When Performance Goals Backfire

A recent article in Harvard Business Review reminded me of a favorite 2016 article in Public Administration Review by the British academic Christopher Hood, “Gaming in Target World.” Hood’s article recounted the problems created during the Tony Blair government when performance targets were widely used and tied to consequences affecting individual public servants.

The Harvard Business Review piece, by Michael Harris and Bill Taylor, raises the same cautions as Hood, but in the private sector context. They also go beyond Hood in offering some concrete advice on how to mitigate the potentially adverse effects of setting targets.

Harris and Taylor note that ambitious goals can be motivational tools, but they can sometimes backfire and incentivize employees to cheat in order to meet their targets. They point to the Wells Fargo bank scandal, where employees created millions of new customer accounts to meet highly ambitious sales targets. In a related article, researchers David Welsh and others ask: How do you “drive results without inadvertently encouraging unethical behavior?”

Harris and Taylor write: “Tying performance metrics to strategy has become an accepted best practice over the past few decades. Strategy is abstract by definition, but metrics give strategy form, allowing our minds to grasp it more readily.” As a result, they found, strategy was often hijacked by numbers. They said, “the tendency to mentally replace strategy with metrics—called surrogation—is quite pervasive.”

They caution that “Your performance management system is full of metrics that are flawed proxies for what you care about.” For example, if your strategic objective is to “delight the customer,” and you track progress by using customer survey scores, then employees will likely think “the strategy is to maximize survey scores, rather than to deliver a great customer experience.”

Surrogation Happens  

Surrogation, where meeting performance targets becomes a substitute for achieving intended outcomes, happens in government as well. And it often ends badly when strategy and metrics are not aligned. Following are several government-related examples:

• Passport office lines in New York City: In the 1990s, as part of a governmentwide push to improve customer satisfaction with agency services, the U.S. Passport Office set a target of no one standing in line for more than a certain number of minutes before being served. The field offices reported that they met the standard. But a colleague of mine attempted to visit the Passport Office in New York City and was turned away at the entrance because he had not made a prior appointment. That was an unintended response by office officials to meet the target, but certainly not its goal of improving customer service.

• Standardized school testing in Atlanta: In 2009, the Atlanta school system was rocked with allegations that school administrators and teachers were cheating or encouraging cheating on standardized tests to improve their scores to meet unrealistic targets. According to public administration expert Phil Joyce: “In Atlanta, the school superintendent, as well as 35 teachers and principals, resigned in the wake of a scandal allegedly driven by pressure placed on teachers to falsify test-score results.” He said that similar cheating allegations happened elsewhere in the country in response to pressures to meet national testing standards.

• Veterans Affairs Department hospital wait times: In 2014, pressure on managers at VA hospitals to meet an unrealistic 14-day target for appointment wait times meant "some front-line, middle, and senior managers felt compelled to manipulate" records to meet performance goals.” A Vox article described the problem thusly: “The VA had way more patients than it could handle.” And “VA hospitals received financial bonuses for seeing patients in a timely manner . . . The combination—staffing shortages and financial incentives to see patients quickly—encouraged workers at the Phoenix VA hospital to act inappropriately, falsifying records about how quickly they were seeing patients in order to come closer to federal expectations.” Further probes found similar activities in other VA hospitals around the country, leading to the resignation of Secretary Eric Shinseki.

Preventing Surrogation  

Professor Hood, in his 2006 article, describes ways leaders can detect or avoid gaming of metrics, such as using third parties to collect and report data and vigorously auditing activities. However, Harris and Taylor offer advice on three things leaders can do to prevent surrogation:

1. Get the people responsible for implementing the strategy to help formulate (and own) it. Harris and Taylor caution that “simply talking about strategy with people is not sufficient . . . you need to involve people in its development.”  For example, they found that in hospitals, “when physicians are involved in designing objectives, they better understand those objectives, and when they understand the objectives, they have proven time and time again their ability to determine the right course of action, often in spite of a particular metric.”

2. Loosen the link between metrics and incentives. They also caution against “Tying compensation to a metric-based target.” They say that this tends to increase surrogation because “employees are more likely to focus on it at the expense of the strategy.”  Interestingly, in experimental research by Arizona State University professor David Welsh and colleagues, they found that “Those who thought they were performing an outcome goal inflated their results, vs. those who were told they were performing a learning goal—61 to 44 percent.” They concluded: “Managers can motivate performance and avoid unethical behavior if they implement challenging learning goals rather than assigning end-focused outcome goals.”

3. Use multiple metrics. Third, Harris and Taylor recommend using multiple yardsticks to assess progress. This is the underlying logic of the traditional Balanced Scorecard. While this adds to the complexity of performance evaluation, it is an effective way to keep people focused on the true strategy and avoid the potential pitfalls of surrogation by depending too much on a single key metric.

Harris and Taylor conclude by observing: “If you’re using performance metrics, surrogation is probably already happening—the mere presence of a metric, even absent any compensation, is enough to induce some level of the behavior.” The trick, however, is to understand the underlying role of behavioral science in how people react to the setting and use of performance targets and proactively design approaches to avoid potentially adverse effects.