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Reflections
The SoL Journal
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FEATURE ARTICLE

Confronting the Tyranny ofManagement by Numbers
H. Thomas Johnson

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Roger Saillant

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Jay Bragdon

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V O LU M E 5 , N U M B E R 4

Reflections
The SoL Journal
on Knowledge, Learning, and Change

Published by The Society for Organizational Learningreflections.solonline.org

FEATURE

Confronting the Tyrannyof Management by Numbers
How Business Can Deliver the Results
We Care About Most
By H. Thomas Johnson

produce short-term results but inevitably degrade

results? In this article, award-winning author andthe system itself.

accounting expert Tom Johnson presents his notion

the full range of consequences when we treat ourof performance management – “management byorganizations as disconnected abstractions. Rogermeans” – and examines our misguided cultural en-

Saillant, a CEO who has successfully implemented

chantment with “management by objectives” anda similar approach, and Jay Bragdon, an invest-

its consequences. His premise will be easily recog-

ment analyst, offer their perspectives on the prac-

nized by anyone with production experience: phys-tical value of managing by means. Together theseical systems have physical limits on the quality andpieces offer a compelling new vision for the work ofquantity of what they produce. Setting production

managers.

objectives that exceed the system’s means may

Johnson challenges us to see— C. Sherry Immediato, PublisherI

t’s easy to talk about the changes wrought by today’s global economy. But most suchdiscussions fail to address the real impact of business practices in the twenty-first century.
The growth of industrial societies during the past 150 years – and particularly the aggressive corporate growth strategies of the past 50 years – have done unprecedented damage tothe environment and created unsustainable performance pressures on companies. The threat
to our natural and organizational systems flows from a view of business that most CEOs
accept without question, but which is at odds with thousands of years of human economic
activity.
Our response to this threat must go beyond anything commonly proposed in policy or
regulatory debates. What’s needed is a vision of the future that recognizes the potential andthe constraints that govern all natural systems. The first glimmerings of that vision – evident
in some unlikely places, as we’ll soon examine – embody a way of managing that speaks to
the higher aspirations of people throughout an enterprise. Such a vision offers a hopefulalternative to the mindless pursuit of growth for growth’s sake that threatens the health ofthe planet.

The Perils of Financial Abstraction
Humans, alone among all species, have the ability to consume resources far beyond the limits of Earth’s carrying capacity. Two radically transformative developments have made thatpossible. First, the capacity to extract and use enormous quantities of fossil fuels, a form ofreflections.solonline.org

H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 1© 2004, Society for Organizational Learning. All Rights Reserved.

H. Thomas Johnson

Is focusing on results the best way to achieve

stored solar energy, enabled the human economy to consume Earth’s fixed budget of water,
air, minerals, and habitat at a geometrically increasing rate. Driving humans to consume
so relentlessly was a worship of “economic growth,” propelled in the past half-century by
the second transformative development: a new tendency to view economic activity exclusively through the lens of financial quantities, rather than in terms of human livelihoods andeconomic needs.
For thousands of years, humans paid little attention to measuring or quantifying
economic activity. Business was viewed in terms of serving customer needs by employing
human talents. Nevertheless, specialized and complex organizations evolved to facilitate theeconomic activity associated with agriculture,
manufacturing, and trade. Eventually such organizations evolved into the businesses and trading
institutions that increasingly dominated the humaneconomy after the late nineteenth century. But the
gap between consumption and environmental limits
remained fairly small, and grew slowly, as long as
people viewed business primarily in terms of providing for human livelihoods. That view prevailed
even as recently as 50 years ago.
But, increasingly after World War II (coinciding with the growing influence of businessschools and management consultancies), businesspeople came to discuss their organizations in terms of abstract quantities, not concrete humanaffairs. They spoke, for example, of providing for customer needs in terms of “revenue”
and employing human talents in terms of “cost.” Profit, the quantitative difference between
revenue and cost, was increasingly viewed as the primary goal of business, especially as morewidespread share ownership steadily separated the ownership of business from the activities
of running business operations. By the 1970s, maximization of shareholder wealth became
widely accepted as the one and only goal of business, particularly in the large, publicly traded
corporations that control the commanding heights of the economic system.
This rapid and widespread reconception of economic activity – defined exclusively interms of quantitative abstractions – is a classic example of what philosopher Alfred North
Whitehead called “the fallacy of misplaced concreteness.”1 The virtual reality of quantitative
abstractions such as revenue, cost, profit, spending, income, investment, and shareholder
wealth became “more real” than the lived reality of relationships, human value, and theconcrete activities that provide for human livelihoods. Today, this confusion has gone so farthat people speak of the “hard stuff” (the numbers) versus the “soft stuff” (human relationships and value), reifying the “lesser” reality of relationships versus numbers even though noone has ever actually seen or touched “a profit” or “a revenue.”
The consequences for managerial work of the growing abstraction of business are profound. Senior managers of large corporations now are viewed exclusively as agents of theshareholders. Their only task is to meet, at all cost, the financial targets for growth driven by
the market. The financial spreadsheet has become the focal point of top management’s attention – so much so that CEOs now view the organization almost entirely through the lens offinancial (and other) quantities, nearly oblivious to the concrete operations from which thefinancial results emerge. Indeed, “operations” in most large businesses today has come to

The gap between consumption and environmental limits
remained fairly small as long as
people viewed business primarily
in terms of providing for human
livelihoods. That view prevailed
as recently as 50 years ago.

