Controls for Nonmeasurable Events
A balance between the measurable and the nonmeasurable 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 nonmeasurable. And measurable results will not show up for a decade.
A balance between the measurable and the nonmeasurable 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 nonmeasurable 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.
ACTION POINT: List both nonmesurable and measurable variables that are important to the achievement of the goals of your organization. Develop quantitative assessment for those variables that can be so measured and qualitative assessments for those critical variables that are qualitative.
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.
ACTION POINTS: Specify the system of rewards and punishments in your organization, including the procedure used for making promotion decisions. Evaluate the performance measures in place in your organization. Make sure that good performance measures leads to rewards, promotions, and punishments.
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