Picture the following: a customer service team boasting average response times under two minutes. Customers are always getting responses right away. Every target is being met. Yet, customers keep complaining, and complaints are only growing.
How is that possible?
After investigation, you find that while customers are receiving rapid responses, those responses may be doing little to resolve their issues. The team members have been incentivized to close tickets quickly because that is what’s being measured. The original purpose (making customers happy) is now secondary.
This can be a very common issue within companies of any size. KPIs that once represented success are slowly becoming success itself. They stop asking “are we accomplishing what we intended to accomplish?” and start asking “are we meeting the target?” The difference between these questions might seem negligible, but the implications can be significant.
KPIs have a place and are indeed beneficial. Companies need a way to evaluate performance, track progress, and understand where improvement is needed. Without measurements, we operate based on assumptions and intuition alone.
The difficulty is that there are many things that organizations care about that are not easily measured. A single number can’t capture employee loyalty. Employee engagement isn’t the same as a survey score. Collaboration, trust, innovation, and long-term business value just don’t fit on a dashboard. As a result, companies use leading indicators, which we assume represent a desired outcome.
Response time is often seen as a sign of good customer service. Attendance is assumed to show employee commitment. Productivity numbers are assumed to prove effectiveness. This is okay to an extent; in fact, these are often necessary indicators to track. Problems arise when the leading indicator outweighs the outcome it was originally designed to represent.
Economist Charles Goodhart explained this concept best in a statement now known as Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.” This may sound academic, but the underlying concept is easy to grasp. The moment people are measured, rewarded, or punished by a metric, they naturally seek to optimize for that metric. This optimization might increase performance, but sometimes it only improves the metric.
Consider training for employees. We often measure learning by tracking whether training has been completed. Seems fair on the surface – if an employee completes the training, they are surely learning, right?
Well, not necessarily. When the number of completed trainings becomes a target, the focus shifts.
Employees quickly click through > managers ensure there’s 100% completion before deadlines > dashboards turn green > knowledge retention, skills development, and behavioural change stagnate. The company succeeded in increasing the number but made little to no progress on the desired outcome.
This trend plays out across various industries and sectors. Salespeople push for revenue through deep discounts, thereby impacting long-term profitability. Marketing campaigns aim for engagement numbers even though engagement might be disconnected from real customer value. Project teams celebrate on-time delivery even though the project might not provide tangible benefits. The issue here is not that the metric is necessarily incorrect. The problem is that it only represents a piece of the whole.
A useful analogy for KPIs is to think of them as road signs instead of destinations. Signs tell you if you’re going the right way, but we don’t mistake the sign for the destination itself. Organizations often make this mistake:
Customer satisfaction is not a survey score. ❌
Productivity is not a speed metric. ❌
Attendance does not show employee contribution. ❌
These are signals used to help us understand reality, not reality itself. This difference becomes even more critical when organizations prioritize results while ignoring the actions that lead to those results. A revenue number from last month tells you what has occurred; it doesn’t tell you why. A customer satisfaction number indicates the outcome of a given interaction; it does not show the behaviour displayed during that interaction. By the time a revenue number changes, the behaviours that affected it may have been in place for weeks or months.
That’s why increasingly successful organizations are beginning to differentiate between outcomes and the actions that produce them. Outcomes serve as scorecards, letting you know where you stand. Actions and drivers help you understand how you got there and what you should do next. If leaders focus solely on the scoreboard, they are more likely to react to events after they have occurred. If they understand what causes the score to change, they will be able to influence future outcomes before they become problems.
Through this shift in thinking, we can reach an important conclusion: not all KPIs should be created equal. Some measures help us assess progress towards desired outcomes; others serve as proxies for those outcomes. For leaders, the biggest challenge is recognizing which is which. If the measure becomes the mission, organizations risk optimizing for the numbers rather than for the results they represent.
How Proxy Metrics Quietly Take Over
If most organizations know that KPIs are just indicators, how do so many organizations end up managing the indicator rather than the outcome?
The simplest reason is that proxy measures are convenient.
It’s often hard to measure the actual outcomes we want to influence. For example, real outcomes can take years to show any real results, often can’t be easily isolated from other variables that also affect the outcome, and usually don’t fit well on a dashboard. Proxy measures, on the other hand, are easily and readily available to be captured, reported, analyzed, and benchmarked.
Consequently, organizations tend to get caught in a cycle. Instead of asking “what would indicate we are truly successful?“, they ask, “what data do we already have?“. The available metric slowly evolves into the performance measure.
While this sounds relatively harmless, it quietly creates a shift. Individuals stop focusing on how well they are achieving the actual outcomes and begin talking about achieving the numbers on a dashboard.
Discussions focus on “have we hit the target?” rather than “have we made real progress toward achieving our goal?” The indicator becomes the lens through which we interpret performance, even when it tells only part of the story.
This isn’t to say proxy measures are useless; many of them can provide helpful insights. It’s simply assuming that the proxy and the outcome are one and the same, which is the problem.
For example, completing a training course may indicate that learning has taken place, but it doesn’t confirm any real change in capability. A high customer engagement rate can indicate interest, but does it lead to customer value? An increase in sales calls doesn’t always mean more quality customer conversations were held. These proxy measures may be useful in isolation, but they don’t tell the full story.
Unfortunately, once a metric is valued, people tend to drive it. Usually, this is not due to manipulation or intentional bad practices; it is simply how human beings behave. If a KPI target is linked to rewards, positive feedback, promotions, or performance reviews, people will make sure to meet this metric regardless of whether it aligns with desired outcomes.
The problem then becomes that an increase in a KPI may not necessarily lead to the desired increase in the outcome. There are countless examples throughout history of this behaviour, such as using the enemy’s body count as a measure of success in wars. Such a heinous & vile metric was easier to achieve than actual strategic objectives, and, eventually, simply measuring the metric became the objective itself. The measure dictated the outcome, rather than the outcome shaping the measure.
Now, whether we look at armies or organizations, both can fall victim to the same thinking pitfalls, for they are comprised of people who often err on what is “easier”. Leaders can start managing what’s easy, rather than what’s important.
In a much less combative example, take the instance of a decrease in cost-per-lead: at face value, it doesn’t make much difference if lead quality falls dramatically; an improvement in customer service response times does little if customers still have the same unresolved issues, and a team celebrating meeting all its targets still doesn’t achieve its business goals. Each example shows that the KPI rose or fell as intended, but the desired outcome didn’t.
Perhaps the most intriguing part is that organizations and their people usually know the source of the disconnect:
The sales team knows when target numbers promote busywork
The customer service department knows that quick responses are not the same as solving customer problems
Managers know that an increase in attendees does not necessarily correspond to greater commitment or contribution
However, when people feel a sense of control and certainty that a KPI is moving in the right direction, it becomes difficult to abandon the number, even if we know the real outcomes aren’t shifting as desired.
Numbers, nonetheless, seem more objective and reliable. They are concrete and clear, and they appear to remove uncertainty and complexity from a situation. Clarity, though, is not always accuracy.
A dashboard displaying green lights may suggest great progress, while unseen problems begin to fester beneath the surface of these simple indicators. As an organization becomes adept at performing the actions that achieve the highest success scores on a given metric, it simultaneously develops considerable inertia in achieving its real objectives.
This is why mature performance management systems do not focus on individual metrics, but rather on the overall view. A mature system must incorporate a mix of qualitative data alongside quantitative metrics, so that no individual KPI carries too much weight in determining perceived success.
The real question is not whether there should be proxy metrics at all; it’s whether they are remembered for what they represent. If leaders forget what a proxy metric is supposed to indicate, an organization will spend its energy improving the number rather than the actual desired outcome.
