There is a moment in every executive meeting where the slide deck goes up, and every arrow is green. Revenue is up, engagement is up, customer satisfaction is 98%.
And yet, sales are missing targets, retention is dropping, and the support team is drowning.
This is Metric Inflation. Just as monetary inflation devalues currency, metric inflation devalues data.
Goodhart's Law in Action
The economist Charles Goodhart famously stated: "When a measure becomes a target, it ceases to be a good measure."
Once you incentivize a specific number, human ingenuity (and survival instinct) will find a way to optimize that number, regardless of the underlying reality.
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The Target: Increase user engagement.
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The Hack: Send more push notifications.
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The Result: "Engagement" metrics skyrocket, but churn increases because users are annoyed.
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The Target: Reduce "Time to Resolution" for support tickets.
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The Hack: Agents close tickets prematurely and ask users to open new ones if the issue persists.
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The Result: Resolution time looks amazing; customer rage reaches boiling points.
Vanity Metrics vs. Leading Indicators
The root cause is often a reliance on "Vanity Metrics"—numbers that make us feel good but don't inform future decisions. Total registered users is a vanity metric. Daily Active Users (DAU) is better. Daily Active Users who perform a core action is the truth.
To fight inflation, we need to focus on Leading Indicators that are harder to game:
- NPS is noisy; Renewal Rate is truth. People lie on surveys to be nice. They vote with their wallets. Ditch the sentiment analysis and look at dollar retention.
- Code Commit volume is useless; Deploy Frequency is better. You can game lines of code. It's much harder to game successfully shipping software to production.
The "Counter-Metric" Strategy
The best defense against metric gaming is the "Paired Metric" or "Counter-Metric." Never look at one number in isolation.
- If you measure Speed, you must also measure Error Rate.
- If you measure New Signups, you must also measure Activation Rate.
By putting these metrics in tension, you prevent optimization of one at the expense of the whole. You force the organization to balance trade-offs, which is, after all, the definition of strategy.