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The McNamara fallacy: Measurement is not understanding

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Re: The McNamara fallacy: Measurement is not understanding

#131

Post by andrei_says_ »

nickpeterson wrote: post #115
bb88 wrote: post #86

Earlier quoted context omitted.

Cash is still King. The more cash on hand, the easier it is for the business to survive in an economic downturn, and the more dividends and stock buybacks can happen for the investors. Software engineers from a CFO perspective aren't any really different than plumbers or carpenters. It's just labor. Getting a cheaper rate on labor is far more beneficial to the company than say making sure it's employees are happy. If…

This line of thinking is wrong though, because software developers are more like writers than plumbers. You can fire the writing staff at a sitcom and hire cheaper writers but good luck, it will probably fail.

The issue is that the bean counters count beans and not creativity.

Can we think of a way to connect and individual’s creativity to money flow?

As an engineer I am most productive when I solve a business need without writing code. How can I associate my contributions with measurable profit?

Re: The McNamara fallacy: Measurement is not understanding

#132

Post by andrei_says_ »

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…

If you are a good analyst with a bonus tied to quarterly profits increase, can you be still a good analyst?

Do you sacrifice your own monetary benefit to save a company? But then what about your family?

I don’t think analysts are not smart enough or not caring enough. But institutionalized greed corrupts the integrity of everyone.

Re: The McNamara fallacy: Measurement is not understanding

#133

Post by jscode »

hutzlibu wrote: post #128
jscode wrote: post #125

Earlier quoted context omitted.

I agree. Considering the complexity within organizations, imagine pleading your case to a couple of Stanford MBAs that are 1) incredibly smart, 2) operate in a PE culture that rewards managers that provide others with "negative feedback" to get results, and 3) believe in their hearts that cutting benefits is "optimizing" the business to maximize shareholder value. They can make a compelling counter-argument for just…

I did not meant it as criticism. And I can imagine that situation, which is why I choose a different path, to not be in that position in the first place. Not saying that my path is better, definitely not money wise, but I knew early, that I do not get along with a culture, that is focused on assigning oversimplificated numbers to people, which is what MBA's seems to be mainly about.

I agreed with what you were saying and updated my previous comment for clarity.

Re: The McNamara fallacy: Measurement is not understanding

#134

Post by lstodd »

mcguire wrote: post #113
rossdavidh wrote: post #96

I believe the McNamara Fallacy is a real thing, although I would say Goodhart's Law expresses the more fundamental issue. But, the examples they give (Vietnam and Afghanistan wars) are bad examples, because in both cases the issue was primarily not that the U.S. military was relying too much on quantitative metrics, but rather that it was being asked to do a job which militaries are not good at. In neither case, desp…

Yes and no. It is a difficult problem, but it has been done before ( https://en.wikipedia.org/wiki/Philippine%E2%80%93American_Wa... , https://en.wikipedia.org/wiki/Malayan_Emergency , https://en.wikipedia.org/wiki/Yugoslav_Wars ). There is a rough roadmap about how to go about it, something along the lines of suppressing the rebels and providing security for the majority of the populace while you reform the governme…

In Vietnam the problem was the 15ish year long civil war predating all the things. In Afganistan, the same thing, only longer. This stuff can't be fixed by landing some marines, it only turns it into a shit-throwing match about who has better SAMs and logistics. Which is a definition of a proxy war.

Re: The McNamara fallacy: Measurement is not understanding

#135

Post by jscode »

andrei_says_ wrote: post #132
jancsika wrote: post #32

Earlier quoted context omitted.

> 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…

If you are a good analyst with a bonus tied to quarterly profits increase, can you be still a good analyst? Do you sacrifice your own monetary benefit to save a company? But then what about your family? I don’t think analysts are not smart enough or not caring enough. But institutionalized greed corrupts the integrity of everyone.

Incentives matter and PEGs want companies to grow significantly over the life of their investment. The biggest reward comes from the future sale after you’ve increased the enterprise value 10x. I’m sure that people have made poor decisions for short-term gains, but the real issue is giving immense power to someone who has never actually had to build teams, ship products, or go the extra mile to make customers happy. Being “smart” doesn’t mean you always make good decisions. Some of the most successful entrepreneurs I know aren’t particularly book smart. In fact, much of their success could be attributed to the fact that they just didn’t quit when any other reasonable/normal person would have thrown in the towel.

Re: The McNamara fallacy: Measurement is not understanding

#136

Post by ninala »

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…

Given your background I'd love to talk to you. Since HN doesn't have private messages as far as I know, would you be willing to contact me at the email address in my profile?

Thanks! Neil

Re: The McNamara fallacy: Measurement is not understanding

#137

Post by dwaltrip »

milesvp wrote: post #85
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 company that started to go through the "you can't improve what you don't measure" phase. In general it was good for the org I was in, but I used to have to remind management that there's a corollary to that saying, which is: you necessarily improve things you measure at the expense of the things which are difficult or impossible to measure. This seems to be a hard one for some types to truly grok. A com…

It's fascinating to me how many smart people fall into this trap.

Can they quantify their love for their partner? No? Well, I guess they have to give up any efforts to improve the relationship.

Re: The McNamara fallacy: Measurement is not understanding

#138

Post by jscode »

ninala wrote: post #136
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…

Given your background I'd love to talk to you. Since HN doesn't have private messages as far as I know, would you be willing to contact me at the email address in my profile? Thanks! Neil

Check your inbox.

Re: The McNamara fallacy: Measurement is not understanding

#139

Post by nickpeterson »

andrei_says_ wrote: post #131
nickpeterson wrote: post #115

Earlier quoted context omitted.

This line of thinking is wrong though, because software developers are more like writers than plumbers. You can fire the writing staff at a sitcom and hire cheaper writers but good luck, it will probably fail.

The issue is that the bean counters count beans and not creativity. Can we think of a way to connect and individual’s creativity to money flow? As an engineer I am most productive when I solve a business need without writing code. How can I associate my contributions with measurable profit?

Code and documentation are debts, Features divided by lines of code is a good metric.

Re: The McNamara fallacy: Measurement is not understanding

#140

Post by zeruch »

I just wrote about this (really briefly) on LinkedIn a week or so ago, because I've seen a growing trend towards "management by spreadsheet" and I think its an enormous error in terms of team leadership/management. Much as jscode says in the comments: "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. There truly is a disconnect between measurement and understanding. "
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