Introduction

Every modern organization runs on metrics.
We track KPIs, OKRs, engagement scores, NPS, CAC, LTV, EBITDA margins — the list goes on.

But when a metric becomes a target, something dangerous happens.

“When a measure becomes a target, it ceases to be a good measure.”
— Charles Goodhart, British economist

This is Goodhart’s Law — and it’s one of the most important (and dangerous) principles for strategists and stakeholders to understand. Why?

Because the moment people know what they’re being measured on, they optimize behavior to hit the number, often at the cost of the actual goal.

From sales quotas to ESG scores, Innovation benchmarks to productivity dashboards, Goodhart’s Law is at work, distorting incentives, corrupting strategy, and weakening performance.

When Metrics Stop Measuring and Start Misleading

Why Metrics Lose Meaning When Incentives Are Attached

The Situation:
Organizations need to measure performance to align teams, track progress, and guide decisions.

The Complication:
When metrics are directly tied to bonuses, promotions, or visibility, people tend to game the system.
They optimize for the number, not the outcome.

Examples:

• Teachers are “teaching to the test” instead of educating.

• Call centers are shortening call duration at the cost of customer satisfaction.

• Startups are buying fake engagement to boost “monthly active users.”

📊 A 2022 Deloitte Behavioral Economics Study found that 72% of leaders admit their teams "optimize KPIs in ways that don’t reflect real value creation."

The Strategic Risk of Over-Targeted Metrics

• Misalignment: Teams hit KPIs while the business still underperforms.

• Short-termism: Employees prioritize quick wins over long-term outcomes.

• Erosion of trust: Stakeholders question the accuracy and integrity of the reported results.

BCG research found that companies relying on poorly designed performance targets were 35% more likely to miss their strategic goals, even when KPIs were “r” en" (BCG Performance Management Survey,2022).

The Strategic Shift: Use Metrics as Signals, Not Absolutes. Goodhart’s Law doesn’t mean metrics are useless. It means they are fragile.

They are only valuable when used in context, with interpretation, and in combination.

Great leaders treat metrics as diagnostic signals, not targets to hit unthinkingly.

The 3 Most Critical Takeaways for Strategic Leaders

1. Don’t Let Metrics Drive Behavior in Isolation

Why: Isolated KPIs invite gaming and distortion.

What:

• Avoid making any single metric the sole basis for rewards or decisions.

• Emphasize multi-metric scorecards with cross-checks.

How:

• Pair quantitative KPIs with qualitative assessments (e.g., NPS + customer interviews).

• Set guardrails: for example, growth targets only count if retention exceeds a certain percentage.

📊 McKinsey shows that using composite metrics and layered dashboards improves strategic decision accuracy by 29% (McKinsey Performance Metrics Playbook, 2023).

2. Review and Recalibrate Metrics Regularly

Why: A metric that worked last year may be misleading today.

What:

• All metrics degrade over time as behavior adapts.

• Build regular review cycles to test whether your KPIs still align with strategy.

How:

• Use a KPI health check every quarter.

• Ask: Are we optimizing the metric or the mission?

📊 Deloitte reports that organizations with structured KPI reviews are 2.1x more likely to meet strategic transformation objectives (Deloitte Insights, 2023).

3. Focus on Leading Indicators — Not Just Lagging Outputs

Why: Lagging KPIs can be gamed more easily, while leading indicators drive behavior.

What:

• Leading indicators (e.g., engagement rate, time to value) often correlate better with future outcomes than backward-looking numbers (e.g., revenue, profit).

How:

• Identify 3–5 behavioral or process-driven metrics that predict your top-line goals.

• Use leading indicators for strategy and lagging indicators for validation.

📊 BCG’s Balanced Growth Framework recommends that 60% of leadership dashboards focus on inputs and behaviors, not just outputs (BCG Growth Agenda Report 2023).

Opening Actions for Strategic Leaders

✅ Audit your current KPIs — which ones are being gamed?
✅ Design scorecards that combine metrics, rather than isolating them.
✅ Set up quarterly reviews to recalibrate goals and avoid metric rot.

Key Benefits of Mastering Goodhart’s Law

✔️ More authentic, outcome-driven performance.
✔️ Greater alignment between teams and long-term strategy.
✔️ Less gaming, more integrity in reporting.
✔️ Better strategic insight through diagnostic metrics.

🎯 Closing Thought

“The moment you make the number the goal — you lose the goal.”

Goodhart’s Law isn’t a flaw in measurement. It’s a flaw in how we use measurement.
The best strategists use metrics to guide their insights, rather than making decisions unthinkingly.