The Five Most Common KPI Traps in Modern Organizations
This quest for proxies seems to manifest itself in infinite ways, yet it follows the same several templates that recur over time, across industries and across hierarchical levels. Although the metrics might vary widely, the error appears eerily similar: the metric eventually succeeds in displacing the thing it was intended to measure.
Response Time Replaces Customer Care
Many customer service teams monitor response time for good reason. Customers typically appreciate quick communication.
The issue is when that speed becomes the primary goal. A team might respond to every single inquiry within minutes, but the response could be generic and fail to resolve the issue. Customers are acknowledged quickly, but still require multiple touchpoints to reach a solution.
This looks good on paper, but in practice, it increases customer frustration. Response time is an important measure, but it isn’t customer service. Customer service is all about understanding problems, solving them, and generating positive experiences. Speed may well be an important factor in achieving these goals, but it alone cannot do so.
Engagement Replaces Value
Engagement has emerged as perhaps the most ubiquitous performance measure in the digital age. Businesses track page views, click-throughs, comments, shares, downloads, logins, and a million other interactive behaviours. Such figures are often collected automatically and can be updated in real-time.
The problem is that this engagement does not necessarily mean any value is being created.
Some content receives millions of page views, while its consumers gain minimal new information. A few software platforms log millions of user logins – their consumers remain stuck performing rudimentary tasks. Several meetings involve many staff members, yet only a handful contribute to improving outcomes.
Engagement does not necessarily mean useful things are happening. It signals that people are attentive. If organizations focus solely on engagement, they create organizations that focus on visibility.
Productivity Replaces Effectiveness
One of the oldest and most frequently measured indicators of performance is productivity.
The number of tasks performed, phone calls made, e-mails sent, reports generated, and tickets closed can tell you something about how busy things are and about operational efficiency. However, you should never confuse activity with effectiveness.
One salesperson can be two or three times as active (in terms of calls made) as another, while identifying far fewer useful sales opportunities. One project team may tick off all the task items on their schedule without having solved the problem the project was designed to fix.
Productivity asks, “How much work got done?“
Effectiveness asks, “Does it matter?“
Organizations that focus on productivity often become incredibly busy without ever becoming more effective.
Attendance Replaces Contribution
One of the easiest measures to monitor is attendance.
People either turn up or they do not. The measurement of contribution, however, is far more involved: someone can attend every meeting and add nothing, whereas another may contribute only two or three times, yet those points may be instrumental in forming key decisions.
It may also be the case that an organization equates attendance with contribution when, in reality, contribution levels depend on involvement, knowledge, collaboration, and the ability to solve problems. Attendance is a good operational measure. That said, it is NOT an indicator of success.
Output Replaces Outcomes
The most frequent KPI pitfall is the confusion between outputs and outcomes.
Outputs are the products an organization puts out.
Outcomes are the effects of these outputs.
Although obvious when articulated, it is often lost when trying to measure things.
Think of a facility team whose job it is to clean an office building. What the facility team measures might include the number of floors cleaned, the time spent cleaning, or the amount of cleaning supplies used. These are all outputs because they show activity. The number of floors is an output; the number of floors scrubbed (to the point they were clean and didn’t feel sticky) would be an outcome.
What if the employees continue to complain that the floors are sticky? The output numbers suggest the team is successful, but the outcome proves otherwise.
The same logic applies to training programs, change management initiatives, marketing campaigns, and transformation projects that are measured by training completion, logins, impressions, and milestones. The output metrics tell us that we did things, but the outcomes measure whether we actually made anything happen. Both are needed.
When we are so focused on outputs, however, we run the risk that they become the sole measure of success, so the team can meet every goal, complete every task, and satisfy every reporting requirement but do absolutely nothing. That’s why there is such risk associated with proxies – they allow us to progress on paper while standing still.
What High-Performing Organizations Measure Differently
At this point, it may sound like the answer is just to get rid of KPIs entirely. Far from it. The matter of fact could not be farther from the truth.
While organizations need measurement, leaders need visibility into performance, and teams need feedback to understand whether their actions are moving the organization in the direction the leadership intends.
The problem is not measurement itself; the problem is making sure the measurement is connected to the thing it’s supposed to be measuring. High-performing organizations understand that KPIs are learning and decision-support tools, not outcomes in themselves. They use metrics to understand performance, and they avoid the urge to turn a metric into an outcome.
I) One of the most critical adjustments they make is to separate outcomes from the behaviours that lead to them.
Many organizations focus almost entirely on outcomes: revenue, customer satisfaction, retention, profitability, market share, and similar figures that often top executive dashboards. These numbers are important, but they are also trailing indicators – they tell you what already happened. When customer satisfaction scores start to slip, the underlying reasons may have existed for months. When revenue declines, the factors that led to the drop may have been building for quite a while.
Whilst high-performing organizations do keep a close eye on outcomes, they also identify the behaviours and performance drivers that contribute to these outcomes:
A sales team might be concerned with revenue as an ultimate outcome, but it also looks at the quality of prospects it’s working on, the level of activity its team has-how many calls and meetings-and its closing rate. All of these will affect revenue and allow leaders to spot problems before they significantly impact sales figures.
A customer service team will continue to track customer satisfaction scores, but it will also look at how many times a customer contacts it for a single issue, how quickly agents respond, the quality of communication, and customer effort.
The objective is not necessarily to replace outcome measures with behaviour measures, but to tie them together.
Outcomes tell you where you are, behaviours give you an idea of how you got there, and where you are likely to go in the future. This changes how you use KPIs from simple reporting tools into proactive management tools.
II) Another difference in mature performance systems: these organizations rarely use a single metric for an important organizational objective.
Let’s use customer experience again: organizations often turn to NPS or customer satisfaction scores. These have value, but no single metric adequately describes the concept. It may make more sense to use customer satisfaction metrics alongside retention rates, complaint counts, resolution speed, customer effort, and actual customer feedback.
Each one captures a different piece of the puzzle, which is why they should be looked at together. The same logic applies to nearly every other aspect of the business.
Revenue should be examined along with profitability.
Productivity along with quality.
Employee engagement along with retention and performance.
Efficiency along with effectiveness.
When measures are viewed as interconnected pieces of information, the temptation to optimize one measure at the expense of another diminishes significantly.
III) Lastly, and probably most important of all, high-performing organizations retain an element of wonder about what they might be missing with their KPIs.
They understand that metrics are a form of simplification and allow us a glimpse into the world of perceptions. No dashboard can fully capture customer trust, employee loyalty, innovation, culture, teamwork, or the ability to adapt; yet all of these can be profoundly important drivers of organizational success.
Instead of assuming that every important thing can and must be expressed as a number, leaders at mature organizations accept the inherent limitations of measurement and complement their data with conversations, observations, customer inputs, employee knowledge, and professional judgment.
In other words, they use data, but not as a replacement for decision-making, since the purpose of performance management is not perfect reports but reports that provide a deeper understanding of performance. Such work takes more than merely watching numbers on a screen.
A Simple Test for Every KPI You Use
The risk of proxy metrics is that it is uncommon for a bad metric to be bad to begin with.
They usually begin as rational indicators of important goals and slowly take on a life of their own as companies get increasingly obsessed with bettering the indicator itself. This necessitates periodic reevaluation.
Each of your KPIs should, on occasion, be examined with a basic but critical question: Is this metric still telling us something about our performance, or has it become the performance?
The answer may not be crystal clear, but a few practical questions can reveal a KPI that might be losing sight of the original goals.
What outcome is this KPI supposed to represent?
