📖 Profit Beyond Measure

Extraordinary Results Through Attention to Work and People.

2008. Anders Bröms, & H. Thomas Johnson

I’m a big fan of The Fifth Discipline, and recently have been trying to get through some of the books it references, or which Peter Senge has written a forward for. Profit Beyond Measure ticks both these boxes.

While this is Bröms first and only book, Johnson on the other hand has had a few prior hits. His first, and most popular book was Relevance Lost: The Rise and Fall of Management Accounting published in 1987 with Robert S. Kaplan. The two accountants charted the history of their trade, how it had evolved over the years, and how at that juncture three decades ago, had lost it’s way. The book was a big hit, and introduced methods still popular today such as activity-based costing (ABC). Ten years after publication, the Harvard Business Review named it one of the most influential management books published in the twentieth century.

Kaplan went on to write many more books, he introduced the balanced scorecard method, and was later inducted into the Accounting Hall of Fame. Ye, I didn’t know there was one either.

Johnson however fell further down the rabbit hole. He became increasingly convinced that accountancy wasn’t the only thing that had lost it’s way in business today. In 1992 he published a follow up entitled Relevance Regained: From Top-Down Control to Bottom-Up Empowerment, which his bio deftly refers to as “controversial”. Departing from any shared theory with Kaplan now, this book was a “devastating critique of the top-down hierarchical accounting systems that have dominated American corporations since the 1950s”.

Sixteen years later Johnson then published Profit Beyond Measure, his third book, where he tries to distill down his theories and learnings from the three decades of exploration since publishing Relevance Lost. As Senge wrote in the forward, Relevance Lost was for Johnson “a small first step in rethinking the entire practice of performance management, not just accounting measures.”

Profit Beyond Measure argues that traditional ways of working generate excessive waste that can be avoided. Using Toyota and the Swedish truck maker Scania, and theories heavily influenced by W. Edwards Deming and systems theorists like Gregory Bateson, authors Johnson and Bröms argue that a change is need from the mechanistic mindsets that have come to dominate how almost all companies are now run.

The authors frame their theory by contrasting two approaches; managing by results (MBR), and managing by means (MBM).

Managing by Results

“Virtually all improvement initiatives of the past decade or so — just-in-time, total quality management, business process reengineering, activity-based management, lean manufacturing, enterprise resource planning, scorecard management, and so on — take for granted the quantitative and mechanistic thinking that has shaped business practices for the past fifty years or more.”

You can quickly see that in framing MBR, Johnson is showing how his thinking has evolved from his previous work, referencing “activity-based management”, aswell as his former co-author’s contributions around “scorecard management”. While these initiatives will likely generate some improvement, they forgo “an opportunity to achieve far greater improvement by adopting new thinking that reframes old questions.”

One mindset, key to this “new thinking”, is that an organisation has to be thought of as a living system, not a machine. MBR has it’s place, and is an appropriate way to manage when applied in the right environment. But organisations are made up of people, and new ways of managing are needed to influence the interactions between people.

“MBR managers erroneously attempt to control financial results by focusing people’s attention on quantitative targets. They fail to see that good results in a living system are achieved only by nurturing relationships.”

Managing by Means

MBM, in contrast, starts with the belief that all human organizations, such as a modern company, are living systems. And therefore, in order “to survive and prosper in the long”, companies must follow practices that adhere to the same three principles as all natural living systems; self-organization, interdependence, and diversity.

Parts and Wholes

Ever since scientific management, businesses have been breaking work down into individual, measurable parts “to study, analyses, and manipulate results.” But living systems can’t be separated this way. As Senge’s 10th law of systems thinking says; “Dividing an elephant in half does not produce two small elephants.” Johnson and Bröms argue that the use of abstract quantitative targets in our attempts to manage “entails losing touch with the natural reality of the organisations we manage.”

“Most managers today believe that the best way for an organization to achieve it’s overall financial goals is to have each of it’s parts concentrate on achieving local quantitative targets that by design or plan are supposed to add up to the desired company-wide results.”

Emergence

In a living system, results are achieved by nurturing interactions. They are “an emergent property of relationships among all parts of the system”.

Those who manage by means consider that a desirable end will emerge naturally as a consequence of nurturing the activities of all employees and suppliers in a humane manner.

If everyone’s attention is “focused on doing work, not on manipulating quantitative abstractions about work”, then results emerge naturally.

In practice

Recognising that these concepts might themselves seem a little abstract, Johnson and Bröms power through their theory in just a single chapter really. To try and then make the ideas more tangible, they use the rest of the book to go inside companies who are already thinking this way, and reaping the benefits of it.

While the Swedish manufacturer Scania is not a household name, Japanese manufacturer Toyota are of course world renowned for their innovative production systems. Johnson in particular spent many years researching Toyota, making over thirty visits to their factories between 1992 and 1999 alone. He endeavored not to just study their individual practices, but to try and understand the principles behind them. Principles which he found to be guided by the same principles of living systems.

This book ticks a lot of interest areas for me, and so I enjoyed reading it. However the deep dives into the manufacturing processes were a little exhaustive. Once the initial theory had been covered, I found it difficult to hang through the remainder of the book (and ultimately failed to do so). Toyota’s production systems are a super interesting area, but the way the book covered them started to feel like hard work.

Regardless, I love reading books like this which challenge the most basic assumptions about how work should be organized. Worth a read.