How could hitting your targets, either as an organisation or as an individual, be holding you back?

Because of one simple law:

When a measure becomes a target, it ceases to be a good measure.

- Charles Goodhart, 1975

This adage concisely expresses something I learnt in my early days working in a consulting firm. When you set a target in your business, teams optimise to hit that target even if it is done by completing activities that are actually hurting your organisation’s bottom line performance. The target becomes the ends that justifies the means.

And I’m not even talking about fraud or ethically grey behaviour. Just that when you optimise for a single measure, you can usually hit that target through a lot of different paths - and not all of them good for business. For example, when you set a revenue target you may reach the desired revenue, but do it while spending so much money that you actually make a loss. Or if you set a sales target, you may hit it by taking on a lot of low margin jobs that burn out your team. Or when you set a utilisation target, you may end up with teams playing “hours Tetris” allocating their effort by which jobs allow for the most utilisation, not by which clients need the most effort.

To sum it up in a picture:

Using the illustration above, when we use a metric as a measure, we are simply looking at how far we got on metrics that are important to us: utilisation, revenue, profit, client satisfaction, employee experience, etc.

When we use that same number as a target, we are incentivising behaviour that gets you to the line as many times as possible. Further, you may encourage teams to ‘stockpile’ their effort or their results so they can smooth the curve and hit targets more often, rather than exceeding the benchmark occasionally.

But what is the practical difference between a measure and a target?

It all comes down to how you communicate and use your numbers.

If you’re using numbers as stick to remove resources from teams that aren’t hitting targets, you will inevitably get behaviours optimising for the target, not for good outcomes. This looks like using the metric as a cut off for bonus eligibility or promotion opportunities. This looks like using the metric to justify cutting a service or team without looking at the underlying drivers. And this looks like, when performance is down for the quarter, saying “do more [sales / revenue / utilisation / etc]” rather than asking for more of the behaviours that lead to the right outcomes: client conversations, innovative service offerings, smart pricing strategies, etc.

Instead use your metrics as an indicator. When the metric reaches benchmark, things are going well. If they don’t reach benchmark, it’s time to investigate. Don’t immediately assume the answer is to push for more of what you’re measuring (sales; revenue; profitability; etc). Instead look more deeply into why you’re getting the result you are.

Are sales low because sales are being lost, or is it because the market for that service is shrinking?

Is profitability low because resources are being wasted, or is the service underpriced (or not valuable enough to your market)?

Is utilisation low because teams are wasting time, or there a lack of chargeable work (or should you not be measuring chargeable hours at all)?

When you use metrics as indicators rather than targets, it gives you better insights into how your business functions and what activities will give you the outcomes you’re after. When metrics are targets, you risk loosing performance and insight to the ways your business will optimise for the target.

They are called Key Performance Indicators after all.