Why Is The World Run By Bean Counters? - Neo-Econ 21C.

[Richard]

I have argued for some time that those who run companies are paralyzed by an Excel mentality: if all the columns and rows line up and total up nicely, then all is good with the world. The problem with this “columns and rows” mentality is that it is hard for such people to consider what might be if there were a few more columns added. So here comes Steve Denning who has written a book on this very subject. It’s definitely worth the few minutes it’ll take you to read his blog entry so that you are at least aware of his thesis.

Is this the neo-econ model for the 21st Century?

If you're interested in his thesis and sources, the links for further reading are found on his blog page.

And so it goes...

Richard :munchin

Why Is The World Run By Bean Counters?
Forbes, 16 Jul 2011

A colleague asked me not so long ago: “Why is the world run by bean counters?” Interesting question.

My take is that for the last 150 years, Western culture has been in the grip of left-brain thinking, and manipulating people like things. This made sense as long as there were huge economic gains that came from it. So the bean counters, the accountants, the economists, the green eyeshade people were on top of the world. They were good at counting things. The economics was on their side. They were masters of the universe. They were perfectly adapted to this way of running the world.

Counting “things” stopped working

But then something happened. The gains from running the world this way stopped coming. The bean counters didn’t notice that the economic foundation for the approach had collapsed. The problem was covered up with “financial engineering” and accounting tricks with debt. The result is that we end up with the poignant world described in a Financial Times article on the death of the American dream.

It’s a picture of general decline and no way out. Business schools, textbooks, consultants, are all pressing ahead with cost cutting, downsizings, outsourcing and so on, as nothing has changed. Because the returns get smaller and smaller, there is a lot of desperate flailing going on. Executive turnovers is accelerating. Life expectancy of firms in the Fortune 500 has declined from 50 years to 15 years, and is heading toward 5 years, if nothing changes. Mind-boggling statistics. So mind-boggling in fact, that leading business journals seem reluctant to discuss it, even though statistics come from a huge study from a reliable source.

Counting the right measures is good

It’s important to note what’s wrong with bean counting. It’s not that counting is wrong. Counting is good. We desperately need to know what’s working and what isn’t. The problem with the bean counters is what’s being counted. It’s a focus on solely counting things, rather than dimensions of life related to people. It’s perfectly possible to measure dimensions like client delight and employee satisfaction, but the bean counters focus solely on counting the beans.

The bean counting is the consequence of a view of the world as consisting of “things” to be manipulated, rather than people to be interacted with and conversed with and responded to. The new economics counts the people dimensions as well as the beans.

And guess what? Even in conventional bean-counting terms, radical management turns out to be two- to four-times more productive than traditional management with its focus on scalable efficiency and treating customers and employees as things to be manipulated. The gains that come when this is done firm-wide, as at Apple [AAPL], or Amazon [AMZN] or Salesforce.com [CRM] are extraordinary, as can be seen from the long-term shifts in share price.

New ways of measurement have emerged that measure what’s truly important to a firm’s future, namely, whether it is delighting its clients as a whole, as well as whether the individual units of the firm are contributing that goal. See my five-part series of articles starting here.

So there is a revolution under way to run the world differently. Those who master it will prosper. Those who don’t will go the other way. The new way is much more amenable to holistic Eastern thinking and so it may be that China, India will be powers in the future. Some of the best exponents are in Scandinavia, where the values are already in place. In the USA, it’s hard to say how long it will take. The country has tremendous capacity to adapt. But the forces of stasis are so entrenched that it won’t be easy.

From a longer historical perspective, it will happen, inexorably, because of the economics. Resistance is futile. But it could take decades, before people finally accept that everything they believed to be eternally true was merely a temporary set of measures that worked for a limited period of time in a particular social and economic context.

