The belief that “if you cannot measure it, you cannot manage it", popularized in such books as the Balanced Scorecard, is wrong.
A central decision of managers is to strike the right balance between the measurable and the unmeasurable.
We need measurement, but more importantly, we need good measurement.
The over-reliance on measurement often instills a false sense of confidence in the knowledge of performance.
by Phil Green
The belief that “if you cannot measure it, you cannot manage it,” popularized in
such books as the Balanced Scorecard, is wrong. It has misinformed and led many
people astray. This belief has spawned measurements and performance indicators for
every facet of businesses with little or no regard for the meaning of the numbers
or their trustworthiness, or even whether they are necessary.
The belief that “if you cannot measure it, you cannot manage it,” is wrong.
People manage most aspects of their lives without recourse to measurement, whether
it is their child’s struggles at school, or their relationship with their spouses
or their boss. Yet measurement is one of the hallmarks of our advanced civilization.
Peter Drucker wrote that a central decision of managers is to strike the right balance
between the measurable and the unmeasurable. It is a mistake to rely too much on
quantification and overlook vital, but unmeasurable, information.
Some of the things that have the biggest effect on businesses—such as the sudden
launch of better competing products—are not measurable until it is too late to act.
One of the most important skills of the successful manager is to judge character
and inspire action, tasks psychologists have attempted to quantify but whose efforts
pale beside intuition and the wisdom of experience.
The over-reliance on measurement and on information technology to generate it produces
realms of data that often instill a false sense of confidence in the knowledge of
performance. Concreteness and profound knowledge about the business can only come
if there is profound knowledge about the measurement process itself, and the reliability
of the resulting information.
We need measurement, but more importantly, we need good measurement.
We need measurement, but more importantly we need good measurement. We measure things
everyday without even thinking about it, relying on the measurements implicitly.
To inform rather than misinform, management must ensure the trustworthiness of measurements.
This means understanding the assumptions behind them, and asking “which measurements
can be trusted, and which should be shun?” One has only to read the daily financial
papers to realize that many executives are struggling with measuring the most basic
measure of performance, their company’s income. Headlines scream out “restatement
of earnings” on an almost daily basis. The Washington Post recently reported that
there were 270 restatements of earnings before the Sarbanes-Oxley Act was enacted
in 2001, and 1,200 in 2005.
Managers face the same issues with more mundane measurements. How reliable are the
inventory data in a supply chain, when different nodes in the chain have varying
methods for defining, counting, estimating and tracking it? At one factory, the
key measures of process performance were subject to various certifications. They
were so variable, however, that they accounted for most of the variation observed
in the process.
The use of these numbers to manage the process lowered productivity. A CEO told
me recently he was concerned that his company’s environmental compliance performance
indicator did not highlight the most serious concerns. I have rarely not seen safety
statistics that are misreported or misinterpreted.
Fortunately improving the reliability
of measurements usually produces high returns.