2 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson

Reflections

Volume 5, Number 4

mean the electronic coordination and integration of myriad financial and supplychain activities around the world, including
design, order fulfillment, logistics, and production. These operations do not exist primarily to produce products or services, but
to meet cost and revenue targets.
When businesses regard economic activity as if it involves only the manipulation of
abstract quantitative variables, they misswhat is really happening to the people, thecommunities, and the natural world thatsurround them. Although activities that involve consumption and production are necessarily constrained by Earth’s finite limits,
abstract quantities, by definition, can growwithout limit. By viewing economic activity
increasingly and exclusively in terms ofabstract quantitative variables, people havecome to believe that consumption and production can grow without limit, and managers have succumbed to the illusion thatphysical limits to economic growth do notexist. Acting on this illusion, the modern
business system has reached a point wherecontinuing to operate in its present manner for another century seems unlikely, if
not impossible. Human beings are currently extinguishing between one-half andone million species every 10 years. We have
subverted “the basic biological law that every lifeform shall have . . . conditions that limit
its expansion, so that no single lifeform . . . should suffocate the other lifeforms. The powerof our technologies is now such . . . that nature cannot prevent us from doing whatever
we decide in diminishing the splendor and vigor and variety of life upon the earth” (Berry,
1988: 10–11).
Is there a solution to this crisis? If there is, it must bring the human economic system tooperate, somehow, at a pace that ensures all other species their place in Earth’s ecosystem,
while it provides decent livelihoods for all humans. In this economy, mindful businesses
would seek to produce only enough to satisfy the needs of consumers who seek to consume
only enough, all within the limits of each day’s solar energy and the needs of all other species.
Creating such businesses and consumers will surely require a complete rethinking, especiallyamong the so-called “developed” societies, of why and how humans conduct economic
activity. People will focus more on the genuine value derived and the consequences of theirpurchasing decisions, and businesses will no longer see their sole purpose as maximizing thefinancial wealth of shareholders or owners by any means, regardless of damage to society or
the biosystem. At a minimum, businesses will view their primary purpose as enabling people

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H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 3

to fulfill their innate creative talents by meeting the economic needs of genuine human customers without impairing the operation of Earth’s biosystem.

Management by Means
Transforming the economic system will require transforming the system of management thatdrives it. I call the new thinking and practices of such businesses “management by means,”
or MBM (Johnson and Broms, 2000). The assumption underlying MBM is that a business isproperly run only if it operates according to principles like those that guide the operations of
natural systems – as opposed to the “managing by results” approach that dominates today(see table below). The principles that guide natural systems in the universe are well documented in modern scientific accounts ofcosmic evolution, sometimes referred to as“the universe story” (Berry, 1988: 10–11;
and Swimme and Berry, 1992). Two conclusions derived from that story are pertinent to the new thinking and practices
that must guide the operations of mindful
business in the future. The first conclusion is that all natural systems operateaccording to three broad principles:

Modern businesses operate thesystem so that it produces a desired
result, no matter how the system isdesigned or what consequences its
operation has for other social andnatural systems.

• everything that exists is related, ultimately, to everything else that exists• everything that exists is self-organizing• constant interaction among all self-organizing entities produces a continual unfoldingof more diversity and complexity
Managing by Means or Results?
Managing by Means• Focus is on the means by whichgoals are met.

• Focus is on the performance ofseparate parts of the organization.

• Means are seen as “ends in themaking.”• Ends are seen as top priority inand of themselves.

View of the Organization• The company is a network of patterns and relationships connecting
people with each other, and withcustomers, the community, and theecosystem.

• The company is a machine thatcan be made to perform betteroverall through optimization of theperformance of its separate parts.

Parts/Wholes• Focus is on how the whole system
performs.

• Focus is on how each separate
part performs.

Assumptions about Profit• Profit is necessary for the company’s survival, but is not the company’s reason for being.

• Profit is the overall goal and purpose of the organization.

• Emphasis is on local decision
making and responsibility; partsof the system have their own
wisdom.

• Emphasis is on centralized decision
making and goal setting; parts ofthe system will respond only to
external force.

Process

Source: ©2001
H. Thomas Johnson. This
material is adapted from
“Manage by Means, Not
Results” by H. Thomas
Johnson in The Systems
Thinker®, Vol. 12, No. 6(August, 2001). Reprinted
by permission of Pegasus
Communications, Inc.

Managing by Results

Control

4 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson• The company must maximize profit
above all else.

