Monday, April 24, 2020

Slow Measurement

Measurement is everywhere in today's organizations. Top executives agonize every month over a long list of measures, hoping to find clues to the state of their business and the decisions facing them. They obsess about working capital, return on equity, return on investment, revenue per employee or other financial ratios. They ponder items like customer satisfaction and order fulfillment times; fuss over sales figures compared with last month, last quarter or last year (or all of those); gloat (or console each other) over current market share; explore employee satisfaction, staff retention and talent audits. Surrounded, sometimes overwhelmed, by a mountain of numbers of all kinds, they seek to direct the business like radar operators in the bowels of a warship: completely dependent on their "instruments" to tell them what's happening—and rarely seeing the real world outside.

How well do the executives truly understand all these ratios and indicators? I guess the answer is some do and many don't. Mostly it's a matter of rules of thumb: separating "good" result from poor ones by reference to previous figures (good ones go up, poor ones down—unless it's the other way around) and assumed norms and standards.

Most conventional measurement systems weren't designed to help corporate leaders decide on necessary action. They were invented by accountants to report financial results to shareholders and tax collectors, then pressed into service to support management decisions for want of anything else. Nearly all are available only after the event, when it's too late to take action anyway. As the cliché puts it, using them is like driving down the road with your eyes fixed on whatever is in the rear view mirror.

As ways of making leadership decisions, they're nearly useless. Suppose costs are rising, sales are falling, and you're running out of working capital. You know swift action is needed, but what? Cut costs (which may depress sales further)? Try to boost sales (which may cost more initially in discounts and special offers)? Raise more capital (but who will invest over falling sales figures)? Indicators are just that: they indicate something may need your attention. They don't tell you exactly what, or why, or what action to take.

Leaders who rely on figures to determine direction are putting their trust in something very likely to let them down. Why do they do it? The cynical answer is everyone else does and they're afraid to be different. The kinder, more realistic answer is speed: like the whole world these days, they're hoping for quick, simple, sure-fire ways to cut through the overwhelming mass of data to get to what might actually make a difference. Get it all on half a sheet of paper, even if the resulting simplification makes it meaningless.

As the size and scale of operations have grown, leaders have lost faith in their experience, their intelligence and their intuition. None of those seem "scientific." They're also worryingly personal. When there's relentless pressure to improve performance and do so immediately, but no clear idea of how to do it, "making the numbers" seems a safer option—even if the numbers required are mystifying, or based on no more than a fixed percentage increase over the last set, or threaten to compromise long-term future prospects. The search is on for yet another "sure-fire," simple indicator to act as a compass in extremely rough and stormy waters. Give me a clear number to head for and don't expect me to have the time to think.

As managers invent more and more measures to track progress in this way, they're producing two other things: still more data to add to the mountain already threatening to overwhelm them; and ever more complexity to add to their workload. They compile statistics on statistics in the belief performing as the numbers require will equate to achieving business objectives. It's an idle hope. Any connection between the items being measured and the organization's success is theoretical at best. More often it's totally illusory. In time, squads of people spend their working lives collecting data of no use to anyone and ignored by all. That's organizational inertia at work: once a routine is in place, it's nearly impossible to stop it. Time, energy, people and money are allocated to measurements that have no value. In a well-meaning attempt to manage "scientifically" and find a sure, numerical basis for their decisions, they've simply added to the waste already clogging progress.

Action is the only part of leadership that makes a difference. Anything that doesn't contribute to action is useless; and that goes for all the laborious collection, analysis and reporting of data that results neither in action nor increased understanding. Many measurements date from a past as different from today's needs as the Stone Age. In the pursuit of comparisons, companies stick with whatever they've measured before—even if it's clear it has little or no relevance. In the desperate hope of finding a short-cut, they add measures they read about in magazines or heard about from consultants. The collection of meaningless figures accelerates.

When I worked in a sales environment, everyone had covert ways to hide away "excess orders" against lean times in the future. At year end, the accountants became nearly frantic trying to force us to disgorge what we were so carefully making sure we could carry over to the next year. They never succeeded. Old hands instructed newcomers in the best ways to thwart prying eyes. We made our personal "numbers" into whatever we wanted them to be; and the aggregation of all that fudging and hiding of results was doubtless further "massaged" by others before being codified and simplified into a neat ratio to be set before the CEO. By the time it reached him, it had lost any link to the reality of customers, orders and business operations. Heaven knows what decisions he based on that meaningless column of numbers.

Slow Measurement is about understanding reality, regardless of the numbers or approved financial ratios. It's focused on using information far beyond what can be simplified into numbers on a spreadsheet. The numbers will be there—some of them—along with other sources of useful information, like asking questions, getting out to see what's happening, listening to what people want to tell you and using your experience and intuition to help you sort out the meaning behind all those figures. It's slower, messier and much less amenable to computerization and collection into a database. It's also more flexible, more creative, more practical and more likely to produce understanding that points to the correct way forward.

Intelligence, in the sense of information needed to direct future action, will never be reducible to neat statistics and analysts' reports. The reason is simple: when you're dealing with people, as all businesses are, you're up against something that can't be captured in numbers and formulae. People don't do what they should. They make mistakes, jump to emotional conclusions, miss the most obvious opportunities and fall into the most unexpected messes. They thwart those who seek information and put their own concerns before abstract ideas like ensuring accurate returns and maintaining data integrity. Sometimes they screw up the data purely for fun.

An elderly vicar I knew in England told me the story of the British government's attempts to understand available emergency accommodation in the early days of World War II. Asked to report how many people his church could hold, he responded accurately—400. A few months later he was asked again. He gave the same answer. The third time he was asked, something snapped. Since, as he told me, the capacity of his church hadn't changed since it was built sometime around 1300 AD, he wondered if anyone was reading these returns. To test his theory, he added a zero—his church suddenly held 4000 people. No response. And so it went. Every time the return arrived, he responded with an extra zero. No one questioned the amazing, expanding church. By the end of the war—and the return—he had the largest church in the world, with a seating capacity of 400,000,000 and rising.

It takes time to understanding the dynamics of a business; time and hands-on expertise. No two are alike. The factors that will lead to achieving organizational goals shift and change constantly. Many of them are beyond anyone's control or influence. Like signposts along a road, measures are useful to indicate whether things are roughly on course, but they can't do more than alert people they may have taken a wrong turn. In the end, it's up to the managers to find and address the causes of any problem. The value lies in the process of discovery, not in the figures that started it.

To use Slow Measurement, focus on revealing the true causes of performance, using qualitative as much or more than quantitative information. Take whatever time is needed to understand fully, before jumping into action. Spend less time asking how the business is performing in the short-term, and more considering how it might perform as well or better for as far ahead as can be reasonably imagined. Sometimes you need to realize what looks like a problem is the first sign of a wonderfully unexpected opportunity.

And if the best, most accurate and complete information on all this comes from Sid and Ruth in the warehouse—or Gerry, whose been a loyal customer since 1988—that's the information that should be used…and to Hell with all the figures in the spreadsheet.

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