Three Requirements for Managing by Fact

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Management by fact is a pillar principle of kaizen and lean thinking. We must go see, observe without prejudice, approach problems rationally and with data, finally take the logical actions that will result in a better outcome. Yet these are nearly impossible tasks for humans. In his book The Effective Executive the father modern management Peter Drucker observed:

Executives who make effective decisions know that one does not start with facts. One starts with opinions. These are of course nothing but untested hypothesis and, as such, worthless unless tested against reality. To determine what is fact requires first a decision of the criteria of relevance, especially on the appropriate measurement.

Chapter 7, Effective Decisions, is especially valuable for the lean problem solver or problem solving coach, and by logical upward extension the executive. Distilling the wisdom in this chapter, we can say that there are three requirements for management by fact. They are

1) decision on the criteria of relevance,

2) testing of hypothesis and conversion of opinion into tested fact, and

3) arriving at consensus through clash and conflict of divergent opinions.

These are beautiful ideas and decades ahead of their time, sharp enough to hone the cutting edge of any competing management theory today.
What is a fact? In essence Drucker tells us that it depends. To a chef, taste is a fact. To a physicist it is not. Facts are a question of relevance.

To get facts at first is impossible. There are no facts unless one has a criterion of relevance. Events by themselves are not facts.

Relevance is of supreme importance because it allows us to filter the events and data that we call reality through our subjective and situational value system to create relevance. The agreement upon this criteria of relevance, how it is defined and measured, is first requirement of managing by fact.
Drucker teaches us:

The effective decision-maker assumes that the traditional measurement is not the right measurement. Otherwise, there would generally be no need for a decision; a simple adjustment would do. The traditional measurement reflects yesterday’s decision.

more than four decades after the first publications of these words, the stunning majority of organizations, institutions and businesses continue to operate under traditional, which is to say wrong, measurements. What we need is to begin our decision-making process by seeking a higher significance or purpose in order to arrive at relevance.

For anyone who feels guilt at the pull of bias over objectivity during problem solving, it is liberating to hear Drucker’s advice that:

People inevitably start out with an opinion; to ask them to search for the facts first is even undesirable. They will simply do what everyone is far too prone to do anyhow: look for the facts that fit the conclusion they have already reached. And no one has ever failed to find the facts he is looking for.

Long before the Toyota Production System was described as built around creating a community of scientists who do kaizen by applying the scientific method, Drucker was observing this practice among effective executives within government and industry in the United States. The effective executive, Drucker teaches us, encourages opinions but insists that people think through the experiment that would test this opinion or hypothesis against reality.

Finally, in the third and perhaps most counter-intuitive requirement of managing by fact, Drucker encourages us not to avoid the clash of conflict but to seek it out, and arrive at consensus only as a result of this conflict.

Unless one has considered alternatives, one has a closed mind. This, above all, explains why effective decision-makers deliberately disregard the second major command of the textbooks on decision-making and create dissension and disagreement, rather than consensus.

If the management team are all in agreement with a decision at the end of a discussion, Drucker relates, the effective executive will send them back out to think over the problem until they truly understand it and arrive at divergent opinions, disagreements, and conflicting positions, reflecting the formation of opinions and testing of these through debate and the clash of conflict. Only through this process can we can make effective decisions.

Drucker illustrates all of these points richly with stories from the Bell telephone company, the Cabinet of the US President, General Motors, the US Defense Department procurement, and anonymous examples. I highly recommend that everyone thoroughly read and reflect on the 23 pages contained in this chapter.

1 Comment

  1. John Santomer

    May 21, 2011 - 1:06 am

    Dear Jon,
    Great post! As always, factual, informative and ideally challenging.
    Gives light to customary perceptions of lean “sensei” being eternally harbringers of conflicts and dissension (in real sense it is a deliberate challenge to tradition in order to bring about a better alternative to an outdated practice/process).