Reflections

Volume 5, Number 4

The second conclusion from the universe story is that the system of interactions defined bythose three principles is primary. The results produced by the system – that is, the outcomesthat evolve from the process – are subordinate. In other words, the results are an emergent
byproduct of the system’s process, and cannot be ordered or predicted.
The principles underlying the universe story account for the evolution of all natural systems, from hydrogen atoms to human organizations. However, because humans, unlike anyother species on Earth, have developed the power to design and operate systems according toprinciples other than those that guide natural systems, those underlying principles have been
rendered invisible in modern business and economic systems. Thus, humans operate theireconomic system as though they can ignore the principle of interrelatedness and pursue limitless growth with impunity, even though such growth reduces diversity in the natural andsocial systems in which the economy is embedded. Moreover, modern businesses posit economic growth as primary and the system that produces such growth as subordinate. In otherwords, they operate the system so that it produces a desired result, no matter how the system
is designed or what consequences its operation has for the other social and natural systems
with which it interacts.
This behavior would be tolerable if humans had reason to believe that the principles guiding their business and economic systems were as sustainable as those that guide the operationof all natural systems. But the evidence does not support this belief. Indeed, the Earth’s looming eco-crisis suggests strongly that the human economy and its modern business institutions
are guided by woefully inadequate principles. By contrast, the central theme of the universe

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H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 5

story – a continual emergence of ever-more diverse and complex outcomes from a fixed budgetof matter and energy – suggests a system that is guided by robust and effective operating
principles. MBM provides a template for applying those natural system principles to theoperation of modern business organizations.

Key Principles of MBM
How can managers begin to apply these principles to their own organizations? I believe thatan enterprise will thrive to the extent that its managers view the business as:• a natural system that provides for human livelihoods by linking the creative talentsof suppliers with the economic needs of customers;• part of a web of relationships that includes other businesses, the community to which
the business belongs, and the biosystem that sustains the larger social and economic
systems; a system in which financial results follow from nurturing the system of
relationships, not from setting arbitrary targets; and• maintaining a balanced energy budget over the long run. That is, energy expended
on resources, measured by financial costs, must be balanced by incoming energy from
customers, measured by revenue. The goal is to assure viability, not necessarily tomaximize profit, which is subject to the often-unrealistic expectations of the market.
Are there examples to show us how wemight develop an economic system in which
companies achieve healthy long-run results byfollowing the precepts of MBM – by managing
relationships instead of driving operations withquantitative targets? Two examples come tomind. First is a single business organization, awell-known, publicly traded company thatstands apart from others in its adherence to
MBM principles, even though the company’s
overall impact on the community and the Earthstill leaves much to be desired. That company
is Toyota. The second example is the conceptof the “local living economy,” in which businesses grow to serve the needs of people in a
coherent bioregion.

The Elusive Lessons of Toyota
People who write about Toyota often begin
with two observations. One is that, for morethan 40 years, the company has far surpassed
the performance of all its industry competitors
in terms of product quality, reliability, designto-delivery lead times, customer satisfaction,

6 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson

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Volume 5, Number 4

employee morale, productivity and cost, and overall financial performance. If there areobjectives that automakers seek to fulfill, Toyota has managed to excel at not just some, but
all of them.
The second observation that Toyota-watchers make is that it takes a long time and many
visits to its plants to begin to see what is different about Toyota’s operations. For more than
25 years, countless consultants and academics touring Toyota plants have “seen” manythings – “zero” inventory, clean, well-marked floors and work areas, spotless machines, fastchangeovers, teamwork, continuous flow, line workers identifying and solving problems as
they occur, mixed models on the same line,
standardized work, and much, much more.
Still, no company seems to have matched
Toyota’s performance. Companies are better for having studied and implemented intheir own plants what they see in Toyota’s
plants, but it appears that no one has seen
the whole picture.
So what explains the persistence of this“knowledge gap?” After more than a dozen
years spent studying Toyota operations, I
believe that people – Americans and Europeans, especially – are hindered in their efforts
to understand Toyota by their tendency to see business operations through the lens ofabstract quantity and the mechanistic worldview of seventeenth-century science, rather than
through the lens of concrete relationships and the holistic worldview of twenty-firstcentury science. Again, Whitehead’s “fallacy of misplaced concreteness” helps explain why
we fail to “see” what matters at Toyota. Our interpretation of reality is colored by our
preconceptions.
Relationships are the reality that makes the difference at Toyota. Financial results andquantitative outcomes matter, of course, but Toyota seems to understand that how relationships are orchestrated between people – particularly between shop floor workers – determines
how good those results will be. A Toyota plant has the same materials and parts, the samemachine technologies, the same workforce, and the same types of customers as one would seein any of its competitors’ plants. What is different in the Toyota plant is how work is organized. Material always flows in direct, simple pathways, and workers always are linked
through unambiguous “supplier-customer” connections. Every production worker is guided
by one aim: to meet the needs of his or her direct customer – the person to whom the workflows next. That relationship permits a worker to know at any moment if something is abnormal and, if it is, to stop, correct the problem, and act to prevent it happening again. As aresult of these carefully orchestrated relationships, each person’s work, at any moment, isfocused on only one order at a time, with features in place to insure, as much as possible, thatno more resources than are necessary are consumed to complete that one order.
The relationships created by this way of organizing the work virtually guarantee that every
step in the process is performed at the highest level of quality and at the lowest cost. Thisefficiency is evident in the use of time, as well. Moreover, the design of the work also insuresmaximum flexibility to vary the types and volume of product made in the plant. And every
step in the work, every moment, embodies hypotheses for continual testing, leading to continual awareness of opportunities for change and improvement. If one observes the overall

Toyota has far surpassed all its
competitors in terms of product quality,
reliability, design-to-delivery leadtimes, customer satisfaction, employee
morale, productivity and cost, andoverall financial performance.

