Every organization remembers its numbers: revenue, profit margins, cost of customer acquisition, employee utilization, defect rates, NPS scores, or average resolution times.
Pull open any dashboard, and you’ll see hundreds of highly selective data points meticulously tracking almost everything happening within the business. Organizations today are astoundingly adept at capturing data. However, they often can’t answer simpler questions.
Why is this team performing so well when they are tracking only average productivity metrics?
Why are customers loyal to this account manager?
Why did our innovation efforts grind to a halt when our key engineer left, even though the KPIs remained unchanged?
What, beyond hitting deadlines, contributed to that project’s success?
Some of the most crucial assets any organization holds cannot be conveniently pinned on a dashboard. As conversations naturally become centered around measurable outputs, organizations gradually risk developing a kind of “KPI memory loss” – an inability to recall the details that fail to fit within a given metric.
This is not a criticism of KPIs. Not at all, quite the contrary! Businesses must have these metrics to measure performance, diagnose issues, understand thresholds, and make decisions. The issue starts when metrics become less tools for observing the world and increasingly the world itself.
When Metrics Become Memory
Picture a brand-new manager being hired to run a thriving customer service department. They’ve taken over a fantastic dashboard, their average response time has dropped, customer tickets are being resolved faster than ever, and overall productivity is growing each month. From their perspective, they’ve inherited a picture-perfect operation.
Six months down the line, customer churn is on the rise.
But why? What gives?
After interviewing veteran staff members, the manager learns that agents have stopped investing a few extra moments to build rapport with their customers. All the targets were being met; everything looked fantastic on the dashboard, but they had slowly let the human side of it all slide: those little interactions that helped customers feel like they mattered. There was nothing in the dashboard to indicate this.
Nothing in the dashboard was accounting for this. This is one of the greatest strengths (and biggest weaknesses) of performance measurement: KPIs can highlight things we would otherwise never know, yet they also narrow our attention to an unhealthy degree, turning focus into horse blinders.
As much as an organization obsesses over what it can measure, it begins to overlook everything that it cannot. When people start aiming for a metric specifically, that metric eventually fails to reflect what it was intended to reflect.
You’ve almost certainly seen this play out in a large organization:
A sales team prioritizes quick-close deals over long-term customer value because its quarterly target emphasizes sales volume.
A call center has reduced the Average Handle Time (AHT) by ending calls abruptly, leading to more inbound repeat calls from irate customers.
A software team has achieved a high number of resolved tickets while allowing technical debt to fester in the codebase silently.
An HR team fills open positions faster by prioritizing speed-to-hire, but the quality of new hires drops, leading to higher turnover within the first year.
A manufacturing plant reduces production costs by using cheaper materials, only to see warranty claims and customer complaints increase months later.
The metrics look good, but the underlying reality does not. This often has nothing to do with bad motives or intentions, but more with incentives.
Incentives have been at the basis of human behaviour since the dawn of time. Therefore, if success is defined by what appears on a dashboard, people will focus their attention there. Over time, companies develop excellent memories for metrics but an almost complete memory loss for everything else.
What Gets Left Behind?
Try to think of the best colleague you’ve ever had. What was it about them that made them excellent? Were they the emergency adult everyone called to soothe volatile clients before a situation erupted? Maybe they instinctively knew when a project was careening off course. Perhaps they just knew which other departments would be required long before an issue was apparent, or they just knew how to mentor a junior person in the office from scratch.
Knowing all these aspects, we are posed with a series of questions:
How could you quantify these skills?
How could you put a number on them?
How would they feature on a spreadsheet?
It might not be possible. Is it possible? Is it feasible? Now we are left with more questions than we had before we knew about the aforementioned series!
Let’s take a look at a different example.
What about a company trying to build itself on measurable, trackable KPIs and not much else? We have a massive body of work in knowledge management that draws a line between the explicit and the tacit: the former can be written down and shared, the latter can only be understood and absorbed through experience and judgment, in context, through interaction.
There are numerous studies that indicate that organizations that have solely relied on measurable performance-only systems fail to capture value and knowledge, even in areas that are absolutely critical to long-term organizational success.
Interestingly, it’s often the people who do not appear on many charts in any system, or who have nothing visible to put on a spreadsheet, who make the organization successful.
The experienced cardiac nurse may have noticed subtle changes in the patients’ physical condition much earlier than the monitors do.
The savvy machinist may hear an anomaly in the noise from an old tool and just know the machine requires maintenance.
The proficient project manager might have noticed the relationship between two key stakeholder groups deteriorating well before the tangible signs of breakdown were evident.
The well-versed account manager may recognize that a client is quietly disengaging long before declining renewal rates or negative feedback makes it obvious.
These can be moments where organizational failures are averted long before anyone even sees an indicator on a dashboard. These are moments that create and deliver value to an organization every day, yet remain invisible to most of its people and many of its systems.
The Things Dashboards Cannot Remember
The majority of businesses believe their decisions are based on facts. In reality, they generally base their choices on whatever facts happen to be quantifiable. Culture is one of the clearest examples of such behaviour.
Companies commonly try to measure culture through surveys, retention data, absence rates, and employee satisfaction scores. While such information is useful, culture itself is not a figure. It is actually the unwritten principles and practices that establish whether workers report errors early or cover them up. It’s that thing that makes junior employees feel empowered to question those higher up. It’s that je ne sais quoi that leads groups to readily volunteer their expertise rather than guard it or choose to assist their colleagues, even when no one is watching.
Boiling these activities down to a handful of quarterly data points has the threat of mistaking the map for the land. The same is true of reliance on craftsmanship, mentorship, interest, durability, and expert judgment. Organizations seldom lose these features overnight. Rather, they simply fail to mention them because they stop measuring them and ultimately stop noticing them.
As soon as something is missing from the discussion, it tends to be absent from decisions on the whole. That is possibly the major peril of KPI memory loss: organizations do not intentionally cease caring about what is most important; they become so adept at remembering their numbers that they fail to remember everything those numbers can not tell them.
The Hidden Costs of Measuring Everything
Most companies do not wake up one morning deciding to disregard culture, relationships, or craft. It happens more subtly, often barely perceptible to the senses.
A new dashboard gets added.
An additional KPI arrives.
Quarterly reviews become more number-focused.
Charts, scorecards, graphs, and trendlines support decisions.
Conversations turn to the question of what we can measure versus what we ought to be asking.
It appears to be a reasonable transition. At the end of the day, numbers are objective, are they not? They establish commonalities and help control a complicated organization. However, numbers are also a source of our most profound blind spots.
