There's a well known business phrase "What gets measured gets managed" but have you heard of "What gets rewarded gets distorted".
Key Performance Indicators (KPIs) are meant to align behaviour with strategy. They provide focus, accountability and clarity. In theory, they ensure everyone pulls in the same direction.
In practice though, poorly designed KPIs can do the opposite.
They can encourage short-term thinking, unethical decisions and behaviour that damages long-term value.
1. When Sales Targets Become Scandals: Wells Fargo
Wells Fargo, an American multinational financial services company operating in 35 countries with more than 70 million customers, set aggressive cross-selling targets for employees. Staff were encouraged to sell multiple products to each customer. The headline KPI was simple: increase the number of accounts per customer.
The result?
Employees opened millions of unauthorised accounts just to hit targets.
The metric focused on volume, not customer benefit.
Incentives were tied tightly to numbers, not ethics.
The KPI worked but in the worst possible way.
Lesson: If you reward output without considering integrity, people may optimise the number rather than the outcome.
2. When Targets Distort Culture: Uber
In its early rapid-growth phase, Uber focused intensely on expansion metrics:
- Number of rides
- Market share growth
- Driver acquisition
Growth KPIs dominated strategic thinking.
While the company achieved extraordinary scale, internal reports later revealed cultural problems linked to hyper-aggressive performance pressure. Employees were rewarded for rapid growth and competitive dominance above almost everything else.
When a single dimension (in this case growth) becomes the overriding KPI, other factors such as governance, risk management and workplace culture can suffer.
Uber eventually underwent significant leadership and cultural reform.
Lesson: What leaders measure signals what truly matters.
3. When Profit Targets Override Compliance: Volkswagen
Volkswagen’s emissions scandal is one of the clearest cases of KPI distortion.
Ambitious targets were set:
- Increase US market share
- Improve engine performance
- Meet environmental standards
Engineers were under pressure to deliver all three simultaneously.
Instead of revising unrealistic expectations, software was installed to manipulate emissions tests.
The KPI demanded the impossible. The behaviour adapted accordingly.
The cost? Billions in fines and long-term reputational damage.
Lesson: When KPIs conflict with operational reality, employees may “solve” the problem in dangerous ways.
4. When Healthcare Targets Create Perverse Incentives: National Health Service
The NHS uses waiting-time targets to ensure patients are treated promptly. The objective is positive: reduce delays and improve access to care.
However, where waiting-time KPIs dominate:
- Some cases may be reclassified
- Easier treatments may be prioritised
- Complex cases risk being delayed
The system begins optimising for the clock, not the patient.
The target itself isn’t wrong. The problem arises when one metric attempts to represent a complex service outcome.
Lesson: A single KPI rarely captures the full picture.
5. Why KPIs Go Wrong
Across these examples, the pattern is clear.
Poor KPIs typically suffer from one or more of the following:
1. Over-simplicity
Complex outcomes reduced to one number.
2. Over-incentivisation
High rewards tied narrowly to a single metric.
3. Short-term focus
Quarterly results prioritised over long-term sustainability.
4. Lack of balance
Financial metrics dominate. Culture, ethics and risk fall behind.
KPIs are not neutral. They shape behaviour.
6. When KPIs Work Well
The solution isn’t to abandon measurement.
It’s to measure intelligently.
Many organisations adopt a balanced scorecard approach combining:
- Financial results
- Customer satisfaction
- Internal process efficiency
- Learning and innovation
For example, Microsoft shifted its internal focus under Satya Nadella from rigid internal competition metrics toward collaboration, customer engagement and long-term innovation.
The result was not just cultural improvement but significant financial turnaround.
Balanced KPIs reduce distortion because no single number dominates behaviour.
7. Why This Matters for Business Students
Whether you’re analysing variances, auditing controls or evaluating strategy, KPIs sit at the heart of performance management.
In exams, you might be asked to:
- Identify weaknesses in performance systems
- Recommend improvements
- Assess behavioural implications
In real life, you may design them.
The key question is always:
What behaviour does this metric encourage?
If a KPI pushes people toward:
- Corner-cutting
- Manipulation
- Short-term thinking
- Ethical compromise
Then it’s not a good KPI, no matter how precise the formula looks.
Bringing It All Together
KPIs are powerful tools.
But they are also behavioural drivers.
The wrong metrics can:
- Damage culture
- Encourage misconduct
- Create reputational risk
- Destroy long-term value
The best professionals understand that performance measurement is not just about calculation.
It’s about incentive design.
As you progress in your career, your role won’t just be to report the numbers.
It will be to ensure the numbers drive the right behaviour.
