The Perils of Metrics Misapplied

[JMA]

BS

Good business is about figuring out how to make cost effective and efficient contributions towards the greater good. Done correctly lives are enriched, resources are appropriately prioritized and allocated, and we all move forward. Done incorrectly all of the foibles of the human animal are amplified and we collectively descend back into the muck and mire from whence we all sprang. Transparency and accountability helps to keep things trending towards good business....

With respect to metrics, they are essential, as is keeping firmly in mind that moderation in all things is necessary.

And there I was holding my breath waiting for examples of 'good business'. Silly me.

[Surferbeetle]

And there I was holding my breath waiting for examples of 'good business'. Silly me.

Silly you? No, that's not my assessment

Examples? How about South African Infrastructure for starters?

SA's R800bn infrastructure drive, 25 October 2011, http://www.southafrica.info/business...udget2011b.htm

South Africa is set to spend over R802-billion on infrastructure development over the next three years as part of a government drive to ease bottlenecks and reduce costs in the economy, "crowd in" private investment and improve access to export markets.

Presenting his Medium Term Budget Policy Statement in Parliament on Monday, Gordhan said public-sector investment in infrastructure - which has increased from 4.3% of the country's gross domestic product (GDP) in 2005 to 7.5% in the first half of 2011 - remained central to the government's economic development plans.

"Infrastructure projects in energy, roads, rail, telecommunications and water will ease bottlenecks and reduce costs in the rest of the economy, crowding in private investment and improving access to export markets," Gordhan told parliamentarians in Cape Town.

[JMA]

Silly you? No, that's not my assessment

Examples? How about South African Infrastructure for starters?

SA's R800bn infrastructure drive, 25 October 2011, http://www.southafrica.info/business...udget2011b.htm

No that is not business. Nothing to do with business other than (like the Arms Deal of some years ago) for the 'lucky' winners of the tenders to do the work and those political insiders who will stand to cream off R80-100 billion in terms of kickbacks and 'commissions' who will be smiling.

Would be interested to hear about an example of 'good business' as per your definition.

[Stan]

Never in my life have I seen such foolishness with our federal budget. From the old lady in tennis shoes that destroys your travel voucher in hours to save .99 cents (that you in fact paid) to the "lowest bidder to a beltway bandit" with the cheapest widget with the highest overhead costs.

If we even remotely followed some small business savvy we would never have entered into a war and would doubtfully be in debt.

[Bob's World]

Sometimes we measure the wrong things because we reasonably believe them to be the right things. Perhaps we need a "metric metric" that measures if a metric is of any value...

But sometimes we measure the wrong thing because it tells the story we want to tell. A recent example: Last week I visited a major defense think tank in Washington DC. They had recently published a perspective on military budgets and had determined that "SOCOM was a big winner" and wanted to gain our insights on their analysis.

Detailed analysis of military budgets during and following conflict from WWII forward showed a fairly standard degree of rise and fall as compared against Gross Domestic Product (GDP). The standard post-conflict budget throughout that era was 3% of GDP.

The recommendation was that the US was very much in a situation as faced by President Eisenhower and should look at making similar decisions regarding how to invest a budget based on 3% of GDP. All quite reasonable.

My question was: "Why do you only look at military budgets post-WWII? We were in a Cold War during that period that we are not in now. During the Cold War the US adopted the geo-strategic realities of a European continental power, demanding a large standing army in addition to other capacities designed specifically to deter the Soviets. The geo-strategic reality of the US is one of a maritime nation that has no such requirement for such a peacetime ground force. Today we are back to our geo-strategic roots, and arguably the period of time from 1900 -1941 is far more applicable to our current situation than the period of 1947-2012. Did you look at that era as well?

Answer: "Yes"

Question: "Really, and what was the % of GDP applied to defense in the post-conflict periods of that era"?

Answer: "1 percent"

Sometimes measuring the right thing doesn't tell the story you want to hear, so you refine what you measure until you finally get the answer you want. What I found particularly disturbing was that they had done the research, had the answer, and had then deliberately crafted the findings to tell the story they thought the customers would want to hear. All their facts were true and accurate as far as I could tell, they just didn't tell the whole story as it presented inconvenient results.

Now, as to what defense spending should be, it may not be 1% given the advent of expensive new domains such as air, space and cyber; but I doubt it is 3% unless we cling to a force we want, rather than build the force we need. So my takeaway is that we probably can, and should take defense cuts down to 2% of GDP. After all, this is not about SOF or any of the Services "winning," this is about the United States of America "winning." (in quotes, as one must not only define the right level to assess "winning" at, but also get to the right definition of what constitutes a win.)

[Fuchs]

Imagine the U.S: was only half as rich. Would this mean the %GDP budget should be 4%, not 2%?

Why is the GDP a good base for determining a budget at all? To me it looks rather like a variable that tells you something about affordability than about necessity.


You could for example look at Purchasing Power Parities, military spending and inefficiency levers (strategic logistics, degree of bureaucratic inefficiency) in one bloc and compare this with your bloc (say, PRC + NK vs. Taiwan+U.S.).
Then you have an idea about the relative power situation and can continue with thoughts about wargames and such.

[Bob's World]

I think this goes more in the up direction than down: We have so much military because we can afford it, not because we need it. "Wants" are often sold as "needs" in this game.

