Every year, a familiar ritual unfolds in boardrooms across the country. Leaders assemble for the annual planning off-site. Corporate targets are set, then cascaded down through business units, functions, teams and, finally, individuals. Scorecards are signed off. Bonuses are wired to the numbers. Nine months later, the market has moved on — a raw-material shock, a regulatory shift, a competitor pivot — and the scorecard is quietly out of date. Everyone knows it. Nobody wants to be the one to say so.
This is not an execution problem. It is a design problem. The way most organisations set Key Performance Indicators is almost engineered to disappoint.
Why the traditional cascade breaks down
The default approach is elegant on paper: top-line metrics are decomposed by function, then by team, then by individual, and locked in for twelve months. In practice, three well-documented failure modes conspire against it.
1. A static instrument for a moving target
External conditions — customer demand, input costs, regulation, technology — rarely hold still for a quarter, let alone a year. When they shift, static KPIs stop describing the business the organisation is actually running. McKinsey’s research on goal-setting notes that the pitfall is not cascading itself, but the absence of the context and involvement that would allow goals to be adapted when reality changes.[1] The CIPD’s evidence review of performance management reaches a similar conclusion: rigid annual objectives are one of the least defensible features of the traditional system.[2]
2. Surrogation — the metric replaces the strategy
Strategy is abstract. A number is not. Harris and Tayler, writing in the Harvard Business Review, describe how employees mentally substitute the metric for the strategy it was meant to represent — and then optimise the metric even when doing so damages the underlying goal.[3] This is the phenomenon Goodhart’s Law captures in a single line: when a measure becomes a target, it ceases to be a good measure — a dynamic a recent MIT Sloan Management Review piece on AI and KPI design revisits for the current moment.[4] Graham Kenny’s widely cited HBR piece on cascaded KPIs makes the same point in operational terms — by the time metrics reach the bottom of the hierarchy, they often bear little resemblance to what the organisation actually needs done.[5]
3. The systematic side effects of over-prescribed goals
The most sobering evidence comes from Ordóñez, Schweitzer, Galinsky and Bazerman, whose Harvard Business School working paper catalogues the collateral damage of aggressive goal-setting: unethical behaviour, over-focus on measured areas at the expense of unmeasured ones, distorted risk-taking, corrosion of culture, and reduced intrinsic motivation.[6] A recent review of the literature reaches a similar verdict — KPIs tend to measure efficiency well, effectiveness poorly, and intangibles hardly at all.[7]
Why organisations rarely fix it mid-year
Most leadership teams know their KPIs have drifted. Very few change them. The reasons are more political than technical.
The first is cost. Re-cascading targets across a large organisation is expensive in time and management attention, and the exercise competes with the operating rhythm it is meant to support. The second is optics. A mid-year revision is often read internally as an admission that the original targets were wrong — a reflection on the leaders who set them. In that environment, the safer move is to leave the scorecard alone and quietly manage around it. The result is an organisation that is technically on-plan and practically off-course.
What good looks like
The alternative is not to abandon KPIs, but to redesign the system around them. Four practices, in our experience, do most of the work.
- Separate health metrics from change goals. Keep a small set of enduring KPIs to monitor the stability of the business — revenue, margin, NPS, retention. Layer on a second set of quarterly change objectives (OKRs, in the vocabulary popularised by Google and Intel) that describe what the organisation is trying to move. Confusing the two is one of the most common causes of strategy-execution failure.
- Recalibrate on a fixed quarterly cadence. Do not wait for a crisis. Book the review into the calendar, define in advance the external triggers (customer, supply, regulatory, competitive) that will prompt a change, and make small adjustments routine rather than exceptional.
- Establish a cross-functional KPI council. Give a standing group of functional leaders the authority to redistribute targets mid-year and the responsibility to protect the overall enterprise objective. This is the governance overlay that most organisations lack.
- Adopt a no-fault revision norm. State explicitly that changing a target in response to changed conditions is a sign of good management, not poor planning. Without this cultural permission, the machinery above will not be used.
Before your next planning cycle, ask three questions of your current KPI system:
- If the external environment shifts by 20% next quarter, is there a mechanism — with a named owner and a fixed date — to revise our targets, or will they simply drift out of date?
- For every KPI on the scorecard, can we distinguish clearly between a health metric (monitor the baseline) and a change goal (improve the baseline) — and does each have the right cadence?
- When a target is missed, does the organisation first ask whether the target was still the right one, or does it move straight to holding individuals accountable?
The takeaway
KPIs are not the problem. The annual, static, cascade-and-forget process wrapped around them is. Organisations that keep their measurement system in continuous dialogue with the external environment — and that treat revision as a discipline rather than an admission — do more than hit their numbers. They increase enterprise value, and they raise employee engagement. The system, not the individual scorecard, is what needs to be sound.
References
- McKinsey & Company, "Going for goal—a dependable approach to setting objectives," January 2024. mckinsey.com
- CIPD, "Could Do Better? Assessing What Works in Performance Management," Chartered Institute of Personnel and Development, 2016. cipd.org
- Michael Harris and Bill Tayler, "Don't Let Metrics Undermine Your Business," Harvard Business Review, September–October 2019. hbr.org
- Michael Schrage and David Kiron, "What AI Can Teach Us About Designing Better KPIs," MIT Sloan Management Review, January 2026. sloanreview.mit.edu
- Graham Kenny, "What Are Your KPIs Really Measuring?" Harvard Business Review, September 2020. hbr.org
- Lisa D. Ordóñez, Maurice E. Schweitzer, Adam D. Galinsky, Max H. Bazerman, "Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting," Harvard Business School Working Paper (summary via HBS Working Knowledge). library.hbs.edu
- S. Iyer and D. Kumar, "Decision Myopia: The Problem with KPIs — A Management Perspective," Open Journal of Business and Management, 2025. scirp.org
Samayartha Advisory helps leadership teams design performance and governance systems that hold up in changing environments.
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