Goodhart's Law in Business: Why Your KPIs Might Be Tripping You Up

In the world of business, metrics are everywhere. We love them! They help us track performance, measure success, and prove that all those endless Zoom meetings were, indeed, worth it. But what happens when the numbers we so lovingly embrace start working against us? Welcome to the wild world of Goodhart's Law: “When a measure becomes a target, it ceases to be a good measure.”

This might sound a bit like a riddle, but what it’s really saying is that once you focus too much on a specific metric, people start gaming the system—and suddenly, your beautiful, data-driven strategy isn’t so effective anymore. If you’ve ever set a sales target, only to watch your team chase it in ways that miss the bigger picture, you’ve experienced Goodhart’s Law in action. And just to make things even more interesting, this effect has a sneaky cousin: The Cobra Effect.

The Cobra Effect: How Good Intentions Go Awry

The Cobra Effect is a classic cautionary tale from British India. The colonial government, worried about the growing cobra population, offered a bounty for every dead cobra. Problem solved, right? Well, not quite. Enterprising locals started breeding cobras to turn them in for the reward. The plan backfired spectacularly, leaving the government with more cobras than ever!

This is a perfect example of Goodhart’s Law in action. You set a target (kill the cobras), and suddenly, the metric becomes a loophole. Businesses experience similar backfires when KPIs turn into the wrong incentives. Let’s dive into how Goodhart's Law (and the Cobra Effect) show up in modern workplaces—and how understanding a bit of behavioural psychology can help us avoid these traps.

How Goodhart’s Law Can Wreak Havoc in Business

Sales Targets: Focus or Frenzy? Setting sales quotas is a time-tested way to drive performance, but be careful. When numbers become everything, salespeople might push products customers don’t need, or worse, rush them through the sales process. The end result? Short-term gains, long-term pain as customer satisfaction plummets. It’s like catching all the cobras today but ignoring the fact that you’re creating a whole snake farm for tomorrow.

Productivity: More Isn’t Always Better Measuring productivity by the number of emails sent or tasks checked off a list might seem like a smart move, but it can quickly lead to employees just going through the motions. Sure, they’re working hard—on paper—but are they actually producing value? This kind of tunnel vision can create a culture of quantity over quality, with corners cut and creativity squashed.

How to Apply Goodhart’s Law Without Going Full Cobra

So, how can businesses set smart targets without falling into the Goodhart-Cobra trap? Here are a few simple steps to keep your KPIs working for you, not against you.

Measure What Matters Don’t rely on just one or two numbers. Mix quantitative metrics (like sales numbers) with qualitative ones (like customer satisfaction). By looking at a broader range of indicators, you’ll be less likely to accidentally breed a metaphorical snake farm.

Encourage Autonomy Rather than micromanaging every little action, give your team the freedom to focus on bigger outcomes. Instead of tracking how many hours they’ve worked, emphasise the value they create. When employees have the autonomy to approach problems in their own way, you’ll get better results—and fewer cobras.

Offer Continuous Feedback Yearly performance reviews? Those are so last century. Instead, give real-time feedback that helps people adjust course before things spiral. This way, you can catch potential cobra effects before they become a problem.

Prioritise Learning Over Numbers If you want to create a lasting, innovative culture, focus on employee growth. Encourage curiosity, learning, and development, so that people aren’t just motivated by the next bonus or metric. After all, a happy, engaged team is much more likely to solve problems than one stuck chasing KPIs. However as an accountant I must always emphasis the fiscal side of all planning and priorities.

The Cobra Effect Sketchplanations