For centuries, professions carried meanings far removed from any actual job descriptions. Teachers were nurturers and enablers. Engineers were architects and makers. Doctors were caregivers and saviours. Public servants were literally people serving the public.
Performance was certainly expected, but mostly measured through the lens of the work itself. An experienced engineer didn’t measure their success in equipment uptime. A doctor didn’t go home tallying percentages of discharged patients. A policy analyst didn’t define a productive day by the number of reports finished.
Their work was full of moments that could never be fully captured on a spreadsheet, but many of those unmeasured moments were precisely what got them into the profession in the first place. Modern organizations, however, slowly began to break that link. As performance management became more sophisticated and measurements more granular, organizations increasingly embraced the idea of constant reporting.
Now, this in and of itself is not a bad thing. Organizations require clarity in their operations, and performance metrics can be incredibly powerful tools for linking strategy to measurable outcomes. The real problem isn’t felt until later when things get overdone.
Evaluating behaviour has undergone such tremendous uprooting that, in many cases, behaviour is being shaped, not merely measured. Repeated behavioural reinforcement, over time, becomes a habit, leading to changed priorities that, in turn, become a core aspect of professional identity. “This is how my work is measured” gradually shifts to “This is what good work looks like” and finally “This is who I am.”
Organizations have, perhaps subtly, started to train people to tie their self-worth to the numbers. Organizational psychologists have long noted how external reward for an action can gradually supplant intrinsic motivation. This is known as the Overjustification Effect.
In a similar vein, Self-Determination Theory explains that people feel better about life when they have some control over their tasks, can be competent in them, and have a sense of purpose, but that this motivation is diminished if externally imposed controls take over those inner drivers.
Of all the effects of performance management, this may be the most underdiscussed. Organizations are terrified of employees “gaming” KPIs, picking the “wrong” indicators, or measuring far too many things. Few, however, seem to pay attention to the inevitable process by which their employees learn to tie their identities to the very metrics the organization uses to monitor their performance.
Ultimately, dashboards are less likely to function as a mirror onto professional performance and more as a lens through which individuals see themselves. They are measuring a proxy for success rather than success itself, focusing on green indicators, favorable trends, and a solid quarterly report, rather than the substance of the value created. So the question quietly changes from “Did I do something valuable today?” to “Did my numbers stay green?“. In fact, at that point, organizations aren’t managing performance anymore; they are shaping professional identity.
Government Performance: When Public Servants Become Compliance Managers
The government is just one sector that vividly illustrates such a shift. Over the decades, public agencies have developed performance measurement in an effort to improve accountability. The use of taxpayer money requires public officials to be transparent; elected officials need proof that government policies work, and citizens demand that governments provide demonstrable results rather than empty promises.
Due to these demands, KPIs have become ubiquitous across the public sector, ranging from case-close times and permit-approval processing times to budget execution, customer satisfaction, inspection volume, and compliance rates.
None of these measures is inherently flawed, and many of them have contributed to operational discipline and better response times. The problems occur when these measures ultimately alter what it means to be an effective government employee.
Take, for example, a regulatory inspector whose job it is to enforce environmental regulations.
Historically, their career trajectory is oriented toward a mission-based approach – reducing the risk of harm to public health and the environment and educating the public on environmental policy.
These tasks require careful decision-making, dialogue, and sometimes extended investigation, and many have helped prevent harmful activities. If the job is reorganized so that employees are evaluated based upon the number of inspections conducted in a month, subtle changes in employee behaviour can emerge.
We go from ➛ “Which of these inspections will contribute the most to environmental safety?“
To ➛ “How many inspections can I complete by month’s end?”
Case-related activities are put on the back burner in favour of routine, less time-consuming inspections. A pursuit of efficient throughput displaces professional judgment. While the individual has become more productive and efficient in executing their tasks, their sense of professional purpose and impact has eroded.
As noted by researchers in behavioral psychology and organizational design, “individuals will repeat those behaviours for which they are consistently rewarded” (e.g., in organizational performance systems, rewards can be symbolic recognition, financial, fiduciary, or simple acknowledgment by managers). Public organizations don’t often explicitly encourage their employees to prioritize measurement over meaning, but performance management systems do just that.
A similar shift in identity can be observed in public policy formulation. For instance, consider a public policy analyst whose mission is to develop policies to enhance economic opportunity in their region.
Good policy development requires innovation, open-mindedness, questioning established assumptions, extensive stakeholder engagement, willingness to reconsider original proposals, and the capacity to admit when a given approach may not achieve its intended outcome. The work itself involves considerable ambiguity and is inherently risky.
However, many policy departments measure success based upon report completions, consultations held, milestone completion times, and the number of projects delivered on time and on budget. These metrics are no indicators of the quality of public policy produced. Over time, analysts may begin to view themselves as administrators rather than problem-solvers; the number of reports produced takes on a higher significance than their contribution to informed policy decision-making. Taking the time to gather compelling evidence and debate potentially controversial findings would put the policy writer at performance risk that would not be faced by a policy writer producing a report more promptly.
The outcome is a less effective public policy in exchange for a more efficient output of report production.
Perhaps the starkest example of this unintended side effect of performance measurement is evident in the government’s citizen-facing services.
Most public agencies track average times to complete tasks such as issuing permits, licenses, processing benefits, or answering queries. While there’s no denying that swift processing saves valuable time and resources and should indeed be encouraged where it represents efficient, effective government service, speed itself has acquired an almost sacred status.
Case completion times may even be viewed as reflecting the personal capability of the individual responsible for completing them, regardless of whether these cases require significant social service provision or legal deliberation.
A given employee might have two applications come in the same morning:
The first can be addressed quickly within twenty minutes.
The second is complex, requires a telephone consultation with other government bodies and a deep analysis of relevant legislation, and will likely take several days to complete.
If time to completion is the measure that determines success, then the employee will be motivated to expedite the first and avoid engaging with the second’s complexity so that their numbers continue to look strong on the monthly performance review.
While the manager has not instructed anyone to shy away from difficult or time-consuming cases, the organization’s reporting systems have implicitly taught employees to prioritize quantifiable output over the quality of public service delivery. This insidious transformation of identity within public organizations has been one of the most staggering and, in some respects, the most challenging consequences of the modern emphasis on performance measurement.
Governments invest tremendous resources in these measures to improve responsiveness and effectiveness, but as measurement becomes more sophisticated and all-encompassing, there is a danger of narrowing the definition of a good public servant. Over time, public sector employees who originally joined the government seeking to solve complex societal problems and make a tangible contribution to public well-being may find that they have become focused on improving their scores on a dashboard.
The mission has not disappeared; it has just been translated into the language of numbers, and eventually it can start to look as if those numbers really are the mission itself.
Oil & Gas: When Safety Professionals Become Incident Managers
The oil and gas industry is arguably the one in which performance measurement has been implemented more widely and integrated more deeply than in any other. Given the sheer scale of operations, the hazardous environments, and the enormous potential cost of failure, measurement is an operational imperative.
Industries within the oil and gas sector have implemented sophisticated tracking systems for a variety of performance indicators, including equipment availability, maintenance compliance, production efficiency, process safety, environmental impact, workforce competency, and dozens of safety-related measures. To a significant degree, these metrics have made the industry demonstrably safer than it was several decades ago.
Therefore, precisely because performance measurement has been implemented so widely, the oil and gas industry is a perfect example of how metrics gradually influence the way professionals see themselves over time.
Let’s examine three common areas where the practice of measurement shapes occupational identity.
I. Safety culture
When an occupational health and safety, environmental, and risk (HSER) manager starts their career, the driving mission is clear and singular: everyone should be safe.
