The most underrated bias in mainstream management: Quantification - Part 1

Today's blogpost is dedicated to Dr. Edwards Deming, popularly known as 'The Father of Quality'. Deming stated that quality cannot be improved by inspection alone. His thoughts around the need for new management paradigms is not well known - he actually proclaimed "Management by?use only of?visible figures" as one of the seven deadly diseases. This may seem in contradiction to the famous quote many are familiar with today: “If you can’t measure it, you can’t manage it.” This post is centered on the following quote from him:

"It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth."

But first, let us now take a detour to Robert McNamara, an American business executive and the eighth United States Secretary of Defense, serving from 1961 to 1968. He played a major role in promoting the United States' involvement in the Vietnam War. His pertinence to this blogpost comes from the "McNamara Fallacy".

'Enemy?body count'?became the "Key Performance Indicator (KPI)" that defined success in the Vietnam war. War was reduced to numbers: By maximizing enemy deaths and minimizing ours, victory was guaranteed. As it turned out, Guerrilla warfare doesn't have that dynamics - every enemy body count created 1.5 new volunteers and every 'unjust' enemy body count created 4 new volunteers.

Daniel Yankelovich summarized the fallacy really well:

"But when the McNamara discipline is applied too literally, the first step is to measure whatever can be easily measured. The second step is to disregard that which can't easily be measured or given a quantitative value. The third step is to presume that what can't be measured easily really isn't important. The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide."

The Old Warning from Aristotle

This idea actually goes all the way back to the great philosopher, Aristotle, who laid the first principles for what we today call "science". He divided the world into two distinct parts and called for different approaches to deal with them:

• The part of the world where things cannot be other than they are - use science
• The part of the world where things can be other than they are (anything that involves humans) - use imagination

He warned us against using "science" (and its methods like quantification) when dealing with human affairs. Rory Sutherland elegantly put this as "Logic vs Magic". The vast majority of the decision making apparatus of our brain is opaque to introspection - we simply post-rationalize many of our decisions. Culture, emotion, context, etc. are all at play all the time and not just facts and figures alone for "rational" decision making.

An important thing to note here is that the application of this demarcation is true not only outside the corporation (when building products/services for customers) but also inside the corporation (when building products/services for fellow employees) - humans are humans, anywhere and all the time!

Let's now look at a couple of real-world examples from this lens...

The economics of solving the "Slow Elevator" Problem

Here is the story of the "slow elevator" problem, which emerged after World War II, when occupants of a New York skyscraper complained about the slow elevators. The obvious solutions were to objectively increase the speed of the elevators, add more elevators, or improve the algorithms that could proactively position them for efficiency. Even extensive surveys only revealed complaints about slow elevators.

Time can be measured - there is an SI unit for it to be measured objectively (seconds). Trying to improve this "objective" or "quantified" attribute is what we default to. However, such solutions would require an expenditure of millions of dollars and may not have been financially or technologically feasible at that time.

Another approach is not to focus on the quantified time, but to focus on the unquantified (no standardized SI unit) 'boredom' of the waiting occupants instead. This approach gave rise to a creative idea that dissolved the problem and resulted in happy occupants, but cost only thousands of dollars: installing mirrors in all the elevator lobbies, so that people could stare at themselves (and each other), thereby killing the boredom of the wait.

This approach to problem-solving is the domain of behavioral economics, which takes into account the fundamental insight that our perception is leaky, our actions are not always rational, and we cannot verbalize everything we think and feel (implicit knowledge). The legendary advertising tycoon, David Ogilvy, the 'Father of Advertising' is often attributed to have said:

“The trouble with market research is that people don't think what they feel, they don't say what they think and they don't do what they say.”

Here is another example with trains: Our perception of time is not objective. It is really dependent on the context. Pound for pound (￡), the best money spent on improving the customer satisfaction of train riders of London was not faster or bigger trains but installing LED displays that show when the next train would arrive. We are OK to wait happily even for nine minutes with the certainty provided by the display compared to a five-minute wait with total uncertainty.

Silicon Valley Syndrome

A doorman may be seen as just a doorman and can be replaced with an automated door to increase the short-term profit of a hotel. However, a doorman is not merely a "doorman." He greets frequent customers by name, providing a sense of familiarity, helps out with the luggage, hails cabs, provides a sense of security, and so on. One could argue that if you want the hotel to charge $200/day, they had better have a doorman out in the front. The removal of the doorman could potentially have devastating long-term consequences for the hotel, including bankruptcy.

We are often convinced by a single "why" - be it reason, purpose or anything else. Reality is much more complex. We try to reduce the complexity around us into simple things - usually into something that can be converted to a number and "improved" - GDP for countries, profit for corporations, 1-10 ratings for schools, IQ or grades for students, etc.

This is rooted in reductionism and what one could call as the "Silicon Valley Syndrome" - the argument that "science" and "technology" can solve all problems, automation is the key to improving human well-being and so on. We end up mistaking gains in efficiency for gains in effectiveness.

What is the antidote to this syndrome?

More on that in Part 2 along with some examples from the tech. industry. Let me end this post with the Perversity Principle as put forward by Myron Tribus:

"If you try to improve the performance of a system of people, machines, and procedures by setting numerical goals for the improvement of individual parts of the system, the system will defeat your efforts and you will pay a price where you least expect it."?