Think of onboarding. Think really well. While it seems prudent for a company to track the number of days before a new employee reaches full productivity, there are typically no measures around building trust with other staff, the organization’s unspoken rules, or the logic behind past decisions. This results, six months and two seasons later, in a productive individual who, by all accounts, repeatedly makes the exact same mistakes the company had already overcome a decade earlier.
The knowledge had existed, scribbled on meeting minutes or stored in the heads of long-serving staff or within an unheard conversation, but it had never reached the recipient in need. This tendency pervades almost every field of work.
An oil and gas operation may monitor equipment uptime and production volumes with remarkable precision, while overlooking the field operator whose practical experience prevents a minor anomaly from escalating into a costly shutdown.
A government agency can report on service delivery targets and policy milestones with detailed dashboards, yet fail to recognize the informal relationships between departments that quietly determine whether complex initiatives succeed or stall.
A real estate firm may measure listings closed and average time on market with ease, while overlooking the seasoned agent whose local knowledge and trusted network resolve problems before they jeopardize a sale.
A hospital may monitor how long patients wait with a stop clock, yet it would struggle to assess the level of trust a pair of experienced nurses builds.
A legal firm could chart the time partners log on individual cases with great precision, while ignoring the unstructured mentoring that cultivates new associates from rookies to confidants.
A manufacturing operation can track its output by the hour, but may miss the insight of the retired engineer who stops a press before it breaks down, preventing a sensor from triggering.
With all of these cases, tangible output may increase; however, the intangible abilities that support that output go largely unnoticed until they can no longer be ignored.
When Efficiency Begins Replacing Craftsmanship
Nowhere may the dichotomy be stronger than in craft. Craft isn’t limited to woodworkers and machinists – there’s an equivalent for every role. A software engineer’s craftsmanship might not be about delivering features as quickly as possible but rather about writing testable and maintainable code. A customer success manager’s craftsmanship might be recalling some tiny, human detail from a conversation with a customer and using it to make them feel deeply seen. These are habits you practice into being, not lessons you teach into being.
Picture two identical table factories.
One rewards everyone for output alone (units per shift). The other one measures output AND craft (the ability of seasoned employees to mentor and teach the younger ones). Thus, the most experienced artisans have time to think of better ways to practice their craft, and they reject pieces they deem inadequate, even if it slows output, while prepping a new generation that comes after. One year in, the output factory is ahead.
Five years later, the craft factory might have developed an entire workforce capable of creating not just more output, but better & smarter output without sacrificing quality or values. Their competitive advantage wasn’t about today’s output; it was about tomorrow’s capabilities, and quarterly KPIs don’t easily capture them.
It grows over years so subtly you usually only realize it’s gone after you notice its absence.
The Things Employees Stop Doing
Not only do metrics influence what employees do, but they also influence what employees quietly stop doing. Take a veteran project manager who routinely spends their Friday afternoons working through colleagues’ complex, messy projects. There is no metric for mentoring, no dashboard tracking generosity, and no quarterly goal to help other departments meet their targets.
Nevertheless, when the company adopts a utilization rate that values nearly all hours spent on billable activity, the manager is never explicitly asked to halt his mentoring, only that “we’d love for you to be 100% utilization and work your shift’s duration on billable projects”. Over time, the manager has trouble justifying mentoring anyone.
Then, in an instant, poof, it’s gone!
The company gets 3% points of utilization and a loss of something far harder to repair. Moreover, those who, at this point, would be tempted to say “it’s just an individual matter” should remember that a company is made up of hundreds to thousands of living, breathing individuals. It’s not so much that one person stops functioning; entire departments stop sharing knowledge, because collaboration time could be allocated to departmental goals. Managers stop coaching team members because getting stuff out the door right now takes precedence over people’s development and future growth. Employees hesitate to try innovative projects because failed attempts have consequences for their personal evaluations. These things are not deliberate managerial decisions; these are inevitable responses to organizational cues and the incentives we keep mentioning.
Peter Drucker observed well: “What gets measured gets managed.” Yet what is not measured will be ignored, seldom discussed, forgotten, and will surface as unforeseen consequences later on.
When Good KPIs Produce Bad Decisions
The KPIs themselves may not be wrong; they’re just limited. A good metric can become a bad one when it shifts from a guidepost to the destination itself. Organizations of all shapes and sizes have had the same experience.
Software Development
For many years, developers were measured by the lines of code they wrote. On the surface, the logic seemed fine – the more code written, the more productive the developer. Unfortunately, developers were incentivized to write more code, not better code – ye’ ol’ quantity-over-quality shenanigan. Conversely, modern software engineering holds that good solutions often involve writing less code.
Healthcare
Patient throughput in the emergency room is routinely monitored for a range of reasons, not least to reduce wait times and improve access to care.
This metric is clearly important, but clinicians are aware that meaningful conversations, nuanced observations, and shared decision-making cannot always be neatly slotted into pre-set time boxes. Hospitals that focus solely on speed do so at the risk of missing key aspects of care.
Aviation
Even in this highly quantitative field, there is an understanding that not every important thing can be represented by a number.
Commercial airlines meticulously monitor thousands of variables, from fuel efficiency to maintenance schedules. Nevertheless, they spend a considerable amount of time and resources on developing Crew Resource Management (CRM), an approach focused on building communication skills, mutual trust, leadership, and a safe psychological environment within the cockpit. These aspects are not ignored because they are hard to measure. They are carefully nurtured because, as history shows, they save lives.
Automotive
Perhaps one of the most widely known examples in the business world comes from Toyota, the Japanese automaker. The Toyota Production System (TPS) is well known for its metrics and continuous improvement methodology. Concurrently, it also strongly emphasizes people development, encourages employees to halt the line if they detect quality issues, and views improvement as a collective learning process rather than a numbers game. In essence, the numbers do matter, but so do the conversations that occur around them, and that can be easy to miss.
Companies struggling with KPI memory loss tend to assume that if a metric is not displayed on the dashboard, it cannot be strategically important. The healthiest companies take the opposite approach. They understand that the dashboard offers only a partial picture of the organization’s health.
Some of its most vital components – trustworthiness, judgment, craftsmanship, curiosity, mentorship, and shared experience – remain alive, regardless of whether they are measured. The real problem is not whether to rely on numbers or intuition, but rather the failure to remember that one can never replace the other.
What High-Performing Organizations Choose Not to Measure
That raises an interesting question: if some of the organization’s greatest capabilities are elusive to measure, what do the best organizations in the world do?
They can’t just abandon performance measures, right? RIGHT?
