Management dashboard

 

  • “How do you carve a statue of an elephant…Take a block of wood and cut away everything that doesn’t look like an elephant.”

Embracing failure means understanding and rejecting the many nostrums of purported wisdom that permeate our lives, I thought I would coin my own.

The Outcome Fallacy is essentially an extension of the ‘Cause and Effect Fallacy’ or ‘Correlation/Causation Fallacy” tinged by “Analysis Fundamentalism”.

The myth that you can ‘plan’ an ‘outcome’ is perhaps the biggest myth in the corporate world today. It derives from the 20th century Industrial Age practice of applying engineering principles to managing an organization (many even have the hubris to refer to it as ‘Management Science’). But in that practice lies the basic misconception about how planning can and does work.

There are two types of work – (a) fixed outcomes, and (b) variable outcomes. Fixed outcomes are where the knowledge of the task is high and/or the incidence and severity of varying outcomes is low. Ringing up a cash register is an example of a Fixed Outcome piece of work. Yes, lighting could strike that cash register, but usually if you push known buttons and put money into it, then the cash register will have more money in it at the end of the day. Variable Outcomes are where the knowledge of the task is low, and/or incidence of varying outcomes is high. Selling a sofa is an example of a Variable Outcome. On the volatility side, the Outcome can vary 180 degrees from ‘purchase’ to ‘no purchase’. Furthermore, the task is filled with many unknowns such as how much money the customer has, how important the sofa is, what aesthetics the customers favours, etc.

Many tasks in life – especially in the areas of production, operating and/or manufacturing stuff – have relatively Fixed Outcomes. Once you know how to build a widget, you can fairly safely ‘plan’ to go through those steps over and over again and widgets will (mostly) pop out the other (a Quality Assurance step is needed for the exceptions, but that can be considered part of the ‘plan’).

The key thing that differentiates ‘Variable’ from ‘Fixed’ Outcomes’ is Risk. Like flipping a coin. A Fixed Outcome ‘Plan’ would be ‘I plan to flip a coin 100 times’. A Variable Outcome ‘Plan’ would be ‘I plan to get 50 heads in coin flipping’. One cannot create a ‘Plan’ for ‘Variable Outcomes’.

The biggest culprit of this misguidedness is a ‘Plan’ for ‘Revenue’. In fact, that is where most 5 year plans start…with an expectation for revenue. Those ‘Plans’ are arrived at through one of two mistaken ways. First, aspirationally, ie. I want to make this much money so that is my ‘plan’. Second, planning for outcomes, ie. I expect that if I do these things, this much revenue will pop out the other end.

But you can’t mass produce customers like widgets on an assembly line. One can ‘Plan’ a great date with flowers, chocolates, dinner, moonlit walk, but one cannot ‘Plan’ on the [courted individual] swooning.

This fallacy is a rationale for the problems with Performance Management. It is not that managing performance per se is bad, it is just how it is done. And the biggest problem is that people are held to account for ‘Variable Outcome’ results.

I’m a big fan of Outcome Management. It is a centrepiece to my vision for Dynamic Work. However, there is a big difference between ‘Managing’ outcomes, and ‘Planning’ outcomes. You can ‘target’ outcomes, you can ‘benchmark’ outcomes, but you can’t ‘plan’ for outcomes (of the ‘variable’ type). Targets and benchmarks are valuable means to understanding the risks and dynamics underlying the variability and making appropriate adjustments. But just as often these adjustments are shifts in expectations as much as shifts in action.

This somewhat subtle distinction might seem like a bit of semantic pedantry, but it actually has big ramifications. Too many executives approach business too simplistically. If the ‘bottom line’ (variable outcome) is not there, then the action is to fire the manager. You see this behaviour all the time in sports. Coaches being fired for not winning a championship. The overseeing executives think by firing the guy not winning, then the club will start winning. Turning around performance takes more business complexity and insight than that.

The fallacy reminds me of the old elephant carving joke above: That is how too many weak executives operate. “How do you create a profitable business?…Take an orgnsation and fire anything not being profitable.”

Seth Godin echoes this point in his piece Sure, but that’s not a plan

  • “The most common thing people ask me about is how to get picked, a shortcut to success, a way to spread an idea or build a platform without doing a particularly large amount of hard work. Getting picked is fine if it happens to you. But it’s not a plan. It’s a version of waiting and hoping. We’re quick to claim credit for the good fortune fairy when she randomly shows up and picks us. The thing is, the good fortune fairy has to pick someone, and this time, (if you were lucky) it was you. But that’s not a plan…A plan involves steps that are largely under your influence and control. A plan involves the hard and dreary and difficult work of a thousand brave steps, of doing things that might not work, of connecting and caring and bringing generosity when we don’t think we have any more to bring.”
Advertisements