The McKinsey Maxim

We have all heard the famous saying, often referred to as the McKinsey Maxim, named after the famed consulting firm: “What you can measure you can manage.” This bromide has become such a cliché in the business world that it is either specious or meaningless. Specious since companies have been counting and measuring things ever since accounting was invented, and meaningless because it does not tell us what ought to be measured. Besides, has the effectiveness of management itself ever been measured? How about the performance of measurement? Measurement for measurement sake's is senseless, as quality pioneer Philip Crosby understood when he uttered, “Building a better scale doesn't change your weight.”

This is not to imply we need to eliminate “hard data,” but rather that we do not allow measurement mania to crowd out “soft” judgment. Since management itself cannot be measured, we have to rely on judgment. We can certainly use hard data to vouch for soft intuition, but we can also do the opposite — use soft judgments to check hard facts.

A lot of information is soft — gossip, hearsay, and intuition. The partner who learns his largest customer was golfing with a major competitor is not going to be served well by the time the lost revenue shows up on his profit and loss statement. As one manager quipped, “I would be in trouble if the accounting reports held information I did not already have” (Mintzberg 2009: 27). Accounting reports, cost accounting, realization and utilization rates, and timesheets — the matrix of measurements in most firms — are, by their nature, lagging indicators. Yet what is needed in firms today, similar to the canary in the coal mines of the last century, are leading indicators — early detection systems that allow companies to perform their ultimate function of creating wealth for the customers they serve.

Blindly relying on this metric mania can obscure many oblique realities. The ultimate problem with numbers and measurements is what they don't tell us, and how they provide a false sense of security and the illusion of control — that we know everything that is going on. In fact, one could put forth the argument, running counter to the McKinsey Maxim, that the most important things in life cannot be measured. How do you measure happiness? How do you measure love, joy, respect, or trust? How do you measure the success of your marriage?

Even the not-for-profit world is infected with this mentality. Consider the one measure that most people believe establishes the “efficiency” of a charity: What percentage of my donation goes to the cause? This metric explicitly assumes that a lower administrative and overhead structure leads to a more effective charity. Yet the empirical evidence does not warrant this false belief. This efficiency measurement, in and of itself, provides no information on the effectiveness of the charity. If Jonas Salk had spent 50 percent on overhead and administration but developed the polio vaccine — saving countless millions of lives — should we conclude that his charity was “inefficient” because the ratio was only 50 percent spent on the cause? To ask the question is to answer it. Measurements can crowd out judgment.

As Albert Einstein said, “Sometimes what counts can't be counted, and what can be counted doesn't count.” If this is true in a scientific discipline such as physics, it is certainly true in business, which is not a science, but rather an art.

Perhaps we need a corollary to the McKinsey Maxim: What is really important cannot be measured. This is what author David Boyle calls the McKinsey Fallacy. This will no doubt be met with tremendous resistance. It goes against the very grain of the MBA mind-set, the modern-day pantometrists, who are taught that everything needs to be quantified and counted, and decisions should be based on the numbers. In other words, don't think, count. This is not to suggest that no measurements are relevant or useful. Rather, that anything we measure that is meaningful needs to be guided by a theory.

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