Right, they don’t. In many cases, high performers recognize that measurement has its limits.
Take a look at Pixar. For years, the animation studio has turned out films that win hearts and minds and create core childhood memories for parents and children alike. Of course, Pixar monitors budgets, schedules, and production milestones. Yet some of the real magic happens because the company is willing to make room for what can’t be quantified by a KPI: candid dialogue.
One of the most widely discussed Pixar traditions is the Braintrust, a circle of seasoned directors and writers who regularly gather to roast works in progress.
No scores, no charts, no dashboards, no key performance indicators. What matters is genuine feedback, a psychological safety net, and a willingness to push ideas (not people) to their breaking point. The organization creates room for judgment.
Now let’s go back to Toyota for a second.
Not everything gets translated into a number. The famous Toyota Production System may be well known for its metrics and focus on continuous improvement, but one of the company’s enduring guiding principles is respect for people.
Its workers feel empowered to halt a production line when they spot a flaw not because a performance measure mandates it, but because their judgment is trusted and valued.
This doesn’t mean that Toyota avoids measuring. It has more to do with the fact that it appreciates that its greatest assets reside alongside its measurements, not within them. That theme will appear time and time again across top-tier companies.
Experienced executives don’t just ask, “What should we measure?” ❌
They ask, “What do we need to keep talking about even if we can’t measure it perfectly?” ✅
Beyond Dashboards: Remembering the “Why“
One theme that echoes throughout the literature on organizational memory is that organizations are pretty good at recording what happened. They’re a whole lot worse at remembering why it happened.
Minutes of meetings show what was decided, project plans show when the decision was made, dashboards show what the result was; however, even with all that, the reasoning behind the decision (the trade-offs it required, the alternatives it rejected, the hunches it relied on) often remains elusive.
Think about walking into a company where the same customer policy has been in effect for a decade. Everyone adheres to it, but nobody knows why. Its memory has been lost among dusty desks and cramped file cabinets. A manager suggests tweaking it, as it seems stale and no longer aligns with the organization’s current state. Their peer protests that “it’s always been done this way,” yet none of them can tap the original logic behind it all. It’s not just that information is missing. The entire context for the origin of the information is missing.
This is the plight of most KPIs as well.
We recall that our customer satisfaction score dropped four points, and not that our recent reorganization had frayed our client relationships months prior.
We recall that productivity grew by 12%, and not that our employees started shunning one another to get there.
We recall that costs declined, but not which abilities those reductions simultaneously hobbled.
We recall that revenue exceeded its target, and not that a handful of unsustainably large discounts drove it.
We recall that safety incidents declined, and not that workers had become increasingly reluctant to report near misses.
Numbers capture results or the end product. Stories capture context or the journey to said end product. The best companies value both.
Building Organizations That Remember More Than Numbers
None of that is to say that companies shouldn’t measure less. Often, they should probably measure better. A balanced performance system understands that metrics are evidence, not adjudication.
When your engagement metric drops, it should start a conversation, not conclude it.
When your productivity metric improves, you should question your leaders: “What did you change? What may have suffered as a consequence?”
In the same way, when there’s an unexpectedly great result, don’t just look at it on a celebratory dashboard and gloat to everyone near & dear. Dig into it: What did we do differently to get here? Was it more collaboration? Did a senior, intuitive employee make a gut call at just the right moment? Did the team have enough faith in each other to say, “Hey, this isn’t working?”
Some companies consciously strive to keep institutional memory alive through mentoring, after-action reviews, storytelling, communities of practice, intergroup collaboration, and discussions focused on reflecting on the past. These are more than just tools for transferring knowledge. They are tools for transferring judgment because, as the adage goes, judgment doesn’t live in the data alone. It lives from person to person, conversation by conversation.
Final Thoughts
Performance management has revolutionized modern management. Organizations would have a hard time understanding performance, gauging results and failures, allocating resources, or identifying potential risks without KPIs. The use of metrics remains the strongest lever available to leaders. However, every tool has its limitations.
A map shows us the path around a city; it’s not the city itself. Likewise, a dashboard illustrates organizational performance; it’s not organizational performance itself. Organizational performance is much more than just mere engagement numbers; leadership is much more than productivity metrics; organizational innovation is much more than just the number of ideas spewed forth by lateral thinkers; organizational customer loyalty is much more than Net Promoter Scores, and our organization’s memory is much richer than any data we collect in reports and dashboards.
The single largest risk may be that we measure too much, rather than recognizing that there are more ways than measurement alone can provide. Organizations do not become exceptional by quantifying everything; they become exceptional by discerning what must be quantified and what must be conversational, observant, coached, and trusted.
Numbers tell us what happened; people explain to us why the numbers happened.
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Modern organizations are obsessed with measurement. Pop into virtually any executive meeting, and you’re likely to find glowing dashboards, reports, infographics, charts, and scorecards packed with performance metrics.
Revenue growth, customer satisfaction, engagement, productivity, utilization, retention, cycle time: if it can be quantified, it’s probably being tracked.
This is the Official Market, or what organizations buy and sell in an attempt to take the inherent complexity of business and turn it into something understandable: reports, scorecards, dashboards, intelligence platforms, and Balanced Scorecards.
Business needs complexity to transform into something manageable. Leadership must see into what happens everywhere in the organization, and metrics give teams a common language to express how they perform. Formal metrics are the right tool for holding employees accountable and for allowing leaders to assess the performance of individuals or teams against others over time.
Yet the potential harms of overreliance on formal measurement systems aren’t merely abstract or as far-fetched as many make them out to be.
Natlia Cuguer-Escofet, a researcher at the University of Pompeu Fabra, and Josep M. Rosanas at Universitat de Barcelona analyzed a set of cases in which performance management systems, when implemented rigidly, led to unintended outcomes, including cases from Spanish banks in the period leading up to the 2008 crisis.
In one such instance, a manager who was resistant to escalating loan-making practices was moved out of a position where loan decisions could be made, despite being given a promotion (in the form of an increased salary and improved office space).
In another instance, a board member who was hesitant about an asset’s value was reluctant to express his reservations because the organization’s incentive systems largely tied everyone’s performance to profit. The performance systems were working as they were designed to, but their output was discouraging decision-makers from making professional decisions when they were most needed.
The takeaway from these scenarios isn’t that measurement is itself flawed; it’s that every organization’s performance system will eventually hit a ceiling where it can’t foresee every contingency. When they become overly committed to using objective indicators, organizations risk inhibiting the human intelligence that might warn them of a problem before it shows up in the results.
The crux of the problem isn’t so much a reliance on measuring performance; it’s the assumption that measurable equals significant.