Their day-to-day work is devoted to identifying hazards, empowering their colleagues to speak up, investigating near-miss incidents, and instilling a culture in which reporting mistakes is natural and welcome before they become accidents. For a long time, performance measures have supported this work; they provide a framework that encourages reducing harm and helps pinpoint areas where improvements are needed.
Over time, however, one number in particular often becomes pervasive within organizations – and often it’s the lost-time injury frequency rate (LTIFR) or another similar type of incident-based statistic.
Typically, a low number means a safe place. Yet, once all-in discussions revolve solely around achieving a “zero” number, a subtle shift may start to occur: employees can start to associate achieving performance with maintaining the number, rather than with creating and maintaining the culture that is the reason the number is low.
A supervisor may no longer log a minor “reportable” incident for fear of the “statistics.”
A worker may fail to mention a minor, workplace-acquired cut because they don’t want to negatively impact their team’s “record.”
Managers may end up debating whether an incident meets the reporting criteria, rather than focusing on understanding why it occurred and taking steps to prevent it.
The organization begins to protect the number that is supposed to reflect risk reduction.
The paradox here is that some of the safest workplaces are those where employees feel psychologically safe enough to report issues, even if it initially results in the numbers reflecting an issue.
II. Maintenance and asset integrity
Maintenance engineers tend to be the sort of folks who love taking apart machines and putting them back together – complex systems and machinery excite them. They have the technical acumen to anticipate how machines can and will fail, often before any visible symptoms emerge. For them, this involves everything from proactive inspection to deep-level repair and understanding system dynamics.
However, many maintenance functions are measured by a variety of KPIs that can shape professional identity in interesting ways. These can include planned maintenance compliance, backlogs reduction, equipment availability and uptime, and on-time execution. Such measurements are essential, without a doubt, but engineers may end up seeing their work less as optimizing a system for safety and reliability and more as “keeping the indicators green.”
For example, imagine that during routine maintenance, a qualified engineer determines that an asset requires additional inspection and maintenance outside the regularly scheduled process. In a best-practice scenario, this should be handled in accordance with established procedures, focusing on what’s necessary to ensure long-term reliability and safety.
Instead, they run into the issue that taking an asset offline for non-scheduled work may negatively affect overall plant availability metrics and other performance measures.
No one explicitly says to the engineer “ignore it,” but they can feel internal pressure, as the responsibility for demonstrating effectiveness shifts:
We go from ➛ “I am an engineer who understands this equipment and should fix it as needed”
To ➛ “I am an engineer who is measured on availability, and taking this offline will not be a good thing for the company.”
Over time, this constant exposure to such incentives may nudge professional focus away from what is best for the system toward what’s needed to present good numbers. Maintenance excellence can inadvertently become about reporting excellence.
III. Safety leadership
Most leaders of safety organizations can articulate (and strongly believe in) the importance of building a “learning culture” or “reporting culture” – one in which reporting of near-miss incidents is not seen as problematic, but as an opportunity to learn and prevent future accidents.
This bears an unintended psychological impact: long-running streaks of incident-free operations. The longer the company maintains this “record,” the more everyone feels attached to it. Workers feel it. Frontline supervisors feel it. Upper management feels it. The entire workplace feels it, and, before you know it, a perfect safety record moves from being a performance indicator to a key aspect of the company’s identity.
When an organization proudly states, “We had a great run of X years without a recordable,” it transforms the act of reporting an incident from an opportunity to improve into an attempt to end a celebrated achievement.
Psychology teaches us that identities are reinforced by repetition and social validation. As employees are repeatedly told, “We are the guys who run our operations without an accident,” those values can quickly become the workforce’s identity. Ironically, this desire to protect the identity may inhibit the learning culture that is needed to actually keep people safe over the long term. The industry is slowly waking up to this reality by introducing leading indicators that complement its long-standing practice of lagging performance measures.
These leading indicators (such as learning observations, behavioural interventions, hazard identification programs, and proactive risk assessments) signal a shift from seeing professional work as the guard duty of a number to viewing it as the responsible management of risk and the continuous improvement of an organization’s capabilities.
Construction: When Project Managers Become Schedule Protectors
Construction is run under a constant stream of fire under its proverbial behind.
The budget is sealed.
The timeline is out there for everyone to see.
Clients demand sure things.
Investors demand visible returns.
Managing performance becomes paramount.
Companies keep tabs on the budget variance, the on-time completion rates, productivity, rework, safety incidents, equipment use, procurement cycles – everything it takes to keep even the largest construction projects from spiraling out of control. For project managers, these metrics provide crucial visibility into what’s happening. Over time, though, they also subtly change what it means to succeed.
Let’s look at schedule, probably the most obvious metric in construction.
We all know we need to deliver on time; delays cost time, money, opportunities, and jobs for everyone from the subcontractor to the end user to the neighborhood around the site. We also know that schedules are living things, not etched-in-stone laws of nature.
Construction hits unexpected bedrock.
The weather shifts.
The supply chain falters.
The designs need to be altered.
Good project managers understand these realities, and their job involves judgment & flexibility about changes. Yet when on-time completion is the ultimate benchmark for success, that can lead to a different, more limited role: “I’m responsible for protecting the schedule.”
“I’m responsible for delivering the best possible project” is no longer behind the steering wheel; it’s not even part of the conversation occurring in the car. That’s critically important for a few reasons.
Suppose you discover halfway through construction that a minor modification will dramatically increase a building’s resilience for decades to come.
From an engineering standpoint, it’s a clear improvement. From a KPIs standpoint, the redesign adds a few weeks to the project. The project manager must decide whether they are a builder or a schedule guardian, and by the time organizations reinforce decisions with KPIs year after year, the answer is often obvious.
A similar phenomenon occurs with productivity measures.
We track labour rates, equipment efficiency, and throughput to ensure work gets done efficiently, because construction is, after all, an incredibly resource-intensive endeavour. However, productivity measures tend to focus on visible activity and output rather than on the thoughtful prep work that enables high-quality execution.
Picture two supervisors:
The first, realizing the potential for confusion, takes a couple of hours before his crews begin installation to coordinate subcontractor schedules and clear potential conflicts.
The second supervises his crews’ continuous activity despite having a pile of unresolved questions.
According to the day’s dashboard, the second supervisor clearly had a more productive day. Activity continued, and the work output was impressive. Weeks down the line, the project suffers costly delays due to rework because all that prep didn’t happen. The first supervisor was building for tomorrow, and the second was optimizing for today.
Systems that measure performance rarely reward proactive problem-solving that may never actually surface as a problem. Over time, people come to believe that active work and output are rewarded more highly than proactive avoidance of potential problems.
Nothing demonstrates this shift more profoundly than safety leadership.
Companies monitor incident rates, safety inspections, safety briefings, and compliance actions. The problem arises when safety, which should be an expression of craft, becomes just another task, and when safety documentation is perceived as equivalent to actual safety.
Completing checklists and filing reports can be perceived as being productive because they generate readily quantifiable results. Conducting tough conversations about safety hazards, patiently coaching an inexperienced team member, or stopping work to address an immediate hazard requires more patience and is harder to quantify. In these situations, too, the role silently transforms.
Over time, the job becomes less about building something well and more about managing reports, schedules, charts, graphs, and other metrics. Construction has long been a trade driven by craft, ingenuity, the willingness to confront ambiguity, and the determination to adapt when circumstances change…qualities that rarely fit smoothly into KPIs.