Each metric should relate clearly to an organizational goal.
If the goal is unclear or hard to articulate, the KPI might be measuring activity rather than progress. One helpful test is the question “Why should we even care about this number?” The answer often highlights whether the metric is still relevant to the desired outcome.
If the KPI improves, does the outcome necessarily improve?
If you can improve the metric without improving the outcome, there is a risk that the KPI serves as a surrogate for something weaker.
Training completion can increase without any skills being gained.
Website traffic can go up without any value being added.
Response times can increase without the customer’s problems being solved.
You should be very wary whenever it’s possible to optimize a KPI independently of an outcome.
What behaviours does this metric encourage?
Performance metrics influence all actions. Some actions will be productive, some less so.
A sales performance metric can prompt positive customer outreach. It may also prompt undue discounting.
An activity performance metric can prompt work, but it may also prompt busywork.
So, the question is not simply whether a KPI triggers activity, but whether it triggers beneficial activity.
Can people hit the target while missing the point?
This issue seems to be at the very core of Goodhart’s Law: if it is possible to obtain the metric without producing the desired result, then the KPI may become the goal.
A lot of the examples mentioned within the article fall into this category – where the team “hit the number” and still made little real progress toward the overall aim. In these cases, other indicators may be necessary.
What important outcome are we not measuring?
Each KPI measures just one dimension of the business. As attention to any specific KPI increases, another aspect of performance will likely fall into a “blind spot.”
Customer acquisition may be analyzed, while customer retention is neglected.
Productivity may be measured, while quality is left out of the discussion
Operational efficiency may be increased at the expense of innovation
The ongoing question of what is not on the dashboard will ensure that important business outcomes do not fall completely out of the organization’s mindshare.
Final Thoughts
KPIs remain one of the most powerful tools for leaders to align efforts, monitor performance, and allocate resources.
With that said, they are but a tool. They break down when an organization forgets the difference between the metric and the outcome the metric is supposed to capture.
A fast response isn’t great service.
High engagement isn’t value creation.
Productivity isn’t effectiveness.
Attendance isn’t a contribution.
Output isn’t impact.
The best organizations remember and manage accordingly; they use numbers to inform judgment rather than replace it. They focus on outcomes while being acutely aware of the behaviours that produce them. They remain attuned to the fact that a helpful metric today can become a damaging target tomorrow.
At the end of the day, a KPI’s value isn’t in proving that we can win at numbers. Its value lies in helping us improve our numbers. That’s when KPIs truly fulfill their potential as indicators of success rather than proof of it.
There is probably no single aspect of performance management that is more time-consuming in an organization than KPI design. Definitions are debated, metrics are aligned with strategy, dashboards are developed, reporting processes are initiated, and when it’s all done, everyone assumes the work is complete.
Actually, that’s when a KPI is truly beginning to die a slow death.
A metric could be ideal for the context in which it was designed, yet misleading years later. Markets change, customers transform, technology develops, business models shift, and strategy is reformulated. Most KPIs do not change, however, and they get reported for years after their relationship to business reality has eroded significantly.
This is one of the more taboo realities of performance management: every KPI has a half-life.
Much like a piece of radioactive material, it continues to lose strength over time, so a KPI continues to lose its ability to measure what it was originally designed to measure. The number could still be correct, and the reporting mechanism perfectly fine, but the KPI’s relationship to the reality it is supposed to be measuring starts to weaken.
The risk here is that companies mistake stable reporting for stable performance, and when this occurs, they begin to manage the metric instead of managing the reality that it is meant to be reflecting.
Environmental Change: When the World Moves Faster Than Your KPI
Each KPI is, really, a proxy. We can’t actually measure concepts like customer happiness, operational excellence, market leadership, engagement, or the health of the business. So we build a proxy that approximates how these things look.
The problem is that the environment around those proxies never stays static.
We have new products. Customer attitudes are fluid. Markets evolve with new competitors. Business models change entirely within a few years. Yet, the proxy (the KPI) very often remains exactly the same.
The creeping disconnect between what we are measuring and what it means is called KPI drift. Initially, the proxy does represent the business that it’s measuring. Over time, however, the business moves on, leaving the proxy where it started. Soon enough, we’re still tracking the same number, but the number doesn’t measure what it used to.
Consider a retail company that relied on the number of people entering its stores as a proxy for sales potential. When most revenue was made from physical stores, this KPI may have been the perfect proxy for potential sales. As it shifted more heavily toward online channels, e-commerce, and digital experiences, foot traffic gradually became a somewhat redundant KPI. The proxy has not changed, but the business surrounding the proxy has.
We see these phenomena at much larger scales as well. Economic output is typically measured as a proxy for GDP and used as a stand-in for societal success and public confidence. For decades, a growing GDP meant more opportunity and higher confidence. Many point out that these connections are more fractured than they used to be. Economic output may continue to grow even as the public becomes increasingly discontented and less trusting.
The proxy is still measuring what it was designed to measure; only the relationship between the proxy and what we want it to measure has been weakened. This teaches us a key lesson about business: a KPI does not have to be wrong to become irrelevant.
Sometimes the number will remain perfectly right while its meaning completely vanishes.
This is the point where we must continually ask ourselves difficult questions like:
Have we changed our business model?
Have customer preferences shifted?
Have our priorities moved?
Does this KPI reflect the state of business today?
When we cease to answer these questions, KPI drift takes hold.
The best-performing organizations understand that their metrics aren’t permanent assets – they’re short-term tools that have a purpose for a limited time. In this view, a measurement system must evolve along with the business; otherwise, we find ourselves measuring things that may, to an ever-greater degree, be meaningless to the business we’re operating in.
Legacy KPIs That Survive Because They’re Institutionalized
Not all obsolete KPIs are still used because they are useful – some KPIs stick around because they are ingrained in organizational habits.
It’s on the monthly report; it’s been on board presentations for years; teams know where to find it, execs expect to see it, and trend lines can extend back a decade or more. It’s painful to let it go, even if no one can clearly articulate why it’s still relevant. Thus, legacy KPIs are born.
Over time, organizations become emotionally attached to familiar measures. The longer a KPI has existed, the more likely it is to become embedded in reporting mechanisms and management processes, until history takes precedence over its present relevance.
Organizations typically have dashboards full of “zombie KPIs” (the term one practitioner coined for those that are technically alive but strategically dead). They consume time, attention, meeting space, and reporting resources but fail to drive effective decision-making, resulting in a state of seeming inertia.
One of the primary drivers of this inertia is the emphasis on continuity. Managers are very reluctant to let long-term measures go because historical comparisons provide context for performance, allowing teams to see trends over time. However, in some cases, the ability to compare historically outweighs the current metric’s business relevance. A metric that made perfect sense 5 years ago, if the business itself has changed drastically since that time, might not provide an accurate lens through which to compare current performance to its history at all, yet there it is-stable while meaning morphs around it.
This is a phenomenon far beyond business: the familiar public-facing metric persists long after its limitations are well known to specialist audiences. Even as internal experts develop new, more accurate metrics and strategies, headline measures survive due to stakeholder understanding.
Inside an organization, the same is true. The KPI remains on the dashboard because everyone is used to it being there, not because they actively use it.
Here are some symptoms of a KPI that has become part of an institution rather than a driver of decisions:
No one can clearly articulate a decision supported by the KPI.
Each team has its own interpretation of the metric.
The metric is regularly reported but rarely discussed.
Executives would notice its absence on a report but not actively miss the insight it provides.
The KPI doesn’t align with current business objectives.
The simplest test for usefulness is also the most revealing:
If this KPI were to disappear tomorrow, would anything change?
