As businesses strive to improve efficiency and profitability, they turn to key performance indicators (KPIs) as a way to measure their progress. Nevertheless, as with any tool, the improper application of KPIs can result in unanticipated and often detrimental outcomes. They may become a stumbling block rather than a conduit for improvement, an uncontrollable monster that distorts the whole nature of performance monitoring. As the economist Charles Goodhart, stated:
“When a measure becomes a target, it ceases to be a good measure.”
This statement underscores the paradox of performance measurement. KPIs are invaluable for monitoring the pulse of a business, but if they become the sole focus, they can lead to a dangerous tunnel vision. Employees, in their quest to improve KPIs, might lose sight of the bigger picture — improving overall performance. In theory, improving KPIs should go hand-in-hand with improving performance. In practice, however, there’s always a way to “game” the system.
The Art of Mismeasurement
KPIs are valuable for tracking progress, but pinning everything on them can lead to a myopic focus on superficial numerical improvement, often at the expense of actual performance improvement. This phenomenon is especially pronounced in complex second-order systems — systems that change their behavior based on feedback about themselves. Human-centric systems typically fall under this category.