Individual Competence vs. Organizational Efficiency LO28918

From: Terje A. Tonsberg (
Date: 07/28/02

Replying to LO28914 --

Hello Chris and group,

Chris Macrae said:

> Terje, I am sorry but we are in total disagreement, as far as I can
> understand your words

Chris, I am actually happy. If there weren't any disagreements on this
list I would very quickly cancel my subscription. I would be very, very
bored and have no opportunity to clarify my thoughts and test them. I hope
that we can continue this thread in good spirit, even if we disagree.

Chris said:
> I am a mathematician by training and the one lesson I learnt:
> mathematicians and numbers men should never model people systems unless
> they cherish/value the people relationships involved

My comment:

Ah, I agree, and I think we have been talking about slightly different
things. I never said anything about mathematicians and modelling. This is
a very special case of number use. I think also that modelling is often
done with too many assumptions and too much money. In marketing, as an
example one can build a neural network, or do a quick analysis of Recency,
Frequency, Monetary analysis (RFM), which is much simpler and cheaper, and
will often do the job. Besides, one is not dealing with a causal model in
this case anyway. When it comes to "numbers people," I am not quite sure
who you mean. This all comes back to numeracy as I have discussed it

Chris said:
> Various Professions herded by accountants and MBA-trainers and Merchant
> Bankers abandoned that principle years ago for reasons that are muddled
> mixture but probably include:
> - wanted to maintain dominant relationship with boardroom
> - didn't realise how intangibles (meaning people connecting processes
> such as knowledge, services and networks) were not only becoming the main
> economics/productivity drivers but were making separable transaction
> accounting less useful until it got to be at best drowning the woods
> in the trees and at worst the province of very opaque people including the
> corrupt which are some of the lurkers of opacity

My comment:

The first reason is political, and has little to do with the numbers
themselves. I think paying less attention to numbers might very well make
this worse.

The second reason is just another case of lacking numeracy (i.e. knowing
what numbers mean, what they can do and cannot do etc.) or politics.

Chris, I don't think we disagree on the symptoms much at all, but it does
seem that we disagree on what is the solution.

Chris, you said:
> We are in a position where most corporate governance is measured only by
> number. This false sense of command and control has distracted many boards
> from their learning organization stewardship duties, and even
> understanding when investment decisions need take system sustainable
> priority over what numbers may make look like excellent performance (
> Andersen's little unit in Texas )

I don't think numbers are the problems even here. The problem is greed of
both investors, managers and consultants/accountants.

The short term/ narrow thinking and greed that is found in the corporate
world are not caused by numbers in themselves. The separation of
management and ownership, the way the stockmarket works, the influence of
media as a driver of conspicuous consumption and shallow values, greed
etc. are still going to be there after removing the focus on numbers.
Moreover, in those cases were people would take right action if they did
see the big picture, I think it is not a matter of removing the numbers,
but again it is numeracy. Note that when I say numeracy I also mean that
people know when to use them and when not to (because this is included in
knowing what they do/tell and what they don't do/tell.)

Chris said:
> There is also a not un-related matter that not all human value is

My comment:

That goes without saying. I don't want to be misunderstood here. I do
recognize the problems that you are mentioning, and I am disgusted by many
of them, but again, I disagree on what drives them.

Chris said:
> the law that operates in some US States that a CEO can be sued by
> shareholders if he acts too socially responsibly is ... unethical,

Hmmm. This depends entirely on what is meant by "socially responsible."
It is not his money.

Chris related the following quote, saying:
> ..accounting's laws are the modern day Vietnam that young people
> must rebel against with any prank their brains can come up with.

My comment:

This seems too simple. If you get rid of the accounting laws, then what?
Is that going to stop greed, stop the gambling mentality of the
stockmarkets, stop conspicuous consumption? I don't understand.

