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The McNamara fallacy: Measurement is not understanding

mcnamarafallacy.com

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Re: The McNamara fallacy: Measurement is not understanding

#41

Post by 7thaccount »

peteradio wrote: post #31
jscode wrote: post #23

Quick story: I was the CFO for a company that sold to a private equity group (PEG). I took over as the CEO as the founders retired, leaving me to deal with the PEG. It quickly became apparent that the PEG managers looked at everything through the lens of an Excel spreadsheet. These guys were brilliant attorneys and analysts but lacked experience building businesses and managing teams. Ultimately, they couldn’t add mu…

I worked at a place with a lean 6 sigma certified specialist who towards the end of the companies doom effectively had the lead engineer cleaning out molding machines to track down every last tiny molded part that over the course of several years of continuous running had flung outside of its target. Same guy told me if the coke machine ever stole my change that he'd help me get it back from the vendor.

All the lean sigma stuff seems like another useless management fad to me that only benefits consultants. Is that what you're saying here?

Re: The McNamara fallacy: Measurement is not understanding

#42

Post by 2OEH8eoCRo0 »

ProAm wrote: post #34
eumoria wrote: post #22

McNamara basically admits this himself in the documentary The Fog of War: https://en.wikipedia.org/wiki/The_Fog_of_War It's worth a watch but it's very soft on him and his role. Still a very good documentary.

Great documentary. I felt it was a person trying to come clean and ease his conscious on his death bed.

Agreed. Great documentary. The part where Castro said he urged Russia to launch their nukes from Cuba to the US knowing it would destroy Cuba was chilling. Humans are not always logical. Don't assume somebody wont drag an entire country or the world to total destruction for some deranged cause.

I didn't get the death bed vibe from McNamara but I definitely felt that he was genuinely reflecting on the past.

The documentary on Rumsfeld was the polar opposite. I could also see Rumsfeld not wanting to give the enemy of an ongoing conflict any shred of material. It makes for a less interesting documentary.

Re: The McNamara fallacy: Measurement is not understanding

#43

Post by peteradio »

7thaccount wrote: post #41
peteradio wrote: post #31

Earlier quoted context omitted.

I worked at a place with a lean 6 sigma certified specialist who towards the end of the companies doom effectively had the lead engineer cleaning out molding machines to track down every last tiny molded part that over the course of several years of continuous running had flung outside of its target. Same guy told me if the coke machine ever stole my change that he'd help me get it back from the vendor.

All the lean sigma stuff seems like another useless management fad to me that only benefits consultants. Is that what you're saying here?

I'm only speaking towards this one particularly useless buffoon, but the fact that he was allowed to wield any sort of power over anyone says something.

Re: The McNamara fallacy: Measurement is not understanding

#44

Post by mrxd »

jscode wrote: post #23

Quick story: I was the CFO for a company that sold to a private equity group (PEG). I took over as the CEO as the founders retired, leaving me to deal with the PEG. It quickly became apparent that the PEG managers looked at everything through the lens of an Excel spreadsheet. These guys were brilliant attorneys and analysts but lacked experience building businesses and managing teams. Ultimately, they couldn’t add mu…

Just to play devil's advocate, surely their approach is more rational than that. They're probably looking at it from the perspective that the business needs to have a profit margin of X in order to justify investing in it.

They probably do understand that cutting costs impacts company culture and morale. But shutting the company down probably impacts that much more.

