revenue, churn, or customer satisfaction are influenced by a customer value-oriented NSM like “number of collaborative boards.”

The connected KPIs around your product can serve as helpful starting points for defining your OKRs by making a specific aspect of them a time-bound priority to make strategic progress. “Server Uptime” is an evergreen KPI. Still, when it has dipped below a critical threshold for multiple months, a team wants to prioritize infrastructure stability through an OKR (i.e., “% Share of migrated microservices”).

OKRs represent a proactive area of focus to contribute to the North Star Metric. You don’t want to get lost in pushing all driver metrics a bit here and there. Prioritize a driver for a given period. The number of daily active users drives the number of collaborative whiteboards. What’s a big lever to influence this? Maybe signals about a board invite or content update. So, the return rate to a “co-owned” board could become a specific User Outcome driven by Outputs like push or email notifications.

Using metrics to decide what to work on as a Product Team is a great practice. But make sure acronyms aren’t just a place to hide behind and the dogma of multiple stacked frameworks doesn’t get in your way.


 How to put this Theory into Practice:

  • Check the number of used metrics acronyms in your company. Are they truly complementary or contradicting and creating busy work?
  • Ensure your North Star Metric is truly about customer value, not financials.
  • Make your OKRs specific and proactive to remove generic KPIs you are tracking anyway.

Thank you for Practicing Product,
Tim

PS.: I’m bringing my in-person StrategyProduct OKRs, and Discovery workshops to Berlin in January 2024. You can buy individual or group tickets (big discount included) for just one or all three days. Right now, Early Bird tickets are also available. Check out the workshop details


Content I found Practical This Week

Amplitude North Star Template Library

A helpful collection of ready-to-use structures and templates for working on your own North Star Metric.

The Pros of Focusing Teams on Leading Input Metrics

GMV is a (valid) output metric. Individual teams are generally better served focusing on input metrics they believe they can move enough to impact the output metric (for ecommerce, some examples would be to add skus or lower prices but those may not be within your scope so maybe  lower cart abandonment rate or increase attach/upsell rate). I suggest working with the team to pick one or two you think you can impact and pitch it to your CPO as the focal area for the team, tying it to the output metric goal.

Show me the incentive, I’ll show you the outcome

Coming from an absolutely non-traditional “Product Article,” I found this simple piece of advice to be pure gold and highly applicable when trying to understand behaviors in product organizations. Understanding what  truly motivates leaders and teams will provide a ton of context to their behaviors (and, consequently, how to change it.)


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