If the answer is “no,” then the KPI has likely outlived its utility, since a healthy performance measurement system does not see the retirement of a KPI as a failure but as proof that the organization is evolving; the goal of performance measurement is to drive decision-making, not to document history for posterity.
Metrics Tied to Obsolete Strategy Assumptions
Every KPI is based on a set of assumptions. Some assumptions are explicitly stated, while others are implicitly included in the strategy and business context at the time the KPI was designed. The trouble is, well…strategies change.
Businesses launch new products, enter new markets, adopt new technologies, and respond to competitive pressure. Customer needs and expectations evolve. Revenue models shift. Priorities change, yet many KPIs remain frozen within the strategic context in which they were created. This can be particularly damaging because the metric still looks right on the surface.
Consider a company whose primary goal for many years was aggressive growth through customer acquisition. As one might expect, the KPI system emphasized lead generation, new customer growth, and cost of acquisition. These metrics were appropriate for the time because they accurately reflected the business’s strategic priorities.
Several years later, the market matures. Customer retention, loyalty, and lifetime value have become more strategically important than acquiring new customers. Yet if the KPI system continues to focus heavily on acquisition metrics, teams might keep optimizing for growth, even though the true opportunity lies in retention. The metric is not incorrect; it is simply based on an outdated strategy.
This issue is easily overlooked because businesses have a tendency to treat “successful” metrics as being timeless. In reality, many KPIs are valid only within a specific strategic context.
This is similarly seen when businesses implement digital transformation. For example, a retailer that once used store traffic as a leading indicator of sales might find that online engagement, user experience, and online conversion rates are now more informative. If the business continues to treat store traffic as its leading metric, it might develop blind spots and miss out on opportunities or threats that the online engagement metric highlights.
Research on measurement systems has consistently highlighted their tendency to become detached from the goals that inspired their creation. Organizations tend to start optimizing the measurement rather than the desired outcome, which is where the danger truly begins.
Employees still work hard, reports are generated, targets are met, but the business ends up being incredibly effective at succeeding in a previous incarnation that is now defunct.
One way to prevent this is to regularly and proactively review the underlying assumptions driving each key KPI.
You can consider the following questions to test whether a metric remains strategically relevant:
What business objective was the KPI originally intended to drive?
Is this objective still relevant today?
Has our strategy evolved since the metric was introduced?
Would we have introduced this metric if we were starting from scratch today?
Does the KPI still represent our most meaningful success measure?
These questions can often reveal that the metric itself might still work perfectly as intended, but the strategic landscape surrounding it has moved on.
When assumptions change, the metric should change as well; otherwise, a business risks measuring its strategy against yesterday while trying to succeed in today’s market.
KPI Inertia: Why Organizations Resist Letting Go
If most organizations recognize that the business environment is constantly changing, why does an obsolete KPI persist for so long?
In most cases, the reason behind this phenomenon is inertia. It sounds simple that the KPI needs to be updated. However, it is surprisingly difficult to change a single metric. KPI is linked to various reports, performance appraisals, dashboards, motivation schemes, targets, etc. Updating one KPI requires changes in multiple processes. As a result, stability wins over accuracy.
This KPI remains because updating it is a difficult, time-consuming process that often entails difficult conversations regarding the validity of old measures. Gradually, an organization will find itself stuck in a vicious cycle:
The metric becomes familiar.
Familiarity generates comfort.
Comfort inhibits change.
Over time, a once easily questioned KPI becomes untouchable.
Ownership often begins to disappear. While originally, there might be a clear purpose for and owner of the KPI, after a certain time and organizational changes, the person behind it may have moved or left, along with any institutional knowledge of the measure.
Meanwhile, the definition often begins to stretch. One team will adopt its own specific interpretation of the metric, another will follow a slightly different rule. Exceptions may be carved out, the reporting process might evolve, and stakeholders might ultimately look at the same number while understanding completely different things. The number stays the same while the meaning keeps changing. This is the point where KPI inertia becomes dangerous.
Organizations may protect a KPI simply because it exists rather than because it provides valuable insights. Researchers have long observed that “when a measure becomes a target, it ceases to be a good measure” (Goodhart’s Law) or “the more a metric is used for decision-making, the more it will distort the phenomenon it was designed to measure” (Campbell’s Law). Over time, teams will simply become good at moving the needle. Whether they are actually improving the situation is another question.
That being said, this does not always occur through deliberate misbehaviour; often, it just happens because people are smart enough to know what they are being measured on and naturally optimize for it rather than the real objective. The KPI begins to substitute for the real objective. The more time that passes without a review of the KPI, the more likely employees are to start managing the measure rather than the performance it is meant to indicate.
This is why a robust performance system is designed to include KPI reviews as ongoing management processes rather than discrete projects. The most effective KPI frameworks are not those that never change, but those that are regularly reviewed and updated before the inertia starts causing damage.
When Nobody Uses the Number Anymore
A surprisingly simple way to know whether a KPI has outlived its usefulness is to see if anyone truly cares.
The metric still appears on reports.
It is still updated every month.
It still occupies screen space on dashboards.
It is no longer influencing any decision-making.
Here, measurement moves from performance management to what some practitioners refer to as reporting theatre, where information is generated because it always has been generated, and not because it is adding any value to anyone’s thinking process.
Almost every leader has seen this: most dashboards are filled with dozens of metrics, and they are updated and examined only actually to lead to action. In contrast, others are maintained because removing them would require a lot more work than keeping them.
Nonetheless, every unused KPI has a cost. They are a drain on attention, a strain on reporting capacity, they draw from valuable resources, and, more significantly, they increase the noise relative to the signal. Research and experience show that, at some point, the addition of metrics actually decreases clarity and becomes overwhelming, making it hard for stakeholders to focus.
The effect is exactly the opposite of what was intended for a performance measurement system in the first place. The reporting system ends up acting as a distraction rather than aiding decision-making, which also ends up generating information overload instead of promoting accountability; rather than enabling action, it merely results in a passive reporting system.
A truly effective KPI should not just reflect performance. It should change behaviours and allow someone to make a better decision. A valuable KPI should stimulate a meaningful response when it changes. When none of these apply, the KPI should perhaps no longer be included in the reporting system.
There is a practical question one can ask oneself to filter out such metrics.
What decisions would become more difficult to make if this KPI were eliminated tomorrow?
If this doesn’t bring any meaningful decisions to mind, then this KPI is very likely just part of the noise. Businesses may refrain from removing obsolete KPIs due to concerns about losing visibility, but removing them often increases visibility, as more focus can be placed on relevant indicators. Much like products, metrics also have lifecycles.
Final Thoughts
The greatest myth in performance management is that once you’ve established a good KPI, that’s a good KPI forever. Yet no such thing exists, especially so in business, one of the fastest-changing environments in the history of this earth.
Every KPI has a half-life. Much like nature, the environment changes, and therefore it no longer corresponds to the conditions that the KPI was originally designed to capture.
Priorities change. Business models change. The definition may change. People & Ownership may change. Procedures will set in. Eventually, the correlation between the KPI and the reality it was supposed to represent may begin to erode. This is not a fault of KPIs; it’s merely that KPIs are instruments, and every instrument has a designed environment.
Organizations that manage performance successfully understand this. They do not view KPIs as timeless fixtures, but rather look at them critically and question their use; they remove KPIs that do not accurately contribute to informed decision-making. They view their purpose not as storing memories, but as making an accurate depiction of current reality for informed decision-making today. The goal is never to represent what mattered but what matters today.