The risk isn’t that KPIs will put an end to what it means to craft and be part of it; the danger is that they will fundamentally reshape what craft looks like. When the metrics for success are matters like schedule adherence, people will still build projects, but they may begin to lose the very identity that motivated them to become builders in the first place.
Transportation: When Operators Become Punctuality Optimizers
Of all the industries we could choose to observe, transportation is probably one of the most externally visible ones.
The numbers generated each day by every airline, train company, logistics firm, port, and public transit authority are mind-boggling. These organizations are producing vast quantities of data to inform decisions. The on-time performance (OTP), expected delivery window, vehicle utilization rates, fuel efficiency, wait time per passenger, load factors, vehicle turnarounds, and customer satisfaction scores indicate whether the system is working well.
The organizations whose work depends on millions of people moving from place to place at specific times rely heavily on this information to coordinate operations across enormous networks. Nevertheless, of all the Industries that have so much data, transportation perhaps best captures the danger of equating operational excellence with numerical excellence.
Let’s imagine a very sharp airline operations manager. What drives them into the aviation business in the first place?
Passion, enthusiasm, dedication, joy, a fascination with aviation, logistics, and engineering, or, most importantly, a commitment to transporting people safely and efficiently to where they need to go. Maybe all of these, at once, all the time.
So, then, what is the most often discussed single data point for most airline operation teams?
It’s on-time performance!
Now, now, lower your pitchforks, please. On-time performance is an incredibly valuable metric. Customers, connecting flights, operational costs, and more are all negatively affected when delays occur. No one is claiming it is not important. However, when punctuality ceases to be a goal and becomes everything that person ever was, professionally, that is when the trouble begins.
I) Consider the scenario of our aforementioned airline operations manager, and let’s ideate 2 scenarios for them:
Scenario 1 – Think about the operational and behavioural consequences of a departure in which the aircraft pulls back on time but leaves with a cabin issue that significantly increases stress for both cabin crew and passengers.
Scenario 2 – Now compare this to another departure where the aircraft leaves several minutes later because the team used those extra minutes to resolve an issue with a piece of equipment, assist an elderly passenger, address a situation with a screaming baby, or ensure all the correct bags were loaded, etc.
From a dashboard’s perspective, the first option wins hands down. For a professional, however, the second might reflect much better operational judgment.
As with every system and human, that very act of monitoring the “right things” and offering them as rewards in the system for a sufficient period of time conditions people to pursue the number rather than the purpose behind it.
Teams slowly begin to ask, “Did we protect our OTP?” instead of “Did we perform well?” This is subtle, and the behavioural consequences can be significant. We see this phenomenon mirrored across other major industries within transportation, like logistics and supply chain.
Organizations across these sectors rely heavily on the delivery performance indicator. Customers now expect increasingly tight and precise delivery windows, and most companies have developed highly sophisticated methods for monitoring these metrics. While logistics coordinators, drivers, and dispatchers all recognize this importance, their continued exposure to metrics (even when used appropriately) will influence how they see and interpret their own roles.
II) This brings us round to another scenario – the delivery driver!
Imagine a delivery driver approaching the time and weather is deteriorating. They can either:
Scenario 1 – Slow down and potentially find a safe haven
Scenario 2 – Push through and hope for the best
Given our present climate change woes, where the weather is impossibly unpredictable at times, professional judgment will suggest to slow down and accept that some of these delivery times may be adjusted later in the day, when their performance report will, unfortunately, highlight poor on-time performance.
The delivery driver is unlikely to endanger their life or that of others to make it on time; nevertheless, their frame of reference will likely shift to see their poor OTP score as an indictment of their ability rather than an acceptable outcome given unforeseen circumstances.
The majority will continue to prioritize safety, but their sense of professional accomplishment may begin to shift: rather than being seen as professionals who reliably and safely deliver people and goods, their internal professional identity may become that of a protector of delivery performance. Their professional identity now incorporates the KPI.
III) In the case of public transportation, we will find a remarkably similar story.
Scenario 1 – Should a professional working in the public service move people around a city comfortably and efficiently?
Scenario 2 – Should they become a performance enforcer, responsible for protecting the schedule at all costs?
Transit agencies will monitor many things to ensure reliability and efficiency: passenger volumes, schedule adherence, average boarding time per passenger, on-time departure rates, average dwell time at stations, and the like.
All the above indicators will no doubt lead to better overall system performance, but public transportation is ultimately a human system. Yes, throughput is important, but moving people in comfort & safety, from point A to B, is even more so.
Not every passenger fits a standard profile. There are elderly travelers, people with disabilities, young children, and individuals who cannot rush and require extra assistance. When, as part of that performance management regime, we focus on schedule performance, we may create an identity conflict.
This problem won’t arise if performance metrics are set and monitored to manage the system, but the minute employees’ identities manage it, the problems can begin. At least the irony is that no one goes into the transportation business to maximize on-time performance. They are in business to provide safe, reliable service to meet people’s travel needs. Punctuality is only one component of delivering that service.
Healthcare: When Clinicians Become Throughput Managers
Few fields may demonstrate how performance measurement can transform professional identity more starkly than health care because more is at stake than the success of an organization – human lives themselves.
Modern health care depends heavily on measurement, and for good reason. Hospitals measure Emergency Department (ED) waiting times, bed days, readmission rates, numbers of surgeries performed, infection rates, patient satisfaction levels, care timelines, staffing levels, and hundreds of other metrics that can guide quality improvement and ensure accountability. Without such measurement, health care leaders could not know where to direct resources or pinpoint areas for systemic improvement and patient benefit.
Yet health care has always been about more than just that, more than just metrics. At heart, it is a vocation centered on discretion, compassion, and personalized attention. Performance systems, of course, oversimplify such complexity.
ED Wait Times
Let us look, for example, at health care performance metrics for emergency care waiting times. While minimizing unnecessary delays is a worthwhile pursuit, with benefits for patients and the health care system alike, in practice, ED work does not proceed in a straight line defined by average times.
Patients arrive with all manner of urgency: some require but ten minutes, others six hours; one family conversation might stave off a formal complaint, while another requires as much reassurance as a prescription. Often, these acts of service represent some of the finest clinical practice and are difficult to quantify. When clinicians are rewarded for shaving off waiting times, it can prompt a subtle shift in their identity: “Did I treat the patient optimally?” or “Did I move the patient through the department most rapidly?”
The two objectives are hardly mutually exclusive, but when one becomes visible and the other remains unseen, the visible outcome naturally receives higher priority. We see a similar shift occur for decisions about hospital patient discharges.
Length of Stay
Another frequently used measure is the length of stay, used in part to help hospitals manage their capacity and avoid inappropriate admissions.
Again, a valid measure that serves a real purpose. However, decisions to discharge a patient are often complex and not purely dictated by strict, measurable clinical criteria. A patient may, on paper, be technically “discharge ready” but feel nervous about managing at home. Another might benefit from a few extra days of observation for reassurance, even if there is no immediately pressing medical need for more intensive care.
Clinicians make such judgments day by day. However, when, time and again, our hospitals focus on patient throughput, our beds, and our flow, the length of stay increasingly gains psychological weight over its functional meaning. Delayed discharges may begin to feel like interruptions of flow and barriers to organizational performance rather than clinical considerations, not by design, but because our performance systems encourage such reactions. This specific detail – performance systems affecting the identity of health professionals themselves – is perhaps the most pervasive of all.
Identity of Choice
Few people choose careers as doctors, nurses, technicians, or paramedics simply because they find delight in improving dashboards or making progress toward organizational targets. Most enter the field out of a deep desire to care, to heal, to solve complex problems, and to improve the lives of others. It is this inherent motivation, which organizational psychologists have shown to be the strongest long-term predictor of job engagement, that pulls these individuals through many a night of emotional hardship.
