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

This, in the words of Marilyn Strathern, is the most succinct summary of Goodhart’s Law. It has implications for how organizations make decisions and evaluate performance.

Over-reliance on measurements and targets causes problems for organizations, at both the top and the bottom of the hierarchy. Executives who are paid based on a stock price will try to pump it up as quickly as possible, with little thought for long-term planning, investing or taking risks. Meanwhile, employees given high-stakes targets will try to game the system to reach them.

Governments are just as guilty as businesses. Ask any teacher getting their students ready for yet another test, or a police officer not booking an incident because of crime reduction targets.

Jerry Z. Muller called this the ‘tyranny of metrics’ — the replacement of judgement (acquired through experience and talent) with standardized numerical indicators, making the data public and attaching rewards and penalties.

Here are some of the problems it causes:

• Conformity
  When the same targets are used across different parts of large organizations, they all have to act the same way. There can be no innovation as the target is based on doing things in the established way.
  
• Narrow-mindedness
  Most organizations and jobs have multiple purposes. Targets narrow these down, creating incentives to ignore purposes that aren’t measured by the target.
  
• Focus on the simple and the short-term
  It’s easy to set a target for how many sales you make. It’s not so easy to measure how well you work as a team, how influential your ideas are, or how much you inspire a young colleague.
  
• Focus on measuring itself
  Rather than improving performance, the focus turns to the measuring itself. A new layer of managers and administrators is created, coming up with new things to measure and diverting resources away from the front-line. Or the front-line staff get stressed over bureaucracy, rather than doing what they do best.

Watch out for

This doesn’t mean measurements and targets should be abolished. Muller argues that measurement and judgement are complementary, that measurement demands judgement of what to measure, how to do it and how to interpret the information. This means ending the myth that standardized data is a perfect, neutral arbiter.

With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!

Resources

Goodhart, C.A.E. (1984), Monetary Theory and Practice: The UK Experience, Palgrave
Muller, Jerry Z. (2018), The Tyranny of Metrics, Princeton University Pres
Strathern, Marilyn (1997), ‘Improving Ratings’: Audit in the British University System, European Review Vol. 5 No. 3