Egoless Practice: Becoming the Best in your Field

Jerry Weinberg coined the term, "egoless programming" in his 1971 book "Psychology of Computer Programming". Jerry describes the practice and mindset, and in 1977 co-wrote with Friedman, the definitive manual for practitioners:  "Handbook of Walkthroughs, Inspections, and Technical Reviews: Evaluating Programs, Projects, and Products".

Is there a precise definition of "egoless programming" that could be expanded to a generic Professional Behaviour of "egoless practice"?

Johana Rothman is quoted by Jeff Atwood, presumably from a book, as saying:

Egoless programming occurs when a technical peer group uses frequent and often peer reviews to find defects in software under development. The objective is for everyone to find defects, including the author, not to prove the work product has no defects. [my italics]

When asked for a modern definition, Jerry pointed at Jeff's Ten Commandments of Egoless Programming.

The field of Reliability Engineering is aimed at creating near-Perfect (i.e. highly reliable) operation from imperfect parts and sub-systems. This approach can work very well, even when maintenance and fixes can't be done: the NASA Mars Rovers, Spirit and Opportunity, exceeded their 90-day design life by around 15 times, working from 2004-2010.

A working definition (unfortunately, of many parts):

• Egoless Practice is
• a Professional Behaviour
• designed to 
• routinely and reliably achieve
• as Perfect as Possible outcomes
• for the Client or Service Recipient
• by knowledgable and skilful
• Practitioners
• supported by systems, processes and procedures
• that actively monitor, examine and report performances,
• for both failures and successes,
• to systematically and without-backsliding improve 
• Quality, Performance and Process
• of Individuals, Teams and Organisations.

To Err is Human isn't a syllogism, it is an Iron-Clad Law.

It's the basis of the unending, relentless Professional Challenge:

• we're not machines,
• we cannot ever exactly repeat a process, not even twice, let alone the many times every day needed in Professional Practice, and
• our Minds and Bodies are always letting us down or tricking us in some way.

Simply stated: We are constantly making mistakes, inadvertently or not.

As people become older and wiser, they routinely report the veracity of "The more you Know, the more you understand how little you Know".

All Quality and Performance Improvement is predicated on engagement and care-and-concern for the people affected and the outcomes.

In the Quality Improvement approach, led by Dr Deming, the Fundamental Attribution Error, that Mistakes are due to people who have been inattentive, incompetent or negligent (or worse), is taught as a leading to The Blame Cycle, not corrective action.

Deming's Quality Improvement methodology/process is based on the tenet:

People, even the most competent and with the best will in the world, will make mistakes. The system is responsible for preventing or catching these incipient Errors before they turn into an Error, Defect or Accident. 

Dunning-Kruger effect: "unskilled and unaware of it" - doesn't go far enough. American Idol demonstrates, infinite self-belief without objective base: "I'm The Greatest, the Judges don't know anything!".

Psych Effects: We see what we expect to see, and cannot see things outside our 'range'.

Human Minds are "editing machines" par excellence, we all have very efficient perceptual filters, part of our competitive advantage over other species. We've learnt to leverage by many times the compute capacity we have by ignoring the unimportant, predicting what we expect to see and quickly generically classifying actions, words and behaviours.
Our brains silently select, delete, add and change what we sense in real-time and also from our memories.
It a necessary outcome of the processing problem: Our brains don't have the compute capacity to process (receive, recognise, analyse, classify, predict, react) the full input streams from our senses.
To reduce the load, we increase our focus and ignore everything else, even shutting down irrelevant senses and heightening those that are useful. This shows most clearly in extreme circumstances like accidents ("everything slowed down") or in a "killing zone" (those who can see, experience 'tunnel vision' of the danger, or their hearing is much heightened).

Our brains "edit" what our senses provide to avoid being overwhelmed and being able to react in real-time. Our brains develop models of the world, the objects and actors in it and of ourselves, then

Hence the immutable law of Quality: You cannot check your own work, you'll only see what you expect to see, not what's 'there'.

This is more than just "proof-readning".

Virginia Satir pointed out that the two most important faculties for perfect communication were denied us:

• We cannot 'see' inside anothers' head. We can't know what they are thinking and feeling, only infer it, and
• We can't see/experience ourselves as others see/experience us. (Which is why teaching communications skills with video/playback is a radical advance in the last 50 years.)

