Chapter 1 The Challenge of Intangibles

 

PEOPLE WHO GAVE US UNITS OF MEASUREMENT

The book starts with a quote from Lord Kelvin, this is the guy who gave us the unit of measurement for Heat. I remember his weird experiment to measure heat from my school days. Its interesting that this guy is mentioned at the start of this book. In a way this quote is not just point to him, but everyone in the past who introduced any units of measurement. The whole concept of coming up with a unit of measurement requires a sophisticated understanding, so all these guys may be a potential mentor.

Anyway the quote goes like...

"When you can measure what you are speaking about, an express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of science."

Basically Einstein said, unless you can teach it, you have not really learnt it.. and Lord Kelvin here says, unless you can measure it, you have not really understood it..

THE CRUX OF THIS BOOK

Anything can be measured. If it can be observed in any way, it can be measured. Its as simple as that. The measurement may be fuzzy for sure, but if it tells you even a little more than you knew before, its a measurement.

This is truly a radical concept in my opinion, and I don't remember being told to think about measurements in this way, at school or college. Just this single thought process is adequate to transform your thinking. It was precisely after I read this part, I knew I cant be fooling around with this book. This is some serious business.

FRAMING QUESTIONS

Framing the right questions is the first step towards solving any problem, anywhere. Keep in mind the word "Framing". We are not looking for an answer at this point, we are not even asking a question. We are just framing it. It may not be easy, but it is not complex at this point.

What is an INTANGIBLE?

INTANGIBLE ideally means literally not tangible, ie something that can not be touched, yet considered measurable such as Time, budget, patent ownership. There is a whole industry built around measuring such intangibles - Copyright and Trademark Evaluation. But INTANGIBLE should not give you an impression that it also mean immeasurable in any way at all. Everything is measurable, everything. Even things like Flexibility, Value, Risk, Effectiveness, Impact, Productivity, Chance, Quality etc.

CHOOSE WHAT YOU SHOULD, NOT WHAT YOU CAN

Several times, we ourselves, or we as a committee choose to take on only those projects whose progress can be easily measured. Here, indirectly we have succumbed to the misconception that everything can not be measured. It may even be the case that the project you ignored for messy measurement reasons was the one more advantageous to your situation. Infact if you think about it, most of the core values these companies portray are sort of "intangible".

(Usually the reasons for rejection is deeper than just messy or impossible, it could be things like insufficient data available, or retrieving data costs too much, but its misconception none the less.)

EXERCISE

There is an exercise suggested in the book at this point - Me, the reader should write down things I believe to be immeasurable or at least not sure how to measure. By the time I reach the end of this book, Author claims that I will know exact methodology to employ for measuring everything on my list.

• Circumference of Human Head
• Value/ Benefit of Exercise,
• Point of diminishing return for exercise
• Calories and Macro nutrient
• Effectiveness of this project
• Value of relationships
• Loss of productivity due to Smartphones
• Harm of watching news

ANOTHER CRUX

No matter what field you specialize in and no matter what the measurement problem may be, we start with the idea that if you care about this alleged intangible at all, it must be because it has observable consequences, and usually you care about it because you think knowing more about it would inform some decision. Everything else is a matter of clearly defining what you observe, why you care about it, and some (often surprisingly trivial) math.

WHY MEASURE?

3 reasons we are after measurement,

1. It helps in Decision Making, (Vision 2020)
2. Measurement in itself has market value and can be sold. (Its still decision making, just not yours, but your buyers)
3. Simply to satisfy a curiosity (Its just stupid if you are stopping after satisfying your curiosity and not going further to make some decisions)

SOMEONE'S REVIEW

Upon reading the first edition of this book, a business school professor remarked that he thought I had written a book about the somewhat esoteric field called “decision analysis” and disguised it under a title about measurement so that people from business and government would read it. I think he hit the nail on the head.

MEASUREMENTS TOO CAN BE IMPERFECT

Nobody makes a decision with a complete 100% perfect information, there is always some uncertainity. And measurement helps reduce this uncertainity. Even the most important, high stakes decisions in the world are made under some levels of uncertainity.

Yet, most consultants and experts consider measurements to be able to eradicate all uncertainity whatsoever. This is just putting too much pressure on application of measurements. Obviously this will limit the use of measurments and even introduce some reluctance towards it.

MODELS OVER INTUITION

Author also discourages studying the data obtained from measurements and then making a decision based on intuition, slightly influenced by the measurement data. Rather the author is of the opinion that one must build complete models that feed in data and spit out decisions. Qualitative Models have had a better track record in making right decisions than intuition of experienced managers.

Some blamed the Quantitative Models for 2008 financial crisis but that BS. I think he is saying this because when the data experiences a slight deviation, the quantitative model might capture it in the results but intuition might not. In other words, Models are more sensitive. For Eg. Think of Cost Benefit Analysis on a Spreadsheet, info goes in, result comes out. You cant do such processing in your head.

This is not to say, that expert intuitions are useless, but one must know when its just better to rely on the math instead of intuition.

VALUE OF MEASUREMENT

Measurement is not a compulsion, its a choice. It does not need to be applied everywhere. Just because anything can be measured doesnt mean it should be measured. The way to figure out where measurement will be valuable is to ask yourself about the decision you are trying to make. Is at the current state, the outcome of the decision highly uncertain? Is the consequence of the decision very significant? If the answer is yes to both of these questions then of course, the value of measurement is very high and must be carried out.

Measurements are not free, so deploy them judicially.

GENERALIZATION

This is what I seek, a universal approach that applies to every damn thing on the planet. Author calls it AIE, Applied Information Economics

1. Define the decision.
2. Determine what you know now.
3. Compute the value of additional information. (If none, go to step 5.)
4. Measure where information value is high. (Return to steps 2 and 3 until further measurement is not needed.)
5. Make a decision and act on it. (Return to step 1 and repeat as each action creates new decisions.)

JUST USE THE POWER TOOLS

Schools education on measurement has confused more people than it has helped. These concepts required to measure dont require a lot of data, or a PhD or any mental practice. You just have to clearly define the problem, identify the right methods to use and the software tools will take care of the rest.

COMPARTMENTALIZING THE BOOK

Part I: The Measurement Solution Exists

All about attacking the claims of impermeability, and rebuttals for common objections.

Part II: Before You Measure

All about defining the decision, what to measure and how much efforts should be put in measurement

• Imp set up questions that are prerequisites to good measurement
• Assessing current level of Uncertainty
• Model Decision Risk
• Compute value of Additional Info

Part III: Measurement Methods

All about conducting the actual measurements.

• Decomposing measurements further
• Using prior research done by others
• Various measurement instruments
• Sampling and Bayesian methods

Part IV: Beyond the Basics

• Case Examples
• Measurement Instruments for intangibles
• New technology that can provide newer source of data

CLOSING POINT

Humans possess a basic instinct to measure, yet this instinct is suppressed in an environment that emphasizes committees and consensus over making basic observations. If you are prepared to rethink some assumptions and can put in the effort to work through this material, you will see through calibrated eyes as well.