Some people say “what gets measured gets managed.” I disagree.

What gets measured CAN get managed. But here’s what’s true: what’s not measured can’t get managed. And for all the obsessively measurement-focused culture we live in, critical measures are left off the table, again and again. As a consequence, the smartest people and companies in the word are flying blind.

If you’ve followed my work for any length of time, you know that “measuring what matters” is a recurring theme. (You can find many prior writings if you search here.) Several things bring the topic to mind again this week:

First: Art Berman’s recent article on economics and energy—Twenty (Important ) Concepts I Wasn’t Taught in Business School—at PeakOil.com. (Part I. Part II comes next week.) Oh, you really do want to be sure to read this. I’m not going to summarize it, but here are just a few of those concepts to whet your appetite:
18. Energy is almost everything.
15. Energy has costs in energy terms, which can differ [more] significantly than dollar signals.
14. Money/financial instruments are just markers for real capital.
11. Energy and Money are only fungible in the short run.

Interested yet? Here’s why you should be:

Whatever you think about climate change, peak oil and stranded asests, #18 is functionally right. (Not entirely right, since material cycles matter; but without energy to drive those cycles and off-planet energy to pump out entropy, the cycles don’t cycle and life doesn’t happen.) The price stability, supply reliability and quality predictability of energy, and its effective application to human intention are pivotal to every business and to every human activity. But if companies, investors and customers can’t measure the energy/entropy/value relationships accurately and meaningfully, how are they to make reasonably intelligent decisions?

The bad news: You can’t possibly measure the energy/entropy/value relationships accurately and meaningfully in today’s economy, because of #s 11 and 15.

This is the nexus of my trouble with economics, from Econ 101 and yea! unto the present day: It’s inadequately coupled with physical reality. Why? See #14. Which means that economics and accounting that aren’t “reality-based” will inevitably miss both material risks and upside opportunities.

The good news: Companies and other economic players that do recognize these concerns, and manage to apply Realty Based Accounting to management and Reality Based Economics to financial policy may gain more than a few basis point of near term advantage. Those that use these approaches to provide everyone in their organization a clear line of sight connecting roles and goals, actions and impacts, may gain long term advantage in position, innovation, agility and value.

Second: The upcoming New Metrics of Sustainable Business conference at Wharton next week, where we’ll “examine leading-edge work that is expanding the way business creates, quantifies, and manages the value it delivers through the metrics it adopts.” Some of these themes will be on the table—along with Paul Herman’s provocative question: “Why is your biggest asset not on your balance sheet?” (I’ll be anchoring the first day, and hope to see you there! Discount code for my readers: NWnatlogNM13)


Comments to "What You Weren’t Taught About Energy in Business School"

  1. Pingback: New Metrics? “For the Sake of What?” | Natural Logic

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