New economics, new social scene, new ways of thinking, speaking and acting, new world. Welcome to the future!

http://blogs.forbes.com/stevedenning/2011/07/16/why-is-the-world-run-by-bean-counters/

[Pete]

2 points

It used to be that bean counters counted beans. Then if you had a slip of paper in your hand that said you had 100 beans - well then, you had a hundred beans and could now pass those 100 beans on to someone else. Now it appears there are more slips of paper than beans.

The other is that large corporations are starting to count members like a truck load of beans. Same thing with large banks and their costumers.

[Dad]

" as can be seen from the long-term shifts in share price."

I have always thought that was the key. Senior management in the US focuses on the short term because that is where they earn their bonuses. Counting beans in a certain manner assures a bigger bonus. Capital investments may take years to pay off, even thought they may be brilliant long term strategies. That often is counter to the managements bonus. Many years ago in grad school I had a professor who had spent 20 years in R and D for a major corporation. He maintained that while for some strange reason Americans seemed to revere leadership in large corporations, he felt they were inferior to the management of middle and small companies. Large company execs too often got their jobs for reasons other than competence. Middle and small companies could less afford that.

[Utah Bob]

Very interesting read. Thanks.

[akv]

Very interesting Richard, Thank You.

Bean counters can more easily record their methods, even if flawed for posterity, thus they proliferate. The problem is most of the world isn't a closed end solution. IMO the high end of any field is right brained artistic activity. Quantification while useful subjects the user to the limits of mathematics. You can buy a paint it by the numbers Rembrandt. Aspiring artists would be better off, if a master was articulate enough and willing to mentor them. Expertise in any field requires tacit knowledge, still hard to pass on without experience, but best learned directly from an expert. The correlation between the extended apprenticeships and superior craftsmanship of the past aren't a surprise.

Or as my wily attorney friends say, " Young lawyers focus on the law, Experienced ones focus on the exceptions."

Is leadership a closed end solution? A question I have seen before, with respect for the brave service of US service academy grads, does an engineering background make for better military leaders

[Paragrouper]

I have argued for some time that those who run companies are paralyzed by an Excel mentality: if all the columns and rows line up and total up nicely, then all is good with the world. The problem with this “columns and rows” mentality is that it is hard for such people to consider what might be if there were a few more columns added.

You won't get an argument from me. I live this nightmare every day at work. What's worse, some jerk introduced my bean counters to risk managment. Now they've suddenly discovered that everything we've been doing successfully for years is now too risky.

I'd stuff the information on this blog into their suggestion box, but they are too busy exploring the features of Excel 2010 to care.:mad:

[wet dog]

You won't get an argument from me. I live this nightmare every day at work. What's worse, some jerk introduced my bean counters to risk managment. Now they've suddenly discovered that everything we've been doing successfully for years is now too risky.

I'd stuff the information on this blog into their suggestion box, but they are too busy exploring the features of Excel 2010 to care.:mad:

My history book is full of example of "bean counters" who used general ledgers, and simply posted facts. We got the Brooklyn Bridge, the Hoover Dam, Pacific Railroad and countless other things because we took RISK.

I'll be following the blog and this thread for sometime......

[Buffalobob]

My history book is full of example of "bean counters" who used general ledgers, and simply posted facts. We got the Brooklyn Bridge, the Hoover Dam, Pacific Railroad and countless other things because we took RISK.


Does your history book have this picture in it where the bean counters said the modulus of elasticity below forty degrees would not allow a seal but the risk takers said to launch anyway?

My point is very simple - there are risks takers who succeed and are recorded in history and then there are the failures which do not get mentioned. The history books are so full of stuff that a person can easily make a case for anything if they are willing to write long enough. Lets mention one of the great military risk takers, General George Armstrong Custer. He (and mostly his men whose lives he wasted) would have been a lot better off if he had had somebody counting the beans (or beings). :D

[akv]

Lets mention one of the great military risk takers, General George Armstrong Custer. He (and mostly his men whose lives he wasted) would have been a lot better off if he had had somebody counting the beans (or beings).

