The tendency toward failed Key Performance Indicators is so great that there is much research on the topic. My observation is that the body of knowledge on why KPIs don’t work is quite extensive. BTW, I didn’t find any laws supporting successful KPI implementation!
There are laws on why key performance indicators fail
The two most dominant theories on why key performance indicators don’t work are Campbell’s Law and Goodhart’s Law (there are more). The common thread running through both of these laws is that Key Performance Indicators are subject to corruption pressure when used to measure success. The corruption pressure on the KPI distorts the very processes they monitor. It is almost like KPI creates an organizational doom loop. Campbell’s Law
Campbell’s Law states, “The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.”
Donald Campbell was an American social scientist and professor. He pioneered many social science concepts, methodologies and was a thought leader in his field. The concepts of Campbell’s Law were first presented as early as 1971 and were formally documented in a paper a few years later. Campbell’s Law relates to standardized testing as a measure of success for the education system. Donald Campbell’s initial research was related to standardized student testing in the British education system. Standardized testing is a gauge to measure the performance of the education system. The purpose of standardized testing was to provide a quantitative metric to ensure the quality of education. The theory was that if the student’s marks were good, the education system worked correctly. Goodhart’s Law
Goodhart’s Law states, “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.
Charles Goodhart is a British economist who drafted Goodhart’s Law roughly the same time as Campbell’s Law. Charles Goodhart worked in the financial industry and academia, holding many prestigious roles. Goodhart’s Law relates to finance, economic policy, measurement, and forecasting. Charles Goodhart drafted his research for forecasting economic policy in complex system behavior. Goodhart’s Law states that past performance is not a good indicator of future performance if you change the environment (policy). The key performance indicator monitors statistical regularities to predict future behavior. However, if you change the environment, the system will behave differently, and the outcome will change.
Comparing Goodhart and Campbell Law
While the two laws are different in terms of the sector (Education vs. Economics), scope (performance measurement vs. economic predictor), and environment (individual testing vs. complex organization system), they also have a lot in common. The common thread is that if you falsify the data, the Key Performance indicator will cease to be a good measure. When the intention is to game the system, then the metric is useless. The key finding is that people corrupt systems and processes, not metrics. The integrity and intentions of collecting and monitoring the data matter. To have reliable systems and processes, the people monitoring those systems need to have the right intentions.
If you liked this blog post you may also enjoy this downloadable document on the theory and practice of Goals & Key Performance Indicators. You can find the downloadable guide here.