Rebirth of Reason


Management of, by, and for the Numbers
by Kernon Gibes

It's been a long and frustrating day. The plant is waiting on your analysis to troubleshoot a manufacturing problem. The delay will impact product supply, but you're having problems with your computer. The software keeps crashing. You call, Hal, the only computer person assigned to your site. But he can't help you unless he has an authorization number. To get a number, though, you have to call across the country, and wait on the phone until someone gets around to you. They often can't solve the problem, but your request most go through channels, and be routed to the appropriate service personnel. Of course, everyone knows there's only one 'service personnel' at your site.

Sounds like a typical scenario of a communist state-run company? Actually, no. It's a not uncommon occurrence at a number of big businesses these days. It's called centralized resources. It's efficient, they say. It saves money, they say. Who is this 'they' and do they know some awful secret about decentralization that free market theorists have yet to discover?

Big business, whether in bed with the government or not, tends to take on the characteristics of bureaucracies as it grows in size. Management of large, complex organizations is highly dependent on numbers for several reasons. First, no one person, or small group, can possibly keep track of the details. Furthermore, the management does not actually own the company. They just run it. And the top management's compensation is often tied to stock performance. The stock market is a quixotic beast at best, more often ruled by a kind of herd mentality than true industry performance, but still, profits (on paper at least!) count. And who figures out what the profits actually are? Can someone just look at bank statements? No, it's too complicated for that. You need accountants.

(I should pause here to say that I have nothing against accountants per se --- it's just that I'm a recovering Monty Python fan.)

Accountants are number people. That's want they do. They are excellent at adding, subtracting, and even multiplying. But of numbers . You can't add (or subtract for that matter) what isn't first and foremost a number.

Let's return to the plant waiting for the fix. And forget about lost time, employee frustration, enervated initiative, and so on, as these things don't matter --- that is to say, they obviously can't be measured. But the delay in the production process had tangible effects. It meant product didn't get shipped in time. This, in turn, impacted retailer relations, and meant product wasn't on the shelves to be sold. No one is actually tracking this, nor can it even, in principle, readily be tracked. There are just too many myriad factors effecting sales. All of the lost opportunities owing to central resources are beyond the ability of accounting to measure. And if it can't be measured, it can't be added, subtracted, or multiplied. It doesn't count. It doesn't exist. It doesn't figure in the bottom line.

The sorts of things that can be added up are employee salaries, medical benefits, 401K matching, and payroll taxes. Centralizing support, with its attendant reductions in full time positions, clearly does reduce fixed costs. And, on paper, there is simply no down side. There are no offsetting losses because the unintended consequences simply don't show up in any numbers.

Has big business and its accountants divined a fatal flaw in market mechanisms? No. This isn't a case of central control outperforming decentralization. It's just management of the numbers, by the numbers, and for the numbers. (Honest Abe almost had it right.)

(Post Script: Like government interventions, company controls are rich fertilizer for the growth of creative circumventions, aka black markets. If you get to know 'Hal', he may help you without an authorization number. Or he may ask that you get one latter when you have time, as his bottom line is affected by the number of tickets he's resolved!)

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