Organizations are often obsessed with measuring metrics, even though those same metrics sometimes do not truly matter to an organization’s success. These metrics aren’t designed to provide a clear picture of why something is or isn’t working; rather, they simply demonstrate what is going on.
They aren’t about showing how frustrated customers are; instead, they show that the satisfaction level has fallen. They aren’t about the employee turnover going up but about what has led to employee discontentment over time. An organization’s ability to identify the causes of declining numbers is critically important, yet metrics cannot illustrate the complexities driving performance from the bottom up.
This weakness is exacerbated, in many cases, by the fact that metrics are, by their very nature, selective. Each KPI necessarily prioritizes some aspects of performance while overlooking others. Organizations use metrics to measure performance based on what they perceive as critical, yet the business environment and consumer expectations require new perspectives. The KPIs organizations rely on may therefore cease to align with the reality on the ground.
It is simply a matter of fact that metrics are better indicators than drivers. When the system measures certain behaviours and outcomes, employees quickly adapt by doing what the system wants them to do. When employees are measured on customer service call time, for example, they learn to hang up with customers as quickly as possible rather than solve their problem. Metrics lead us to manipulate an organization’s output through what we measure, even if what we measure isn’t indicative of success.
“The problem isn’t a measurement one; it’s a knowledge one. You can know the velocity; you just don’t know where you’re headed, and therefore you just don’t know what to do, which makes managing impossible.” – Jeff Bezos
This system of performance relies upon measurement for decision and action-taking but neglects the human aspect; instead, it relies on information that is already visible or reportable. The challenge is that all of this is usually evident on a dashboard if it is tracked or measured.
With that said, not all aspects of the performance in the workplace are quantifiable:
Trust is hard to measure
Honesty cannot be quantified
Creativity or foresight doesn’t have to be demonstrated on a chart
These are not all reflected in The Official Market, as every metric, KPI, report or business scorecard makes choices about what’s relevant and what isn’t.
Sadly, by focusing solely on what we can readily identify as critical and important, many organizations inadvertently start to devalue or even ignore areas they cannot easily quantify. That, it has been said, means the information in their reporting systems may be missing valuable pieces or even be flat-out misleading.
One example is a business intelligence system that tells people how busy employees were in the office (measured by time spent at the desk, use of specific tools, etc.) but does not measure the outcomes of that work. This system has become completely removed from the actual outcomes that would determine whether employees were actually working effectively or not.
In such instances, organizations become overly dependent on such formally measured criteria and risk suppressing human judgment or observation that would otherwise point them toward a problem early on.
The Black Market
There’s one in every organization.
It might not show up in your year-end results. It might not be mentioned in a quarterly review. It definitely will not be in your executive dashboard, but nearly everyone in the company knows it.
This is the KPI Black Market; this is where you would go when your formal measures do not tell the same story. The name is controversial, but it should not be when people search for additional data to navigate a complex business. If an organization goes to great lengths, many beneficial ideas may fall outside measurement standards.
The Conversations That Never Make the Dashboard
Companies have invested significant resources over the past few years in business intelligence tools that afford a live view of operations. However, much of an organization’s most useful intelligence still travels via conversation.
A sales leader hears multiple account managers mention the same customer pain point.
A product leader notices an increase in “what is that for?” type questions about a new feature.
A team lead finds conversation in their team’s hushed post-all-hands meeting.
A customer success manager starts hearing unusually similar wording in otherwise unrelated client calls, hinting at a shared frustration that hasn’t been logged anywhere yet.
A regional manager notices that high performers are suddenly asking more “confirmation” questions instead of making autonomous decisions.
A project lead observes that status updates remain technically positive, but the tone of delivery shifts: shorter messages, fewer details, less narrative confidence.
An HR partner hears recurring “soft exits” in development conversations – people talking more about uncertainty, optionality, or “keeping an eye on things” rather than commitment.
Those aren’t standard metrics, but they often show trouble before it hits the Profit & Loss (P&L).
That’s partly why leaders place so much importance on informal conversation – it’s where emerging signals like doubt, disappointment, enthusiasm, and apprehension get aired while they’re still in their most formative (and useful) stage.
Once a signal is a metric, it’s already past the critical inflection point. That is due to the fact that dashboards chronicle what happened, while conversations signal what’s about to happen.
We write down and archive at an unforeseen speed, yet much of our knowledge is often contained…elsewhere. That knowledge often moves through the Black Market, with almost blinding celerity.
The Mental Dashboard
Try asking an experienced sales leader what will make the quarter miss your target. They often start with “I have a feeling.” It’s the kind of thing a data scientist will probably break out maniacally in a feverish rash at the sound of it.
How can they predict they might miss when the company invests millions in data and analytics to give you objectivity?!
However, the data science in judgment and forecasting actually supports this kind of intuitive forecasting: experts use intuition often not at random but rather to detect patterns that may not show up explicitly and may even be unable to be easily and systematically articulated, due to experience (e.g., having interacted with customers, products, markets, negotiations, and company stakeholders), which can be more sensitive to some cues than others.
You might experience it as a feeling or a sense:
A salesperson feeling the heat because customer engagement seems “off” but has not yet been captured by metrics.
A regional manager in your organization who believes they sense unusual nervousness in the sales reps during customer interactions.
Customer success may note that the typical post-demo and pilot behaviour among clients has changed slightly, but it is not yet affecting metrics such as engagement and churn. In these kinds of instances, they are not officially being recognized by your data platform.
Yet these sorts of signals often influence forecast judgments, however indirectly. Leaders, in essence, operate with two dashboards: one that they see on their screen and another that resides in their head.
One is evidence of what is happening. The other is the interpretation of what’s happening. Neither works well without the other.
The Spreadsheet Nobody Talks About
Perhaps one of the most unaddressed elements of organizational life is the presence of shadow forecasting mechanisms.
Officially, there’s an organization’s forecast. Unofficially, there often exists a second forecast, which may exist in the form of an individual’s private spreadsheet, in an individual’s notebook, or through individual or team discussion.
It is likely, in some form, that this meeting has been heard in every organization where one exists.
The company forecast is presented.
The numbers look perfectly healthy.
Then inevitably someone pipes up, “OK, but what do we actually think?”
The line dividing the Official and Black markets is drawn with that phrase. The Official forecast might be the organization’s most formal assessment, but the Black Market forecast often represents a compilation of individual experience, customer issues, the news and anything else that doesn’t easily lend itself to tabulation.
