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Generalisations and Transformations

January 20th, 2008

In seeking to understand complex issues, we need rich data sets, not broad generalisations. So says Bill Lewis, founding director of McKinsey Global Institute, just a few years ago in “The Power of Productivity” (McKinsey Quarterly 2004 number 2).

Lewis asserts that the consensuses about economics at the end of the Second World War and at the fall of the Soviet Union have proved wrong. These consensuses at the end of the Second World War concerned infrastructure, technology, education and health care. After the fall of the Soviet Union the consensuses focused on inflation, price control, privatisation and corporate governance. In both cases it was believed resolution of these issues would advance economies, in particular the economies of poorer countries. In considering these “failures” Lewis draws an analogy with astronomy and cosmology.

The problem was, according to Lewis, that the consensuses were grounded in an analysis of economies at the aggregate level. That was like trying to learn about the physical universe by using only the telescopes of astronomy. Most real understanding in physics, however, has actually come from studying the interaction of the tiniest particles in the universe. In economics, Lewis says, it is necessary to understand why individual companies operate as they do, not national data sets and complex econometric tools that yield qualified answers at best.

Lewis proceeds to analyze some of the productivity data from around the world, drawing some challenging conclusions, particularly that economic growth principally flows from competition, not from education or technology or better governance and so on. The data which Lewis analyses comes from studies by the McKinsey Global Institute of individual companies.


Of more specific interest are two articles in the McKinsey Quarterly in 2006 dealing with change management and managing organizational performance on the basis of evidence. Both are topics which I have previously dealt with. Both articles contain information of relevance to museums. (There are also interesting conclusions in a number of papers in the 2007 issues of the McKinsey Quarterly and these will be summarized in a forthcoming post.)

The McKinsey studies show that the most successful transformations of business performance occur when executives mobilize and sustain energy within their organizations and communicate their objectives clearly and creatively.

Strong organizational performance is really fueled not by isolated interventions but by a combination of three or four carefully selected complementary ones, what McKinsey calls management “practices”. Managers, according to McKinsey researchers, should concentrate most of their energy on a small number of practices that, introduced together, typically produces the best results. Doing more doesn’t add much value and involves disproportionate, not to mention wasted, effort.

Many executives struggle to design structures, create reporting relationships, and develop evaluation systems that make people accountable—in other words, that require them to take responsibility for the results of the business. However “companies seeking to improve in this area are much more likely to succeed if they concentrate on giving individuals clear roles rather than resorting to other options, such as consequence management.”

“… executives who set broad, stretching aspirations that are meaningful to their employees have a better chance of achieving the outcome they want than do executives who resort to conventional, dominant, or detailed top-down leadership… the best way to promote high-performance behavior in organizations is to emphasize openness and trust among employees.”


There is an important point relevant to these findings. It is that if we are going to be concerned about understanding the workings of individual enterprises and we are gong to demand management based on evidence, as indeed we should, then the ongoing dominance of what is called New Public Management (NPM), needs to be more than seriously questioned. NPM seeks to have public activity decreased and, if at all, exercised according to business principles of efficiency. It is based on the belief that all human behaviour is motivated by self-interest and, specifically, profit maximization. Governments pursuing NPM have failed to deliver a more effective state better serving the citizenry, they have failed the accountability test! One of the bases of NPM is self-interest. Self interest was one of the three key themes of eighteenth century Scottish moral philosopher and pioneering political economist Adam Smith. But this term is used in the context of NPM in a way quite different from that in which Adam Smith employed it in his treatise, “The Wealth of Nations“.

The reaction to the run down in services, the decline in infrastructure and the perceived problems of the State’s infrastructure which we see in many western industrialised countries outside continental Europe, derives, it is asserted, from the failure of the bureaucracy to function effectively and of politicians to correct the failures. This affects the majority of museums as well as arts and heritage organizations. The translation of the best of business practice to nonprofits, not the translation of the profit-making motive of business, has been a central theme in the pages of this site.

Making government more businesslike has simply involved a set of assertions, not any real understanding. That is not the approach Atul Gawande, award-winning professor of surgery at Harvard Medical School, surgeon and author, took in exploring what makes a good doctor and how hospitals can be improved. Gawande says, “I would love to know who really are the best in the kinds of operations I do, who had the lowest complication rates, the highest survival rates? And if I knew that, I would go and watch them and I’d learn from them”.

The problems with NPM and the mistranslation of Adam Smith’s work will be taken up in a forthcoming short note.

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