Respectfully Sir, I see your point but disagree with the Custer example. Prior to General Custer's decisions at the Little Bighorn, there was a brash young cavalry officer at Gettysburg who persuaded his superiors to let him lead an outnumbered charge and blocked JEB Stuart's cavalry as they were attempting to flank Union lines. Unfortunately as you noted, years later he and his men ultimately met their fate at the Little Bighorn, for his hubris, forgetting boldness is a tactic, not a strategy.

If we remove both Custer's brightest and darkest hour from the annals of history, what would have been the net effect for our nation? I have often wondered why he is remembered more for the latter than the former given their respective impacts on our nation.

[Dusty]

2 points

Same thing with large banks and their costumers.

Yeah; for example the "Acme Large Bank Clown Costume Company". They're the worst.

:D

[tonyz]

An interesting article/blog - some quick observations:

A competitive market tends to create pressure for results, often short term results - these short term results are often easier to measure than long term results.

One interesting sub-issue is that the pressure for short term or long term performance does not remain solely at the CEO/legislator/executive level - it, of course, soon permeates (stifles or frees) an entire organization's culture.

Many appear to admire a business, scientific or political view with the long term in mind, few, seem to have the capacity to hold out for it.

[wet dog]

I erected steel structures. Risk in raising iron high above workers on the ground, climbers and tools, is much like carrying a lit torch into a powder room.

Some things just have to be done.

[SkiBumCFO]

Richard - i found this thread intersting and amusing but as I am the CFO/CRO of a publicly traded company I can't really comment in an open forum because those evil lawyers :) might get me. maybe i will send you what i think via PM

[Roguish Lawyer]

Not sure what what planet this guy lives on, but he clearly doesn't know jack about what is actually going on in Corporate America. The article is a load of hooey IMHO.

[SkiBumCFO]

sounds like Roguish Lawyer succinctly summarized the thoughts I couldn't share in an open forum :)

[Roguish Lawyer]

sounds like Roguish Lawyer succinctly summarized the thoughts I couldn't share in an open forum :)

LOL

[1stindoor]

I also found the article interesting, but I think the writer misses what I think is a crucial component of any business...employee loyalty. Hard to feel loyal when the CEOs, CFOs, etc. all get massive "golden parachutes" and then after resizing, restructuring, reorganizing, etc. turn around and bail.

[Buffalobob]

Respectfully Sir, I see your point but disagree with the Custer example. Prior to General Custer's decisions at the Little Bighorn, there was a brash young cavalry officer at Gettysburg who persuaded his superiors to let him lead an outnumbered charge and blocked JEB Stuart's cavalry as they were attempting to flank Union lines.

I do not often demand any respect but in this case I duly note that your profile does not have an MOS of 1542. The conundrum of the team or platoon leader or company commander is doing what has to be done while minimizing his own troop casualties. As Wetdog mentioned, part of the job is doing what has to be done when it has to be done even if it involves sacrificing your own life and those of your men. The example you mention means nothing to me because abut four truckloads of us have Recon, SOG, CCN, CCC, or CCS in our profile. What that means is we were always out numbered but the fact that we are here today means we were not brash. The risks we took were those that we had to take and were not optional risks (at least that is my opinion). In other words taking a risk was the best option of several bad options which were either more risk prone or were more failure prone (mission not accomplished).


If we remove both Custer's brightest and darkest hour from the annals of history, what would have been the net effect for our nation? I have often wondered why he is remembered more for the latter than the former given their respective impacts on our nation

That my point exactly - if you massage your facts you can prove the earth is square and does not rotate, and as Columbus discovered you will fall off the edge and be eaten by monsters. :D

[akv]

I do not often demand any respect but in this case I duly note that your profile does not have an MOS of 1542. The conundrum of the team or platoon leader or company commander is doing what has to be done while minimizing his own troop casualties. As Wetdog mentioned, part of the job is doing what has to be done when it has to be done even if it involves sacrificing your own life and those of your men. The example you mention means nothing to me because abut four truckloads of us have Recon, SOG, CCN, CCC, or CCS in our profile. What that means is we were always out numbered but the fact that we are here today means we were not brash. The risks we took were those that we had to take and were not optional risks (at least that is my opinion). In other words taking a risk was the best option of several bad options which were either more risk prone or were more failure prone (mission not accomplished).

