I was home with a migraine yesterday afternoon and happened to have the TV on, which was tuned to one of those mindless daytime money shows which are a handy way of taking your mind off of the temporary belief that you are dying. Anyway, someone was bemoaning the fact that Americans are negative savers, which, despite continued strong economic and job growth, is apparently one of the signs of the apocalypse or something.
I was about to pride myself on my own saving and engage in a round of self congratulation and smarmy sense of being “different,” when I realized that I too was a negative saver. I think I save a lot – every month, money goes into the house, Roth IRA, 403(b), and my online brokerage account. In case of emergencies, there is my “Armageddon Fund” of gold Krugerrand and cartons of Lucky Strikes (cigarettes are historically good money substitutes). However, despite all this apparent “saving,” none of it actually counts as saving (according to the government), and even though I pay off my credit cards in full every month (and “save” some additional airline miles); the fact that my credit card balance exceeds the amount in my checking account for half of the month makes me a negative saver.
The savings rate is supposed to be a knowledge process – that is it should tell us something about how much people are actually saving. However, since people “save” differently than they used to, the government’s measure of savings is no longer terribly accurate. The same can be true for the different knowledge processes used in business, which can just as easily stray from what they are really supposed to be measuring. For example, speedy throughput is a lousy measure of success if it is just building up inventory. Indeed, even sacrosanct measures such as cost or P&L may still be misleading if they fail to account for benefits that are measured elsewhere. An obviously unprofitable division of a large conglomerate only narrowly avoided shutdown a few years ago after business leaders realized that it served as one of the only buyers of products from one of the business’s other most profitable divisions. The seemingly hapless business was actually creating plenty value for the company, but the measurement showed up elsewhere.
You can’t make good decisions without good information, but we sometimes don’t bother to look how this supposedly “good” information is gathered. Like with savings, knowledge systems are notorious for failing to quickly add new variables, while slow to discard irrelevant or fading old ones. So the next time you look at the measurements you use or hear someone throw around a number that reportedly “means” something, it might be worth thinking about the content and usefulness of these knowledge processes – you might be saving more than you think.
Al,
I think we need a term to describe a knowledge process that delivers erroneous information. What's the opposite of a knowledge process? Not an "ignorance process" - at least with ignorance, you know that you don't know.
What do they call it in the world of spies when you feed the enemy bogus intelligence in order to mislead him - a disinformation campaign? Perhaps we should call these "disinformation processes".
Chris
Posted by: ccardiff | 25 April 2007 at 08:05 AM
Chris,
While I think that someone a lot more important than me is going to have to come up with official MBM lingo, I see no reason why I cannot venture some sort of informal term that may or may not take off. I guess our natural inclination would be to call BS, but the problem with knowledge systems like “savings rates” is that they sound so credible. So we are looking for a term that describes a seemingly credible knowledge system that is in fact deceptive because of variables either excluded or overemphasized. There could also be an element of the speaker actually knowing or deluding themselves into believing that the knowledge system is accurate. Your example of planting false information with the enemy made me think, so may I suggest the term “mincemeat.” Operation Mincemeat was a British plan during WWII to plant a body off the coast of Spain with a briefcase containing plans for a fake invasion of Sardinia and Greece, which would presumably distract the Axis from the planned invasion of Sicily. Anyway the historical details are quite interesting, but I think the term mincemeat is appropriate – not quite as catchy as say “spam” but it works. Let me know what you think.
AL
Posted by: Alastair Walling | 25 April 2007 at 11:33 AM
Nice point about metrics needing to change.
As to the savings rate, you're probably counted as a saver; but that probably won't be true when you retire, even if you don't spend all your income. I have an article explaining why the savings rate calculation is bogus, if your interested. It's at http://businomics.typepad.com/businomics_blog/2007/05/what_national_s.html
Posted by: Bill Conerly | 06 May 2007 at 05:12 PM