The unnoticed Crisis in Healthcare

[Post moved to other blog.]

This paper on solving the Quality of Care crisis in Healthcare, "An NTSB for Healthcare", made me wonder why nobody was talking about another long-running, endemic Crisis in Healthcare:

In trying to spend less, it costs more to provide less of a worse service.The more we try to cut costs, the more it will cost and there is no simple way out: the system is locked into this craziness.
Doing "more of the same" not only cannot break us out of the rut, it pushes us deeper into it

W. Edwards Deming, the person responsible for the Quality Improvement movement in Japan that also forced a revolution in manufacturing the United States in the 1980's, was very clear on this:

• When people and organizations focus primarily on quality, defined by the ratio (Results of Work Effort / Total Effort), quality tends to increase and costs fall over time.
• However, when people and organizations focus primarily on costs, costs tend to rise and quality declines over time.

Turning around any system spiralling out of control cannot be done by "more of the same", but needs careful attention to causes and the underlying systems. As Quality Improvement has repeatedly shown, focussing on "Doing Things Right First Time, Every Time", is a remarkably effective means of effecting even very large turn-arounds.

The definitive theoretical works on how this counter-intuitive effect presents in Computing, Virtual Memory "Thrashing", started in 1968 with the first paper on "Working Set" theory. It's not overstating the fact that without this work (theory + proof-in-practice) computers as we know them could not exist.

This is the counter-intuitive world that in Computing we call "Thrashing", in Catastrophe Theory a "tipping point" and in everyday parlance "past the point of no return" or "starting down a slippery slope". Even sometimes, "in a flat spin", meaning "with no way out".

These all occur when a system or thing is irreversibly pushed past a critical point or limit and then the rules of the game change. Much like stretching out the small spring from a retractable ballpoint pen renders it useless. It cannot be properly remade because the steel has been stretched permanently past its elastic limit. There's a different effect in "Memory Metals" which return to their original shape when heated, but you can't make springs out of them, only automobile body panels.

There are some other dynamic systems that most drivers are very aware of:

• Overbraking leads to the tyres skidding as the friction melts the rubber and you're suddenly sliding on a thin film of liquid rubber. For drivers encountering this for the first time, the though of releasing the brakes, not pushing harder, is usually terrifying. "ABS" braking solves this by automatically releasing the brakes and re-applying them.
• The opposite effect is high-powered cars spinning their wheels when accelerating. The wheels continue to slide until power is reduced enough to regain traction.
• Cornering or swerving too fast, usually in slippery conditions like ice, mud or rain, results in some or all the wheels losing traction. There are no good recovery techniques for an all-wheel slide. When only the back wheels have lost traction, the classic "steer into the slide" technique works - which for those new to it, is usually counter-intuitive.

In all these situations, once "traction is lost", control is lost unless specific recovery measures are taken.

Once a rubber tyre starts to slide, it will continue to slide at that and previously tractable speeds.

Recovery isn't just a matter of reverting just a little, but often quite a lot until the rubber stops melting or sliding. Once traction is restored, it will again stay adhering until the critical limit is reached again. "Good car control" is often staying just below the critical limit and maintaining maximum friction without slipping.

The necessary ingredient to create a system which can sink into "Reversal of Command" type dysfunction is two opposing system response curves:

• The "normal" response curve where increasing staff numbers (i.e.higher staff costs, more time per patient and more individual "slack" time) results in more throughput, but at the cost of lower "cost effectiveness" per patient, and
• The "stressed" response curve, where low staff numbers creates higher absentee and sickness rates, increases Medical Errors and Adverse Events, increases staff-overtime for those able to work, increased time-pressure creates more stressed staff, reduces their job satisfaction and radically increases turn-over. Because the total demand for care has not reduced, extra staff have to be found: either through overtime, substitution of under-qualified staff or hiring expensive Agency staff. Overly tired staff not only work slower, but miscommunicate more, are worse at detecting errors and omissions  and make inordinately more clerical errors, requiring extra time to correct.

There is an Optimum Staff Cost point: the most cases are treated for the lowest staff costs.

