A good and wise friend recently asked me, “Isn’t lean accounting an attempt to change the numbers, but still just a destructive vehicle enabling managing by the numbers?”
The quick answer is, “Yes”, that is exactly what it is; albeit a less destructive way of managing because it provides better numbers.
Let me put it this way:
If you consider the input that goes into going out to dinner with your significant other, there are many inputs to that decision. The price of the various choices certainly goes into it, as well as the time you can get a reservation and how long it will take to get there and how long it will take to be served. Just as important – perhaps more so – are considerations such as the cuisine and the quality of the food, the ambiance, etc… Many inputs – some are numerical and some not. Some of the numerical ones are fairly precise and some are rough approximations. All of it goes into the mix in making the best decision – as you and your other define “best”. Of course that is the kicker – the definition of “best”.
I imagine that, if traditional accountants had to make the decision, the answer would be to follow the lead of Jared Fogle – the guy who ate at Subway every day and lost some incredible amount of weight. In the opinion of most folks I expect Subway fails the ambience and cuisine tests, but nails the numerical ones – price, speed, and does at least OK on the nutrition test. The fact that no one else, to my knowledge, has even wanted to duplicate his feat is fairly convincing evidence that the non-numeric stuff carries a lot of weight.
In fact, there are few important decisions to be made solely by the numbers. Balanced scorecards with their non-financial metrics are not the solution – again, perhaps better numbers, but still the sort of thing that dangerously enables managing by the numbers. To go back to the restaurant analogy, how can you possibly put a number on ambiance? The weight and value of ambiance is purely situational. If you are going to a restaurant to watch the Seattle Seahawks stomp all over and generally abuse the Denver Broncos the ambiance at Buffalo Wild Wings might be just the ticket. If the occasion is to take a shameless, hollow stab at romance to work one’s way out of the doghouse with that significant other, the ambiance at BW2 is not likely to help – the ambiance at Chez Snob would be much more helpful in accomplishing the strategy.
The problem is that everyone wants numbers. Management is largely a futile exercise in the search for the perfect metric. If we only had numbers to thoroughly support every facet of decision making, our decisions would be risk free – or at least we would have very good excuses for our bad decisions. The perfect metrics don’t exist, however. Seeking that particular Holy Grail is a waste of time. There are no risk free decisions. There are no decisions supported completely by irrefutable facts. There are only numbers with varying degrees of accuracy and applicability to help with some facets of decision making. The rest is a matter of judgment … the product of wisdom, experience and a keen understanding of the business and a clear focus on the strategy and goals. Decision making is inherently risky business, but that is why managers get paid more than the folks who are not held accountable for big decisions.