It’s curious that shadow forecasts don’t necessarily always compete directly against official outputs. Indeed, they can arise as employees try to circumvent gaps they see in the official mechanisms. The fact of there being a spreadsheet doesn’t necessarily matter, since it is the quest for a depiction of reality that people believe in.
Tribal Knowledge and Unofficial Indicators
Arguably the hottest currency in the KPI Black Market is tribe experience. Most organizations have individuals who seem to be aware of certain things well before the rest of the population becomes aware of them. Those individuals understand which projects are real and which generate polished-looking status charts. They can usually predict the top truly unserved and unhappy customer base even before official complaints surface.
Such employees know which operational hazards warrant attention, even when they do not appear in risk analyses. What’s truly fascinating is that these fellows often don’t even have access to data; however, they have contextual gut feelings. By virtue of experience or informed hunches, they understand and see patterns that systems simply can’t capture.
These people remember what happened last time. They recall the anger, the shouts, the boasts, the merriment, or the frustration. They are living archives, in a sense. As such, organizations often defer significantly to individuals who cannot effectively translate the value of their insights into metrics, yet that value is very much there.
This then creates an interesting paradox.
On the one hand, companies may champion objectivity; on the other hand, in uncertain environments, they often turn to sources of experience who, by their nature, are not subject to objective measurement systems. Similar principles are evidenced in how folks make decisions in the informal universe on a day-to-day basis.
Managers observe how quickly answers are transmitted for questions and inquiries.
Account teams pick up on the customer’s emotional tone rather than on official customer satisfaction reports.
Product team leaders keep their eyes on the number of surprises.
Executive team members will note when the “unhappy camper” stops raising their objections.
These signals often aren’t included on charts but have a tremendous impact on decision-making, at times having a significantly greater impact than the official scores themselves.
Why the Black Market Exists
It may be tempting to see these informal arrangements as proof of the ultimate failure of formal measurement. This is a faulty assumption that relies on a complete misunderstanding of the very premise. The existence of the KPI Black Market signals that organizations are, ultimately, human systems operating in contexts far more complex than can ever be fully captured by numbers.
Dashboards cannot account for every variable. KPIs cannot enumerate every risk. Reports cannot portray trust, morale, judgment, intuition, confidence, or culture. When people and groups try to find order in increasingly chaotic surroundings, it is natural that they create complementary information systems – the KPI Black Market – that support and backstop formal systems. The KPI Black Market is thus not a conspiracy against data, but a very reasonable response to its ultimate shortcomings. It is a natural evolution of a most logical process.
Perhaps the most important irony is that most organizations already rely upon the inputs of this unrecorded channel: they simply do so informally and under the table.
The highest-trusted and most timely signals usually originate elsewhere – between peers, during hallway discussions, through personal observation, or based on embodied tacit knowledge. The KPI Black Market is more prevalent in complex environments where reality is perennially richer than our metrics, and, more generally, in organizations that have simply done too poor a job of creating formal indicators.
What Should Leaders Do About the KPI Black Market?
The existence of the KPI Black Market does not, of course, suggest that companies should discard their dashboards, scorecards, or formal reports. Au contraire!
Formal measurement is crucial if organizational performance is to be consistent and comparable, and if accountability is to be meaningful rather than arbitrary, and so much so that the Official Market is an essential part of organizational life.
The problem isn’t that organizations formally measure performance; it’s that they treat formal measurements as complete representations of reality rather than partial ones.
Great leaders recognize that the best dashboard or scorecard cannot do their thinking for them, but can help them think, and that, in addition to the question “What does this metric say?”, a second question needs to be asked.
“What’s missing from this metric?”
A necessary shift in focus leads to the treatment of signals and the observations of employees as information & value, not noise. The aim here isn’t the wholesale abandonment of measurement, but the supplementation of metrics by insight.
A similar approach can be found in the management literature, and the argument has long been made that formal management controls necessarily contain gaps that must be filled by managerial judgment, a concept of “informal justice”.
In essence, such judgments may allow us to question the validity of a metric because it has not kept pace with changing circumstances. Perhaps the easiest way in which to undertake a measure of diagnosis is for a team of leaders to take the time to ask management to list all of the things that management considers important, and then see what doesn’t appear on the board.
Final Thoughts
It is increasingly common to portray organizations as rational, analytical, almost-organic beings in which decisions are data-driven, and metrics are king.
To a certain extent, this is true. Most of them are, indeed, social entities – powered by the experience, intuition, confidence, and understanding coming from their members. Such a sentiment would be historically true as well, as it was the case well before dashboards existed – managers trusted their intuition and vision. Long before business intelligence platforms were born, people discussed and understood their environment to proceed forward, even when uncertainty loomed like an overcast sky.
Although our reporting tools now offer unprecedented visibility, this doesn’t deny the need for those implicit ways of leading teams to progress. Frankly speaking, they simply shouldn’t impede this.
It would be a naive mistake to assume all critical variables can be measured, as the key predictors of an organization’s success are sometimes elusive to quantification. These signals originate from talks, gut feelings, interactions, observations, and events, which never exactly translate onto a metric dashboard.
However, leading companies leverage both, sometimes in equal measure, and often to great success. A dashboard illustrates the past, while those close to the business can provide current-state insights and often foresight.
This is the key takeaway one should derive from the KPI Black Market. The real value is found where the most trustworthy predictors remain off the official dashboard.
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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.
Many companies end up in a failure state because people believe it is due to poorly formulated strategies, when in fact many already possess decent-to-good strategies, yet fail to move the needle beyond the predispositions, processes, and priorities that served their past incarnation.
For example, a company may shift its strategic focus, but its KPIs reward old behaviour; its leaders declare transformation, but its middle managers still receive rewards based on old targets; it adopts new technologies while utilizing processes established for non-existent markets.
These contradictions slowly and imperceptibly build up over time, forming a phenomenon known as strategy debt.
In many ways, it is the equivalent of technical debt in software: the price organizations pay for the impact of previous, now-obsolete strategic decisions, inherited assumptions, legacy priorities, and previously resolved choices that continue to exert influence on their present state.
However, unlike the clearly identifiable problems in operations, strategy debt can lie hidden for many years. It may even happen that a business might encounter strange misgivings when implementing its new strategy because the old one simply never left the room.
As markets evolve and accelerate, strategy debt has emerged as one of the most significant and unrecognized hurdles to progress and execution. While businesses are unlikely to fall at a single catastrophic misstep, many suffer over time as their ability to adapt declines, even while they continue to optimize for the realities of the past.
Think of it like a car that slowly accrues one too many fittings & components that grind against each other. Just one won’t cause a crash; one hundred, however, start to become a significant livelihood problem. This is eerily similar for businesses, too!