Attempting to reduce staff costs below this point is counter-productive. The "stressed" response curve takes over and increases staff costs whilst the overworked staff produce significantly worse outcomes.

The problem with large Healthcare and Hospital systems, is that nobody is tracking the dysfunction curve, only the headline "staff costs".

Because these events go unnoticed and unreported, total System Costs are much higher than they need be.

But without measuring them, who's going to believe it?

And if you don't believe it, why would you measure?

Teams and Departments can suffer similar system breakdowns in their culture, as described in this: the "Blame Spiral".

The crucial point is that the "Do it Right, First Time" Quality Improvement methodology, because it is based in real measurement and relevant reporting, catches these issues early and prevents minor culture issues from descending into massive dysfunction.

The Budget, The Promise, The Dividend

Australia is about to pass a pivotal milestone:
 the last Federal ALP budget to run full-term for perhaps a decade.

It is already notorious because of the commitment Kevin Rudd made in 2008 that this budget would be in Surplus and the Coalition's constant carping and criticism about the ALP's "incompetence" in every area, including financial management. The clamour from economics commentators that it is not just unnecessary, but unwise, is just part of the lead-up to this event.

So, my comments on why we are getting, The Surplus We Had to Have.


The Budget

With the Australian Federal Budget under a week away, the ALP is attempting to bring down a Surplus, seemingly only for Political reasons.

We'll only know the result in 18 months, at which point, believing current trends, the Coalition will be in power and will pick a figure that:
a) makes their case that the ALP were "incompetent at everything" and
b) uses the usual rhetoric of "the situation was much worse than we were led to believe, we have to make much deeper cuts and reduce or defer some or all of our promises".

I can't add to the debate over the economic pros and cons of "The Surplus we had to have", but can point to a deeper set of concerns.


The Promise

The Rudd/Gillard governments backed themselves into a corner a number of times by making unwarranted unequivocal statements (e.g. "there will be no tax on carbon" and "we will have a surplus in 2012/13").

But leaders before have done exactly this, or made outrageous gaffs, and not felt the same need to Keep The Promise. The current ALP leaders are holding themselves to their statements and in this, having the Opposition pursue them on their promises.

• Hawke: "No child (need/will) live in poverty by 1990".
• Keating: "The recession we had to have" and "Banana Republic".
• Howard: "That wasn't a 'core' promise".

This could be the result of a generational change. All Prime Ministers up to and including Howard (e.g. Whitlam, Fraser, Hawke, Keating) literally had to have "town hall meetings" and learn to deal with hecklers without the assistance of microphones, effectively what every stand-up comedian has to learn.

Younger ALP leaders, Latham, Rudd and Gillard, differ in two important ways:

• they've had limited experience dealing with hecklers and antagonistic crowds (think of the difference between TV-only comedians and stand-ups), and
• they joined the Party Machine (or the Union movement) almost straight from school. Unlike Ben Chifley, who had a career as an engine driver before moving into paid politics.

There are other effects, such as the logical/absurdist extension of Sampling Theory and Statistical analysis of surveys invented by Gallup and used in 1936 to predict FDR's upset election.

This 'surplus', head-line or underlying, real or faked, is entirely for Political reasons, and as such is an "own goal" for the ALP. At the very least, they've shown they are inflexibly wed to any and all their policy statements and can't see a way around themselves to "adapt, improvise, overcome" in response to changing circumstances and needs.

But the real concern for every elector/taxpayer is the overwhelming message from both major parties:

Politics trumps Public Good. They don't care what harm they cause in the pursuit of a short-term political advantage or goal.

This is our future, our jobs, our money they're playing with so cavalierly. There is no "Government Money" to spend, only taxpayers wages.


The (Efficiency) Dividend

[My previous piece on the "Triple Whammy" effects of waste in I.T. is useful background for this.]

Keating introduced the Efficiency Dividend, or really Automatic Budget Reduction, to Federal Government in 1986. Notionally, it was a systematic attempt for Departments and Agencies to be forced to realise, and hand back, the productivity gains due to Technology, I.T./I.C.T. particularly.

Which is fine sounding until you pick apart the assumptions and implementation.