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There’s a weird phenomenon that happens in a lot of organizations: the dashboard glows green, leadership’s presentations are slick, KPIs are marked & reached, and status meetings are optimistic. Everyone sounds confident.
Yet, somehow, despite the appearance of success, people inside the organization quietly know that things are not quite right: teams are exhausted, delivery deadlines are missed, customers are frustrated, and employees are constantly fighting fires. No one can really trust the reports anymore, but the numbers are still saying everything is fine.
This is the start of what is known as KPI theatre.
It doesn’t have to involve fake data or blatant dishonesty most of the time. KPI theatre is more subtle than that. It begins when organizations slowly shift away from using metrics to understand reality to using them to create the illusion of control and stability. The KPI becomes moreso a performance trick rather than a sensor of reality.
When that happens, the organization starts optimizing for what things look like, rather than for how they actually work; this phenomenon has become more common than many would like to admit, with the use of dashboards for every conceivable objective under the sun.
They can track customer clicks across dozens of touchpoints, monitor employee activities in real time, report on operational output minute by minute, and have automatically generated executive reports delivered before breakfast.
Even with all this visibility, many organizations are further removed from operational truth than ever because measurement doesn’t automatically create clarity. In fact, under the wrong conditions, measurement creates distortion. This mindset is even more pronounced when careers, budgets, promotions, bonuses, vendor relationships, or executive credibility are tied to keeping the dashboard green.
When Metrics Stop Measuring Reality
There’s an old economic/organizational theory called Goodhart’s Law. The essence is this:
“When a measure becomes a target, it ceases to be a good measure.”
It sounds a bit abstract at first, but once you start to notice it, you see it everywhere:
A customer support team is asked to lower its average handling time. It does so by ending calls before the problem is resolved.
A marketing team is rewarded for lead volume. It sees a lead quality decline.
A social platform optimizes for click-through rate and accidentally discovers that outrage is more performant than usefulness.
A company is congratulated on its record-setting productivity levels, while employees quietly burn out behind closed doors.
The metric improves, but the system declines, and it is here that KPI theatre often starts: when the organization prioritizes the proxy over the actual thing it was supposed to represent.
The problem isn’t with metrics themselves. Organizations do actually need KPIs, visibility, and performance indicators. The rub is that as soon as metrics are directly tied to human action, human behaviour changes; the more pressure there is on the metric, the greater the distortion becomes.
This is because people act on a natural, normal human instinct. It is less malice that drives the shift and more so humanity itself. Once survival, status, or rewards are tied to the number, the organization unconsciously redesigns itself around protecting that number.
This is why many KPI systems drift away from reality over time. Not as one big deception, but through thousands of small behavioural adjustments:
A delayed escalation here
A redefinition of a milestone there
A subtly optimistic framing of a report
An inconvenient operational reality hidden from the dashboard because “it would just confuse leadership“
By the time an organization gets around to reviewing it, it has become extremely adept at producing the appearance of performance and extremely incompetent at telling the truth.
The Dangerous Simplicity of “Green“
Perhaps one of the clearest indicators of KPI theatre is what some transformation leaders call the “Watermelon Effect“: from the outside, everything appears green; on the inside, everything is red.
If you’ve worked with major transformation programs, large corporate initiatives, or substantial operational projects, you’ve likely encountered this phenomenon. Status dashboards remain green for months on end while teams at the ground level are drowning in missed dependencies, unrealistic timelines, resource shortages, leadership infighting, or delivery chaos.
However, nobody wants to be the bearer of red, for in many organizations, green is rewarded and red is seen as failure. As soon as that cultural message is understood, reporting becomes less about operational truth and more about political survival.
This is why some organizations have entire portfolios in which every project and program is “green,” despite clear evidence of failure all around.
The dashboard becomes a ceremonial accoutrement, and the reporting process becomes ritualized, while everybody participates in maintaining the illusion because no one wants to be the “negative Nancy.“
Over time, teams learn a dangerous lesson: it is safer to appear to be in control than to admit problems early. Once that lesson is learned, KPI theatre proliferates rapidly:
Problems begin to emerge later, and escalations are delayed, lost in perpetual limbo.
Concerns are softened before reaching leadership, and people are rewarded for managing appearances rather than for improving outcomes.
What makes it so dangerous is that many organizations mistake such false peace for operational maturity, but forget that healthy organizations are not permanently green. Healthy organizations identify and surface problems quickly and escalate risks early. In a healthy organization, there is psychological safety to say “this isn’t working.”
In fact, some of the most operationally mature organizations are those where red occurs often, because people trust the system to handle reality accurately. The organizations at the greatest risk are often those that appear the safest.
When Teams Learn to “Look Green”
The longer the KPI theatre persists, the more human behaviour starts to adapt at the deepest level. The team asks less about “How do we solve the problem?” and more about “How do we make this look acceptable?”
This fundamental change shifts everything: delayed milestones are “re-scoped,” and a failing project is “still in progress.”
The language becomes smoother, and the operational reality much harder to access. Dashboards transform from management tools into reputation-management systems. From that point on, leadership begins to function based on a carefully filtered, highly distorted version of reality.
Aggressive cross-selling targets were tied so closely to performance evaluations and survival that employees began opening unauthorized accounts solely to meet the KPI.
From their leadership’s perspective, the metrics were brilliant. The dashboard was green, the numbers were green, everything was green. Cross-selling soared sky-high, and targets were met with almost surgical precision. Yet, beneath the surface, the system had been utterly corrupted. The endgame for KPI theatre lay unveiled: employees optimize for the appearance of success because real success has become impossible to achieve or politically hazardous.
What’s most critical to remember here is that organizations do not have to be fraudulently engaged to experience this kind of distortion. Even perfectly well-intentioned and legal KPI systems can, slowly and steadily, slip into theatre when metrics begin to overshadow judgment.
Such distortions explain why so many organizations become obsessed with metrics that feel productive but have very little operational impact: activities occur, but they have no strategic outcomes.
Thus, visibility is mistaken for understanding because dashboards offer us a comforting illusion: if we measure everything, surely we are in control. In reality, it is often the opposite. The more tightly we hold on to keeping dashboards green, the harder it is to see the truth, and reality always sends a bill in the end.
Why Dashboards Give Us a Sense of Control
There is something incredibly reassuring about dashboards. Executives review them every morning; managers pore over them before meetings; teams track them throughout the day; organizations now operate entirely through screens filled with charts, percentage points, arrows, heat maps, and colored dots.
The modern dashboard appears to be a control panel that may solve many issues, save that of organizations mistaking visibility for control. Under the obstinate, ever-constant watch, the feeling that something significant is happening is generated simply by watching numbers shift-even if nothing real is being done. This leads to what some analysts refer to as the “illusion of control,” in which constant monitoring is mistakenly believed to influence results merely by its presence.
However, monitoring the metric is not the same as improving the system behind it.
An organization can monitor customer satisfaction metrics by the hour and still consistently mistreat customers
Leadership can obsess over productivity figures while employees quietly disengage
A business can implement spectacular real-time dashboards while strategic execution slowly falters beneath the surface
Psychologically, dashboards feel productive. Checking them feels like engagement and activity, while refreshing them feels like stewardship and management.
Over time, an unhealthy addiction to their comfort develops. A manager looks at the dashboard, sees good numbers, and is awash with reassurance; an hour later, the uncertainty returns; another glance at the dashboard – the same cycle unfolds.
What began as an operational check has become a tool of emotional regulation. One reason so many organizations now spend so much time observing performance rather than working to improve it is that they have discovered how readily dashboards fulfill their emotional needs.