It is these motivation systems that are most endangered by an organizational environment that overemphasizes measured outcomes. When the organization’s performance metric takes precedence over that purpose, something begins to change, even if the clinician does not abandon their care for patients.
Instead, they increasingly begin to experience their work as defined by outputs: numbers of patients seen, numbers of procedures performed, number of appointments scheduled, number of metrics met. Caring does not vanish – it is simply diminished in what counts as success.
Many health organizations are aware of this threat and are attempting to broaden their focus toward patient experience, interprofessional collaboration, the development of learning cultures, staff well-being, and psychological safety. All of these efforts acknowledge that great health care depends not just on measurable efficiencies but also on protecting the fundamental reasons people came to the profession.
At the end of a stay, most patients don’t remember how well their care improved the hospital’s quarterly reports, but rather that someone listened, someone cared, and someone acknowledged their unique and individual story.
Final Thoughts
The major benefit of KPIs is focusing attention. They assist organizations in transforming a big ambition into a concrete goal, creating common alignment among teams, and providing evidence of whether progress is being made.
Without the metrics, strategy is little more than aspiration, and within any set of metrics lies another, much more subtle force that most observers do not know: measurement not only shapes decisions, it also shapes people.
Behavioural psychologists demonstrated long ago that habit, and eventually identity, are forged through repeated reinforcement. Therefore, performance systems teach not just process but also employees the objects of attention, the feelings of success, the rewarded behaviours and what they’re meant to turn into, ideally, professionally.
Most often, no one sets out to prioritize their dashboards over their mission. Yet, through a gradual sequence of performance reviews, recognition meetings, promotion opportunities, and the green indicators turning, professionals begin to intuitively protect the measures originally developed to do little more than guide their performance. None of this implies an organization should drop KPIs – au contraire, metrics remain necessary.
In their place, the best question any leader can pose may well be less, “What will this KPI motivate?” – a question extensively addressed over time – and more, “What type of professionals will this KPI eventually build?.”
After all, organizations, over time, perform as well as their people are made, not because they measure well, but because they are well.
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The Politics of KPIs: Why Metrics Are Never Truly Neutral
If you present two experienced chief executive officers with precisely the same digital dashboard, one will zero in on cash flow and return on investment.
The other will bypass them and ask to know customer retention, employee engagement, and product penetration rates. Both will be right, and both might even become brilliant leaders, but before they make any decisions, the CEOs will have implicitly expressed what success will look like for them.
It is an issue that organizations seldom concede. Organizations want to pretend that the Key Performance Indicators (KPIs) on any dashboard are impartial, that they are simply observers of what is really going on. People put their faith in dashboards because numbers are perceived to be objective.
However, KPIs do not exist to be discovered. They were invented. Someone had to choose what mattered most; someone defined success, agreed on thresholds for it, frequency of assessment, and selection of appropriate measures. Long before any of these figures had been generated, human beings had to decide how a compelling narrative might unfold for these numbers.
This should not discredit the utility of the KPI; rather, it should humanize it. The more organizations grasp the reality that the KPI is a deliberate fabrication, the more successful they will be in designing performance management that aligns with strategic intent rather than covert assumptions.
The Myth of “Letting the Data Decide“
Modern organizations commonly describe themselves as data-driven. It is a buzzword you’ll find in strategy documents & presentations from a wide range of industries. Underlying all of these instances is the notion that data ought to inform decisions instead of instinct.
From a general perspective, it is the perfect path. From a narrow perspective, problems start to creep in, though, when data is automatically presumed to be objective. Data rarely makes its journey to us in a void. Any dataset exists for the simple reason that someone thought that it would be valuable. Any KPI exists because someone has decided that it represents a significant area of performance.
Take, for example, a company that has decided to quantify customer service performance.
A first step might be fairly easy to determine. Develop some KPI’s, for example.Yet, which one to select?
To be able to respond within a few moments?
Achieve first-contact resolution?
CSAT?
NPS?
Reduce the number of customers lost?
Reduce the number of complaints received?
Each data set offers a different perspective; it supports a distinct way of working and motivates employees to focus on a unique perspective within customer support. The data alone is not the most important priority. It is the people who comprise the organization. Even to opt not to make a measurement constitutes a decision in its own right.
By omitting the monitoring of employee happiness from the leadership dashboard, the company has subtly signaled to staff what needs more focus and consideration. Therefore, in this respect, the dashboard is not only a descriptor of the actual organizational state, but it also creates the organization itself.
Every KPI Reflects A Worldview
The single biggest misunderstanding about performance measurement is the idea that KPIs exist in a vacuum, devoid of the people who build them. KPI “1” doesn’t just describe reality; it defines it. Consider two almost identical manufacturers:
Company 1. A CEO who spent 20 years in finance leads them.
Everything in the quarterly board report is financial: Opex, Inventory Turnover, EBITDA, Working Capital. Conversations naturally center around efficiency and the bottom line.
Company 2. An operations engineer leads them.
The dashboard’s a completely different beast.
Quality, uptime, scrap rates, Overall Equipment Effectiveness – because in their eyes, quality is what drives the company forward. Two similar companies, two different roles, but one set of dashboards tells a completely different story about what’s worth talking about, purely as a consequence of the personal histories of the leaders.
It’s a pattern that repeats everywhere. An operations person in a hospital might focus on utilization rates and lengths of stay to better predict capacity requirements, while a clinician with a patient focus might emphasize read rates and post-treatment outcomes. It’s not about which is “right.”
Both have value. Both obscure other important things, because the difficult but useful reality is this: KPIs don’t just measure your priorities, they display them.
Measurement Is Also An Exercise In Omission
When organizations talk KPIs, there’s a lot of discussion about what we should measure. There’s very little discussion about what we’re not going to measure.
Every dashboard has limited real estate. Every organization has finite analytical resources. Selecting one KPI often means leaving another behind. That act of omission defines behaviour just as much as what lands on the dashboard.
Consider a software company focused on frequent feature releases. They emphasize deployment frequency, development speed, feature usage time, and release cadence. This company becomes an expert at pushing features out the door, yet if it doesn’t emphasize measuring feature adoption with similar prominence, it might find itself continuing to crank out features with no clear signal of whether anyone is using them. The KPI’s they picked are perfectly fine, just incomplete.
This applies well outside of software.
Retailers may perfect sales efficiency and miss out on customer lifetime value.
Universities can increase graduation rates at the expense of the actual quality of education.
Healthcare providers may decrease patient wait times, but at the expense of staff burnout.
Manufacturing may maximize production output, but at the expense of product quality and defect rates.
Customer support teams may reduce average handling time, but at the expense of customer satisfaction and first-contact resolution.
Logistics companies may optimize delivery speed, but at the expense of delivery accuracy and package condition.
Marketing agencies may increase campaign volume, but at the expense of campaign effectiveness and client ROI.
Hospitality businesses may maximize room occupancy at the expense of the guest experience and repeat bookings.
Call centers may focus on the number of calls handled, but at the expense of actually resolving customer issues.
Construction firms may prioritize finishing projects on schedule, but at the expense of workmanship quality and long-term durability.
Organizations don’t disregard these outcomes because they don’t want to. Typically, they simply aren’t being measured with equal visibility. Whatever we’re paying attention to gets better. Whatever we’re not tends to atrophy when competing for attention and resources. That’s why KPI design is a strategic exercise, even though many companies treat it as a math exercise.
