The Best Measure

I came upon a map of Europe recently that was organized to show how many beers you could buy in each country with one month of minimum wage.  It reminded me of my university days.

How is it possible that a calculus text book costs three cases of beer?  Madness!

The point is that if you are going to measure anything measure in terms of your most valuable or most scarce resource.  Sometimes money, sometimes time, sometimes beer.  You will manage more effectively if you are emotionally attached to the units.

I have believed former GE CEO, Jack Welsh and an idea that he had picked up in the ’60′s, “If you cannot measure it, you cannot manage it.”  I am beginning to see things differently.

The Welsh idea falls out of work done in the ’50s  by Peter Drucker and a little later by George Odiorne.  One of the early successes with it was Hewlett-Packard.  The adaptation of Management By Objectives (MBO) lasted well into the ’70s.  Marry the objectives of each individual to the objectives of the organization and goodness will follow.  Create a mission.  Set goals.  Set sub-goals that relate to overall goals.  Match people goals with the sub-goals.  Measure.  Adjust.  Measure again. Reset goals.  And so on.  The key was measure and adjust.

MBO is not common any more.  To the point that MBO is now more commonly an acronym for Management BuyOut.  How strange.

Early strong criticism of MBO came in W. Edwards Deming’s book “Out of the Crisis.”  While being a strong advocate of checking or measuring as a way to acquire knowledge, he pointed out that it was impossible to know, in advance, what was most important.  So objectives were inherently flawed.

Old systems measure what happened and compare to some target.  Deming claims that cannot work.  “The most important things are unknown or unknowable.”  The risk is that people ended up measuring things just for the sake of measuring, or worse build objectives that are easy to measure and worst retained objectives that measured well but were not appropriate.

If your objectives are known in advance and are measurable and are never changing and the people who implement never change and the world remains the same and competitors remain predictable and there is no innovative disruption, possibly MBO would work.  But, to believe that is delusional.

In Deming’s view, managers should work at transforming systems.  Find ways to deliver quality at a lower cost.  But how?

Deming was a statistician and believed that experience was not valuable until it had been analyzed and connected to the aims of the organization.  Deming further pointed out that aims and the methods used to check are intertwined and you must address both.  An aim without a method is not helpful. A method without an aim is dangerous.  Sometimes perfectly right data is misleading.  If the limits of the measuring method are unknown, then emotionally sensitive observations will dominate.  You could, for example, pay too much attention to a customer compliant.

I think the message is that old measurement systems kept track of data, possibly information.  Deming seems to be aimed at keeping track of meaning, a much more challenging task.

Meaning Matters!

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: don@moneyfyi.com