What Impact Will TVM Have?
Huge! ... With better metrics … better everything
Some people are quite happy to manage “by the seat of their pants”, but that is not the way best performance is going to be achieved. Even where there are detailed metrics as in the case of major corporations and the stock markets, the results for society may not be good because the metrics are about money more than they are about value. When value metrics are as prevalent as profit metrics a lot is going to change for the better.
The impact of TVM is going to be a better world that has a hope of being sustainable and has a better quality of life worth several hundreds of trillions of dollars!
Change the way the game is scored, it changes the way the game is played.
The impact of good metrics is huge. When high profit value destruction is changed to lower profit value adding, there is an order of magnitude swing in the performance of society and in socio-economic progress. If the world adopted TVM true value metrics, there could be more rapid progress out of poverty and better decisions about important infrastructure improvement … potential value swing several trillions of dollars.
Management information rarely uses academic rigor … but is cost effective and reliable for its limited purpose. Good metrics can substantially improve productivity. This is an example in a factory setting simply resulting from the use of better metrics.
A company changed its production reporting from “next day” for review and analysis to something that approximated real time. Instead of “fixes” never getting done, fixes were done almost immediately a problem was identified. With no more resources, the factory produced almost three times what it did before. This is an example of basic control theory in practice … and an example of the potential for paradigm change in the way resources are managed to improve performance and quality of life!
The efficiency of the use of resources in most socio-economic activities has never been measured … it is difficult to know how badly resources are used. From time to time there are studies and it is common for observers to conclude that government performance is an order of magnitude less efficient than equivalent privately managed operations. Part of this is the lack of meaningful metrics almost everywhere for measuring performance.
Timely data ... almost triple the production
What impact a paradigm shift?
TVM will facilitate paradigm change … and through this there will be impact ... if for no other reason than an improvement in the way socio-economic scorekeeping is done will also change the way socio-economic decisions get made. It is a an accepted reality of management that metrics are important.
The money measure scale of the modern global economy is several hundreds of trillions of dollars. All of these resources are flowing because of money profit decision that are made with most of the decisions ignoring totally any negative value destruction associated with the earning of returns.
What gets measured gets done!
There is a record number of money billionaires in the world … and at the same time a record number of people who are poor and hungry. A socialist agenda to give the rich peoples' wealth to the poor is fatally flawed … but a social agenda to have decision making based on both profit return and value return could add trillions of dollars to the profit and value creation that improves quality of life for everyone.
When value is measured as much as profit, then decision making will change and quality of life will improve. The capacity of technology to be a partner in progress will be realized more rapidly when profit potential is supplemented by value potential.
With TVM, good decisions are recognized … while decisions that destroy value are identified and the reasons for this ascertained. Experience suggests that the difference between an environment where good decisions are being made and one where “anything goes” is not a percentage point or two … but an order of magnitude or two. In other words, if good data and facts are used for decision making, and resources are properly allocated and deployed, the value adding can be improved by between 10 and 100 times.
The elimination of poverty called for by leaders like Professor Muhammad Yunus is possible … but it requires way better decision making and allocation of resources than we are normally seeing.
Profit is often value neutral or value destroying … modest changes in how profits are made can make a huge difference in the value adding of profit making.
EVA … Economic Value Adding, a trade marked initiative of a US based consulting firm in the 1980s helped the corporate business world to mobilize its resources so that there would be the maximum of money profit value from the business activities. TVM is different in that the aim is for resources of business and society to be used so that there is both money profit value and value value for the society as a whole and a community in particular.
TVM changes the way activities get measured. It is not simply about how much has been done, but what impact there has been and what value has been added as a result of doing something. Good managers have known this for a very long time … but many big organizations have adopted systems of management and accountability that have put focus on measures … quantification … without a deep understanding of what is happening to deliver results to intended beneficiaries. Other organizations have evolved their systems so that donors are informed while the work being done goes without meaningful metrics.
TVM is not the old EVA
Presently, as much as 90% of the data being reported back to donors in the NGO and not for profit world relates to how much has been done. Almost no data are reported about the impact and value adding that is being accomplished. Rather NGOs tell stories about a single individual … often heart rending … and add images … but these are not meaningful data about anything. It is PR that is available for both highly effective organizations and those that a high performance scamming operations and no way to tell the difference.
The goal of TVM is not merely to deploy a value based accounting system … but for a TVM based system to change the way major resources are allocated … and for this to result in an improvement in productivity and quality of life.
NGO performance reporting
In theory, the reason for allocating resources and doing the work is to get a result. The result has a value ... money profit performance and a social value which may be quantified and translated into some money equivalent.
In the case of health interventions the impact should be more good health ... and good health has value.