KPIs Shape Organizations Long Before They Measure Them
Maybe the most fundamental transformation executives need to make in their approach to KPIs is understanding that they aren’t just retrofitting performance to evaluate what has already occurred. They are prospectively influencing what occurs. When an organization rolls out a new KPI, the company’s behaviour shifts almost immediately:
Managers start deploying resources differently.
Employees prioritize differently.
Different departments redefine what constitutes success.
Investment decisions shift.
Performance evaluations change.
The language used in internal meeting rooms shifts.
In short, KPIs do not just observe an organization from afar. They are involved in building an organization, and this is precisely why discussions of performance metrics can sometimes turn emotional.
Outwardly, business leaders appear to be arguing over numbers. Internally, what they’re actually arguing over is something more fundamental:
What kind of organization are we aspiring to be?
One finance executive might argue that, given the economic environment, profitability must be given greater visibility.
An HR executive might emphasize that employee retention provides an early signal of long-term viability.
A third executive overseeing customer experience might contend that retention needs to be emphasized just as much because losing today’s most loyal customers will cause problems for tomorrow’s financials.
Each executive can generate persuasive data and can construct a well-reasoned business case. However, under each case, there lies an underlying question no scorecard can answer directly:
Which version of the organization’s success should we endeavour to achieve?
That is why discussions about performance measurement seldom stop at purely technical questions about methodology. Instead, they are discussions about priorities, strategy, goals, objectives, vision, and identity.
That makes them inherently political (though not necessarily in the partisan sense of the term, but rather in the political sense of negotiation and compromise among stakeholders). Acknowledging this is not a weakness in performance management, but the first prerequisite for more mindful use of KPIs.
Who Defines Success?
If every KPI is rooted in a human choice, a much larger question arises:
Who gets to make that choice?
On its surface, it may seem simple. Leadership sets out the organizational strategy and KPIs, then monitors progress toward those goals. However, that rarely pans out in practice.
Companies are divided into departments with different competencies, skills, values, and views of what success looks like. Finance, Operations, HR, Marketing, Sales, Customer Success, IT: each looks at the business from a distinct vantage point. None is correct, none is wrong, yet most importantly, none is sufficient alone.
It’s not so much that leaders lack consensus on what may be the best path for performance management; it is much more so that they lack consensus on which performance metrics matter most.
At that point, KPIs become subtle tools of governance. Choosing a metric becomes about who we want to have in leadership conversations, which projects are funded, and which team members are celebrated. Ultimately, each KPI is a person’s priority amplified.
Different Backgrounds create Different Dashboards
One might be inclined to think that executives in identical positions build similar performance dashboards, but our experience with real-world examples suggests otherwise. Two leaders can arrive to manage the same organization, with the same market dynamics and strategic ambitions, yet still focus on completely different sets of key performance indicators.
What influences them most is often shaped long before the executive suite was within reach.
Scenario 1
Suppose a retail company appoints a new CEO.
One candidate had twenty years as a Chief Financial Officer. Unsurprisingly, the dashboard the executive team reviews focuses on gross margins, operating costs, inventory turns, and the cash cycle. The conversations always start with financial discipline, simply because the executive has been speaking that language for their entire career.
Scenario 2
The company promotes the former Chief Customer Officer.
Suddenly, the dashboard is dramatically reframed. The customer lifetime value (CLV), the customer repeat purchase rate, the Net Promoter Score (NPS), and the customer retention rate are the focus of the top portion of all reports. Financial metrics matter, sure, but they are now a consequence of customer experience.
Neither CEO is being obtuse – they are just asking different first questions, and this is the pattern we see across many different kinds of companies.
Let’s say a manufacturing organization promoted an engineering executive who has great rigour in monitoring the defect rate, equipment reliability, production throughput, on-time delivery performance, and OEE.
Now, change the chief executive to a commercial executive, and one begins to see a shift in the focus of reports towards the delivery performance, market share, customer demand, and revenues. Both individuals want the organization to do well, but they have different visions of how to achieve that.
KPI Ownership Isn’t About Control – It’s About Influence
The politics of KPIs seldom originates from people fudging their numbers. More frequently, the politics are generated because all functions honestly believe that their numbers need a higher profile than everyone else’s numbers. Picture a leadership discussion where next year’s executive dashboard is being developed.
Finance will argue that increasing cash conversion and profit is more important than any other objective during economic instability.
Sales will argue that pipeline value and revenue growth need greater focus, since future profits depend upon present revenue.
HR will claim that employee turnover is high and that replacing talented staff is becoming extremely expensive.
Customer support will show that reducing churn delivers far greater lifetime value than acquiring new business.
Operations will insist on focus and delivery – the ultimate success factor.
Everyone has credible evidence and data to present. Everyone has good reasons to make their case. No one is trying to pull the wool over anyone’s eyes; rather, each party is conducting a negotiation based on diverse viewpoints.
This is why it can be so hard for some companies to construct a dashboard that represents the whole organization – there are distinct differences in perspective shaped by individual professional experience. The end product of all this discussion is, in effect, a collection of priorities.
The Same Role Doesn’t Always Produce The Same Priorities
The clearest evidence that KPIs are far from neutral becomes apparent when leaders with almost identical roles and completely contrasting career backgrounds are considered.
Healthcare
– On the one hand, a hospital CEO, who was formerly a doctor, is prone to prioritizing indicators such as patient outcomes, hospital readmission rates, quality of treatment, clinical safety, etc. Hence, the quality of care to the patient would naturally be the most obvious indicator of how well the organization is doing.
– On the other hand, a CEO who has risen through the ranks in operations within the hospital may be more concerned with ED wait times, bed occupancy rates, resource utilization, patient throughput, and similar measures that help ensure more patients are treated at the earliest possible moment.
Of course, this doesn’t mean they have ignored the other aspect; rather, they will attain the same objective through different pathways.
Education
– In the sphere of higher education, a president of the university who was an academic before taking on the administrative role will place maximum importance on indicators of research productivity, faculty career growth, scholarly publications, and university reputation.
– Conversely, if the president came from a background of business or financial administration, then greater significance would be given to indicators of student retention, enrollment growth, student graduation rate, and institutional financial viability.
While both care for a high-quality education, there would be differing views regarding which parameters would truly signify the accomplishment of this goal.
Technology
– In the arena of growing technology ventures, a CEO-founder with an engineering background would focus primarily on system availability, product robustness, deployment speed, and system stability as performance indicators.
– Alternatively, if the founder has a background in marketing, then parameters such as customer acquisition cost (CAC), conversion rates, brand visibility, and market presence will receive equal and immediate attention.
There is no one viewpoint that is more correct than the others; they simply demonstrate how one interprets the areas that demand attention earliest in any given organization.
Why These Differences Matter More Than We Think
These examples may seem like just leadership personal preferences, but these actions have powerful consequences throughout an entire organization. What a leader chooses to measure shapes what his managers focus on. What the managers focus on shapes how their teams choose to spend their time. Over time, the patterns of decision-making based on these priorities create a corporate culture.
Think of two organizations in the same business, with nearly the same model.
In one company, excellence is defined by efficient operations. Employees come to see that improving productivity, cutting costs, and eliminating waste are a fast track to success and promotions.
In the other company, excellence is defined by a drive for innovation. Employees are recognized and promoted for learning rapidly from failures and for innovation.
These organizations aren’t giving out explicit instructions about what employees should think about the nature of the organization. They’re telling their employees that through the metrics they display.
This is why companies tend to resemble the scorecards that they create. Employees are not merely reacting to incentives. People learn what the organization truly cares about from the metrics executives most often refer to.