Dashboard Hypnosis and the Addiction to Monitoring
KPI culture has subtly created something akin to organizational compulsion. Many leaders now view dashboards obsessively, even if the underlying metrics have not budged in any meaningful way.
We check at the start of the day. We check before each meeting. We check during the meeting. We check after the meeting. We check at the end of the day.
The problem here goes beyond wasting time, bleeding into an obsessive-compulsive conduct that shapes decision-making through constant monitoring.
Slight increases look like major strategic successes.
Random noise is interpreted as meaningful trends.
Organizations become reactive to the data rather than analytically grounded.
This can be especially problematic when there is a significant level of uncertainty surrounding the market. Faced with stress, human beings look for patterns and quick explanations, all of which the dashboard is designed to provide. A small, weekly jump in web traffic is taken as evidence that a marketing campaign has been brilliantly successful. A slight monthly decline causes panic, even if overall trends are positive. A minor hiccup in a manufacturing process is elevated to a strategic crisis merely because it appears visually alarming on the dashboard.
The dashboard begins to shape emotional responses within the organization, and because we are all visual creatures, it also shapes interpretations, even if the data it presents is perfectly accurate. Red means dangerous. Green means good. Down means bad. Up means good.
Organizations develop a kind of “dashboard hypnosis,” in which they spend endless hours analyzing highly visible metrics and fail to notice the actual operations they reflect. They spend so much time on indicators that they forget what produced them.
The Psychology of KPI Theatre
Once the mania of dashboards sets in and KPI theatre plays out within an organization, an interesting phenomenon begins to occur.
The distortion ceases to be merely structural and instead becomes psychological. At this point, the problem is no longer solely about incorrect measures or flawed dashboards. The organization itself begins to psychologically and emotionally adapt to the measurement systems surrounding it.
People cease to engage with KPIs rationally
They begin to engage emotionally with KPIs
The dashboard becomes a source of reassurance, anxiety, political signaling, self-preservation, and even identity
Before long, KPI theatre becomes a play of shapes & shadows – difficult to spot and make sense of because, at this point, the organization often believes its own reporting.
The Cognitive Traps That Twist KPI Decision Making
The reason KPI theatre is so compelling lies in our natural vulnerability to cognitive biases. We do not interact with our dashboards purely rationally; we interact with them emotionally, with expectations, under stress, and using mental shortcuts.
1) Confirmation Bias
Humans have a tendency to note what we expect and discount the unexpected.
If leadership is deeply committed to a particular transformation project, then a green indicator becomes an incontrovertible proof of its success, while a red indicator is simply explained away.
If leadership has already invested heavily in a strategy, the dashboard becomes a tool to validate their current opinion rather than challenging it.
2) Anchoring
We tend to let the first data point that we see on a dashboard shape all subsequent interpretations of other metrics.
A dashboard that begins with “Revenue Up 20%” immediately gives us a positive context for interpreting other numbers, even if our profitability, customer retention, and operational efficiency are silently collapsing.
3) Recency Bias
Inflated significance is bestowed upon numbers we recently saw.
A temporary spike gives us a sense of urgency and accomplishment. A short-term decline triggers fear. This is particularly problematic when our data streams provide real-time feedback; the more quickly and continuously we can monitor our data, the more tempted we become to react immediately to short-term noise.
To a certain extent, KPI theatre is not a measurement problem at all, but a problem of attention. Organizations train themselves to look for the most obvious and easily replicable answer, even if it is strategically unimportant. This is the root cause of the attractiveness of vanity metrics.
Vanity Metrics and the Satisfaction of Being Busy
Most organizations track far too many metrics. It’s not necessarily because all metrics are useful (they’re not, objectively); it’s more about the reassurance they provide.
A crowded dashboard feels complex. A scoreboard may simulate the culture of active competition. A long, printed performance report feels operationally mature. An organization that can report on hundreds of metrics appears highly data-driven. However, many of these numbers offer little that influences high-level decision-making.
For instance, we track web traffic that never converts. We measure social media engagement without understanding its relationship to revenue or customer loyalty. We track customer satisfaction, but our data tells us nothing about retention. We conflate activities with outcomes.
The simplest test to detect KPI theatre within an organization is to ask this question, very directly: “If this metric were to vanish tomorrow, would the business be harmed in any tangible way?” In most cases, the answer is no. The metric is likely a product of looking good, feeling busy, creating a false sense of rigor or control, and satisfying the need for oversight.
At this stage, organizations often conflate outputs with outcomes; the production of many reports is mistaken for clarity; the increase of activity is taken as a synonym for progress; task completion is conflated with value creation. Additionally, since vanity metrics are naturally more easily improved than actual operational indicators, the organization naturally drifts towards optimizing these easier targets. Hence, some departments become exceptionally proficient at generating positive reporting while delivering minimal value to the organization’s overarching goals.
Marketing measures engagement; sales measures lead generation; operations measures throughput; finance measures cost control. Yet, few, if any, take a step back to ask whether the overall health and performance of the business are improving. The KPI system begins to fragment reality into separate, performative zones of success.
Executives Rewarding Confidence Instead of Truth
At the heart of the KPI theatre problem is almost always a cultural problem, not a technical one.
People learn very quickly what sort of reporting gets rewarded. In some organizations, honesty is rewarded. In others, confidence is rewarded. These things are not equivalent. When leaders reward certainty and “green” reporting, while punitively penalizing ambiguity or “red” reporting, individuals will self-correct to adapt to these rewards.
Issues are understated → risks are deferred → warnings are carefully phrased.
The organization thus learns to sandbag bad news until it reaches leadership, and, in the process, reality becomes self-filtered before it reaches the executives.
This is one of the key reasons that pathological KPI cultures become self-perpetuating and almost impossible to fix. Reporting systems become so political that operational reporting shifts from communicating information to managing perception. Once metrics are no longer about truth but about executive comfort, personal safety, optics, or career protection, real numbers start to disappear.
Ironically, the most fragile, volatile companies will tend to have the smoothest reporting cultures. This is because when there’s no incentive or security in raising issues early, they tend to multiply unseen under the surface until they can no longer be ignored. Dashboards stay green until reality hits everything simultaneously, and leadership is often blindsided because, in addition to the red flags, the KPI theater culture taught them to hide.
How KPI Theater Drives Organizations
KPI theatre doesn’t usually come crashing down immediately, which is why it’s so dangerous. In the short term, cultures of performance measurement can appear extremely successful: dashboards are up to date, targets are regularly met, reporting is clear, quarterly presentations are slick, and executive meetings feel decisive.
On the outside, organizations look structured and data-driven. On the inside, something else is going on behind the scenes – reality is slowly being removed from the system. Ultimately, organizations reach the point where leadership isn’t managing operations but managing an elaborate simulation of operations. This is when KPI theatre is expensive, almost prohibitively so.
The Wells Fargo Scandal: When Performance Goals Become Survival Mechanisms
We briefly touched on earlier that one of the starkest modern examples of KPI theatre turning into a disaster was the Wells Fargo fake-account scandal.
The company has placed significant emphasis on aggressive cross-selling goals for years. Employees were under immense pressure to meet sales KPIs that were directly tied to performance appraisals, compensation, and internal incentives. The metric itself appeared reasonable in concept: more products per customer signified improved relationships.
Over time, however, the goal evolved from a measurement tool into a means of survival. Employees therefore adapted to the system by opening unauthorized accounts, forging signatures, duplicating existing accounts, and signing up customers for services they didn’t want or understand. The dashboards seemed excellent, and the numbers suggested that the company was growing, making leadership confident that their strategy was working.
