Definitions for TrueValueMetrics
Scorekeeping ... Who Wins?
Maybe the system of measuring financial performance and economic performance cannot have the easy clarity of keeping score in sport ... but it can be a whole lot better than it has been for the last 40 years.
Who wins? In almost any sport there is a scorekeeper ... and it is very clear who is the winner. Numbers are a very efficient shorthand. Almost all scoring systems use numbers. Examples of scoring systems:
The system of measuring financial and economic performance does not work in this way. There is a fundamental disconnect between what the key measures should be and what they actually are. In the most simplistic way, it can be said that both financial and social measures are all about money ... and not much else. Economists may recognize externalities ... but they are ignored in calculating all the mainstream measures. Where money profit is the dominant measure, social progress goes to hell!
- Golf: The number of strokes used for the round. Lowest number wins.
- Baseball/Cricket: Number of runs. Largest number of runs wins. The system of runs is quite complicated, but simplifies to number of runs to determine the winner.
- Tennis: Numbers of winning points wins a game. Most games won wins a set. Most sets won wins a match. Most matches won wins a tournament.
- Soccer: Number of goals scored.
- American football/Rugby: Number of points scored ... with points assigned for different winning actions: touchdowns, conversions, field goals, etc.
- Basketball: Number of points scored
The TVM approach, on the other hand, makes value the measure. Performance is better when there is more value being created for a given amount of resource use ... and resource use includes the idea of consumption or destruction of value as well as simply the use of money related resources.
Scorekeeping ... Stats.
Understanding performance ... who played well? It is not enough just to know the performance ... but also the how and why of this performance. Who played well?
In sports, the fans want to know more than just the score! They want to know how the game was played, and who were the players that gave the winning team the victory. The coach wants to know the details ... so that the game can be played better next time!
The understanding of performance has helped the corporate world improve their productivity performance way beyond what was expected ... and the productivity improvement translated into more profit and more stockholder value. The metrics were all that the corporate stakeholders needed ... but the metrics were inadequate for society at large. What is the social advantage arising from a job in one country versus a job in another country ... who to whom does this advantage accrue. The data are not particularly sophisticated, but the understanding of what the data are showing maybe very important, complex, and multi-faceted.