This reality can be unsettlingly mundane: the staff are so accustomed to the competing priorities, overlapping processes, interminable alignment meetings, and initiatives no one seems to question anymore that it feels completely normal within the business.
The business still moves; it just moves slowly, weighed down by sluggish decision-making and languid initiatives, to the point where its very livelihood is endangered.
This introduces decision debt.
Every strategic decision is associated with assumptions made when it was initiated. As markets speed up, this timeframe shortens and assumptions quickly become obsolete, continuing to impact new realities in unintended ways unless reconsidered.
This results not in immediate collapse but incremental strategic dragging, and by the time the organization recognizes the issue, the debt has already compounded tenfold.
How Organizations Build Strategy Debt Over Time
Organizations do not normally set out to build strategy debt; quite the opposite, in many cases. Companies often attempt to foster stability and predictability by adhering to established procedures and objectives.
Traditional business strategy was once based on stable conditions. 5-year plans, annual forecasts, hierarchical structures, and fixed performance systems seemed logical in periods when market shifts were predictable and gradual.
Now, the business environment is drastically different.
Consumer behaviour changes rapidly, technologies can reshape entire industries overnight, competitive advantages erode at unprecedented speed, pivots can introduce completely new competitors where there were few before, yet many businesses still operate under strategies built for a more gradual, incremental landscape.
This marks the first noticeable layer of strategy debt: outdated assumptions and conditions become permanently embedded in an organization’s structure.
A KPI implemented three years prior, for instance, might still dictate behaviour today, despite significant shifts in the company’s business model. Similarly, a customer profile crafted earlier in development may continue to inform research, product iteration, sales, and marketing efforts, even though it no longer reflects the ideal target audience.
These inherited strategic choices gradually become ingrained in an organization’s DNA, amplifying decision debt.
Decision debt is the accumulation of past choices whose context is no longer relevant. The decisions themselves may have been sound at the time, but the organizational process for evaluating or challenging them has not evolved, leaving them in place beyond their useful lifecycle.
This can explain why some organizations appear highly dynamic and engaged yet produce minimal tangible progress. They are not failing to execute the strategy; however, the strategy they are executing may be obsolete.
The irony is that, more often than not, a company’s success makes it particularly susceptible to strategy debt. When a strategy is proven to be effective, companies naturally build systems around it: processes are optimized and standardized, key metrics are deeply ingrained, silos are segmented as expected, and entire departments are built to replicate success.
The more successful a company has been historically, the harder it is to challenge its underlying assumptions, particularly when it tries to transform. The barrier is not just implementing a new strategy; it is dismantling the influence of the old one, which is a far more difficult challenge.
The Silent Costs of Strategy Debt
One of the biggest misconceptions about strategy debt is that it’s limited to long-term, strategic discussions.
In reality, it can quickly become an operational problem: employees feel overwhelmed by competing priorities; managers can’t translate strategic intent into concrete actions; departments are unknowingly at cross-purposes while pursuing the same goals.
The organization is busy, but progress is slow, and strategy debt creates friction across the business.
1) One common symptom is initiative overload.
Companies accumulate more and more projects, frameworks, priorities, and transformation programs without retiring old ones. In other words, new strategic directions are piled on top of existing ones instead of replacing them. Employees are forced to build tomorrow’s company while also keeping yesterday’s business alive.
The result is a chronic strategic gridlock that functions in an unbalanced state.
2) A second symptom is decision paralysis.
When assumptions are no longer retired, organizations find themselves constantly complicating decision-making.
Employees spend a great deal of time seeking consensus on strategy because each department operates on a different strategic foundation. Sales might focus on revenue growth, product teams on retention, operations on efficiency, and leadership on innovation. Nothing here is wrong per se, at face value.
However, we now run into the problem that the organization has never explicitly identified which goals are most important in today’s environment and which are not.
As a result, we sit in a state of simulated agreement.
Middle managers feel this pressure the most. They are caught between dynamic leadership expectations and immobile operational systems tied to outdated strategies, and it’s often their job to deliver organizational change while maintaining expectations built on old strategies. The cumulative result is employee burnout.
Now, to be clear, this doesn’t happen because employees don’t want to change, but because they’re trying to balance many competing strategic identities.
3) A third symptom is quite an insidious problem: reinvention work.
We find ourselves rebuilding old processes, decisions, initiatives, methodologies, techniques, and systems because the original intent isn’t well-documented. Employees leave, institutional memory fades, procedures become bogged down in a muck of paperwork, and the organization is forced to play archeologist to recall why this system exists in the first place.
A surprisingly significant part of operational inefficiency comes from this.
Meetings take longer; action plans now sprawl over several months instead of weeks; decision-making requires more scrutiny; teams avoid risky actions because the underlying strategy is unclear.
Now the organization loses another critical factor: decision velocity, and in today’s markets, slow adaptation is more dangerous than an imperfect decision. A flawed decision can be recovered with agility; an organization slowed by accumulated strategy debt can’t.
Warning Signs Of An Organization Optimized For Yesterday’s Market
Strategy debt usually doesn’t reveal itself through dramatic pronouncements; instead, it’s a subtle process that becomes normal over time.
A) A clear indicator is repeated strategic discussions that don’t result in definitive decisions.
Leadership meetings are consistently stuck with the same questions and topics each quarter. Discussions don’t lead to clarity; they just keep going because the organization is stuck between its past assumptions and current realities.
B) “Zombie projects” are another warning sign.
These are projects that aren’t truly abandoned, nor are they properly completed; what’s more, they seldom truly become formally canceled. They linger in organizational consciousness and continue to drain time and resources because no one wants to be the one to finally pull the plug finally.
Companies with heavy strategy debt almost invariably suffer from an abundance of such projects.
C) Strategic language bloat becomes commonplace.
As strategy becomes less concrete, words like “digital transformation“, “customer-centricity,” and “innovation acceleration” become ubiquitous while being progressively less aligned with real work.
The more vague the actual strategy becomes, the more words people use to fake alignment. Employees are usually aware of this long before management.
D) A heavy reliance on historical best practices is yet another indicator.
The organization insists on evaluating new business opportunities against the conditions that applied in the past. Leaders still measure new opportunities against the same customer profiles and old assumptions that were effective in the past.
Rather than adapting its strategy to the market, the organization unconsciously tries to fit the market into its strategy. This is often where growth grinds to a halt.
E) Cultural implications also apply to strategy debt.
