Managing by the numbers

Posted by Marc Hodak on July 12, 2007 under Invisible trade-offs | Read the First Comment

Only the worst managements do it. It’s a recipe for unintended consequences, like pushing for higher sales, and ending up with crappy profits because you gave up too much secure the sales. Or pushing for higher profits and ending up with crappy returns on investment because you invested too much to gain those profits. I see it all the time.

Guess what? You do too, when watching those managing our country:

“The longer I’m here, the more I’m persuaded that Iraq cannot be analyzed by these kind of discrete benchmarks,” [Ryan C. Crocker, U.S. ambassador to Iraq] said.

After the Iraqi government drew up the first list of benchmarks last year, American officials used them as their yardstick, frequently faulting the Iraqis for failure to act on them…

Measured solely by the legislative benchmarks, he said, “you could not achieve any of them, and still have a situation where arguably the country is moving in the right direction. And conversely, I think you could achieve them all and still not be heading towards stability, security and overall success for Iraq.”

The point here is not to support or criticize our position in Iraq. I’d like to avoid that verbal quagmire. The point here is how similar this sounds to Red Auerbach, former coach of the Boston Celtics.

For those of you not into basketball history, Red Auerbach was a heck of a coach. His Celtics won eleven NBA titles in 13 years. Maybe you remember how dominant the Chicago Bulls with Michael Jordan and Phil Jackson were the ’90s. Those Bulls would have had to win another five straight championships to match Auerbach’s record.

So, Red didn’t trust benchmarks, or “the stats” as he called them. Like all great coaches, Auerbach had a mental framework for what it took to win at his game: The person with the best shot should take the shot; the team should ensure that that person gets the ball; the team should prevent their opponents from getting good shots… Pretty straightforward. All that mattered to him was the score at the end of the game. He stayed away from the stats, especially as they applied to individual performers.

There’s only one stat I was ever concerned about. When this guy’s in the game, does the score go up in our favor or go against us? The Boston Celtics never had a league’s top scorer. We won seven championships without ever placing one Celtic in the top ten.

No Celtic got rated according to how many points or rebounds or assists or anything else he might have compiled. Each man was assessed according to his contribution toward making us a better team. That’s all I cared about. In our system, the guy who sets the good pick was just as important as the guy who made the shot.

How did Auerbach assess that while the game was being played? By watching. By being there.

Now, imagine his coaching task if, before every game, he went behind a curtain and could only manage his team by receiving stats and the play-by-play announcement? The inherent limitation of “managing by the numbers” becomes quite plain.

Basketball, of course, is different from a large organization in that the team’s owners can also watch every play of every game. The top management of a large organization can’t. Our top government officials can’t. They need to rely on their people “on the ground” to call the shots. Then do the best they can with a play-by-play and some stats to make decisions about whether the people calling the shots are the right ones, or whether this was a game they should be playing.

In the end, though, good managers don’t manage by the numbers. They use the numbers, combined with a first-hand feel for how the game is going, to inform their judgments. Then they use their best judgment to do the right thing.

They certainly don’t manage by listening to the fans or the reporters.