Re: The McNamara fallacy: Measurement is not understanding

#46

Post by jacobr1 »

jancsika wrote: post #32
jscode wrote: post #23

Quick story: I was the CFO for a company that sold to a private equity group (PEG). I took over as the CEO as the founders retired, leaving me to deal with the PEG. It quickly became apparent that the PEG managers looked at everything through the lens of an Excel spreadsheet. These guys were brilliant attorneys and analysts but lacked experience building businesses and managing teams. Ultimately, they couldn’t add mu…

> The moral of the story is that people with analyst mindsets play an essential role in our economy, but sometimes giving those people power over large organizations can have disastrous consequences. I'm gonna cosplay an "analyst mindset": 1. Need to measure costs and benefits of slashing benefits/pay. 2. A benefit-- slashing benefits/pay allows us to hit some obvious financial goal 3. A cost-- Uh oh, I don't yet kno…

Having dealt with 2 PE exists, rarely is the proposal something as upfront and silly as slash everyones pay. That probably does happen for a company being restructured in the red, but the more subtle actions tend to be things like:

* Comp bands for are now targeting p50 averages rather than p75 or top of market. So you can't close new hires that are going competitors. And you can't give raises to your top performers

* The health benefits are less generous when renegotiated for the following year

* T&E that would have been approved - granted some maybe that shouldn't - but importantly some that should have for top-sales people, are no longer approvable. So your top sales people leave. Or similarly the accelerators or other measures are changed, that might look good on paper but rub top sales people the wrong way.

* Head-count isn't replaced, so teams have to take on more work

* Perks like conference attendance or hardware upgrades, which arguable aren't perks but investments in your team's productivity, are cut/limited

Re: The McNamara fallacy: Measurement is not understanding

#47

Post by pakitan »

hummusandsushi wrote: post #35
dempedempe wrote: post #13

This article is good, but not great - the author only gives one example of how quantitative-only reasoning can be bad (the example of the poppies). The other "example" is just the US military lying. There are also no specific examples of non-quantitative reasoning that, if ignored, would be damaging. I feel like the Wikipedia article does a better job explaining this: https://en.wikipedia.org/wiki/McNamara_fallacy Al…

The webpage appears to be made to serve as a warning to data-driven businesses to not fall into the same perverse set of incentives that McNamara created, to encourage business managers to diversify their accounts of the success of their business beyond just the quantitative narrative.

I'd be more cynical and suspect this is some kind of elaborate SEO strategy. Submit the site to social networks -> wait till gets some love from the Google algorithm -> put ads on it -> profit.

Re: The McNamara fallacy: Measurement is not understanding

#48

Post by jscode »

mrxd wrote: post #44
jscode wrote: post #23

Quick story: I was the CFO for a company that sold to a private equity group (PEG). I took over as the CEO as the founders retired, leaving me to deal with the PEG. It quickly became apparent that the PEG managers looked at everything through the lens of an Excel spreadsheet. These guys were brilliant attorneys and analysts but lacked experience building businesses and managing teams. Ultimately, they couldn’t add mu…

Just to play devil's advocate, surely their approach is more rational than that. They're probably looking at it from the perspective that the business needs to have a profit margin of X in order to justify investing in it. They probably do understand that cutting costs impacts company culture and morale. But shutting the company down probably impacts that much more.

They do understand that cutting costs will have an impact on culture and morale, they just think the marginal benefit exceeds the marginal cost. Keep in mind, PEG managers are chasing a carried interest bonus which they only achieve after covering the minimum return promised to their investors. Plus, leveraged buyouts--which PEGs frequently use--increase a company's risk of failure. Everyone's under intense pressure to perform.

Massive Financial Incentives + Highly Leveraged Balance Sheet + Intense Pressure = Risky Decision Making

Re: The McNamara fallacy: Measurement is not understanding

#50

Post by musicale »

scubbo wrote: post #39

Surprised not to see Goodhart's Law[0] referenced here - "When a measure becomes a target, it ceases to be a good measure". Not the same concept, but a related one (as is the Cobra Effect[1], of which the poppy-field burning is an example) [0] https://en.wikipedia.org/wiki/Goodhart's_law [1] https://en.wikipedia.org/wiki/Perverse_incentive#The_origina...

From [1]: "It was discovered that, by providing company executives with bonuses for reporting higher earnings, executives at Fannie Mae and other large corporations were encouraged to artificially inflate earnings statements and make decisions targeting short-term gains at the expense of long-term profitability."

What a shocking revelation! Could it possibly apply to other companies that report quarterly results? ;-)

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