In the case of education, the impact is better educated students and then the population … with a high incremental value. In the case of education, the value may only be realized if there are limited economic opportunities for employment or profitable business. With no opportunities, the value of education is largely wasted.
Potential huge impact
When the leaders of the capital markets are using value as much as they use profit, then there will be major changes in the way global capital market resources are allocated.
The organizer of a recent major conference on Social Capital (SOCAP10) made the observation that the social capital market may be a $1.5 billion market already in 2010 … even before formal value reporting goes into effect. People know the importance of value … but cannot do what they would like to do simply because the metrics are inadequate!
The progress of modern science and technology has been far greater than most would have predicted fifty years ago … and it is clear that much of the potential of this progress remains unrealized.
Social investment potential huge and untapped!
When decisions are made in a timely manner using meaningful data, decisions can be very much better.
When the factory reporting system at Southern States Inc., a manufacturing company in Georgia USA, was modified to provide performance data very rapidly … in fact 20% into the day shift today rather than 24 hours later tomorrow … factory problems were identified in time for them to be fixed before they caused lost production. Simply changing the timeliness of important data and factory started delivering consistent record production with not other changes or investment.
The potential for better metrics to change the paradigm of performance means that several billion people in abject poverty today should be emerging from this state in a few years … at the same time the middle class becomes happier if not money wealthier … and in the economic totality the rich elite can stay rich and elite, but no longer holder the world to ransom!
Example: Timely production reporting
Difficult to quantify
It is not easy to quantify value outcomes, but it can be done using a system of standard values for the value of outcomes in the community setting. Some outcomes have a money cost and a price when they are purchased … but many do not.
A 25 year old with a good education, in good health and ready to work in a high paying job in the United States for several decades has a huge value … maybe something like $4 million just in future earning power. A 25 year old with little or no education, undernourished and in poor health in a poor village in a developing country with no work prospects has little value based on economics and future earning power … and represents some millions of dollars of lost opportunity!
Hundreds of millions of children will grow up to be of little economic value unless good decisions are made about socio-economic investment. Every child that grows up without education and skills, and with compromised nutrition and health is a multi-million lost opportunity. Add it up and the impact of good decisions is trillions of dollars of better socio-economic performance.
Standard value … a 25 year old
Any community stands to benefit when good decisions are made for the community … whether the decisions are being made by local leaders, local citizens, local organizations or outsiders. Most communities are missing opportunities because poor decisions are being made.
TVM does not constitute a benefit … TVM is not in itself of value … but good decisions that result in good activities is where the value lies!
Community micro-up decision making
TVM helps to change the framework for economic activity and specifically the locus of decision making … a paradigm change so that the concentration of economic money wealth and power in very large centralized entities will be offset by local decision making and local implementation of economic activities. People who are near a problem often have an understanding of the problem and how it might be solved most effectively. When people solve their own problems, amazing progress can be made. Small things can have huge leverage.
Decision making done to optimize local impact may be an order of magnitude better than any decision made by centralized decision makers, no matter how well intentioned.
The Shenge community in Sierra Leone has the modest support of a small multi-sector integrated community development project of FAO funded by UNDP. The project facilitated training, acquisition of materials and ideas about business organization so that with timely decision making and modest allocation of resources, socio-economic progress was enormous and very rapid. The projects removed constraints … gave nothing away … and created a self sustaining progressing community.
The Shenge Project … an amazing success
The project was a great success … but then the country failed! A great little success was overtaken by a global economic system that accepted mayhem as as an acceptable cost to satisfy demand for diamonds and a willingness of international profit seekers to supply weapons.
Removing constraints on possibilities
A society that matches the needs of people and quality of life with the potential of people to satisfy needs and improve quality of life has unlimited potential. While material resources are finite … the human resource is abundant, and human intellect has reached a point where big problems can be solved as long as the goal is properly defined.
TVM can contribute to progress and performance … to improve quality of life by helping to provide meaningful metrics about what is the “state” and what “progress” is being achieved and the performance of society in making this progress … the cost efficiency and the cost effectiveness.
All winners and no losers is not an impossible dream … but it does take work to optimize the use of resources. With TVM all segments of society will progress better than will be possible without the deployment of TVM … many times better. Everyone! Meaningful metrics that include the value dimension makes it possible to demonstrate that socio-economic progress can be win-win for everyone rather than being a zero sum proposition where one group wins at the expense of the other groups.
Perhaps, most important TVM has the potential to stop stupidity … and to limit the abuses of greedy people and corrupt organizations. If ordinary people knew how bad the decision making is in major organizations handling millions if not billions of dollars, they would be appalled.
A paradigm change is possible!