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British economist Charles Goodhart gave had a powerful idea now known as Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.
It’s a decent leadership effectiveness practice to set measurable goals and judge someone’s performance against them. Just remember Goodhart’s Law.
Think of it this way. You’re in charge of ten offices, each with its own manager. You have a goal to expand your firm’s client base to include more minority-owned businesses. One of your managers has been successful at this. You notice that, among other things, she sponsored 8 different community diversity events in her marketplace last year.
You decide to make this level of activity a goal for every office. After all, if she could do it, shouldn’t the rest of them be able to? And if it worked for her, won’t it work for them?
You create a dashboard to measure the amount of community diversity events your managers are sponsoring, and you track everyone’s progress.
You just broke Goodhart’s Law.
Within a couple of quarters, bad things are happening.
- Your #1 manager, the one who set the example by sponsoring so many events, hasn’t opened any minority-owned business accounts lately. Her success last year had more to do with her own initiative and the demographics in her territory, and she’s tapped out her market’s needs already. Now she’s just the go-to corporate citizen for sponsorship dollars in her town.
- Two of your managers are subjects of complaints from community leaders for their aggressive gatecrashing, which seem to be targeting minorities. They thought that you wanted them to put results above good corporate relations, or even good taste.
- Another of your managers just quit, and two more are about to. Their territories are demographically homogenous, and you told them that their efforts to develop a multicultural fair from scratch were inefficient and off the mark.
The rest of your managers? They're laying low, waiting for you to get tired of this metric and come up with another one.
By taking a measurement and turning it into a target, you’ve laid an egg.
A better path to follow would be to follow this process:
- State your intent clearly. Let everyone ask clarifying questions.
- Develop plans together. Give people time to formulate their own proposals and brief you. Talk through what could go wrong and adjust accordingly.
- Properly identify the variables. Recognize that each leader has their own market, team, and function, but make sure that everyone’s plans effectively support your intent. It’s the variables that prove Goodhart’s Law.
- Focus is on the intent, not just the activities being measured.
- Get under the hood once the work starts, don’t just look at the dashboard! Be present, observe your people, then discuss both blind spots and opportunities with them.
Violating Goodhart’s Law leads to gaming the system, fudging the numbers, disillusionment, mistrust, and failure. As one of the best bosses I ever had once said, “It makes goats into heroes, and heroes into goats.”
Related: We Manage Jobs, and We Lead People. What’s the Difference?