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Showing posts with label measured. Show all posts
Showing posts with label measured. Show all posts

Wednesday 9 August 2023

Critical Thinking 5: A Critical Examination of Macroeconomic Indicators: "What Gets Measured Gets Managed"

The phrase "what gets measured gets managed" holds significant relevance in the realm of macroeconomics, where governments, policymakers, and analysts rely heavily on quantifiable indicators to monitor and steer national economies. While this concept underscores the importance of data-driven governance and decision-making, it also warrants a nuanced examination of its advantages and potential drawbacks. The critical analysis of macroeconomic indicators highlights how their application can lead to effective management as well as unintended mismanagement.

Advantages of "What Gets Measured Gets Managed":

Informed Policy Decisions: 

Macroeconomic indicators, such as GDP growth, unemployment rates, and inflation rates, provide policymakers with real-time insights into the overall health of an economy. These indicators facilitate evidence-based policy formulation, enabling governments to make informed decisions to stabilize or stimulate economic growth.

Accountability and Transparency: 

Transparent reporting and monitoring of macroeconomic indicators enhance accountability among policymakers. Regular updates on indicators allow the public to hold governments accountable for economic outcomes, fostering a democratic check on economic management.

Early Detection of Imbalances: 

Timely measurement of indicators helps identify potential imbalances or vulnerabilities in an economy. For instance, rising inflation may prompt policymakers to adjust monetary policy to prevent overheating.

Criticisms and Drawbacks of "What Gets Measured Gets Managed":

Misleading Focus on Short-Term Metrics: 

Relying heavily on certain indicators, like GDP growth, can create an overemphasis on short-term economic performance. Governments might prioritize immediate gains at the expense of long-term sustainability or environmental concerns.

Neglect of Qualitative Aspects: 

Macroeconomic indicators often fail to capture qualitative dimensions of well-being, such as income inequality, quality of life, and environmental health. Overreliance on indicators may lead to ignoring important social and environmental issues.

Potential for Manipulation: 

Governments may attempt to manipulate indicators to create a favorable narrative, potentially distorting economic reality. This can undermine the integrity of data-driven decision-making and erode public trust.

Unintended Consequences: 

Managing specific indicators without considering broader context can lead to unintended consequences. For example, excessive focus on reducing unemployment might result in inflationary pressures if not balanced with monetary policy.

Complex Interactions: 

Macroeconomic indicators often interact in complex ways, making it challenging to predict outcomes accurately. Overreliance on a single indicator might oversimplify the intricacies of economic dynamics.


Balancing Act: Toward Informed Management:

The critical application of the "what gets measured gets managed" concept in macroeconomics requires a balanced approach that acknowledges both the benefits and limitations of relying on indicators. Policymakers should recognize the need to supplement quantitative measures with qualitative analysis to ensure comprehensive economic management. Moreover, the active involvement of experts and the public in the interpretation of indicators can provide checks against potential mismanagement.

In conclusion, the concept of "what gets measured gets managed" in the realm of macroeconomic indicators embodies a double-edged sword. While it empowers decision-makers with data-driven insights and accountability mechanisms, it also demands careful consideration of the pitfalls that overreliance on indicators can entail. Achieving an equilibrium between quantitative measures and qualitative considerations is crucial to harnessing the full potential of macroeconomic indicators while minimizing the risks of mismanagement. This critical approach underscores the importance of well-informed and context-sensitive economic governance in today's complex and interconnected world.

Monday 26 November 2018

The difficulty in managing things that cannot easily be measured

Andrew Hill in The FT 

If there were a tournament for Peter Drucker’s best-known dictum then “what gets measured gets managed” would make it to the finals, even though nobody seems able to pin the saying directly to the Viennese-born management thinker. Repeated misattribution has gilded the truism and propelled it into the Management Maxim Hall of Fame. 


En route, unfortunately, the assumption has taken root that everything can be measured. Worse, anything that does not submit to mathematical evaluation need not be managed, or is simply unmanageable. 

This is the most prominent example of a widespread phenomenon: the tendency to pay more attention to hard facts, targets, outcomes and initiatives than to soft factors that are equally, or sometimes more, important. 

Big data is hard. Culture is soft. Financial goals are hard. Non-financial targets are soft. Gender quotas are hard. Workplace inclusivity is soft. “Stem” subjects are hard. Humanities are soft. (Drucker himself described management as a liberal art.) Machines are hard — very hard. Humans are all too soft. 

The Harvard Business Review tries to reconcile the hard-soft tension annually in its ranking of the “best-performing CEOs in the world”, measured over their whole tenure. Jeff Bezos wins every time. Except he doesn’t, because in 2015, the publication changed its methodology and added soft environmental, social and governance factors to its hard financial assessment, knocking Amazon’s founder from first to 87th. Mr Bezos has crept back to 68th in the latest ranking, topped by Pablo Isla, chief executive of Spanish retail group Inditex with its (soft) family values. I bet, though, that most investors would allocate capital on the hard measures of Mr Bezos’s and Mr Isla’s success. 

The dominance of hard over soft is not uniform, though, and in a few areas it is receding. Would-be leaders aiming for MBAs have for years set equal, even greater, store on the value of the difficult-to-measure human networks they build during their studies. The hard MBA qualification itself has started to crumble, while employers increasingly stress development of executives’ soft skills. 

Elsewhere, companies have finally begun to realise that feedback (soft) trumps forced ranking and even bonuses (both hard) when it comes to appraising and motivating staff. Governance codes now place emphasis on long-term success, healthy cultures and corporate purpose, offsetting boards’ longstanding deference to pure shareholder value. 

Many of these pairs should coexist, of course. Too frequently, though, when a balance of two approaches would be best, the hard solution wins out as soon as pressure is applied. 

In the classic tussle between long-term sustainability and short-term returns, too many directors and executives still obsess about hitting close-range targets. Purpose makes way for profit. The demand to compete overcomes any impulse to reap the benefits of collaboration. 

Even if Drucker did not utter the “what gets measured” axiom, he had plenty to say about measurement. In 1955, he wrote in The Practice of Management how more sophisticated ways of gauging performance would enable managers and workers to direct their own work. But he also warned that if this ability were used to impose control from above, “the new technology [would] inflict incalculable harm by demoralising management and by seriously lowering the effectiveness of managers”. 

Persuading executives to take greater account of soft factors requires a concerted effort. One approach is to play to their utilitarian preference for hard facts and try to measure the unmeasurable. The mania for measurement has extended beyond the production output and profit margins that could be assessed in the 1950s. Start-ups and consultancies frequently pitch to me with new ways of quantifying corporate culture, for instance. 

 Putting a number on the nebulous is one way to give soft achievements a hard edge. Reminding directors of the hard landing that awaits those who ignore, condone or contribute to rotten cultures is another. 

At the same time, managers need to comprehend elements that cannot yet be recorded in 0s and 1s: the strength of team relationships, the importance of empathy, the value of intuition. Ingenious machines may one day put all the mysteries of human behaviour into a spreadsheet. I doubt it, though. This week’s Drucker Forum, in honour of the writer, will explore “the human dimension” of management. At least some of that dimension will always be difficult for chief executives to collect, crunch and codify on their digital dashboards. As a result, they must resolve to try harder to manage the things they will never easily measure.