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H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 7

scene in a Toyota plant long enough and carefully enough, one begins to see a pattern that
resembles the working of a self-organizing natural system.
In that regard, it is interesting to note a couple of things one does not see in a Toyota plant.
One is the use of quantitative targets to drive operations. The only external signal that entersa Toyota plant’s system is customer vehicle orders. Those orders are, in a sense, all that“drives” operations. Information about how material will be released to the floor and how
the work will be done (to transform material into finished product) comes only from thework itself, not from any source external to the work, such as a computer information system. The material is pulled through the system one cell at a time, like the blood and the lymph
flowing through an animal’s body, and it flows everywhere at the same rate, like the beat ofan animal’s pulse. No material requirements planning (MRP) system directs the flow of material in day-to-day operations, nor do any standard cost targets motivate the pace and volumeof that work.
In effect, a Toyota plant admits no entry to either external production controls or externalfinancial and cost accounting controls. Everything happens under the guidance of the Toyota
Production System, the inherent pattern of operations that permeates all work throughout thecompany. Production costs are low and quality and variety of output are high because of theway the operating system itself is designed, not because people are responding to top-down,
quantitative targets.

Local Living Economies
How might an economic system look that is comprised largely of business organizations thatexist primarily to sustain human livelihoods in balance with human communities and natural systems? Briefly, it would consist of businesses that focus on providing employment andmeeting customer needs in a fairly localized regional economy – perhaps as defined by theboundaries of a watershed such as the Columbia River-Puget Sound watershed in the PacificNorthwest, the San Francisco Bay area, or the Rhine River Valley. This kind of system can becalled a “local living economy” – a second example of a viable economic system organized on
the principles of MBM. One key point is that consumers and businesses would satisfy most of
their needs with resources available in their local region. Global supply chains would all but
disappear. As much as possible, material replenishment and final product shipments would
occur within the local region (Shuman, 2000).
Some might argue that a world economy of diverse local bioregions would cause consumers’ standards of living to fall because it would reduce the economies and efficiencies of largescale production and distribution systems that we ostensibly have in the world today. Hereinlies the importance of understanding the fallacies of scale-economy thinking. In reality, production systems designed along the lines of Toyota’s turn scale-economy thinking on its head:
they make it possible to build manufacturing capacity on a much smaller scale than everbefore thought possible, yet produce at unit costs equal to or lower than those of large-scale
facilities now thought so necessary for cost-effective operations.
An example of this is found in Toyota’s organization. Compare the plant that makes
Camry and Avalon models in Melbourne, Australia with the plant that makes the samemodels in Georgetown, Kentucky. Located within or nearby each plant are complete facilities for engine build, axle build, plastic trim and bumper production, stamping, body weld,
seat build, and final assembly. According to Toyota, these two vertically integrated plants

8 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson

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Volume 5, Number 4

are equally efficient and effective on all dimensions that matter to Toyota customers.
However, the Melbourne plant currently produces about 90,000 vehicles per year, primarily
for the Australian market, whereas the Georgetown plant produces about 500,000 vehicles
per year.
If a fivefold difference in capacity yields no unit-cost differences between these two plants,
then what is to be said on behalf of scale economies? In fact, Toyota people have said they
probably will not build another plant as large as Georgetown in the future. The company
currently is building new plants, smaller in scale and located as close as possible to customer
markets. Carried to its logical extent, Toyota’s example helps show how bioregional economies of 10 to 30 million people could support high-variety and low-cost manufacturing
facilities for a wide range of products. Indeed, the relatively isolated Australian economy,
with about 20 million people and a vast land area, supports several auto manufacturing
operations in addition to Toyota’s, as well as facilities producing a wide array of other products just for Australian consumers.
There are now ample technologies available to support efficient small-scale operation ofalmost every commercial activity. Some examples among many include the continuous-casting, mini-mill technology that transformed steel making in the last 30 years, small-scalerefineries and chemical plants for almost all current petroleum and chemical processing,and Japanese paper-products plants that efficiently produce on a much smaller scale than
American papermakers, for example, might think possible.2

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H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 9

