"Managing to the numbers" just doesn't work. Here's what does.
ManagementSpeak: We’re making these changes so our program is more competitive.
Translation: Our program is far superior to those of our competitors, which means we’re spending too much. We need to lower our standards.
KJR Club member Dave Liesse’s linguistic standards are, however, impeccable
Imagine Pacioli took a different tack.
You remember Pacioli. Italian guy. A friar. Invented modern accounting five centuries ago, give or take a few years. Ring a bell?
We still keep the books the Pacioli way. It’s why, when you buy a computer, you credit cash and debit tangible assets but when you train an employee you credit cash and debit training expenses.
Computers appear on the balance sheet. Employees don’t. Their skills, knowledge, judgment, loyalty and drive don’t appear as balance sheet assets.
Imagine they did
Without a doubt, employee skills have real value. Without a doubt, accounting systems don’t record or report it. That means, beyond any shadow of a doubt, accounting systems are guilty of Metrics Fallacy #3: Anything you don’t measure you don’t get.
This is, by the way, one reason companies institute a “balanced scorecard” — they recognize the limitations of purely financial measurement, this being one of the more egregious examples.
It’s also one reason among many that “managing by the numbers” (widely understood to mean managing by the financials, by the way, not using metrics of all kinds) doesn’t work.
(Tidbit: Search Amazon.com for this phrase and you’ll find Managing by the Numbers: Absentee Owners and the Decline of American Industry. The authors are Meek, Woodworth and Dyer, the book was published in 1988, and the book’s dust jacket includes these words: “Today’s executive is more of a money manager than a leader of people; today’s companies are more concerned with manipulating assets … than with making quality products and creating new American jobs.” And these “This historical shift toward an absentee ownership structure and a highly trained, professional management is usually hailed as progress. In fact … these developments are the real culprit behind the appalling decline in America’s competitive position.” It appears my complaint isn’t new.)
Here’s another, even more serious limitation, not only of accounting systems, but of all metrics, balanced scorecards included: No matter how well you design and construct them, they won’t reveal the cause-and-effect relationships that connect what the company does to its success or failure.
The point is obvious once stated, not that you’d know this from our if-you-can’t-measure-you-can’t-manage obsession with metrics of all forms and financial measures more than any other.
And by the way … did you notice Drucker used the negative construction — if you can’t, you can’t? He didn’t say if you can measure you can manage. Measurement, according to Drucker, is a necessary condition for management, not a sufficient one.
So with all due deference to Dr. Drucker, let me propose an alternative aphorism (and please feel free to turn it, through endless repetition, into an annoying cliché): If you can’t predict, you can’t manage.
Even better, the positive version works too: If you can predict you can manage: To the extent you can describe your organization in terms of cause-and-effect relationships that connect actions to outcomes, you can make rational decisions about what to do and not do.
This is easier for those who run internal departments than it is for those who run competitive businesses, because of the nature of competition.
Running IT, for example, if you know each sysadmin can support 25 servers, you know what projects are coming up, and have decent estimates of their impact on processing load, you can predict how many additional servers and sysadmins you’ll need once they complete.
Running a business, on the other hand, you won’t know what your fiercest competitors will do to outcompete you until they do it. Or so they hope. The better you know them, the better you’re able to anticipate their next move, and the better you’ll be at surprising them.
It’s business as (groan!) sports. There isn’t a manager in professional athletics who thinks he or she can win by looking at the scoreboard. Scoreboards, like accounting systems, tell managers whether or not they’re winning, but not how to win. Whether their batter should bunt, try for a sacrifice fly, or swing away; whether the runner at first should sit tight or try to steal second; who to put in as a relief pitcher and when …
To make these judgments, managers need to know the game, their players, the opposing players, and how their opposite number thinks.
To the extent they can predict, they can manage.
Not only doesn’t “managing by the numbers” get you there. It doesn’t even get you close.
Bob Lewis is president of IT Catalysts, a consultancy focused on IT organizational effectiveness, business/IT integration, and helping organizations become more adept at designed, planned change.