Where is the perfect balance between what one can afford and what one needs? There is no perfect metric to get there. I would argue that most European powers have the militaries they can get away with due to alliances with a US that has too large of a ground force for its own needs. Currently we see Secretary Panetta having to mollify European allies who are concerned they may have to resource a fairer share of their own defense.

http://www.nytimes.com/2012/02/05/wo...rope.html?_r=1

GDP over history tells an important story; particularly in a democracy where the people have the ultimate say on such things (though like the Titanic, we are big engine, no brakes, and small rudder, and think we are unsinkable), so such adjustments take time. It shows tolerance for defense spending. The results of the effectiveness of US military power speak for themselves.

Many love to wheel out tired arguments of how we were "unprepared" for both World Wars and Korea; though were the decisive ground force in all three. Being "prepared" has enabled US officials to jump into all kinds of small to medium conflicts that we would have been forced to employ other options on if we had not possessed a warfighting army sitting on the shelf ready to go. I'm not convinced that is better.

(oh, and the "additional $500B" in cuts that SecDef calls "crazy"? I suspect will seem less crazy after the election)

[Surferbeetle]

No that is not business. Nothing to do with business other than (like the Arms Deal of some years ago) for the 'lucky' winners of the tenders to do the work and those political insiders who will stand to cream off R80-100 billion in terms of kickbacks and 'commissions' who will be smiling.

Would be interested to hear about an example of 'good business' as per your definition.

Good business...hmm...for me examples include infrastructure and education.

I was going to write to you about the beauty, importance, and service to humanity of infrastructure, associated examples of economic structures, and a bit about the 30 days or so i spent sh#tting out most of my braincells after drinking untreated water in a foreign land...something that truly gave me a deep appreciation for the importance of clean water in a way that school and decades of work in the field have not...but i wonder if that is what you are really trying to get at?

It's not an easy trip to America from some places, but we have some kick-ass schools...community colleges on up...that welcome students (young and old) and teach them about how create their own good business. Perhaps some links and books (i have found them useful for putting together my first business plan, and more) might be of interest to you:

How to Start a Business from the SBA

Value Chain Analysis from the USAID

Guiding Principles for Stabilization and Reconstruction, USIP

Jeffrey D. Sachs, The End of Poverty, Penguin Books LTD, London

W.J. King and James Skakoon, The Unwritten Laws of Business, Profile Books, London

Richard Templar, The Rules of Management, Pearson Education, New Jersey

Robert E. Quinn, et. al, Becoming a Master Manager: A Competing Values Approach, John Wiley & Sons Inc, New Jersey

O.C. Ferrell and Michael Hartline, Marketing Strategy, Thomson-South-Western, Ohio

Mason A Carpenter and Wm Gerard Sanders, Strategic Management a Dynamic Perspective, Pearson Education, New Jersey

Craig W. Kirkwood, Strategic Decision Making, Wadsworth Cenage Learning, California

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Bob,

Metrics to measure metrics....the volatility smile concept is an interesting one to consider. It is used to model changes in underlying contracts....but why not defense spending, or infrastructure spending, or educational achievement, or employment....

[JMA]

Good business...hmm...for me examples include infrastructure and education.

I spoke of business in the context Sydney Jary spoke of in his book '18 Platoon'. You responded with 'BS'.

I suggest you go read that quote again.

[Surferbeetle]

Setbacks that lead to success, by Luke Johnson, February 7, 2012 7:12 pm, Financial Times, www.ft.com/management

Obsessing about past errors is not wise but to imagine that running and backing companies should be an unbroken series of victories is to court disappointment. It pays to understand and remember one’s own defeats, the difficulties endured by famous tycoons, and that we should all expect our fair share of cock-ups in the future. They are an inescapable part of commercial life; pretending otherwise is denial. As Winston Churchill said, “you will make all kinds of mistakes, but as long as you are generous and true, and also fierce, you cannot hurt the world or even seriously distress her”.

Far too many who think about launching a start-up shy away from taking the plunge because they suffer from an irrational fear of failure. Of course things may well go wrong but the worst very rarely happens. And the pain and stigma of failure is never as bad as one imagines. Generally speaking life moves on, new opportunities arise, the world forgives and time tends to heal even the deepest wounds. Sure, there are scars, but they form part of what one might call one’s education. As they say, what can seem like a crisis at the time fades to a footnote before too long.

Perhaps entrepreneurs are subconsciously following the quest set out by Joseph Campbell in his book The Hero with a Thousand Faces. This work describes how almost all myths have the following basic narrative: “A hero ventures forth from the world of common day into a region of supernatural wonder; fabulous forces are there encountered and a decisive victory is won; the hero comes back from this mysterious adventure with the power to bestow boons on his fellow men.” In such tales the hero must invariably overcome difficulties and confront his own demons.

Those who build businesses are usually portrayed as ruthless moneymakers but very often they are romantics at heart, engaged in what they see as a mission, looking to slay dragons. Great innovators who discover new products are the ones who seek the biggest challenges – and must steel themselves for the toughest blows. Genuine inventions are what drive progress and job creation – but making them happen is arduous and risky, while never giving way to despair is the secret ingredient behind every triumph.

[JMA]

Setbacks that lead to success, by Luke Johnson, February 7, 2012 7:12 pm, Financial Times, www.ft.com/management

It appears you see the military and 'business' as similar.

I suggest a rethink in that regard would be in order.