The Cobra Effect – No-one should be blamed for achieving their targets

The Cobra Effect is a term used by statisticians to describe the rule that when a measure becomes a target, it ceases to be a good measure, otherwise known as Goodart’s law. The term is based on the story of cobras in Delhi, although the veracity of this anecdote cannot be proven. There is a similar story with rats in Hanoi, which can be proven – people carefully cut off rat’s tails to let them live and breed more rats. There is a book by German economist Horst Sieber, called Der Kobra-Effekt. I have often observed how utterly silly decisions have been taken in order to reach Key Performance Indicators (KPIs). A harmless example is the frenzy that appears in some sales organisation during the last few days of a quarter, when people try to persuade customers to place orders a few days earlier so they count for the present quarter. In most cases, in the long run it doesn’t make any difference. More substantial examples occur, when for example factories are closed and transferred to low cost countries – that is the KPI. The overal lcost, however, goes up, because the engineering department that was just next to the factory, now has to do all communications per mail and phone, with language difficulties, and as a consequence both engineering time and cost go up. But that is another department than the factories, and does not show in the decision maker’s KPI. There is a famous story from a university which put up a poster towards the end of term: “Students, please don’t forget to fill in your student’s satisfaction form. And remember: the university’s ranking has a direct effect on the value of your degree.”

If you want, the whole approach of Beyond Budgeting is based on the observation that the most disastrous effects created by rigid budgeting are variations of cobra effects.
The character of Kim, and the opening paragraph, is borrowed from Rudyard Kipling’s novel of the same name, and for our purpose relocated from Lahore to Delhi. “Businessism” is a term introduced by Salman Rushdie in “Midnight’s Children”. The last sentence is again a quote from Kipling.