Businesses Do Not Measure What Matters

by Jay Deragon on 08/19/2013

Opposing MaximsIn last week’s post I said “Management consulting has been and still is a huge business because, understanding and applying new knowledge is the solution to every business problem. This is especially true when markets are undergoing dramatic changes.”

When markets are going through dramatic change it is difficult to create solutions based on data from past scenarios because these scenarios do not show the future changes.  Clayton Christensen said: The only way to look into the future is use theories since conclusive data is only available about the past.”  So given the state of the marketplace one might ask if management consultants have led businesses down the wrong path by accessing data about the things that don’t matter?  Have you ever asked the management consultants what is their latest theory?

By definition management consulting is the practice of helping organizations to improve their performance, primarily through the analysis of existing organizational problems and development of plans for improvement.  Notice the definition says nothing about creating theories about the future of markets that businesses serve.

The Business Maxim

The management mantra of the industrial era was “What you can measure you can manage”, also called the McKinsey Maxim, named after the famed consulting firm.

This meaningless slogan became the management mantra of the 20th century. Like all mantra’s people tend to repeat them without asking whether they have any meaning and then we’ve counted and measured things ever since accounting systems were created .  Meaningless because it does not tell us what ought to be measured especially during times of dramatic change where wisdom based on sound theories is more important than hard data from past performance.

The Social Maxim

The Social Era, fueled by the internet of everything, is creating dramatic changes because the social dynamics are disrupting market performance and business as usual. As a result the performance indicators, such as operating and financial results, all founded on past theories, are inadequate to predict future outcomes.  If the “market” changes dramatically then the theories used to predict your systems future performance suddenly become false.

Business performance indicators have become a management obsession encouraged by management consultants. In the Social Era, by contrast, a predictive indicator is a measurement supported by theory, which can be tested and refined, in order to explains, prescribe, or predict behavior.

So the theory for managing in the 21st century ought to be based on the Social Maxim “Manage the behaviors that matter to your stakeholders Doing so means you must change how and what you manage and more importantly what you measure.

Wisdom tells us that influence on human behavior is best achieved through intangible things and not the tangible things.  Smarter Companies know the difference.

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