Your mission statement may claim your organization stands for several values: innovation, collaboration, sustainability, and customer satisfaction. However, the numbers on a scorecard tell the story of your true priorities in brutally honest terms. If there’s a metric you see repeated again and again in executive committee meetings, influencing bonuses and being factored into strategic decisions, it gradually becomes very important to employees. Other metrics can begin to seem less so.
This is why a discussion of who owns the company dashboard can never be a conversation simply about accounting software and spreadsheets. That conversation always evolves into one about the core of the organization’s identity because deciding what to measure, in the end, is another way of asking what winning looks like.
When Metrics Become Power: How KPIs Shape Organizational Behaviour
By the time a KPI lands on an executive dashboard, it has endured endless discussions. Someone proposed it. Someone challenged it. Someone defended it. Finally, it becomes part of the organization’s definition of success. Yet the journey is far from over.
When the KPI is tied to performance reviews, incentives, promotions, budgets, or strategic decisions, it ceases to be an innocent indicator of an organization’s health. It becomes an incentive, and people do have an outrageously uncanny ability to respond to incentives.
This natural predilection has nothing to do with 200-IQ deceitfulness, but rather with the fact that any organization inherently sets its employees up for success through the rules it puts in place. People will, predictably, focus on metrics they are being judged by. The question remains whether they are improving what they said they were improving by driving the metric.
From Measuring Behaviour to Driving Behaviour
Businesses often view KPIs like rear-view mirrors: they only provide a snapshot of what the business did, when in fact they’re a lot more like steering wheels – after you set an organization on the road with any particular metric, everyone begins to steer by it.
Think of your customer support organization with average ticket resolution time as its leading indicator of success.
On the face of it, a logical target, customers prefer quicker support. Nevertheless, what happens when they all start steering toward that target? Well, over time, things begin to get murky and odd incentives sprout up. Your support team begins to know that they’re being rewarded for quickly closing tickets. They pass on the tougher tickets to the next available team; they begin closing tickets before customers feel resolved, and their post-support phone calls and emails become more concise. They all look like they’re performing well, but the customer experience continues to deteriorate as the focus shifts from quality to speed.
Nothing is being falsified, and nobody is breaking the law. Everyone’s just doing what they’re incentivized to do. The metric is doing what it was built to do: driving behaviour, but everyone assumed the metric was the behaviour itself.
When the Measure becomes the Target
This effect has been seen across industries for years and can often be boiled down to a well-worn observation: “When a measure becomes a target, it ceases to be a good measure.”
What that means is that when people know their performance will be judged based on a particular number, their incentives are immediately aligned to achieve that number. That behaviour is not always aligned with the leaders’ expectations for why they implemented that measurement in the first place.
Just ask teachers or healthcare providers, for example.
If educational performance hinges solely on standardized tests, then those teachers are likely to spend a large chunk of their precious time training students to beat those tests.
If hospital management puts tremendous pressure to reduce ED wait times, departments will likely find ways to shorten wait times without increasing throughput or improving patient health.
The KPI improves, but what about the actual outcome? What comes out at the end of the entire process?
It is important to note that we are not recommending against setting and measuring performance targets in the first place. However, we should be aware that every indicator of success will drive behaviour in unintended ways.
Something we don’t talk enough about when it comes to performance management is the fact that the KPIs themselves are typically negotiated. KPIs seldom spring fully formed out of some vacuum. Instead, they’re born from a series of debates: between departments on what’s achievable, between executives on the relative merits of optimism and pragmatism, between finance on the financial case for making some improvement, between operations on practical constraints, between managers on what’s realistic for their people.
At a macro level, these debates are about numbers, but at a micro level, they’re debates about risk and accountability, expectations and aspirations.
The sales director suggests that the department should aim for 25% revenue growth next year.
The marketing director argues that brand awareness can’t deliver that without more investment in brand building.
The operations director points out that capacity constraints might emerge.
Finance expresses doubt whether the forecasts could hold up given the prevailing market conditions.
Through several meetings, a figure between 15 and 20% is eventually agreed upon.
Was politics the issue in determining the KPI?
Yes, yes it was.
Should it have been a problem?
No. A certain level of politicization is necessary in business to enable us to accommodate the various conflicting, yet valid, points of view we have to wrestle with. We risk deluding ourselves about how our systems work by denying that these exchanges exist. That’s where the problem lies, not in the exchanges themselves.
The KPIs That Get Attention Usually Get Resources
At the end of the day, organizations spend money, talent, and time in ways that leadership consistently prioritizes.
Think about two organizations dealing with exactly the same challenges.
At Company A, sustainability is a topic of every executive meeting. Financials and carbon emissions are both represented on board meeting agendas, as are renewable energy and suppliers.
In Company B, sustainability is addressed annually.
Who do you think will be investing more in the environment? Who do you think will be drilling down into those numbers in leadership meetings? Who do you think will feel that their remit includes managing this initiative rather than just reacting to a mandate?
It’s got less to do with values than visibility. Ultimately, on the outside, any leader or organization will invest resources in the things their senior leaders talk about and pay close attention to.
The same is true on the inside. If the leadership team shows new product revenue on their dashboards, experimentation metrics for product teams, and measures related to idea generation or the marketing pipeline, people quickly understand that innovation is not just an aspiration; it’s a priority. The same is not true if the topic comes up during a leader’s quarterly inspirational talk but not during any other type of review meeting or dashboard report.
It has become almost a cliché that experienced executives tell people that organizations become incredibly good at whatever it is they measure. It has little to do with other aspects being irrelevant; rather, it’s more about the fact that everyone’s attention span is limited, especially nowadays.
Metrics Also Shape Organizational Narratives
Beyond incentives and resource allocation, in some environments, KPIs can have an even more insidious effect. They dictate the narratives a company tells itself.
Consider a firm with decelerating revenue growth. For a CEO who is solely obsessed with profitability, flat performance can be cast as evidence of fiscal prudence: margins are expanding, the cost structure is well contained, free cash flow is improving, and cash reserves are strengthening. The narrative is one of resilience.
Now, let us behold a similar firm, but helmed by a CEO with a penchant for tracking customers. A similar result – growth sputtering – might be spun as a signal that it’s time for urgency, highlighting fading customer momentum and the increasing threat from rivals.
The same result but different interpretation, and therein lies the critical point about performance management: KPIs don’t simply convey information; they shape perception.
While executives may have the best intentions, most aren’t actively seeking to mislead their organization when constructing executive dashboards. Rather, they generally do genuinely want to point to the most significant signs of organizational progress.
Still, all dashboards, however well-intentioned, carry narratives, and each begins by making choices about what matters most. That’s why the debates over a particular metric or target can sometimes become so emotionally charged. They’re not just arguing over numbers but over the story of where they’re going – the future that begins to take shape once the figures enter the conversation. KPIs reflect reality in so much as they also make it.
Better KPI Governance Starts With Better Questions
You may be inclined to arrive at an uncomfortable conclusion if you have read up to this point: if every KPI represents a human choice, organizational bias, or a competing perspective, do truly objective measurements even exist?
Well, no, and in fact, embracing this fact is one of the most beneficial mental models for an organization to adopt. Human judgment being present in KPI formulas is not the issue. The issue is that it pretends not to exist in the first place.
Organizations spend an enormous amount of time fussing over formulas, fiddling with calculations, optimizing data quality, and investing in increasingly complex dashboard infrastructure. These are valuable pursuits but may mask the illusion that better analytics invariably yield better decisions.
An impeccably precise KPI might still measure the wrong thing. A well-designed dashboard may reinforce old habits of organizational thinking. In reality, the real task at hand is not to eradicate subjectivity; it is to expose it.
