One of the most common beliefs in western business is the idea that, if it can't be measured, it can't be managed. This saying has been around for years and the philosophy behind it has guided decisions in actions in many organizations ever since.
I don't know who coined the phrase, but I'm guessing it has its roots in the mid-1940s when the Whiz Kids introduced the practice of management by numbers at Ford Motor Company. Although the Whiz Kids may have saved Ford from bankruptcy by increasing focus on numbers at the company, I believe the widespread number-obsession that resulted from their success is one of the practices leading American business into decline. We have far too many managers today who spend more time with spreadsheets than the people who are on their teams.
What Cannot Be Measured
It would be great if everything that is critical to a business could be accurately measured - it would make the job of managing so much easier. Unfortunately, organizations are too complex to assume they can be effectively led by implementing a handful of metrics.
There are numerous elements of an organization that must be managed and continually improved for a company to be successful. Very few, if any, of these elements can be accurately measured. Included in this group are the costs and benefits associated with:
- Employee morale
- Poor planning
- Fear in the workplace
- Teamwork
- Employee turnover
- Customer satisfaction
- Poor supplier relations
Another example relates to the level of teamwork within an organization. Improved teamwork should lead to improved results, but how much improvement is anyone's guess.
A leader who believes in the if-it-can't be measured-it-can't-be-improved philosophy would have a tendency to ignore the above elements, although doing so would pretty much guarantee that he or she would not have to worry about leading the company for very long.
Numbers Have Their Place
I am not advocating the elimination of all key metrics for a company, because they do have their place. Besides the need to comply with legal obligations, numbers provide feedback on how the business is operating in terms of financial performance, budgeting, and cash flow. They are also very important in studying and improving the costs, quality, and cycle times of processes. It is critical, though, to understand how to gain knowledge from numbers and to realize that the numbers rarely, if ever, tell the whole story.
Organizations are highly complex, and believing that the most important aspects can be accurately measured oversimplifies and underestimates the role of a leader. If leadership consisted only of making decisions based on accurate measures, it would not be a very difficult to run a company.
8 comments:
You raise a good question and not everything is measurable. However the last three you listed:
•Employee turnover
•Customer satisfaction
•Poor supplier relations
are easily measurable and carry a lot of weight when determining a companies outlook.
I think the point that you are missing is that almost anything is quantifiable to some degree. Teamwork for example can be measured by a change in output, increased in ideas, shorter implementation times etc.
The critical element is to identify where an organizations pain is and map out a solution.
Stuart Smith
CEO
The Entrepreneur's Advisor
You raise a good question and not everything is measurable. However the last three you listed:
•Employee turnover
•Customer satisfaction
•Poor supplier relations
are easily measurable and carry a lot of weight when determining a companies outlook.
I think the point that you are missing is that almost anything is quantifiable to some degree. Teamwork for example can be measured by a change in output, increased in ideas, shorter implementation times etc.
The critical element is to identify where an organizations pain is and map out a solution.
Stuart Smith
CEO
The Entrepreneur's Advisor
While I believe that we all need to learn how to let go of our obsession with numbers, I fear that as Stuart said in the previous comment that we will end up ignoring powerful measures that are available.
Today over half of corporate value is considered by accountants to be intangible and is not counted on the financials. Rather than saying we cannot count this, we need to start doing just that.
Intangibles like human capital, external relationships and captured knowledge do not appear out of thin air. They are the product of annual investment by corporations. And they contribute significantly to the bottom line.
The 21st century manager needs to learn new approaches to measurement that include financial and non-financial metrics as well as assessment, where applicable. Here are some thoughts on measurement: http://www.i-capitaladvisors.com/index.php?s=%22intangibles+measurement+series%22
I think that individuals should think about what metrics apply to them in their daily work as well. It doesn't have to be corporate-wide, but it can be useful in helping them assess their own work.
My point about the three measures Stuart mentioned (along with others) is that there is no way to know how much employee turnover really costs the company in terms of lost knowledge, lost experience, and quality problems, along with the hiring, training, and other costs associated with the reasons people leave the company (poor supervision, fear in the workplace, etc.). Senior leaders are responsible to reduce employee turnover (which is measurable), but understanding the benefits of doing so is not. The same could be said about the other two measures.
W. Edwards Deming wrote, “the most important costs are unknown or unknowable,” but these are the things that leaders must manage. A lack of certain measures does not relieve leaders of their responsibilities to the organization.
Thanks for the comments.
Great post! And certainly an assumption that has taken on religious-fervor proportions in both leadership and management. Gregg you are right-on when you state that today too much time is being spent on number crunching, on micro-measurement, and a mindless obsession with "outputs" to the detriment (often total ignorance of) outcomes. Measurement is fine and certainly useful as a diagnostic tool. But obsession with the "tool" has in many cases become a substitute for critical thinking, for understanding the emotional context, and for creativity. Frederick Taylor gave us The Principles of Scientific Management in 1911 wherein he equated employees to inert, interchangeable cogs on a wheel ideally devoid of all emotional content. Sadly, many have not lost this preoccupation with "if you can't measure it you can't manage it" philosophy.
Excellent article. I always remember W. Edwards Deming's comments on "knowable and unknowable numbers". Too few managers understand the importance of unknowable numbers. Your explanation of the unknowables related to job turnover is a great example.
Gregg
As Einstein once said:
“Everything that can be counted does not necessarily count. Everything that counts cannot necessarily be counted.” #Einstein #SM
Surely the above applies to turnover but also to the challenge of measuring ROI for Social Media (e.g., blogging, tweets, etc.)
For starters, how social media folks use ROI puzzles a finance person for sure. Second, we don't measure the ROI of your iPhone or air conditioning. Why, because it makes no sense.
Instead, we have to focus on a few strategic KPIs and get the job done. Too many numbers detract from the main mission - making a profit to pay the rent and wages as I discuss here:
http://commetrics.com/articles/metrics-3/
Of course, David is right to state that if we fail to manage the intangibles we might as well close shop.
Thanks for sharing
Respectfully
urs
@ComMetrics
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