This highlights one of the key truths about KPI theatre: when incentives become strong enough, people will start serving the metrics rather than the goal. Crucially, this doesn’t usually start maliciously; it’s usually the rational result of people reacting to their environment. If unrealistic targets are tied directly to your job security, you will change your behaviour accordingly. The system will quietly start teaching people what matters most; for most, it’s simply keeping the numbers in the green.
How KPI Cultures Lead to Organizational Blindness
One of the most insidious consequences of KPI theatre is blindness.
Organizations lose the ability to see their own decline because their reporting systems filter the data before it reaches leadership. This is a gradual process:
Employees stop escalating issues they should escalate because they believe these must be “fixed quietly.”
Managers tone down bad news before it reaches executives, and operational problems are spun in a positive light.
Metrics that cause distress quickly get removed from dashboards altogether.
The organization learns to protect leadership from operational truths.
This creates an institutional hallucination in which the organization begins to believe its own narrative, even as it becomes increasingly evident that the underlying system is failing. Such a scenario becomes particularly dangerous in large organizations, where leadership depends entirely on summary reports. At that point, the dashboard is not a summary – it is the reality.
Leadership makes decisions based on these dashboard reports, determining where resources are invested, what projects are prioritized, and how people are rewarded. Since dashboards must simplify complexity, anything that doesn’t fit neatly into a measurable category is lost.
Culture becomes invisible. Employee exhaustion, customer frustration, and strategic confusion are all hidden. The organization fails to see its own capability eroding. Instead of managing what matters, the organization is managing what is easily quantifiable. This is the reason why companies can be operationally weak long before their financial performance deteriorates, as KPI systems mask all of the early warning signs.
Why Most Businesses Measure Activity Rather Than Results
One reason KPI theatre proliferates easily is that outputs are easily quantifiable and displayable, as well as easy to analyze in meetings.
“How many?” “How quickly?” “How much?”
These are easy metrics to monitor on a dashboard and produce neat results. They say little about true value. They are more likely to generate reports such as: more content produced, more customer calls made, more campaigns created, more calls to a helpdesk taken, more meetings conducted, and more hours billed. However, it’s impossible to be sure whether any of this equates to success.
A call center may have low resolution times, yet leave customers dissatisfied; a marketing campaign might receive high traffic figures but fail to generate significant revenue; a transformation office may reach certain milestones while the overall transformation fails. This is why KPI theatre thrives in hyper-busy companies: many believe they are performing well because they are doing so many activities, but in fact, they lack real effectiveness.
As outputs create strong signals of progress, businesses are increasingly obsessed with quantifying them. Outcomes require more detailed data and longer timelines to understand, but also offer much more accurate feedback on what works and why. Outputs simply make the organization appear efficient, whereas outcomes determine whether that efficiency translates into tangible success.
Useful KPIs Versus Corporate Performance Art
Not all KPIs are useless or inherently harmful; not all dashboards are deceptive. The key problem is not measurement itself, in a vacuum, but rather measurement becoming detached from learning.
This is the core distinction: healthy organizations use KPIs as indicators; poor organizations use them as shields.
Healthy KPI systems provide an opportunity to understand what’s happening; poor KPI systems are an excuse for management to look good. Healthy organizations use metrics to start conversations; poor organizations use them to protect their positions. Healthy KPI systems expose problems early; poor KPI systems conceal them until they’re unavoidable.
The simplest way to tell the difference is by the organization’s reaction to poor metrics: in a healthy system, red metrics trigger investigation; in a poor system, they trigger fear. Fear immediately causes a change in behaviour; people stop experimenting, escalate their concerns, challenge assumptions, and start manipulating their work to look good. This is why many of the world’s most advanced dashboard systems yield extremely poor strategic results. The organization believes it’s intelligent simply because it can visualize data; dashboards, without context, judgment, analysis, and psychological safety, are nothing more than a way of performing competence.
Metrics That Reflect Truth, Not Protect the Narrative
We can’t get rid of metrics. Organizations need performance indicators. They need accountability. They need visibility into operations. They also need to build systems focused on truth over appearance. Building metrics that reflect truth requires a fundamentally different philosophy toward measurement.
1) We cannot treat single metrics as sacrosanct indicators of success.
Single-number governance inevitably leads to distortion as employees naturally work to meet whatever target has become the central focus of attention.
2) We must build in counter-metrics.
If the call center metric focuses on response time, metrics around the quality and resolution rate of each call must be included. If response time improves at the expense of the customer’s quality experience, the KPI system must immediately flag this trade-off.
3) We need to separate learning metrics from punishment metrics.
Employees cannot engage in truthful experimentation if all metrics are linked directly to individual evaluations or to political threats. The moment employees are afraid of a metric, it loses its ability to measure honest behaviour.
4) Leaders must reward transparency, not just performance.
Employees must feel empowered to voice: “This isn’t working.” “This metric is no longer measuring what it should be.” “We’re hitting the number, but the system underneath is collapsing.” These are uncomfortable statements, but if organizations aren’t able to identify them early, the realities of operational collapse are inevitable.
5) Companies must continuously question whether their KPIs continue to measure what they were originally intended to measure.
Metrics decay. Markets change. Customers change. Organizations change. The metric that accurately reflects business health in one era becomes utterly irrelevant or actively misleading in the next, yet the reporting system remains the same, allowing companies to manage history rather than current reality.
Final Thoughts
The real problem with KPI theater is not the measurement of performance, but the over-reliance on that measurement at the expense of genuine judgment.
If the dashboard says we’re performing well, we assume performance is indeed good. Meanwhile, the employees and operations below the surface often know better, seeing that targets are artificial, reporting numbers are massaged, milestones are quietly redefined, and results don’t reflect actual business value. Once the culture accepts KPI theater, the risk of honest dissent outweighs the reward of participating in the performance.
It is then that the organization becomes fragile. It is at this point that we find reality not just ignored, but also denied. Customer satisfaction plummets. Employee burnout rises. Projects stall. Markets shift. Operational weaknesses compound, finally bringing leadership to a rude awakening: we weren’t managing performance; we were managing appearances.
The real danger of KPI theater lies not in bad numbers, but in good numbers that have stopped measuring anything real.
The balanced scorecard (BSC) is a widely used performance measurement framework for strategic planning. It is so popular, in fact, that The KPI Institute’s latest State of Strategy Management Practice report found that 40% of respondents from Middle Eastern companies were using it. Why is that the case? It’s likely in the name—the BSC offers a balanced perspective of a company’s performance, focusing not just on financial gains but the various aspects of value creation as well. This enables companies who use it to establish sustainable business practices that can meet long-term goals without sacrificing short-term improvements.
What Is the BSC?
In 1992, Robert Kaplan and David Norton dreamed of a better way. Aware of the limitations of traditional practices that focused solely on financial indicators such as return on investment (ROI) to measure a company’s performance, the two designed a tool that incorporated non-financial variables to paint a more holistic, comprehensive picture. Thus, the balanced scorecard was born.
The BSC was further refined by connecting performance metrics directly to strategy, which marked a formal link between strategic goals and performance measurement. In 1996, it became a performance management system (PMS) that effectively integrated the various crucial aspects of an organization—i.e. strategic processes, resource allocation, budgeting and planning, goal setting, and employee learning.
By 2001, the BSC had outgrown its original form, no longer seen as a mere management tool but instead as an all-encompassing strategic management and control system. The BSC has continued to evolve alongside the ever-changing priorities of the business world. In 2021, many companies began integrating environmental and social dimensions into their BSCs to reflect their triple bottom line strategies.
The BSC gives managers a view of the business from four crucial perspectives. Each perspective deals with an integral aspect of the organization and answers a specific question:
Customer Perspective: How Do Customers See Us?
