Controls for non measurable events
A balance between the measurable and the non measurable is a central and constant problem of management.
Business, like any other institution, has important results that are incapable of being measured. Any experienced executive know companies or industries that are bound for extinction because they cannot attract or hold able people. This, every experienced executive also knows, is a more important fact about a company or an industry that last year’s profit statement. Yet the statement cannot be defined clearly let alone “quantified.” It is anything but “intangible”; it is very “tangible” indeed. It is just non measurable. And measurable results will not show up for a decade.
A balance between the measurable and the non measurable is therefore a central and constant problem of management and a true decision area. Measurements that do not spell out the assumptions with respect to the non measurable statements that are being made – misdirect, therefore. They actually misinform. Yet the more we can quantify the truly measurable areas, the greater the temptation to put all-out emphasis on those the greater, therefore, the danger that what looks like better controls will actually mean less control if not a business out of control altogether.
The ultimate control of organizations
People act as they are being rewarded or punished.
There is a fundamental, incurable, basic limitation to controls in a social institution. A social institution is comprised of persons, each with own purpose, his own ambitions, his own ideas, his own needs. No matter how authoritarian the institution, it has to satisfy the ambitions and needs of its members, and do so in their capacity as individuals through institutional rewards and punishments, incentives, and deterrents. The expression of this may be quantifiable – such as a raise in salary. But the system itself is not quantitative in character and cannot be quantified.
Yet here is the real control of the institution. People act as they are being rewarded or punished. For this, to them, rightly, is the true expression of the values of the institution and of its true, as against its professed, purpose and role. A system of controls that is not in conformity with this ultimate control of the organization, which lies in its people decisions, will therefore at best be ineffectual. At worst it will cause never-ending conflict and will push the organization out of control. In designing controls for an organization, one has to understand and analyze the actual control of the business, its people decisions. One has to realize that even the most powerful “instrument board” complete with computers is secondary to the rewards and punishments, of values and taboos.
Pursuing perfection
“The Gods can see them.”
The greatest sculptor of ancient Greece, Phidias, around 440 BC made the statues that to this day, 2,400 years later, still stand on the roof of the Parthenon in Athens. When Phidias submitted his bill, the city accountant of Athens refused to pay it. “These statues stand on the roof of the temple, and on the highest hill in Athens. Nobody can see anything but their fronts. Yet, you have charged us for sculpturing them in the round, that is, for doing their backsides, which nobody can see.” “You are wrong,” Phidias retorted. “The Gods can see them.”
Whenever people ask me which of my books 1 consider the best, I smile and say, “The next.” I do not, however, mean it as a joke. 1 mean it the way Verdi meant it when he talked of writing an opera at eighty in the pursuit of a perfection that had always eluded him. Though I am older now than Verdi was when he wrote Falstaff, I am still thinking and working on two additional books, each of which, I hope, will be better than any of my earlier ones, will be more important, and will come a little closer to excellence.
Decision objectives
A decision, to be effective, needs to satisfy the boundary conditions.
A decision process requires clear specifications as to what the decision has to accomplish. What are the objectives the decision has to reach? In science these are known as “boundary conditions.” A decision, to be effective, needs to be adequate to its purpose. The more concisely and clearly boundary conditions are stated, the greater the likelihood that the decision will indeed be an effective one and will accomplish what it set out to do. Conversely, any serious shortfall in defining these boundary conditions is almost certain to make a decision ineffectual, no matter how brilliant it may seem.
“What is the minimum needed to resolve this problem?” is the form in which the boundary conditions are usually probed. “Can our needs be satisfied,” Alfred P. Sloan presumably asked himself when he took command of General Motors in 1922, “by removing the autonomy of the division heads?” His answer was clearly in the negative. The boundary conditions of his problem demanded strength and responsibility in the chief operating positions. This was needed as much as control at the center and unity. The boundary conditions demanded a solution to a problem of structure, rather than an accommodation among personalities. And this, in turn, made his solution last.