Especially interesting are eco-designer Amory Lovins’s paradigm-breaking examples of
how the industrial economy can flourish at a much smaller scale than ever thought possible
by rethinking, for example, the design of automobiles (with carbon composite bodies andhydrogen-cell power trains); the design of buildings (with better insulation, use of solar
power, and absorbent roofs to obviate the need for drains and storm sewers); and the designof power systems. In the latter context, Lovins convincingly shows that now is the time for the world
to free itself from large-scale power generation andvast power transmission grids. Solar, wind, water,conservation, and cogeneration all play a role inthis transformation. An important rallying cry of
the bioregional economy could be “off the grid!”
Underlying so many of the smaller-scale, butmore efficient, processes that Lovins talks about arecapital items that often raise initial project costs,
but have incredibly fast and long-lasting paybacks(e.g., solar panels, better insulation, bigger diameter
pipes that require smaller pumps, better lighting,and heavier refrigerators). Thus, it would seem there are no serious technological constraints
to organizing human economic activity more along regional lines, in greater harmony withthe resources and regenerative capacities of the Earth’s major watersheds, and less in alignment with the current march toward scale, global homogeneity, and eco-destruction. The
constraints to local control of smaller-scale enterprises are political, social, and intellectual
rather than economic; they are constraints imposed by old thinking. The sorely needed “newthinking” is informed by a worldview that recognizes interconnected systems and arises fromthe modern science of evolutionary cosmology. Efforts to transform the current “global”
economy into a system of sustainable bioregional economies will require an approach to business school education that is grounded in this new worldview rather than the worldview ofseventeenth-century science.
Only by shifting its attention from pursuing abstract quantitative goals that call for“optimizing” individual pieces of an organization, and moving it toward the kind of interactions in the system that make the whole greater than the sum of the parts, can the worldof commerce stop, and hopefully reverse, its separation from the natural systems that sustain
all life.

There are no serious technological constraints to organizing
human economic activity morealong regional lines, in greater
harmony with the resources
and regenerative capacities of
the Earth’s major watersheds.

10 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson

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Volume 5, Number 4

Endnotes
1. Whitehead defined the term as “neglecting the degree of abstraction involved when an actual entity
is considered merely so far as it exemplifies certain categories of thought.” Process and Reality,
Corrected Edition, D. R. Griffin and D. W. Sherburne, eds. (New York: The Free Press, 1978), 7–8.
In practical terms, this means confusing an abstraction drawn from the real world with the concrete
reality from which the abstraction was drawn. Abstraction is essential to rational analysis, but it
necessarily omits many features of the real world from the analysis that follows. Forgetting suchomissions and treating the abstraction as if it were the whole of reality can lead to actions that havedamaging consequences in the concrete world. In For the Common Good: Redirecting the Economy
Toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1994), ch.
1, Herman Daly and John Cobb show how economists are especially prone to commit this fallacy.
For example, if the economy is seen as the Gross National Product (GNP), a monetary abstraction,then the idea of money balances growing forever at compound interest leads to the belief that real
GNP, pigs, cars, and haircuts can grow similarly (ibid., 37). Serious environmental damage results,of course, from such belief.
2. These technologies and more are discussed in many places, but two good examples are the recent
book, Natural Capitalism, by Paul Hawken, Amory Lovins, and Hunter Lovins (Little, Brown, 1999),
and the somewhat older book, The Soul of the Enterprise: Creating a Dynamic Vision for American
Manufacturing, by Robert Hall (HarperCollins, 1993).

References
Berry, Thomas. The Dream of the Earth (San Francisco: Sierra Club Books, 1988).
Johnson, H. Thomas and Broms, Anders, Profit Beyond Measure (New York: The Free Press, 2000).
Shuman, Michael H., Going Local: Creating Self-Reliant Communities in a Global Age (New York:
Routledge, 2000).
Swimme, Brian and Thomas Berry, The Universe Story (San Francisco: Harper San Francisco, 1992).

ABOUT THE AUTHOR

H. Thomas Johnson is professor of quality management at Portland
State University. He co-authored Relevance Lost: The Rise and Fall ofManagement Accounting, named one of the most influential management books of the 20th century by Harvard Business Review, andProfit Beyond Measure: Extraordinary Results through Attention to
Work and People, awarded the 2001 Shingo Prize.
tomj@sba.pdx.edu

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H. Thomas Johnson O Confronting the Tyranny of Management by Numbers 11

C
OO
MM
M ET NH TEA RFR
MYA N A G I N G D I R E C T O R

Building
Capacity by Creating Together Now
Commentary
By C.
SherryImmediato
Roger
Saillant
Editor’s Note: We asked Roger Saillant, a seasoned executive and long-time contributor to
the SoL community, to describe how the principles of managing by means apply to real-world
business practice. Highlights of the conversation appear below.