I was caught up in the first I.T. Recession in Australia, at the end of 1990. Westpac laid off 500 contractors (for the abandoned project CS90) at Christmas. It was 1994 before Computing and I.T. graduates were back to 100% employment. For a while, a Chemistry or Geology graduate had a better chance of finding work in their field - very different to the industry cries beforehand of "we have a staff shortage crisis" and "I.T. it's a job for life".

That first I.T. Recession was because all the low-hanging fruit was picked: all Australian businesses and Government Agencies had hired more I.T. staff to automate their back-office functions and replace (low-level) clerical staff.

In 1990/1, I.T. staff were cut, just like all other staff.

Why is this problematic? Consider these three related points:

• If this was 1965 and government Agencies had to supply all now current services, would we ever have an unemployment problem? [How many people would it take for Centrelink, ATO, Medicare, etc to do their work and handle 800,000 unemployed?]
• I.T., like Marketing, is an intangible and an indirect cost. We do them both for a Business Benefit. But we don't measure, report or analyse I.T. benefits.
• I.T. is a Cognitive Amplifier. We use it to automate business processes and increase staff productivity. Rough estimates suggest a 10-100 times 'amplification'.

The Keating Efficiency Dividend is recognising all three points:  from all the money invested in Federal Government I.T. Systems, rather large savings should have been realised.

The workload, and notionally the workforce, of many or most Federal Government Agencies should scale with population size - growing at a long-term average of 1.5%. [18M in 1996, five times the 1901 size]

But after 30+ years of I.T. Automation, for the Public Service to have only achieved a 1% total savings either suggests:

• gross incompetence in either failed or unproductive/irrelevant projects,
• management fakery in reallocating savings to increasing empires, or
• an increased level of service, either numbers served or complexity and number of services provided.

But we don't know what's happened: what staff productivity or organisational efficiencies have been realised?

This is a massive management and reporting failure on behalf of the permanent Public Service, but an even greater failure of governance and insight on behalf of the Parliament they report to.

This leads to another set of points:

• Not all Government Agencies can achieve the same efficiencies as their workload and workforce are dependant on different factors,
• Different areas within Agencies cannot be expected to yield the same "efficiency gains" for the same reasons, their inherent workload scales from different factors, and
• "Percent maximum potential efficiency" is not calculated nor taken into account. The past improvement by individual Agencies, and the future savings possible, are seen as irrelevant.

The Productivity Commission [2004] reported that ICT was still the single largest factor driving (staff) productivity growth, yet there appears no intensive study of the APS (Australian Public Service) to which it has special access and interest, nor does there seem to be a recognition or refutation of this is Agency management practice.

If investing in I.T./I.C.T. is still the most cost-effective way of improving productivity, and hence of meeting the Efficiency Dividend, why are any Government Agencies apply the full 4% 'dividend' across all their organisational units?

If I.T./I.C.T investment is judged as not improving productivity, where is the evidence?
Pointing to a glaring omission of all Government Agency Annual Reports. Although they all have detailed reporting against "Key Outcome Areas", there are no output metrics.

Productivity is a measure of Output per unit of Input. Within the APS reporting schemes and managerial system/requirements, only Inputs (staff numbers and on-costs) are measured. Failing to even notice this gap, let alone address it, seems to me to be another monumental failure of the APS's management and culture.

Politicians, as managers of the APS, make decisions/directions are unpredictable, capricious and irrational. This is simply the nature of the beast. Politics is the Art of the Possible.

Which means senior managers in the APS have to deal with this insane world.

Down the organisation structures, staff never learn to relate their time input into economic value output. The simple cost/benefit equation at the heart of every business transaction that any 16-yo at MacDonald's learns is missing: wages have to be paid for.

This has led to an incredible blind-spot within the Public Service, resulting in systemic management and reporting failures such as not defining and collecting/reporting staff output data so year-on-year Productivity can be tracked.

What we can absolutely say about the 4% (1.5%+2.5%) Swan/Gillard Efficiency Dividend:

• it should not be evenly applied across all Agencies, but has to be because the necessary management data is missing.
• it should not be evenly applied within Agencies because the necessary data is missing.
• without evidence, APS managers are blindly acting. Should they be investing in more I.T./I.C.T. or reducing I.T. staff/budgets more than 4%?
• There will be uneven and disproportionate effects on the delivery of Government services.

