Wednesday, April 22, 2015

Managing by abstract numbers: the eighth systemic disease of organizations

A Japanese house with many paper walls and  paper ceilings with many layers. It seems designed by a paper-obsessed architect.

Numbers are necessary to keep track of where we are and where we are going. Necessary, but not sufficient. Another simple ingredient is required: the competence to interpret the numbers. Unfortunately, this means direct experience with whatever it is that is measured or counted or registered. It means also to realize which facts are not in these nice numbers.
It is easy to calculate how much money you save when firing workers, but not what the cost may be of lost experience, know-how, of hiring and training and induction of new workers. It is easy to calculate what your turnover has been, but not the value of client satisfaction and dissatisfaction. It is easy to calculate what money you save by automating the response to income phone calls, but not what you lose by losing client
Saving money on execution is often used to increase staff and managerial positions. Boards rather discuss new building projects than upkeep or upgrading of existing facilities. The euro value of stock is based on assumptions, the value of goodwill is a fantasy coming out of accounting conventions. Writing off on property is based in tax and other financial considerations. But the value of any property is zero, unless you have a buyer. And what the buyer will be willing to pay is the umpteenth assumption.
Figures only seem precise. Accountancy is the most esthetic variety of quasi-precision: balances are by definition balanced. Administrators of bankruptcy proceedings are among the most realistic managers.

Many managers strive to a company in which nothing has to be done anymore: the hollow corporation. Everything is contracted out, if possible even the contracting out. What remains is supervision. Supervising things you don’t know and don’t want to know. Production is the first thing that should be eliminated. It produces noise and smell, it takes up space, it needs maintenance and repair, warehouses, transport. Its main drawback is that you need personnel to work there and people are always creating problems. If you can’t avoid having them, you prefer temps, so you can get rid of them the moment they start to have comments, criticisms and, worst of all, suggestions. But the most horrible thing of production is that things may go wrong. Imagine being responsible for that!
Sales is much more difficult to get rid of. But even that can be contracted out. You can limit yourself to creating the condition for sales: marketing. The main drawback of sales compared to marketing is that failure is much more visible and direct.

The only things you can’t get rid of, are finance and legal. Even in the most abstract of worlds, wriggling with money and contracts remains important. Anyway, it is a clean world of board rooms and hotels with only civilized and clean and well-dressed people.
And if you still want something tangible? Build a new headquarters. Of course, it will be much too grand for what you really need. So you rent it out to prestigious firms and events. And you sell shares in it. In the end, everybody invests in everybody else. Till reality kicks in. Preferably as far away as possible.

All this is in government administration as rampant as in business administration.

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