Roger Saillant

What “Managing by Means”
Looks Like in Practice

exciting environment for employees – andbe profitable. All of this becomes meaningfulwhen you look honestly at where you are; thenManaging by means is a useful way to think
about leadership, especially in setting goals anddefining what’s important for an organization.
But as a senior manager, I always worry about
the bottom line, as well. You can’t run a business without a positive financial outcome, andby no means does Tom Johnson’s work suggest
otherwise. As he notes, Toyota is hugely successful financially, and in about every other way.
Companies have to manage themselves differently at each stage of the life cycle. If your boat
is not yet seaworthy, you have to plug the holes
before worrying about your destination. But when
you have some stability, MBM-like processes
become crucial for dialogue and interaction to
identify – as Tom suggests, a state – the qualityof performance that you seek.

you start to see how much work you have to
do. Why you want to get there has to do withestablishing at least one attribute for the company that is inspirational. If your goal is simply
to be the low-cost producer, you won’t inspiremuch passion or commitment. But if you want
to be a company that is solving one of thegreat dilemmas of the world – energy, food,quality of life, health, some form of humanbenefit – people will be a lot more likely tocommit themselves to work and perform at ahigher level. It’s a much different quality thansimply managing the financials. Making money
allows you to have a company – but it’s not
the reason you have one, if you want a greatcompany. Finally, how will you get there begins
a discussion about the nitty-gritty operational

For me, the process always starts with four

details that, as Tom points out, are treatedquestions:as an afterthought in many large companies.

Where do you want to go?
Where are you now?
Why do you want to go there?
How will you get there?

What Determines Whether
Quantitative Targets Are
Effective
Ownership of goals is key. You create thatsense of ownership by jointly creating goals

The first two questions get you a descriptionof your current state and your desired state, in
several dimensions. For example, you may want
to be admired, to have top quality, to providethat make sense and matter to people. I set
about five goals a year, including a long-termgoal of 5, 10, or 20 years, or even more. So
if you asked me what I had to do this year,

a good value proposition for customers and an© 2004, Society for Organizational Learning. All Rights Reserved.

12 Commentary
Saillant
What Can You OLearn
from a Blackout?

Darling, Meador & Patterso

Reflections

Volume 5, Number 4

I would talk about a financial goal, reducing cycle

am very aware that I am part of the “community”

time, building relationships with our supplier base,formed by them and me. If I adjust my pace,improving customer satisfaction and retention,

follow a pattern, and work smoothly, I can senseand building a company that has a warmth to it.

that they merge with me, and we act in sync. My

And I could tell you how we’d measure eachbest moments in business occur when I feel theof those.

flow of ideas, emotions, and work blending har-

Goals have to be woven together in a complete
picture. For instance, in conversations over several

moniously and creating a “field.” It is a concerto,
a musical experience.

weeks’ time with all of our employees, we might

None of this should suggest that companies

see that reducing defects by 20% could improvecan forego quantitative goals altogether. People insales by 50%. Or, to take another example, youbusinesses can and should form bonds that reflect

almost always need a metric around speed. Toyota

the interdependencies of natural systems. But thisdoes things fast because everybody knows it’s im-

occurs within the context of an economic system,

portant and sees how it benefits the whole system.

which is fundamentally unnatural. Toyota has gone

When I was running the plastics division at Fordto great lengths to operationalize MBM-type prin-

Motor Company – a $4 billion operation in a lot

ciples – but it is a fierce competitor and one ofof trouble – it took 18 weeks to get a prototype ofthe most goal-oriented companies I know. Its goals,

an instrument panel. We got it down to less thanin addition to speed and reliability, include profit

five days through rapid prototyping – doing all ourand growth targets.

design and testing on software, and then creatinga part. But we improved over time, not all at

The Power of Relationsips

once, and we did it not by just laying down goals

Conversations about the business help build

but by talking together about the whys and howsrelationships – and relationships are at the heartof getting there. Goal setting has to be a collab-

of managing by means. I’ve seen how managers

orative, iterative process, at the end of which people

who form relationships with their subordinates,

understand where the target numbers come fromand with people in other units inside and outside

and that they’re not arbitrary. Quantitative targets

the company, generate enthusiasm, create deeperthat do not arise from real, collaborative goal set-

understanding of important projects, and build

ting divide managers and employees, and usuallytrust and shared commitment. Those relationships

create a “gaming culture” in which people figure

come through exploration and the testing ofout ways either to undermine targets or to meet

ideas, and they take time to build.

them by distorting a system through shortcuts
and other quick fixes, with no regard for theside effects.

One of the processes that I use combines what iscalled the “camp meeting” with the organizational
hierarchy. At a camp meeting, people sit in a circle

The point, as Tom says, is that results will flow

telling the war stories of industry – what folks arefrom a natural system – and that includes organi-doing in supply, in manufacturing, in human re-zations. I am an amateur beekeeper. I’ve neversources, or in marketing and sales. The stories

given my bees a honey production goal. But I

that go around the circle build understanding andreflections.solonline.org

Saillant

Commentary 13

rapport. After that, we ask the four questions

don’t have control-ling influence over the adjoining

again – where are we, where do we want to go,

pyramid or space, or over your boss. Before you

why, and how – and we come to agreements

begin, the boss, at whatever level, needs to know

about things each function can do to assistthat what you’re going to do will achieve what sheother functions. This is much like the internalor he wants. And once you begin, you will be

supplier-client relationships that Tom describes

tested by others who don’t want to change. If

at Toyota. Then, when we return to the hierarchy

you’re not tested, I’d suggest you haven’t shownmode – that is, the execution mode, where people

the necessary commit-ment to the process. That

are doing things and are formally accountable –test not only anneals you, but gets people to tell

we work together differently based upon ouryou what their real truth is, and a lot of it will becommitments to one another. The camp format

emotional.

serves to build emotional ties that facilitate
the execution of the work.