Just because Politicians live in an extreme world is no excuse that they don't properly fulfil their Fiduciary Duty towards their constituents - the people who've entrusted to them their future livelihoods and living standard.

We, as taxpayers and electors, need to be demanding a much higher standard of management and governance from the Politicians representing us.

Is there any reason that the Public Service is not the best organised, best managed and provably most productive and efficient/effective organisation in the country? Why should the Public Service be less than the definitive model of good management and good governance? The standard that every organisation is judged by.

The only reason is that we haven't held our Politicians accountable for their performance.

We have let them get away with putting their interests ahead of what they are elected and paid to do:  husband the public purse, the taxpayer dollar, for the best possible outcomes and sustained benefits to the citizenry.

King Cotton reprised: The End of the Uncle Sam Brand as a Universal Currency

I really hope that Mit Romney and the Republicans win the next Presidential election. That way when the fruits of years of the excesses of Republican Presidents (Bush I & II notably) come to fruition (around 60% of the current $14,300B public debt), the general public, and GoP voters in particular, will not be able to easily pin the blame on Obama.

The point about "discontinuities" is they are disruptive events that happen very quickly and to most, without appreciable warning. Think the fall of the Berlin Wall at the end of 1989 and the dissolution of the USSR and Communist Eastern Bloc shortly afterwards.

It is more than likely that the USA is now heading to its own economic "discontinuity", a reprise of the Confederate States discovering that "King Cotton" wasn't a match for the manufacturing power of the Northern states Union.

I've only recently become aware that oil transactions are increasingly being done outside US Dollars. A random selection of articles returned by a quick Google search:
Jan 2012, India transacting with Iran,
Jan 2011, The dominant dollar no more by US economics professor,
Mar 2012, The Renminbi  as Reserve Currency (+ part 2)

The accounting definition of money is "a unit of exchange", it is the basic building block of commerce and trade. But only if both sides of a transaction put the same value on it and it is liquid and holds its value with others.

For international trade to work, there has to be a common unit of exchange: a currency benchmark against which everyone sets their exchange rate and in which markets set prices for traded commodities and goods.

Once the world rested its trade on "the gold standard", but when the fiction evaporated that every dollar printed was backed by a unique piece of gold in a vault somewhere, the world moved to paper currency, eventually the US Dollar assumed the role of the world's common or reserve currency.

What happens to the US economy and Government budgets when they can't raise loans for the current 40% of the budget not covered by taxes?  If the US currency does lose its universal trade currency status and its "AAA" credit rating, the cost of money (interest on loans) will suddenly rise, throwing further strain on the US Government budget.

Can the USA survive its 16% of GDP spend on Healthcare? What happens as this rises 40-50% with the ageing of the Baby Boomers and their end-of-life care needs funding?

01-May-2012: Alan Kohler provided a chart, sourced from the UN 2010/11, of global Military spending.
The USA, at ~$700B, spends 43% of Global military spending.
China is next at $120B with UK, France and Russia around $60B each and Japan around $55B.

Since 1961 when Eisenhower coined the term "military-industrial complex", the USA has been committed to a very large military budget, and in the way of things bureaucratic, it rarely falls.
Will they ever be able to reign in their Military spending? How quickly can they do that? The tap cannot be shut-off quickly...
What will the Government decide to de-prioritise if they are forced to reduce their expenditures?
More importantly, how will the electorate act?
[end 01-May]

When, not if, the Uncle Sam Brand loses its special status as the global currency of trade and settlement, for the first time the automatic economic system re-balancing mechanism, falling exchange rates, will kick in. This won't be any gentle or leisurely correction. Once it starts, it will feed on itself into an avalanche, which must of necessity, overshoot on the first round.

What happens to the collective psyche of American Business and the public when they discover the true worth of their goods and services?  It will be a crushing blow, but one that many sectors and individuals will respond to with vigour and enthusiasm: America earned its place as a super-power and traces of that same energy, drive and capability remain.

This won't be pretty to watch, let alone be a part of.
And those most affected, the almost two decades worth of Baby Boomers, who will have their retirement plans destroyed and most basic needs like healthcare put in jeopardy, how will they react?

