Public Enemy #1 of Business

Eli Goldratt often said,?"Cost Accounting is public enemy number one of productivity."?He used inventory accounting as his example. An inventory cut will, in the short term hurt profit and prevents managers from reducing stock – at the latest when top management questioned why profits declined.

What follows is another accounting failure.

In his article “Why Few Organisations Adopt Systems Thinking”, Russell Ackoff says after his presentations he is often asked, “If this way of thinking is as good as you say it is, why don't more organizations use it?"??Theory of Constraints (TOC) people are often asked the same question. I am pretty sure Akhoff’s analysis is just as valid for TOC and other methodologies.

Ackoff and others (for instance Ayn Rand in her article The Comprachicos) blame schooling and the way companies are run. We all learned at an early age that making a mistake is bad. That learning is reinforced when we go to work and, by most, is never unlearned.

He explains 2 types of mistakes.?Mistakes of commission and mistakes of omission. He explains that we do our best to avoid mistakes of commission and don’t worry about the others – if I did not do anything, how can anyone know and blame me. In Ackhoff’s view, the mistakes of omission are the costliest to companies, industry, and the economy. This is the point at which accounting falls again. Mistakes of omission are not captured, not measured, and not corrected.

I have been writing about how much potential there is to cut lead times (and inventory), how lucrative such a cut is and how easy it is to implement. Well based on those articles you have the chance to experiment and try such cuts in your business. If you don’t, you will never know what you missed. You will have possibly made an error of omission. If you do, you will certainly learn a lot and very probably get a lucrative result. But you must commit. If you are wrong, you will have made an error of commission.?

The easy decision is to do nothing! Accounting only sees errors of commission.?Errors of omission are often not measured. But, should they be measured?

Ackoff has a recipe!

“This deficiency in organizations can be eliminated by taking the following steps.?

1. Record every decision of importance, whether to do something or not. The Decision Record should include (a) the expected effects of the decision and by when they are expected, (b) the assumptions on which the expectations are based, and (c) the inputs to the decision (information, knowledge and understanding), and (d) how the decision was made and by whom.?
2. Monitor the decisions to detect any deviation of fact from expectations and assumptions. When a deviation is found, determine its cause and take corrective action.?
3. The choice of corrective action is itself a decision and should be treated in the same way as the original decision, a Decision Record should be prepared for it. In this way one can learn how to correct mistakes; that is, learn how to learn more rapidly and effectively. Learning how to learn is probably the most important thing an organization or individual can learn.?
4. The decision by an organization not to adopt systems thinking?(or the Theory of Constraints?– Rudolf Burkhard's add)?should be treated in this way. Making explicit the assumptions on which such a decision is based and monitoring them can lead to a reversal of the decision in time.”

To not adopt Systems Thinking or the Theory of Constraints and probably other valuable contributions are possible errors of omission. Check! Not checking would be an error.

Ackoff goes on to give a SPECIFIC REASON why Systems Thinking is not adopted. Does this also apply to the Theory of Constraints (a kind of Systems Thinking)?

Ackoff wrote:

"Very few managers have any knowledge or understanding of systems thinking and for good reason. Very little of our literature and lectures are addressed to potential users. I very seldom come across an organizational decision-maker who has had any previous exposure to systems thinking."

"We are an introverted profession. We do most of our writing and speaking to each other. This is apparent on examination of the content of any of our journals or conferences. To be sure, some communication among ourselves is necessary, but it is not sufficient."?

"Until we communicate to our potential users in a language they can understand, they and we will not understand what we are talking about. If Einstein could do it with relativity theory, we should be able to do it with systems thinking (Einstein and Infeld, 1951). It is easy to hide the ambiguity and vagueness in our own thinking behind jargon, but almost impossible to do so when speaking or writing in ordinary language."?

"We have developed a vocabulary that equips our students with the ability to speak with authority about subjects they do not understand. Little wonder they do not become effective spokespersons to potential users."?

"This society should publish a journal addressed to potential users. It should have managers on its editorial board. It should invite dialogue with potential users either electronically or in print. In addition, it should occasionally hold conferences that provide a bridge between system thinkers and their potential users. These conferences should reveal what?we are?doing and can do that they should know about?"

"Furthermore, the articles published in our usual journals should be required to answer the “so what” question at the end of each submission. The answer to this question should be an explicit statement of how the author intends to affect the behaviour or thinking of the reader. No article should be published without such an appendage."?

"Let’s start to think outside the box into which we have painted ourselves!"

NB. I don't think accounting is really at fault. I think it is more about management not dealing with human nature correctly. That is why Ackoffs recipe is necessary.

REFERENCE?

Einstein, Albert and Leopold Infeld, The Evolution of Physics. New York: Simon and Schuster, 1951.?