During a recent trip to Seattle, I embarked on a fascinating walking tour that delved into the city’s quirky history. One story that stood out was about Seattle’s seemingly innocuous attempt to tackle a growing rat problem, which inadvertently led to a bizarre and counterproductive outcome.
Following the Great Seattle Fire of 1889, which saw the entire city burn to the ground, a plan was made to raise the street level of the city to create space for the sewer system underneath. As such, new Seattle was built directly on top of old Seattle, creating a series of tunnels underneath that are still known as Seattle Underground. Unfortunately, after these tunnels were built, rats quickly took over the underground. The city authorities, desperate to curb the rat problem, started offering a bounty for every rat killed. However, this seemingly well-intentioned initiative led to some unintended consequences. People in Seattle began breeding rats to claim the bounty, resulting in an increase in the rat population.
This curious incident serves as a classic example of “perverse incentives”, where actions intended to achieve positive results end up producing undesirable or counterproductive consequences. This phenomenon is relevant beyond rate bounties – it can also manifest in modern business practices through the inappropriate us of performance metrics.
The adage “what gets measures gets done” holds true, but it also underscores a critical caveat: what ends up getting done may not necessarily be what you wanted to measure. This is particularly pronounced when organisations attempt to measure complex outcomes by focusing on easily quantifiable outputs. For instance, funding universities based solely on the number of graduates they produce could inadvertently lead to a decline in educational standards, as institutions prioritise quantity over quality.
In his book “The Tyranny of Metrics,” Jerry Z. Muller explores how excessive reliance on metrics can distort incentives and undermine organisational goals. Muller provides numerous examples, including the UK’s National Health Service, where targets for reducing waiting times resulted in manipulation of data and compromised patient care.
Popular culture also reflects the dangers of perverse metrics. In the acclaimed television series “The Wire,” law enforcement agencies are depicted manipulating crime statistics to meet targets, a practice known as “gaming the stats.” This fictional portrayal mirrors real-world challenges faced by organisations when KPIs become the focal point, overshadowing the true purpose they are meant to serve .
The lesson is clear: while KPIs are valuable tools for measuring performance and driving outcomes, they must be chosen and interpreted with caution. Simply measuring outputs without considering the broader context and implications can lead to unintended consequences.
Sophisticated judgment is essential in setting and interpreting measures. Organisations must strive for a balanced approach, incorporating both quantitative metrics and qualitative assessments to capture the full spectrum of performance. This requires a nuanced understanding of the program objectives, as well as a willingness to adapt and refine KPIs as circumstances evolve.
Nexus has extensive experience helping organisations set meaningful KPIs and implement effective measurement strategies to ensure alignment with overall objectives. Get in touch with our team to learn how we can assist your organisation in navigating the complexities of KPIs and performance management.