These are the same generation that din't just opposed the Vietnam War, they flooded into the streets and demonstrated. Many liked to "stick it to The Man" and to actively voice their discontent.

How will they react when told they have to pay for the excesses of the top 1% and a very cosy relationship between the Republicans, the wealthy and the Big End of Town?
Especially now that they have a lot more experience and a set of very powerful tools in the Internet?

I've no idea of estimating the When or How Deep of a crash like this.
Nor do I know how I'd survive in such a scenario - obviously with a very cheap US Dollar, it will become a prime travel destination.

But the really important thing I've not got a clue about: How can I make money from this insight?

It's not enough to "have a good idea", but to be taken seriously, you've got to back your hunches with cold hard cash...

Root cause of the GFC: systemic failure in fiduciary trust/duty

Watching a Lateline interview with a British politician last night on the British Leveson Inquiry into the behaviour of the Murdoch media, crystallised my thinking on the root cause of the GFC:

A systemic failure in both fiduciary duty in the global financial community and a concomitant failure in governance and oversight by the regulators, public service and politicians.

---

The New Oxford American Dictionary defines "Fiduciary" as:

involving trust, esp. with regard to the relationship between a trustee and a beneficiary

Princeton's Wordnet defines "Fiduciary Duty" as:

the legal duty of a fiduciary to act in the best interests of the beneficiary.

---

The critical piece for me in the Lateline interview was that the politicians driving one of the most important Inquiries in recent times let their personal fears override their duties as representatives of the Public:

... Rebekah Brooks [chief executive], who rejected our invitation [to give evidence] on three occasions ... but the committee then decided not to invite Rebekah Brooks, [seen as surprising] ... And I think it is very clear now that the individual fears that committee members felt led to them ... basically losing the will to do that.

The GFC did not arrive unheralded nor without the involvement of many actors through the whole investment "food-chain".

• The front-line sellers of retail "sub-prime" loans that lied, deceived and failed to disclose to victims what they were actually buying, especially A.R.M.'s (Automatically Resetting Mortgages: a low-rate "honeymoon" period (2-3%?) before repayments were increased to the underlying rate (12-15%?).
• The churning of these sub-prime loans as if they were prime-quality loans by Banks through the Mortgage Underwriting houses, Freddie Mac and Fannie May and those underwriters accepting high-risk loans as low-risk.
• The "repackaging" of sub-prime loans from the Mortgage Underwriters as CDO's (Collateralised Debt Obligations) without fully disclosing or properly insuring the embedded risk, instead using CDS's (Credit Default Swaps).
• The complete operational failure and dereliction of duty by all Ratings Agencies in declaring these packaged "toxic loans" in CDO's backed by CDS's to be the lowest risk asset possible, AAA-rating.
• The relentless, high-pressure wie-spread sales of these complex instruments to inappropriate and uninformed consumers, with extraordinary levels of deception, misleading statements and since documented, complete fabrication and wilful dissembling (lying).

But it could only have happened if there was not only widespread failure of agents Fiduciary Duty to investors, but also criminal behaviour.
There were a slew of interlocking system failures that were necessary to translate the "zero-cost" money being thrown around by the US Federal Reserve into systemic rorting (fraudulent gaming of the system) - and none of them was ethical, moral or legal.

The GFC was fuelled by an seemingly infinite pool of zero-cost money being used to "stimulate" the US economy after the "Dot Boom" became the "Dot Bust" circa 2000.

There were many schemes to take this money and convert it into "high return, safe vehicles".
The contradiction inherent, returns are the inverse of safety (higher rates of return compensate for higher risk), went unnoticed, unchallenged and generally uncommented, except towards the inevitable collapse.

Yet, despite, the massive consequences of the GFC, the "socialisation" of the crystallised losses, which for decades will haunt the mug punters, or average taxpayers paying for these bailouts through their governments, nothing has substantially changed. More importantly, almost nobody has gone to jail.

Many banks and financial institutions declared record profits (and hence record internal bonuses), the year after they were bailed-out by the very people they were again relentlessly gouging - the average taxpayer.