Sir, there is no need for you to demand my respect in any situation. You have always had it and always will, not just for your Recon service to our country, but for the character and humility I see in your posts. The word brash was a bad choice. For lack of eloquence, I was trying to present the point the sum of Custer's actions were in my opinion a positive for our country. Many think him a fool, I feel his action may have helped save the Union, adding to that discussion was my sole intent. I read everything I can get on SOG, LRRP, and Recon, and remain in awe of men who can do such things. If I offended you, I apologize.

[incarcerated]

Not sure what what planet this guy lives on, but he clearly doesn't know jack about what is actually going on in Corporate America. The article is a load of hooey IMHO.
Steve Denning must be a genius. He’s discovered a breathtaking new management principle: Repeat Customers, er, I mean, Client Delight. And he’s selling a book. And seminars.
Linked from the original Forbes article:
http://www.stevedenning.com/Books/radical-management.aspx
The Leader's Guide to Radical Management
Re-inventing the Workplace for the 21st Century
Inspiring Continuous Innovation,
Deep Job Satisfaction and Client Delight
Most proposals for improving management address one element of the crisis at the expense of the others. The principles described by award-winning author Stephen Denning simultaneously inspire high productivity, continuous innovation, deep job satisfaction and client delight.

Radical management is a fundamentally different approach to management, with seven inter-locking principles of continuous innovation: focusing the entire organization on delighting clients; working in self-organizing teams; operating in client-driven iterations; delivering value to clients with each iteration; fostering radical transparency; nurturing continuous self-improvement and communicating interactively. In sum, the principles comprise a new mental model of management.

The book:
• Outlines the basic seven principles of continuous innovation

• Describes over 70 supporting practices.

• Rethinks management from first principles.

• Is written by the author of The Secret Language of Leadership--a Financial Times Selection in Best Books of 2007.

• Is published along with a second edition of The Leader’s Guide to Storytelling and a re-issue of Squirrel Inc.
<snip>
The Seven Basic Principles of Radical Management
Radical management is a fundamentally different approach to management, with seven inter-locking principles of continuous innovation.
1. The goal of work is to delight clients.
Traditional management aims at producing goods or services, or making money for the shareholders. Radical management aims at delighting clients and focuses, not just the marketing department, but the entire organization on this goal.
2. Work is conducted in self-organizing teams.
What are self-organizing teams?
Why they constitute the best way to generate continuous innovation.
How to make them happen?
3. Teams operate in client-driven iterations.
This in turn leads on to working in client-driven iterations, because delighting clients can only be approached by successive approximations. And self-organizing teams, being a life-form that lives on the edge of chaos, need checkpoints to see whether they are evolving positively or slipping over the edge into chaos.
4. Each iteration delivers value to clients.
Client-driven iterations focus on delivering value to clients by the end of each iteration. They force closure and enable frequent client feedback.
5. Managers foster radical transparency.
Self-organizing teams—working in an iterative fashion—in turn both enable and require radical transparency so that the teams go on improving of their own accord.
6. Managers nurture continuous self-improvement.
Traditional management sets a limited goal of “good enough” quality, which translates into an acceptable number of defects, an acceptable range of standardized products that hopefully meet customer requirements.
Continuous improvement means having the entire work force find ever better ways to give more value to clients.
7. Managers communicating interactively through stories, questions and conversations.
An underlying requirement of all of these principles is interactive communication. Unless managers and workers are communicating interactively, using authentic narratives, open-ended questions and deep listening, rather than treating people as things to be manipulated, none of the above works.