Organizations that are at the forefront of the analytics field understand that their KPIs aren’t sacred scriptures. They understand that KPIs represent a decision to measure something, a choice that must change as the business context changes. This outlook changes the dialogue at leadership levels entirely.
Rather than asking “Is this KPI accurate?”, leaders ask far more pragmatic questions: “What am I measuring this for? What are its downstream impacts on behaviour? What crucial outcome may be getting missed?”
The Best Dashboards invite Discussion, not Blind Agreement
Perhaps the most damaging fallacy regarding executive dashboards is that they should somehow negate debate. Actually, great dashboards inspire much better debates. Picture showing the same performance metrics report to a group of executives from finance, operations, HR, product management, and customer service.
If they don’t even argue the numbers in front of them, it may be a cause for concern.
People come at things from different angles for good reasons in an organization; organizations are complex systems.
The CFO sees declining margins as a clear risk
The CHRO may detect employee burnout lurking below deceptively positive productivity figures
The head of operations is aware of production capacity constraints before they show up on financial statements
The customer service executive notes the first whispers of declining satisfaction before customer revenue has been negatively affected
Healthy companies view these different lenses not as conflicting interpretations of truth but rather as complementary observations that together yield a far richer view of reality. There isn’t a single “right” way to measure a company’s health; rather, a high-performing system must measure many facets that determine a system’s health.
Just as a doctor doesn’t look only at a patient’s blood pressure, nor does an airline pilot fly a plane only by watching the fuel gauge, an organization can’t monitor only one dimension to determine overall health.
Good KPI Governance Means Challenging Your Own Assumptions
Perhaps the best leadership habit an executive team can build is to occasionally challenge the KPIs to which they’ve become so accustomed, because they have realized that the very essence of their business has changed.
The market changes.
The expectations of the customers change.
Technology disrupts industries.
The strategy changes.
Yet somehow, too many businesses will go on reporting on the same KPIs as last year, or the year before that, simply because that’s what they’ve always done. Dashboards simply become a habit.
Organizations start asking whether they are measuring what is important and begin talking about whether they hit last year’s target, leaving out the fact that some of the most important leadership conversations aren’t about performance – they’re about whether they are even asking the right question.
Think of a business that has long since learned that office space usage, in-person collaboration, physical footprint, and building occupancy are metrics. Those numbers may have seemed to make sense until remote and hybrid work totally upended the way that we collaborate.
This organization now needs a new way to conceptualize performance altogether. The business that survived didn’t necessarily have the best-looking metrics. They simply weren’t afraid to ask whether their assumptions about what constitutes performance were out of sync with market reality.
Transparency Builds Stronger KPIs
If KPIs are truly strategic choices, organizations should disclose them. This doesn’t mean offering an executive summary of each KPI – it simply means being able to articulate, clearly, why a particular KPI exists in the first place.
Who asked for it?
What strategic goal does it serve?
Why this metric over other potential measures?
What shortcomings should the decision-maker consider?
These dialogues might seem shockingly mundane, but they’re profound at a human level.
Just picture a new exec joining a company. Instead of receiving a dashboard of meaningless numbers, they may have a conversation with leadership about why KPIs such as customer retention, investment in employee development, and innovation play such a central role in current operations. This conversation turns the dashboard into a mirror of the organization’s underlying strategy. Even more importantly, the practice of transparency helps with subsequent evolution.
Once the rationale behind a KPI is clear, the organizational decision process shifts to the question of whether that metric still applies or if a different measure might serve the organization’s goals more effectively. The distinction between defending an individual metric and defending a KPI’s intent may be subtle and unimportant to the inexperienced, but vital to those with many winters over their brows.
Final Thoughts
Organizations have spent decades trying to refine how they measure performance.
✔️ We’ve improved the richness of dashboards. ✔️ We’ve elucidated data so that it is more readily available. ✔️ We’ve made analytics quicker and richer. ✔️ We’ve enhanced the systems to be more intelligent through artificial intelligence.
Yet there’s one factor that’s remained constant: the human decision-making power behind every KPI. Humans decide what needs to be considered, what needs to be celebrated, which numbers make it to the boardroom, and which ones never even make the dashboard. This is a natural outcome of leading human beings with varied experiences, areas of expertise, priorities, and roles.
KPIs being a thing isn’t an error – we as a species have loved numbers, measurements, comparisons, and benchmarks since we had the mental capacity to engage with these matters. The error lies in the expectation that all of these things we love are entirely objective.
Great organizations accept, confront, and consciously bring other points of view to the discussion because effective conversations about performance indicators usually start with a question, not a spreadsheet: Why are we even tracking this?
Companies rarely achieve what they declare is important to them; they reflect what they measure. The truest measure of an organization’s ability to govern its work, lead with conviction, nurture with care, and innovate for impact is not a KPI on its dashboard; it is its commitment to challenging its time-honored metrics.
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It is generally accepted within most organizations that strategy is filtered through structure: a group of executives defines priorities, these executives delegate to leaders, department heads manage their reports, and then people at lower levels of the hierarchy do the work.
That, at least, is the story told by the organizational chart. However, work does not flow smoothly through a company in the same way it does along an organizational chart in the boardroom.
Strategy flows through invisible networks. It moves through trust, it relies on reputation, friendship, alliances, credibility, influence, and memory. Employees are actually dependent on those specific individuals who offer reliability in the midst of political and chaotic organizational circumstances.
These hidden networks are what is called the informal organization.
For many organizations, the informal structure plays a more significant role than the formal one.
A leader may be officially responsible for a particular transformation project, but the individual whom everyone in the company recognizes as the real leader responsible for it might actually be another person. A strategic task may be implemented not because formal procedures were followed for approval but because a key trusted contact used informal connections to move it forward behind the scenes, and another project with impeccable governance procedures might completely collapse because the informal network never really backed it.
This is the hidden dimension that many strategy models seem to ignore.
While the organizational chart clarifies accountability, the informal organization illustrates behaviour. Where & when the two are at odds, the strategic execution of the task succeeds or fails.
According to researchers Alberto F. De Toni and Fabio Nonino, the informal organization is “the real central nervous system” of companies, and operational coordination is managed primarily through informal connections rather than organizational structures.
These assumptions revolutionize the perspective from which execution needs to be addressed.
If strategy execution is achieved through human interaction, it is crucial to focus on whom each individual actually looks to for guidance and help, rather than to whom they officially report.
Why Organizational Charts Rarely Reflect Reality
Organizational charts rarely represent reality because two companies are present in reality simultaneously: the formal and the informal organizations.
A) The formal organization is structured hierarchically through a complex web of reporting lines, departments, roles, and decision-making procedures.
B) The informal organization is a social web of non-work-related connections that develop over time.
As a result, in many organizations, people look to specific individuals within the company regardless of the organization chart; this may be because of a specific skill, expertise, empathy, or political acumen these individuals possess. Such individuals act as unofficial decision-makers, the people one goes to before making a formal decision, the people who possess the expertise or social power to navigate through difficult organizational dynamics and push forward projects.
There is usually a significant gap between what is expected within the formal organization and what people actually do, and these unseen decision-makers in every company are the informal leaders.
Whether they may or may not occupy high-level executive positions is irrelevant, for employees approach them for guidance before making decisions; they understand how the real system operates and have the political agility to remove obstacles and make stalled projects run smoothly. They also understand the organization’s politics and history, enabling them to negotiate effectively without alienating others.
Although they may sometimes appear to lead initiatives, their authority is not granted but is derived from the credibility, expertise, emotional intelligence, and positive social influence they command from others within the company. Essentially, they earn the right to lead by demonstrating competence and building trust with others over time.