There is a fundamental inversion at work in the financial and managerial world that the regulators and legislators have been ignoring for the last 30-40 years:

• CEO's and fund-managers/investment advisors want all the upside of ownership, and none of the downside. They want a large fraction of any gains when the market goes up, and suffer nothing when it goes down. They can bankrupt a company an/or destroy all your investment, and still demand a bonus, let alone compensate the owners for their reckless, irresponsible behaviour.
• Institutional Investors, in the form of Banks, Insurance companies, Retirement Funds/Investment houses give their small, anonymous investors all the downside of ownership and little or none of the upside. Risk is transferred from the Institution to the Individual investors, while they retain all or most of the benefits when the markets improve. The small investor, often forced into compulsory investment, takes all the losses of the gambles and speculation by the Institution, whilst being charged a fixed percentage of their assets and a proportion of "excess gains".

This state of affairs is consistent with the causation of the GFC and stems from a very simple thing:

Politicians, and hence Regulators and Government Bureaucrats, confuse CEO's and Institutional Investors with Owners, when they are merely employees or agents.

How I can prove these assertions:

• The GFC was inevitable from the documents released or surfacing afterwards.
• CEO, 'senior management' and Board salaries have spiralled upwards at a compound rate of 30%pa since ~1975, without any comment, constraint or Inquires by Governments worldwide.
•  while real wages of employees have remained static or declined since ~1985, and
• "big business" especially continues it outrageous calls for "more flexible working arrangements" from those employees to "lower costs" and "increase productivity" when decades of decline in real wages show that none of the savings and improved profits are passed onto those long-sufferring employees.
• Institutional Investors and Governments still pass wide-scale losses onto the general public, who were not responsible for the decisions, had no control and no 'internal information'.
• The unemployment rate is most countries is (very) high, but those people out of work, receiving lower "benefits" and paying higher taxes are exactly not the people who created the GFC.

Then there are the many studies into "Mergers and Acquisitions" of large, publicly owned companies.
They all say the same thing, despite the very expensive and detailed "Due Diligence" processes, the vast majority of Mergers not only fail to create value, they destroy substantial amounts of owner value, which is ultimately the small, anonymous investors funding Institutional Investors.

A case in point from my field (I.T.):

Unisys (UIS): Formed from the 1986 merger of Burroughs and Sperry/Univac (numbers 2 and 3 in turnover and CapEx behind IBM), not only never became #1, but has declined four-fold in share value and declined from $10.5B revenue/year and 120,000 employees to $5Bn/year and 30,000 employees in 2010.

It was never going to be a good idea due to the radically different, and incompatible, corporate cultures and that there were no great synergies in their product lines, rather the reverse, they were direct competitors in most of their markets.

Yet the deal was struck and The Great New Giant Company was formed.
Within two years, the extent and scale of value destruction to both brands was obvious, and in a rational world would've been cause for a rapid demerger and unwinding of the still incomplete "integration".

Yet this didn't happen. The Board, the CEO and all the "management team" kept resolutely destroying the company. Now, decades on, it is a mere shell of its former self, and both brands struggle. Both organisations were successful, growing and sound before the merger. The market or "externalities" didn't change significantly at the time, rather the reverse, IBM grew its business very well for the next 5 years.

At the very least, the CEO and senior management team should've been placed "on notice" by the Board at the end of the first year when they comprehensively missed all their targets, and summarily sacked after the second year when the value destruction and failure to grow was incontrovertible.

Why didn't this happen, and why wasn't the Board sacked for a gross dereliction of duty? Institutional Investors are the majority shareholders and have a general policy of "we don't interfere". It's almost like they don't care about protecting their small, anonymous contributors from the downside...

Those who caused all this carnage at Unisys, the active destruction of shareholder value and the massive opportunity losses from both brands failing to keep growing, have never been held to account or suffered dire economic or civil penalties for their actions and inaction.

The resulting questions are:

• Who pursued and benefited from the Merger? Presumably the two Boards, CEO's and combined "senior management team". Those who stayed got bigger salaries and bonuses, those who left got their "golden parachutes" (outrageously generous severance packages unavailable to the rank-and-file workforce).
• Why was this massive market failure not investigated nor pursued by Regulators and Legislators? I guess because nobody that mattered complained. No Institutional Investor would complain ("we're uninvolved"), nor did they act on behalf of their plethora of small investors, rather handing them back a slightly smaller dividend without explanation.