Risk-averse cultures often persist despite the organization’s claims to foster innovation. Employees become hesitant to challenge old processes because they are directly linked to historical success. “It’s always been done this way” becomes more than a bad habit. It becomes an instinct for self-preservation.
This can happen within companies that still claim to be agile and adaptive. The organization outwardly embodies the concept of change but structurally resembles stagnation.
F) A truly dangerous portent is when the strategy planning process itself becomes a performance.
Employees attend workshops without any real expectation of meaningful change. Strategy is observed as a ritual rather than enacted as a plan.
At that stage, strategy debt is no longer just a drain on execution. It is an erosion of trust, and once employees no longer believe that strategic change is possible, the organization’s ability to adapt will collapse from within.
How Organizations Can Cut Down Strategy Debt Before It Strangles Growth
This doesn’t mean organizations should stop thinking about the long term.
The company still needs direction, priorities, planning, and strategic intent. However, modern strategy demands an approach different from the rigid strategic planning models most organizations have inherited from a bygone era. The best-run organizations treat strategy as an iterative concept rather than a perpetual one.
Instead of presuming the original strategy will hold true in the long term, they establish mechanisms to continually reassess assumptions and update priorities as the business environment evolves. In other words, they actively manage down strategy debt.
One method is to conduct regular “strategy debt audits“.
I) The purpose is to examine all the major strategic decisions taken in the previous twelve to twenty-four months and pose one seemingly obvious question: “If I were taking this decision today, would I still do so?“
Few organizations take time to re-examine old decisions, unless an immediate crisis necessitates their review. This is a mistake that many managers simply glide over.
II) Another essential aspect is the segregation of actual strategy and inherited inertia.
Companies must identify which activities, reports, KPIs, and operational models continue to support current objectives, rather than those that persist because no one ever bothered to examine them. This, however, demands knowledgeable & charismatic leadership.
Letting go of past objectives can be difficult because organizations tend to imbue past strategies with emotional significance (especially if they were once effective). It makes sense – organizations are made of people, and people are emotional beings first and foremost who look to latch onto security reasons before speculative efforts.
However, failing to replace outdated systems generally incurs higher future costs.
III) Organizations should also normalize “kill lists” for strategies.
Just as businesses create roadmaps for launching new ventures, they should create specific lists of priorities that they will actively stop pursuing. Strategic subtraction can be as important as strategic addition.
IV) Preserving context is another crucial improvement.
Most organizations simply don’t document decisions sufficiently. They record outputs, not insights. Their successors end up inheriting conclusions without understanding how they were reached.
Understanding why a decision was made can often be more important than understanding what the decision was. After all, circumstances will eventually change, and organizations must retain the ability to challenge past logic rather than mindlessly follow past decisions.
V) Finally, organizations must embrace adaptive strategy execution.
The most resilient businesses today are not those that perfectly predicted the distant future. They are those who can adjust rapidly without causing organizational confusion. This means creating operational and mental flexibility.
Modern strategy is less about rigidly defined plans and more about building organizations that learn constantly. After all, the biggest strategic risk in today’s environment is not making the wrong decision; it is optimizing for decisions that have long since become ineffective.
Final Thoughts
The biggest danger of strategy debt is that it is usually not created by error.
The majority of strategy debt originates from perfectly logical, even effective and successful, decisions made in the past. That is what makes them dangerous. Companies tend to become emotionally attached to the strategies that made them succeed.
However, business markets change far more quickly than organizational inertia. In time, past strengths will inevitably turn into present weaknesses.
The most adaptive companies will not be those that were the most foresightful; they will be the companies most willing to challenge outdated assumptions and priorities, and to re-evaluate decisions when they no longer serve the purpose.
This requires a shift in the company culture. It involves a transition away from a fixed, immutable conception of strategy towards a more fluid, iterative learning process. It requires acknowledging that every strategy decision has a life span. Some expire rapidly; others last much longer. None should be permanently exempted from reassessment. After all, strategy debt compounds silently.
Initially, this appears as minor operational disruptions, shifting priorities, or a decline in velocity. Ultimately, it can evolve into a more pervasive issue, one in which the company can no longer adapt as quickly as its environment demands.
In today’s environment, the ability to adapt is not just a strategy; it is strategy itself.
Bridging the gap between strategy and execution requires more than intent—it requires the right frameworks and capabilities. Enroll in the Certified Strategy and Business Planning Professional and Practitioner program by The KPI Institute to learn how to align strategy, planning, and performance for meaningful organizational results.
Most organizations love the idea that strategy happens at the top: executives develop it, and employees on the ground execute it. Things somewhere in the middle just work. We wave our hands, and like magic, processes fall into place.
Well, that’s not exactly true. Somewhere in the middle is exactly where most strategies succeed or fail.
Across all industries and studies, one pattern rears its head again and again: well-designed strategy rarely translates into actual output. It isn’t so much that the vision is wrong, per se; it is simply a matter of losing it along the way, of it being diluted or misunderstood.
That gap between intent and output lies where middle managers work. Enabling or neglecting them often dictates whether change will take hold or fade under its own weight.
In this article, we delve into this critical role by drawing on diverse views on change management, strategy execution, and leadership behaviours. Each section looks at this issue from a different angle; all reflect the same truth: middle managers aren’t merely intermediaries-they are the mechanism by which strategy takes shape in organizations.
The Strategic Translation Layer: How Middle Managers Turn Vision into Action
While an organization’s strategy defines what it wishes to achieve, it is middle managers who help transform that vision into something understandable and executable.
They occupy a unique position in organizations: positioned above are executives focused on strategy and priority-setting; below them, employees face the challenges of day-to-day operations. It is this dual orientation that grants them the detail executives often lack: context.
They are attuned to what leadership wants and what employees can realistically achieve.
Their ability to both translate strategy into executable plans and adjust plans to the realities of the work lies in their interpretation and adaptation of information from above and below. It is quite akin to alchemical transformation.
Studies and research consistently cite the translation role as critical. Employees’ understanding and belief in strategy correlates with performance gains, whether measured by revenue, engagement, job satisfaction, or customer experience. However, almost every time, without fail, understanding tends to stem not from the top but from above.
The irony is that strategy often never reaches the middle clearly. Managers often say they are not entirely confident in communicating strategy because they don’t fully understand it themselves. This deficit can ripple outward; the entire organization becomes unclear when the middle is unclear.
In sum, strategy fails not at the design stage, but at the translation stage, and this translation layer usually resides with middle managers.
From Resistance to Alignment: How Change Spreads Organically Inside Organizations
Despite having a strategy at the top, people will rarely fall in line spontaneously. Change within organizations is not a rational, top-down endeavor; rather, it is inherently social and emotional.
