Robert D. Austin and Carl Størmer draw business lessons from Miles’ “Kind of Blue” record, on how to escape the plateau of success and innovate once more, a feat very difficult for both musicians and companies: just think how many groups are worth following past their third record. In order to innovate you have to take some risks:

Also, Miles was on a trajectory, pushing the boundaries of bebop toward greater complexity in the music. He had a fantastic band, so nobody could take this trajectory where he and his band could. But when he jumped to the next S-curve, he actually turned around 180 degrees and went the opposite direction, toward simplicity—simplicity that empowered and freed his players to improvise and create, rather than pushing them to the limits of their technical mastery. He gave them some slack to work with, and asked them to do unusual things with it. It’s interesting to think about and look at examples of companies that have the will to turn 180 degrees, of course, but also there are probably business benefits in relying on radical simplicity to free and empower employees in a similar way.

While browsing around in my library, I found an old article from Strategy & Business, which documents the feud between ABC-Balanced Scorecard guru R.S. Kaplan and Prof. Johnson, who believes that following such systems is a way to failure.

So, should management be based on financial measurements and indicators, or on extensive, detailed knowledge of the company’s operations? At this time, the first approach is far more popular due to the success of ABC and Balanced Scorecard books:

In time, this teaching contributed to the modern obsession in business with ‘looking good’ by the numbers,” writes Professor Johnson, “no matter what damage [it] does to the underlying system of relationships that sustain any human organization.”

But ABC was supposeb to get us out of narrow-minded management:

“Managing Our Way to Economic Decline,” by the Harvard Business School’s William J. Abernathy and Robert H. Hayes, the article was the first of a series of broadsides against the tenets of financially oriented management. American companies that lived by the numbers, said the article, were dying by the numbers; they were shutting down profitable product lines because they looked costly on paper, and were making themselves unnecessarily vulnerable to competition from Japan.

In a way the accounting and control system itself is an enormous overhead, that should be skipped according to Prof. Johnson. But the evils of such systems are not only monetary:

“The problem with managing by data,” Professor Johnson says, “is that it creates a mind-set that leads people to pay less attention to the day-to-day particulars of work.”

On the other hand many of the operational parameters are difficult to measure (and hence control), and ABC – Balanced Scorecard can help by producing an estimate of the efficiency of the operations. But then there is the issue of whether goal setting and productivity bonuses really help in improving operations.

Personally, I am really torn between the two views. I really believe that ABC costing is a powerful tool, that can enhance profitability by exposing inefficiencies, and unprofitable products. On the other hand it gives you the illusion of being in control of things that are quite remote from what the measures can actually tell you (especially Balanced Scorecard). This reductionistic view is inherently short-sighted, and dangerous especially the effects it has in the management culture of a company.

This is not a problem with Balanced Scorecard only, but with any reductionist goal-directed system: initially there may be some benefits, but eventually people will game the system and “goals will go wild” (Ordonez et al., 2009).