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The Beyond Branding blog

September 07, 2003

Bad Organisational Mathematics & Accounting's Crossroads with Global Democracy 

Bad maths is when you use the trappings of maths - its image of rational precision - to lead people to do the opposite of what you appear to promise. Bad organisational maths is to use maths to systemically disorganise people over time. This is what's happening in most large organisations today.

The mother of all transparency crises is not so much about corruption, but leaders who are using bad maths unwittingly because professional monopolies are advising/requiring them to do so whilst nobody sees the whole picture of where this is leading the organisation. As David Maister, head guru of professional classes might have said: in an increased obsession with monetisation - since spreadsheets became the first killer application on business laptops - many professionals have lost the Hippocratic oath of "never knowingly do harm".

Let's start with what makes accounting's monopoly governance over leadership measurements bad maths. Don't get me wrong: if accounting was the simplest method possible for seeing whether cashflow is healthy, I'd want that wherever people govern big organisations. Clearly we have evidence of the very opposite with recent big organisational implosions. The last thing global accountancy has been making "see through" for everyone is simple cashflow.

Global business - and all us human beings who depend on its good sense - have become blinded by the bad maths of global accountancy for 2 main reasons.

Firstly, big accountants haven't been guided by the primary interest of simplifying transparency of cashflow and communally fair reporting, but retaining monopoly governance with their product (quarterly reporting). They have a vested interest in this because of the consulting power it gave them in every boardroom.

Secondly, the assumptions which accounting holds sacred were technically correct at the peak of the industrial age: a time when companies commanded - and primarily profited - by subjugating people to machines. These assumptions are systemically flawed now that most value compounded by global businesses is intangible. This odd-sounding word means: value humanly multiplied by service, knowledge or integrity of networking relationships between peoples. Let's look at the main assumptions of the bad maths of tangible (dead-things) accounting:

Machines are investments, people are costs. Destroys value of best employee relationships.

Historic reporting by quarters. Destroys dynamic analysis of best customer relationships by focusing on transactions instead of win-wins. The brand then has to go through exorbitantly costly processes (some have the cheek to call advertising effectiveness) to find new customers having done everything we can over time to lose our best ones. The more any brand takes from a relationship short-term, the more its owners destroy the organisation's value development over the middle-term, and long-term.

Separability in other efficiency aspects - such as business units and rival professionals. Ruins interactions between components of the system by assuming unintelligently that parts are the only measurements that matters. Also causes people to play politics with each other and spreads the cancers of lose-lose emotions such as dis-trust, hate, lack of openness, misleading other people's chance to enjoy learning...

Puts a surfeit of generic metrics above focusing on a few unique context specific ones. Destroys only simple way that a company can live up to an unique leadership vision over time. True visions require huge commitments across people to seize change patterns whilst preserving the core values and purpose - unless everyone sees the dramatic sense of a few openly honored measurement processes, the widening gap between talk and walk will produce a state where nobody has the courage to volunteer to be a change agent at the most visionary times or places.

Has no way of using the communal intelligence of people to detect emerging conflicts between stakeholders or changes in the environment or competition. Consequences: the organisation as a human system will compound conflicts; worship backward planning; leaders will spend all their time -and most corporate resources - on strategies that are divorced from people's actions, and which block behavioural learning including knowledge sharing!

Spins other systems it links to viciously. eg1 by lobbying governments to protect it from innovation, or going offshore so as to avoid returning what it takes from democracy's human and social capitals. eg2 by failing to earn the trust of global business partners, even whilst this leadership practice is the greatest new advantage networking infrastructures were designed to promote.

Good maths makes a common language usable for and by everyone - removing the technicalities so that everyone can see how their work and goals interconnect. By becoming very insecure about its primary purpose of simplifying understanding of cashflow, global accounting took the fatal step of extending into making other numbers complex wherever it could find professionals who wanted their own vested interests prolonged.

So today, we vigorously need to ask whether every metric process is what it says or the very opposite. Start with SVA which is supposed to stand for Shareholder Value Analysis. You need to know that mathematics can prove that the interests of speculators and longer term investors like pensioners-to-be are in direct conflict. Then checkout any director who vociferously claims their decisions are guided by SVA- many of these in recent times have meant: "our decisions are being made in the interests of speculators and for the loss of all other stakeholders including longer-term investors".

Take another example of language witchcraft close to marketing’s home. CRM – Customer Relationship Management – is notorious amongst experts because its usually about acquiring any information you can from the customer to Transaction her or him – to profit the most wherever the customer is ignorant about cost or has given away information of when they are in most desperate need. This combined with brand valuation algorithms (whose maths might better be called perfect for devaluing the brand’s future) has put 2 industries – ad agencies and Information Technology Platforms – into the forefront of worst practising of corporate communications. Symptoms of this dehumanising disease are: 1) propositioning rather than relating to and learning with customers; 2) disintegrating communications to lock into the suppliers’ own business cases. This is perpetrated at the expense of connecting through to other sorts of organisational communications including the most human ones such as knowledge and emotional energies of employees who serve. The compound result is companies are sub-contracting their identities to professions who creatively propagate all sorts of promises but have neither responsibility nor capability to see whether the organisation is systemically developing competences to keep its promises.

No wonder all this is leading trust in big organisations, as surveyed by the World Economic Forum in 2003, to all time lows and with future goodwill showing every warning signal of plummeting. Intangible value is being systemically destroyed at a time when it's far the biggest driver of successful corporate governance. This should concern any person who invests time or money in organisations for more than 90 days, because trust is the biggest driver of businesses that are leading towards sustainability of wealth creation for all. Distrust achieved by being governed solely by tangible numbers is the perfect mathematical way of increasing every risk of systemic implosion.

Non-transparency of Global Corporations has become the major factor in de-civilising humanity compounding worldwide conflicts that will likely cost human beings a lot more than money. Democracies should demand that accountants share governance with true mathematics that develops human systems and strengthens valuation dynamics. Because this mathematics maps out openly to be the very opposite of that which accountants have become competent at legislating, we need independent transparency and intangibles auditors so that organisational leaders can multiply value for all stakeholders.
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