De Toni and Nonino identified several recurrent informal roles within organizations, including opinion leaders, central connectors, bottlenecks, consultants, experts, and “helpful people”. The influence these roles have varies.
For example, opinion leaders impact how people react to change and are closely watched by the workforce. Central connectors are critical to effective internal communications. These people serve as an infrastructure within the organization, facilitating informal communication and connections across functions and departments.
Such networks become strategically important because, generally, strategy execution relies less on the command-and-control structure than on the socially constructed legitimacy of what one is trying to accomplish. People might comply with an authority, but commit themselves to it through trust.
How Informal Networks Empower or Sabotage Strategy Execution
One important fact that many people get wrong about organizational dynamics is that there is no direct, mechanistic implementation of strategy; rather, strategy is interpreted and executed socially. It is through the informal organization that an initiative might be perceived positively or negatively by employees, depending on their interpretation.
They don’t make their assessment of a transformation process solely on formal data but look to people in other departments to see how they react. The internal strategy debate takes place in private meetings, casual hallway chats, e-mail groups, and lunches. If people in influential positions secretly mistrust a transformation project, then the initiative itself might be in danger.
It may seem mysterious from the outside, but people within the organization often know what is happening. This means the informal leaders will have agreed, and the organization’s internal decision-makers will align informally.
Conversely, a strategy might fail not because its objectives are faulty, but because the people responsible for its execution did not feel any personal connection or investment in the idea. They might not even fully trust the people in charge of leading the change. If this happens, the formal objectives must take a back seat, and social legitimization becomes the priority.
When the Trusted Operators Become Bottlenecks in an Organization
Having said all that, it is important to note that informal influence also has a sinister downside. The very same people who make organizations work can quietly become execution bottlenecks.
One of the case studies examined in de Toni and Nonino’s study was that of an executive named Andrea, who had become overwhelmingly important to the flow of information within his business unit. The organization became so reliant on him that removing him from the communication network would result in a dramatic drop in information flow, leaving numerous individuals isolated.
This is extremely common, and every organization has the “go-to person”: the reliable fixer/operator who always knows the answer. These people initially expedite execution since people trust them.
Over time, organizations implicitly build themselves around them, waiting for their response. Projects are put on hold, waiting for the individuals’ input. Teams refrain from making any moves without consulting them. Information gets funneled to and from these individuals rather than being disseminated. It is almost ironic that the most trusted people within organizations can be hidden scalability bottlenecks, not due to poor execution but because they become integral to too much of the organization’s functionality.
Formally, the organization may seem healthy. Reporting lines exist; governance structures remain intact, and processes are in place. Operationally, the company may be held together by only a handful of informal influencers.
When these individuals burn out, leave, are let go, or face internal political isolation, they can significantly weaken the organization’s execution systems. This is one of the underlying reasons why so many organizations can’t scale despite complex formal structures.
The Hidden Politics of Organizational Influence
A major misconception within organizations is that they operate on logic alone. In reality and proven practice, interpretation, emotions, identity, trust, and influence drive organizations. This is where workplace politics come in.
Politics can sometimes have a negative connotation, but in its simplest sense, politics is simply the circulation of influence within systems that have an uneven distribution of authority, resources, and priorities, and every organization has an unequal distribution of influence. The interesting aspect is that influence does not always travel downwards. Influence can travel horizontally, upward, or, at times, completely outside the organizational hierarchy.
According to researchers of informal organizations, there are three ways in which influence is gained:
by positional authority
by expertise
by relational credibility
The former formal structures in organizations can take advantage of hierarchy and authority, whereas the latter systems favor expertise and trust.
This is extremely significant because, despite employees verbally following formal leaders, they may actually look to others for validation, instruction, guidance, and explanation. The outcome is shadow leadership in many organizations. These people officially have no leadership titles, yet they informally coordinate teams, affect and mold company culture, mentor junior staff, influence hiring, and direct operational behaviour. They are the emotional glue of the organization, and organizations usually realize their impact only once they depart; communication breaks down, teamwork falters, trust erodes, confidence corrodes, and morale plummets.
Often, leadership takes the path of believing the issue is operational and cannot pinpoint why it is failing, even though the true culprit is the loss of a central node of relationships.
Shadow Leadership, Institutional Memory, and Cultural Gatekeepers
Informal influence is even stronger when backed by institutional memory. People who possess institutional memory remember failed transformations, lost systems, failed restructuring processes, and broken promises of leaders. They are the cultural gatekeepers.
While these individuals sometimes save organizations from repeated mistakes, other times they preserve antiquated thinking, which impedes necessary change. Their influence, however, is not captured in formal strategies. Regardless of the direction of influence, this individual heavily dictates organizational behaviour. Though a newly-hired executive may have formal authority, a lack of access to their deep trust networks could hinder execution; conversely, long-tenured individuals without executive titles may wield much more influence because of their greater understanding of the organization’s emotional and political history.
This is why external consultants who offer excellent frameworks often fail: they have analyzed the visible organization and ignored the invisible part. The formal structure indicates authority, while the informal structure indicates credibility; the two may not always be the same.
Why Organizational Change Fails Invisibly First
One of the critical takeaways from studying informal organizations is that while technical systems fail visibly, social systems fail invisibly, first through hesitation, withdrawal, silence, and avoidance. This is characterized as passivity disguised as caution.
1) The first signal of change is relational.
Collaboration becomes strictly transactional, people stop sharing information freely, and departments isolate themselves politically rather than coordinating toward a common goal.
2) Then, the second signal of change is control.
The immediate, and often incorrect, reaction of organizations at this point is to add layers of control. More committees, more reporting structures, and more oversight mechanisms are put in place.
3) These first two signals inevitably lead to the third signal of change, which is dilution.
All of these initiatives negatively impact organizations by watering down the trust that is essential for rapid adaptation and change.
Truly successful companies learn to leverage their informal structures rather than ignore them. Instead of asking who holds authority, they learn who influences behaviour. Their strategies focus on communication flows, trust networks, and relational systems rather than solely on reporting lines.
Social Network Analysis and the Rise of Informal Leaders
Today, many organizations utilize social network analysis to uncover the invisible relational dynamics at play within the company.
In the case of the Euris Group, network analysis identified communication networks, expertise, problem-solving collaborations, and hidden organizational relationships within the company. It turned out that the most influential individuals in the organization were not necessarily the highest-ranking personnel, but instead were those who possessed three traits: expertise, problem-solving ability, and accessibility.
The researchers referred to them as “primus pilus” (named after the Roman soldier who directly supported and guided soldiers into battle). It seems an apt modern analogy because often in today’s organizations, the people who lead and truly drive execution are not those who deliver the strategic presentations but rather those who come to the fore when situations become tough: the operators who turn abstract concepts into practical actions, those who can bridge the gap of expertise and relatability, those that act as liaison between information and understanding, and those who reduce system friction.
These individuals are often the de facto stabilizers between high-level vision and practical operations, and failing to acknowledge them has created enormous strategic blind spots for some organizations.
Final Thoughts
The informal organization, as a subset of the main organization, provides a critical insight into the nature of strategy: execution is not only based on structure but is deeply human.
Companies move not simply through reporting lines but through relationships, trust, credibility, memory, identity, and influence. While the organizational chart outlines who has authority, the informal network explains how things actually get done and with what degree of haste.
There are several lessons to keep in mind, but perhaps the most important concerns strategy: namely, that the most powerful systems in organizations are not necessarily those intentionally designed by anyone, but those that develop organically.