Initially, there is likely a division among middle managers. Some champion the new strategy, others defend established procedures. Each response is a common feature of this stage. However, with time, a subtle change occurs.
Initially reluctant middle managers may come to realize that even deeply cherished practices and systems will not persist in their current form without adaptation; innovation may actually be the means of preservation. As this occurs at the individual level, influence begins to be driven by credibility rather than by authority alone.
When a well-respected middle manager adopts a new perspective, it serves as an influential model, drawing followers and shaping the organization’s discourse around the strategy. The transformation begins to gain organic momentum, spreading not through directives, but through personal relationships and evolving consensus.
Eventually, the organization may realize that innovation and tradition are not necessarily antithetical and that alignment can provide the foundation for bridging them.
Organizational change is an emergent phenomenon rather than an announced decision. It evolves in the middle layers of leadership. As a result, organizational change rarely occurs rapidly; however, it is usually the long, slow process within middle management that results in the enduring transformation of an organization’s overall culture.
Why Strategy Fails: The Under-Discussed Problem of Alignment
Executives tend to view strategy execution as a technical problem – a matter of disciplined execution. In reality, it is almost always an alignment issue.
A) Vast studies have consistently shown that many of a strategy’s failed initiatives were not based on flawed ideas but on an inability to ensure consistent implementation. The literature frequently reports strategy implementation failure rates ranging from 50% to 90%, although these estimates are debated and vary across pieces of research.
This metric doesn’t reflect intellect or diligence; it reflects a breakdown in alignment and clarity.
Often, leaders see the strategy as transparent, while employees, and particularly middle managers, experience it as ambiguous or fragmented. This disconnect, a wide chasm between top-level confidence and the reality below, renders the strategy powerless. Instead of directing action, it becomes abstract material in presentation slides.
B) Another factor leading to failure is prioritization: where strategy is unclear, every initiative appears vital. Where all initiatives are vital, no single effort receives the attention it deserves.
It is middle managers who, day in and day out, must navigate this contradiction; they are the individuals making real-time choices about where effort and resources will be directed. They don’t merely execute strategy, but adapt and interpret it.
Indeed, alignment matters far more than planning. No strategy, however ingenious, can survive long-term failure to align the organization. Strategy fails not because of popular opposition, but because of differential experience with it across different parts of an organization.
The Reality of the Middle Manager’s Role: Pressure, Ambiguity, and Overload
It’s a lot more comfortable to use words like “bridge” to describe middle managers than to be comfortable with what this feels like.
Middle managers operate in two directions at once:
They are recipients of directives on strategy, mandates for transformation, and performance targets.
They are also simultaneously dealing with team members’ issues, capacity constraints, execution realities, and their own team’s morale.
That combination creates a structural tension that is difficult to resolve.
A primary factor in this challenge is role ambiguity. How much autonomy middle managers actually possess often becomes unclear.
Are they strictly implementation-focused, or is the implementation adaptable to the reality of the work? How accountable should middle managers be for things beyond their direct control?
Lack of clarity about how much discretion they have inevitably leads to overload. Without clear boundaries, it becomes impossible for middle managers to distinguish between urgent and important, leading to more reactive rather than strategic prioritization of activities.
The capability gap is another widely overlooked issue. Moving from operational leader to translator of strategy requires a fundamentally different skill set. This mental shift is rarely formally part of a middle manager’s promotion and development plan. Middle managers are frequently promoted based on their ability to execute and are expected to become capable strategic communicators and leaders of change immediately.
The result is the expected: stress, fatigue, strain, burnout, and disengagement.
It does not just affect individual middle managers. Lower productivity, scattered priorities, increased staff turnover, and a weaker alignment between middle management and the overall strategy are all byproducts of middle manager overload within an organization.
In other words, the pressure on the middle layer is a systemic challenge, not just for individual managers.
Making Strategy Work: Enabling Middle Managers
Given the importance of the middle manager layer, the question arises: why do organizations underinvest in it?
In most cases, the answer is a combination of inertia and an overemphasis on strategy design, with a laissez-faire approach to execution, assuming it will happen automatically.
However, nothing could be further from the truth.
The most effective method to improve strategy execution isn’t more strategy – it’s stronger enablement for those who translate it into reality.
1) The first crucial step is clarity of role and expectations.
Managers need to understand precisely what will be asked of them, which decisions they own, which must be escalated, and what successful execution looks like in practical terms.
Uncertainty and ambiguity lead to either constant over-escalation or boundary overstepping.
2) Second, capabilities must be developed.
Strategic execution requires much more than the ability to complete tasks. It relies on strong coaching and change management skills, so investment in development in these areas cannot remain just a nice-to-have option if consistent execution is the objective. It is mandatory, if one cares for the success of their business, that is.
3) Third, leadership alignment is critical.
If, on the one hand, middle managers are viewed as merely messengers, they cannot provide valuable feedback to those who designed the strategy, and their engagement in the process will be low.
If, on the other hand, they are valued for the insights they can provide on the ground, they will provide valuable input to the strategic planning process.
4) Fourth, the organization needs feedback loops that work in both directions.
Managers need to effectively communicate execution challenges upwards, while leadership needs to clearly articulate the strategic rationale downwards.
Without an effective two-way feedback structure, a series of distortions emerges, leading each successive level to hear a modified version of the intended strategy.
5) Finally, rewards are important.
Organizations signal to their employees what is valued by reinforcing both operational execution and transformation. Recognition for change leadership rather than just task completion ensures that the challenging work of strategy implementation is integrated into everyday performance.
With these conditions, middle managers transform from overburdened intermediaries into powerful drivers of organizational direction.
Final Thoughts
When reviewing the research and evidence, one theme consistently emerges: the middle management layer is not an auxiliary level in the organization but rather the engine through which strategy actually takes effect.
Middle managers take high-level direction and transform it into tangible actions, process ambiguity into decisions, resist resistance, and disseminate understanding throughout the organization through relationships rather than purely by authority.
Strategy becomes stuck when this layer is not supported. When enabled properly and with a clear understanding, strategy advances with great celerity.
Most successful organizations prioritize investing in the enablement of their middle managers-the people who bring their strategy to life every day-rather than focusing solely on better strategic design.
This is because, in the final analysis, at the end of it all, strategy failure does not occur in the boardroom but in the middle.
Bridging the gap between strategy and execution requires more than intent—it requires the right frameworks and capabilities. Enroll in the Certified Strategy and Business Planning Professional and Practitioner program by The KPI Institute to learn how to align strategy, planning, and performance for meaningful organizational results.