Companies typically have a mission statement that encapsulates how they interact with customers. For example, e-commerce platform Etsy’s mission statement is “Keep Commerce Human.” This sentiment informs the way the company does business, which places importance on leaving a positive economic, social, and ecological impact.
The BSC holds companies accountable to their mission statements by translating them into specific measures that must be followed. For Etsy, one aspect to consider would be the diversity of its workforce, which falls under social impact. To address this, the company has taken measures such as increasing the presence of underrepresented communities in its seller community by interviewing candidates from those backgrounds. This has enabled the company to stay true to its mission and show customers that it walks the talk.
Internal Perspective: What Must We Excel At?
Balance is the primary focus of the BSC—it’s in the name, after all. Thus, the framework doesn’t only take into account the way customers perceive the company, but it also considers what the latter does to shape this perception. This is composed of the various operational and organizational processes that drive the company.
By giving managers an internal perspective, they can identify, track, and measure the processes that yield the most benefits and close the gaps on the ones that fall short.
Learning and Growth Perspective: Can We Continue to Improve and Create Value?
The business landscape is constantly shifting, and in order to keep pace with its changes, businesses must consistently learn and innovate. That is the importance of this perspective, which states that a company’s value hinges on its ability to improve. In any industry, competition can be fierce, which means companies must always find new ways to stand out.
Financial Perspective: How Do We Look to Shareholders?
Among the four perspectives, this is perhaps the most straightforward. Put simply, it indicates if a company is profitable. Although financial performance is no longer the end-all, be-all measure of a company’s success, it still plays a crucial role in determining whether a company is simply surviving or thriving. Shareholders understandably value profitability, and they won’t keep investing in a company that doesn’t produce ROI.
The BSC is by nature a holistic framework, meaning each part is interconnected to the others. This is why it’s important to take a balanced (pun intended) approach when considering the four perspectives. If one side is prioritized over the others, it could lead to the formation or widening of inefficiency gaps that impede business growth and success.
As previously mentioned, the BSC is quite popular. This is due to the myriad of benefits that it brings to organizations that use it wisely. The most obvious benefits of the BSC are twofold. First, it consolidates the seemingly disparate aspects of a business in a single report, leading to increased efficiency in performance reporting and measurement as well as faster decision-making. Second, the BSC helps mitigate suboptimization by making managers consider the entirety of the company’s operational measures, demonstrating whether one objective was achieved at the cost of another.
A more concrete example of the BSC benefiting companies can be seen in how Apple uses the framework. By shifting its focus from innovating its products to also paying mind to customer satisfaction by establishing it as one of the company’s core tenets, the tech giant was able to improve its already stellar reputation by catering to its customers’ desires. Apple also values core competencies, employee commitment and alignment, market share, and shareholder value. Together, these indicators make up the metrics of their BSC.
World-renowned electronic company Philips is also known for its use of the BSC, using a bespoke version of the framework to fit its organizational needs. The company’s focus is on its employees, and it uses the BSC to ensure that each member of its workforce has a clear understanding of the company’s strategic policies and long-term vision.
What Does the Future Hold?
There must be a stronger emphasis on customization as companies realize that there is no such thing as a one-size-fits-all approach to performance management. This aligns with the proliferation of new advancements in artificial intelligence (AI) and machine learning (ML), technologies that must be integrated into the BSC lest the framework fall behind the ever-shifting realities of the business world. Regardless of the future, the BSC appears poised to remain a vital tool for companies of all sizes and in all industries.
Interested in learning more about the BSC? Browse our articles here.
Remote work and the implications of continuing the process, including its potential impact on employee performance, are widely discussed. However, there is no right answer, and it is not one-size-fits-all.
The future of work includes flexibility, employee experience, agility, and the responsible use of artificial intelligence (AI)—these significant shifts impact where and how employees work. With an increase in remote work options, we have seen positive trends in work-life balance, employee empowerment, inclusivity, and an increase in diverse talent. These factors are also known to increase employee productivity and retention. According to BCG, a considerable population of employees are ready to leave their jobs if they find their flexible work arrangements unsatisfactory. Based on their survey, approximately 90% of women, caregivers, individuals identifying as LGBTQ+, and those with disabilities, deem flexible work options as crucial in determining whether they will continue or resign from their current employment.
Remote work productivity is subject to debate due to various factors that must be considered. Some suggest remote work can increase productivity due to a flexible schedule, no commute, and fewer interruptions. While many employees thrive in a remote work environment, some find it challenging due to the discipline it demands.
Remote work was on the rise even before the COVID-19 pandemic. A July 2023 report from Stanford University found that working remotely has doubled every 15 years. Then, when the pandemic occurred, although devastating, it provided a new perspective for those previously constrained, forced to relocate, or live in less favorable locations to work for a specific company and advance their career. Worldwide ERC states that around 56 million Americans moved to new residences between December 2021 to February 2023 due to COVID-19-related shutdowns and the surge in remote work and online education. With such a huge increase in their number over the past few years, this begs the question: do employees working remotely demonstrate productivity?
Taking a deeper look into the study by Standord University, researchers shared that remote work employees’ productivity differs depending on perceptions—the nature of the research and the conditions under which it was conducted. The report revealed that workers believed productivity was higher at home (approximately 7% higher), while managers perceived it lower (around 3.5% lower). Another example, according to a poll by the video presentation applications mmhmm, 43% prefer office work and 42% favor working from home for peak productivity. Moreover, 51% of employees stated that working asynchronously or having the flexibility to set their schedules contributed positively to their productivity. Perceptions aside, the Stanford analysis found a 10% to 20% reduction in productivity across various studies.
The bottom line is today’s company culture is crucial. Ensuring work-life balance and putting the employees in the driver’s seat are the best ways to retain and increase productivity because they will feel valued and empowered. In a 2022 Microsoft employee engagement survey, 92% of employees say they believe the company values flexibility and allows them to work in a way that works best for them. An even higher percentage (93%) are confident in their ability to work together as a team, regardless of location. People have different preferences—some individuals opt for a hybrid approach, while others choose either remote or in-person work exclusively.
Regardless of the work setup, company leaders and human resources (HR) or human capital management (HRM) executives should ensure that they can still make a lasting impact on employee performance. One measure involves establishing key performance indicators (KPIs) that assess innovation, program, project, and product success—the output, not the physical location. Another crucial step is developing a strategy that includes all future work options, such as in-person, hybrid, and remote choices. Employees tend to be more productive if there is a level of empowerment that allows them to decide where to do their best work.
Planning in person events makes a difference. Leaders who bring new hires and internal transfers, new to the team, on-site for several days should see an uptick in productivity post-gathering. In-person team or company-wide gatherings 1-4 times per year provide employees an opportunity to reset and socialize. Moreover, managers should bring teams together for major program and project kick-offs. When onsite in person, people being present makes a difference. Discourage using Teams or Zoom when employees are in the general vicinity. I have seen companies spew the importance of in-person just to fly employees into a specific location and have people take meetings from their desks or in a different on-site building-conference room, defeating the purpose of in-person interaction.
Having organizations foster all work options is critical and foregoes having to decide which is best. There is no right or wrong answer to this challenge; it should be considered a new way of working and requires future-forward ways of thinking, just as we do with emerging technologies.
About the guest author:
Dr. Malika Viltz-Emerson is a Senior Global Human Resource Leader at Microsoft. She has over 20 years of experience in human capital management. Her mission is to identify and address the real-world challenges and opportunities for employees and the company, and design and implement optimal solutions that leverage the latest tools, technologies, and processes.