You’ll find that some people will want to be told
exactly what you want them to do; they’re just

At a Ford plant in Mexico, we used to take a half-conditioned to working that way. Some will behour each day on the manufacturing floor for every-

hostile to all change, and in fact to all organiza-

one – line workers and engineers – to cometions. And others will love the idea of change. You

together in a camp meeting and talk about prob-

need to identify them in your conversations aboutlems they were having on the line. Then we could

the four questions and have them coalesce aroundgo back to work with an understanding of whatyou. There will be many leaders in the change

everyone needed to do. At the next camp meet-effort – and you have to be very willing to give way

ing we’d talk through the reasons behind any

to them. As long as the conversations are good,commitments that were missed. We looked at

you can trust that the organization will move in

our processes and our thinking, and our delivery

the right direction over time, even if it appears

against commitments would get better. You canto be drifting off course. This is where MBM be-

make these kinds of exchanges happen formallycomes real, and you place priority on creatingor allow them to happen informally, but you need

the right systems of interactions. But this doesn’t

to provide some time and opportunity for them.

mean that there are no goals and no problems inlosing sight of them. There often comes that right

How to Move Others Toward
New Ways of Managing

moment when you can step in and say, “We seemto be getting off course from where we wanted

In leading any change, you have to be very clear

to be. What are we going to do about it?” It’s theabout your motivations. You have to be doing it

type of question that people who are experienced

because it’s important to you, personally. You’ve

at this will learn to ask. And, by the way, you

got to be totally committed to it. If you are ashouldn’t be afraid to use consultants or facilitators

manager, you’re at the top of a pyramid below

to get those conversations started.

you. You have the most influence over thatspace. But this is also true if you are not a
manager – you still have influence within some

The outcome is never predictable, but, in my experience, it’s always an improved state. I’ve neverseen it fail. Once people start talking to each otherarena, even if it is with just a few people. You

O Tyranny
14 Commentary
Confronting theSaillant of Management by Numbers O H. Thomas Johnson

Reflections

Volume 5, Number 4

they form relationships that compel them to be

engineer responsible for the O-rings for quantifica-

better at what they do. It’s what the military does:tion of very specific temperatures at which those

Soldiers don’t fight a war for George W. Bush;seals would fail. At some point all he could say

they fight it for their buddy in the next foxhole.

was, “I knew that it was moving away from goodness.” I believe that inside, each one of us, if we

How to Move Others Toward
New Ways of Managing

really understand ourselves, knows when we’re

In his work with executives, Tom Johnson some-just ask people to look inside themselves, seetimes suggests the following exercise: Pretend

what their sense of “goodness” tells them, andthat you wake up in a world where we no longer

use it as the gyroscope to set a course.

can use numbers or quantitative measures. How
would you define the purpose of your organization?
What would you tell people is important?

moving toward or away from a better state. I would

I’ll trust that personal test, and watch thenumbers fall into place. Yes, it’s a leap of faith,
but I’ve never seen it not work.

The exercise reminds us that purpose must always
be defined in spiritual or emotional terms, not inquantitative terms. What’s important are legacy,sustainability, stewardship, learning. I think about

Roger Saillant led turnarounds at several Ford Motor
Company operations from 1970–2000 while serving as
a vice president and general manager at Ford’s partssubsidiary, Visteon. He now is CEO of Plug Power, athe investigation of the Challenger space shuttle

start-up developing fuel cell technology.

disaster in 1986. The panel kept pressing theroger_saillant@plugpower.com

reflections.solonline.org

H. Thomas Johnson O Confronting the Tyranny of Management
Saillant Commentaryby Numbers 15

COMMENTARY

Commentary
By Jay Bragdon
I am drawn to Tom Johnson’s theory of “man-Morgan Stanley Capital International World (MSCI)

agement by means” (MBM) because it ampli-

indices, and its weightings are roughly the same.

fies my theory of “living-asset stewardship”

As such, it is a useful comparator of the organic(LAS).1 The central premise of LAS is that living model that Tom and I are mapping with theassets (people and nature) are more valuable
Jay Bragdon

than nonliving (capital) assets – in large part
because living assets are the source of capital
assets. This radical premise challenges theorthodoxy of the traditional, mechanical modelthat values capital assets above people andnature. Once accepted, however, this reversal
points to a sustainable way forward. As Tom
suggests, businesses can better serve their communities, the environment – and their shareholders – by taking a more holistic, organic
view of their operations. Corporations that
adopt LAS cultures place a higher value on life
than on profit because they know that profit
cannot exist without life. Management by means
describes how such cultures operate in themechanistic one.
Individually and collectively, LAMP companies
have gained market share on their more traditionally managed peers over the past two decades,
and the valuations of their common stock reflect
this. In 2003, a recovery year following a deep
bear market, Global LAMP Index™ returns averaged 38.3%, compared with 26.4% and 30.8%,
respectively, for the S&P 500 and the MSCI.
Such performance has been remarkably consistent in both up and down markets. As this evidence becomes more deeply and widely understood, I believe the capital markets will become
more discriminating in deciding which businesses
get access to capital and which do not.