Chris said:
> Ironically until they do, stockmarkets will go down and down. Because most
> SVA was never to the benefit of the pensioner-investor only to the numbers
> manipulator, and even when you maximize short-term numbers by all honest
> means available to you through all the professionals who serve you, in
> systems terms that's tampering....and in effect most companies have lost
> innovation, trust, employee goodwill to such an extent through
> numberisation they are spinning as value destructors

Stock market values reflect investor psychology, and not real value. It is
also highly tied to monetary policy. Print more money, stock goes up, but
there is no change in real value. Get a different (soft) accounting
system, then if stocks go up -- so what? In fact, a higher price means
cheaper financing which very well can result in bad investment decisions.
I think it is dangerous to look at the stockmarket as a measure of real
wealth or productivity today and even more dangerous for tomorrow. The
wealth of tomorrow, while undoubtedly related to today's decisions,
depends largely on CONTINUED good business decisions tomorrow, i.e. how
businesses adjusts to market conditions tomorrow. This is something that
carries a great deal of uncertainty. Things change so fast. The learning
organization of today becomes the deadbeat of tomorrow, etc. The present
accounting system is conservative, that is why many people are reluctant
to change it.

Chris said:
> The only way back is to install two systems of organizational
> measurability: one number oriented focused as simply as possible on
> cashflow and reducing well over 50% of today's accounting creativity
> and one which is transparent to people relationships and system's
> friendly. That's the work we are embarked on at and we
> will partner anyone who agrees its time to model professional services 2.0
> where the meaning of professionalism is to be totally open about your
> work, how it cherishes people relationships, builds trustflows across
> organisational systems.

I like the idea of simplifying the accounting system, but don't you want
to have an estimate of what hard assets (buildings etc.) are worth?
Cashflow alone is pretty bare.

Before I say more, I am not saying that your efforts are worthless, I do
appreciate the need for better evaluation systems. I do not think,
however, that any evaluation system can do all these things. How does
evaluation change bureaucratic ambition, greed, selfishness, favoritism,
mistrust, dislike ...?

Chris said:
> The supreme 1.0 professional has only
> one goal : monetising. That's the most rotten application of my profession
> as a mathematician that I could ever imagine seeing. Its also a lie to
> this thread's name : there's no versus here: not if: 1) my dictionary's
> definition of efficiency is full and fair in saying: the power to produce
> the result intended 2) assuming INTENTION =sustainable growth for all
> stakeholders not a few years of manipulation and then vicious system
> destruction

OK, again I can relate to what you are saying here, but the what of
sustainable growth is unknown and so is intention. They cannot ever be
known except in the sense that one can make an educated guess, while
assuming this and that. A learning org. today might be nothing like it 6
months later.

Chris, no matter what evaluation system one comes up with, the future --
especially the long term -- remains VERY uncertain. It also remains less
important to peoples decisions today. No evaluation system can change
that. Ponder the proverb "It is better to have a bird in the hand than 10
on the roof." Why is this a proverb? Take a look at the tons of research
that has been done on the preference of humans and organisms in general
for "small sooner", over "maybe a lot later." One of the basic lessons in
an introductory psychology course is that for contingencies to drive
behavior, the reward needs to be clear, certain and immediate. This cannot
be changed through simply changing accounting practices. We are dealing
with problems that are strongly connected to human nature and driven
further by many factors such as the concept of the stockmarket and its
form of ownership and transactions, politics, banking, media, to name a
few. The evaluation system itself is part of it, but it is a minor issue
in my opinion.

Another point regarding the soft side. The soft side, while growing in
importance, is extremely volatile and tied to the hard and short term side
(salaries, promotions, recent performance, a single bad decision from the
top, change in technology, etc..) Morale, loyalty, etc. can change at the
drop of a hat. This makes them even more uncertain than capital that is
saleable, let alone that it is difficult to measure the value of it in the
first place. This again makes me feel sure that changing accounting
practices will not change things significantly.

In the stockmarket, as an example, I think the first thing that would
happen is confusion and suspicion, then a realization that the new
accounting is different in that it makes long term guesses based on the
estimated long term value of things that can't be sold. I don't see how it
would help significantly in removing myopic decision making among
investors or managers. It is merely scratching the surface.

Chris, to prevent any misunderstanding, I am presenting these points, not
as an attack on you or your project, but because I am trying to learn. I
hope it is an opportunity for you to clarify your ideas as well.




"Terje A. Tonsberg" <>

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