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Meaningful Metrics for a Smart Society
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Date: 2019-11-22 Page is: DBtxt001.php L070-TVM

TRUE VALUE METRICS
MULTI DIMENSION IMPACT ACCOUNTING
METRICS REALLY MATTER ... BUT THE METRICS MUST BE THE RIGHT ONES
.
.
Peter Drucker famously said you manage what you measure ...
This is undoubtedly true ... in the corporate world, the components that go into making profit are measured intensely in order to improve profit performance ... and it works!
Unfortunately, we don't do anything like the same amount of measuring in order to improve society and avoid degrading the environment ... and we don't have any easy way of talking about social performance and environmental performance in the same way that we are able to talk about corporate performance and investment portfolio performance.
This has to change
.

MANAGEMENT IS ALL ABOUT MOVING THE NEEDLE

Over the past several decades there has been a revolution in data processing. The potential of electronic data processing is enormous, and the power of technology continues to grow at an impressive rate. The challenge is to use this power in a constructive way.
(TPB note: I have argued for years that socio-enviro-economic progress and performance has been rather pathetic compared to the potential that technology has enabled. I have opined since the 1970s that this poor performance is largely because many major institutions simply do not understand the role of management in achieveing performance, and more specifically how the right metrics are needed to help make the right decisions.
Corporate operations have changed a lot over the past fifty years. This has been enabled by changes in technology both in operations as well as decision making enabled by computers and electronic data processing, and increasinly by Artificial or Augmented Intelligence (AI). When measured in terms of profitability and return on investment (ROI), corporate performance over this time period seems to be very impressive.
(TPB note: I argue that profits and stock market valuations are not sufficient measures of corporate performance. There is a need to understand the broader context in which profits have been generated and the associated value destruction that has been going on for which there are no measures.
It is very important to have accountability in every aspect of the socio-enviro-economic system. Over the past 200 years there has been amazing progress in productivity within this system, but rather modest progress in designing and deploying an effective system of accountability.

It is very difficult to have meaningful accountability for a very big organization with many different activities. This may suit those that benefit from the profit performance of big organizations, like investors, senior executives (C-Suite) and senior staff, but this may not be good for society as a whole. This is a problem. A range of initiatives have been implemented over a very long time, but the reporting architecture is much the same now as it was a century ago.

Inside the corporate organization there is impressive data collection and analysis. These data are collected in order to be able to measure progress and report it to senior management and investors, and also to be able to inform everyone in the organization in ways that will enable improvement.

The same facts described by the data are need to be summarized and presented in two ways:
  1. one most suited to reporting preformance in a summary manner; and,
  2. the other suited in many different ways to improving decision making for profit performance improvement.
Accordingly, the data are used in summary form to report progress.

The data are also used in a wide variety of disaggregated ways to understand specific issues about profit performance and to make decisions related to improvement.

In the better designed management systems the collection of the data actually results in almost immediate action to improve. In such a system the next time there is periodic summarization of reported performance, the perfomance has alreay improved.
(TPB note: Quite early in my career I was assigned to be the CFO / Controller of Southern States, Inc., a major subsidiary of Gulton Industries. Previously I was the Budget Manager for the whole of the Gulton Group. The task was to move the subsidiary from loss to profit as fast as possible. In my role as Budget Manager, I knew the problem was not so much with the number of low-paid workers but at the top where there was a President and 7 VPs. After this was fixed, there was just myself and one colleague at the top. I took on the responsibility for Manufacturing and Finance, and my colleague responsibility for Marketing and Engineering. My appointment in this role had some risk, but I did have a Cambridge engineering degree prior to my Chartered Accountancy qualification and already knew my way around the factory floor in a variety of industries.
As it turned out I was able to bring data into play to improve factory performance. Relevant data was made available to all the departments and a platform for rapid feedback established. A daily production meeting that had been in place for years and took place around 10am every day to discuss yesterday's production was replaced by an 8am meeting to discuss the upcoming day's production issues. By 9am most of the issues were being resolved by the maintenance team or others who needed to be engaged.
Within a few weeks the production had more than doubled with almost no incremental investment in the factory itself. For the first time in years this subsidiary started producing a reasonable level of profit.
The prevailing system of reporting does not deliver effective accountability. All of the reporting is self reporting with only quite weak validation of the reports. The information that is reported is quite limited compared to the data that now is available inside major organizations.

Interestingly, the TVM framing of data accumulation and analysis enables outside organizational behavior to be reported in a meaningful way from outside the organization so that there can be effective accountability for all the activities and actors in our massive and complex global socio-enviro-economic system.



The text being discussed is available at

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TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative. It has been funded by family and friends plus donations from well wishers who understand the importance of accountability and getting the management metrics right. TVM is a 'big idea' that has the potential to be a game changer leveling the playing field so the wealth and power is shared on a more reasonable basis between people who work for a living and those that own the economy and the levers of power. In order to be effective, it cannot be funded in the conventional way with a for profit business plan, but absolutely must remain an open access initiative.
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