How to prevent the “cobra effect” by setting proper KPI’s

I’m a very strong believer in KPI’s, how it can drive a business forward, how it supports your strategy and mostly how it drives accountability and transparency with commercial teams. I’ve written earlier on how to do it well and what not to do.

A while ago I was doing some problem solving work with a commercial team and we ended up on the topic of KPIs. We came to the conclusion that for the symptom “Sales doesn’t know what they’re doing” there is a root cause around “we’ve only set KPI’s on activities and not on results”. Classic. Happens more than you think.

This reminded me of the story of the snakes in India and how a wrong countermeasure increased the problem.

On wikipedia, this example comes up on the page about ‘perverse incentives‘ and is often linked to Goodhart’s law. The story is about the English rulers in India being fed up with all the snakes in Delhi, they started rewarding people for killing snakes. In the end, people being smart, started breeding snakes to make more money. When the British stopped their incentive, they actually ended up with more snakes in the city than when they started.

Poor KPI’s breed snakes… and coffee tourism

So what is the morale of this story? It’s about rewarding/driving the wrong KPI. A KPI on the number of snakes you kill, will not lead to a decline in the total snake population if more snakes are being born.

I’ve seen companies where sales people are measured and managed on the number of visits they do to their customers. This can also (and will also) turn into a perverse metric. If this is the only thing I’m being measured on, I’m not going to worry on generating any output and following up on my visit. Managing the sales coming from my visits actually prevents me from spending time on doing more visits.

I’ve seen companies where sales people were called coffee-tourists. They would visit their customer diligently every week on Thursday morning. They were so used to it, they even knew how to replenish the coffee beans in the machines because they are there so regularly. They hit the mark on visits, but they never met their mark on sales.

So the solution, driving to action can make sense, but not if it’s the only thing. It has to be combined with and superseded by a KPI on output. It can be very lagging as Sales, but it can also be about total value of opportunities generated.

Don’t breed more cobra’s, control the population.