If you’re paying attention to any current conversations on business agility you’ve undoubtedly heard that, in many ways, its success hinges on your company’s ability to move away from outputs and towards outcomes. I’ve certainly not been shy about this idea and neither have many other folks including my long-time friend, collaborator and co-author Josh Seiden with his most recent book Outcomes over Output.
When folks encounter this idea for the first time one of the immediate points of confusion that come up is, “How do KPI’s (key performance indicators) fit into managing to outcomes?” And in addition, “how do we measure the impact of our work?” These questions make sense since the language of KPI’s and impact has been around far longer than outcomes and outputs and OKRs. Adding to the confusion are the variations in definitions you’ll hear from authors and recognized experts on what each of these words actually means. To, hopefully, help alleviate some of that confusion I thought I’d explicitly define each of these terms based on my experience and point of view. My goal is to build a shared understanding of and a consistency with the vocabulary we use so that we can move forward aligned towards the same goals.
Let’s take a look at each term:
This is the stuff that we make. These are our features, products, content, services, policies, programs, initiatives and projects. At the end of each work day, output is what you have produced. It is what our users and customers buy, use and consume from us. Examples of output could be a new video streaming app, a faster way to scan my receipts for my expense reports, a new vacation policy at your company or a diversity and inclusion initiative at the office.
Outcome is a measurable change in human behavior we see when we give the output to our users and customers. Outcome answers the question, “What are people doing differently now that we have delivered the output?” Outcomes are not features. They are metrics. For example, an outcomes is not, “we shipped the app.” Instead, an outcome is, “50% of our audience has upgraded to the new app.” Outcomes tell us when we’ve delivered something of value (or not). They measure, empirically, whether we’ve made the user experience better for our target audience. If the outcomes we expected aren’t met, we missed something with the output. There was a design flaw, a business model mistake, a poor rollout of the initiative, etc. Outcomes are the measures of success of our output.
Impact metrics are the high level measures of the health of your business. These are often the metrics you will find on an executive dashboard. Sales, revenue, profit margin, customer satisfaction, churn are just a few examples you can label as impact metrics.
Impact metrics are lagging indicators. In other words, they look backwards to things that have already happened. Outcomes are leading indicators. They are tactical metrics that give us a sense of how our impact metrics will do in the future. In large organizations, c-level executives and business unit leaders worry about impact metrics while product-level teams focus mostly on outcomes.
Key Performance Indicators (KPI’s)
As a term, KPI is far more common than any of the other ones in this article. I regularly get asked how outcomes, impacts and OKR’s integrate with KPI’s, if they do at all. My take is this: KPI’s are impact metrics. More often than not the metrics you’ll find on a “KPI dashboard” are the same metrics you would call impact metrics — high level measures of the health of the business.
Since these are essentially the same thing with two different names, use the one that will most easily be accepted by your organization. Regardless of the name you choose, the outcomes you measure will still serve as leading indicators for these metrics.
What’s been your experience? Do these definitions line up with the way your company works? Let me know in the comments.