real world of business. Like LAS, MBM draws

Consider, for example, the capital markets’ valu-

on the wisdom of complex, natural systems.

ation of Toyota stock. Although Toyota is the third

Despite the environmental costs associatedwith prevailing business activities, there isevidence that investors implicitly recognize thevalue of MBM and LAS practices. For the pastseven years I have tracked 60 global companies that are leaders in living-asset stewardship with the Global Living-Asset Management
Performance (LAMP) Index.™ This index tracks

largest auto company by size, its stock is worth
more than that of its three largest competitors
combined (General Motors, Ford, and DaimlerChrysler). In fact, at year-end 2003, the valuationof Toyota stock was about 76% of its revenues
per share – about five times that of GM. Consequently, Toyota has access to capital on muchbetter terms than do its competitors.

companies in every major industry sector by

As the capital markets see more clearly the bio-using multiple measures of their environmen-

spheric stakes and the critical distinctions between

tal, social, and workplace practices. It corre-

the holistic and mechanistic models of the firm,

sponds to the industries tracked by theI think we will see similarly large valuation gaps

Standard & Poor’s 500 (S&P 500) and theopen up. The premiums on companies that

1. See Jay Bragdon and Richard Karash, “Living-Asset Stewardship: How Organizational Learning
Leads to Exceptional Market Returns,” Reflections 4, no. 1 (2002).
© 2004, Society for Organizational Learning. All Rights Reserved.

O Tyranny
16 Commentary
Bragdonof Management by Numbers O H. Thomas Johnson
Confronting the

Reflections

Volume 5, Number 4

practice LAS and MBM will widen. Traditionallymanaged companies will be forced to adapt or die.
I’m not saying the transition from one businessculture to the other will be easy, nor that Toyota
or other LAMP companies are without fault. Largeorganizations can be frustratingly complacent.
The longer our free market system continues on
its current path, the more likely it is to suffer fromThe Reinforcing Cycle of Living-Asset
Stewardship (LAS) and Organizational
Learning (OL)
Living-asset stewardship (LAS) inspires employees to learnbecause it reflects their values and excites their imaginations. As organizational learning (OL) increases, so do thepossibilities of innovation and profit. This keeps the cycle
running onward and upward.
Inspiration

an exogenous shock – catastrophic events linked
to global warming, toxic waste, financial collapse,
and other negative feedbacks. We can only hopethat emergent new cultures based on LAS and
MBM will be strong enough to withstand the

Living Asset
Stewardship

Organizational
Learning

breakdown of the old.
Thoughtful practitioners, consultants, and investors can improve the chances of the emergent
Profitnew system by taking every opportunity to reveal

Innovation

its advantages. We need to show not only thatcompanies with LAS cultures and MBM practices
are gaining market share, but why they are gaining. Tom Johnson puts it succinctly: “Relationships

the company by the thousands each year. It should

are the reality that makes the difference at Toyota.”

be no surprise, then, that stewardship companies

More broadly, I believe that the reinforcing cycle of

attract and hold not only the best employees, butliving-asset stewardship and organizational learn-

the most committed customers, strategic partners,

ing supports this observation (see figure). Goodand investors. Twenty-first-century businesses canstewards of human and environmental resources

reverse the 50-year dash toward “growth at any

inspire employees by offering a more compelling

cost,” which Tom Johnson describes, and indeed

way forward – one that reinforces their most endur-

can save themselves and the planet from irrever-ing humanistic values and love of life. Employees

sible damage. Given the power of today’s capital

at LAMP companies are more effective because

markets, I believe substantial progress toward thisthey work with their hearts as well as their minds.

shift can be made in the next decade. Let’s hope

Effectiveness, in this context, means an ability to
produce more desirable goods with fewer adverse

so – we may not have another 50 years to get
it right.

impacts on nature and society – and to do so

Jay Bragdon is a director of the Sustainability Insti-

profitably. In LAS cultures, such as Toyota’s, goodtute, and a general partner of Conservest Management,

ideas synergistically beget more good ideas. They

where he has researched corporate stewardship for

fly off the factory floor and from every corner ofmore than 30 years.
jhbragdon@aol.com

reflections.solonline.org

H. Thomas Johnson O Confronting the Tyranny of Management
Bragdon Commentaryby Numbers 17

Reflections
The SoL Journal
on Knowledge, Learning, and Change
Volume 5, Number 4

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18 Confronting the Tyranny of Management by Numbers O H. Thomas Johnson

Reflections

Volume 5, Number 4