It seems that Politicians, those we have elected to represent us against the more powerful, have become the captives of Big Business (CEO's and Boards) and servants of Media.

Management with Measurement: Inputs

"Management by Numbers" is seriously deficient as it focuses on a single dimension of a very complex multi-dimensional task. "numbers" are a necessary but far from complete aspect of the job. Some might say skills in "handling people" are much higher priority.

This stems from the rule of management: we only have managers if there is too much work for a single person.

In 1916 Henri Fayol laid out the dimensions as he saw them:

To manage is to forecast and plan, to organize, to command, to coordinate and to control.

Max Wideman uses "Plan, Organize, Execute, Monitor and Control" for Project Management [uncertain of the source].

"Management with Measurement" seems a much closer fit to what I'm trying to describe.

Why start here?
There are a number of measures that require a common element, Inputs:

• Productivity: Output / Hours Input
• Efficiency: Outputs / Total Inputs
• Effectiveness: Realised Benefit / Total Inputs

I've not seen Management or Cost Accounting methods to determine the input overheads incurred with Management. The total cost to the organisation of all managers.

First-line staff productivity, without the overheads of the management process and costs, are more indicative of workplace improvements.

As an investor, I'd like to be able to compare across companies their efficiency and effectiveness of management.
In the Public Sector, outputs and realised benefits are more nebulous ("one good policy a year per department"?), but inputs can be accurately measured and reported. Differences can then be explored.
In the Not For Profit sector, all overheads are critical, none more so than paying non-productive free-riders, and of real interest to many stakeholders: financial supporters, volunteers and the Board.

What types of employees are there?

• First-line employees: No reports, directly contribute to goods/services produced. Notionally 100% of time is "direct production".
• Leading Hands, Team Leaders: Have reports, but limited authority to direct them. Directly contribute to goods/services produced. Notionally near 100% of time is "direct production", so are counted as "first-line" employees.
• Supervisors: Reports are First-line employees or Team Leaders. Less than 25% of time is "direct production".
• Managers: Reports are Supervisors or Managers. Less than 5% of time is "direct production".
• Top-line Manager: Those managers who do not report to another manager within the organisation or organisational-unit. This definition includes "co-owners" or "co-CEO's".
• Owners: When the owner works in the business above the first-line, they will be counted as a supervisor, manager, or when the entity is large enough, as the Top-line manager, unless organised otherwise.
• Boards: These are regarded as external to the entity. Directors, owners and managers (like the CEO), who sit on the board and work in the business are counted within the business.
• Double-counting: No individual can be counted more than once. Each must be categorised into exactly one category per report. Internal consistency requires that organisations define a single set of classification rules that can be applied across the whole organisation, and is very infrequently changed.
• Lowest-level Principle: Those who can be classified at multiple-levels, like an owner/manager, should be classified at the lowest level. An owner/manager with one employee might consider themselves Top-line Manager, Manager and Supervisor, but they can only count classify themselves at their lowest authority level: supervisor.

Figures of Merit:

• Definitions:
• W: Size of First-line workforce.
• S: Size of supervisory workforce.
• M: Size of managerial workforce, including supervisors.
• Fan-out: the mean number of reports. Three figures reported:
• F_S: Supervisors (a whole number, not fractional). Sum of all first-line employees / sum of all supervisors.
• F_M: Managers (fractional). Mean of reports per manager, for all managers.
• F_T: Top-line manager (whole number). number of managers irectly reporting to the top manager.
• Hierarchy Depth:
• D: The mean of 'Depth': For each First-line employee, the number of people above them in the management chain to the CEO. Only count one path in "matrix" style organisation.
• Management Burden:
• B: The percentage of salaries and staff benefits paid to management.

These metrics also usefully apply to each Organisational Unit within an Organisation.
ie. Reporting for each Division and every Department, down to work-group level, will be useful for Organisations. Both for comparing the effectiveness/efficiency of the Management Process, but also for highlighting differences in the underlying task difficulty across the Enterprise. For a mining company, digging operations will have a different 'fingerprint' than Commercial and Planning departments.

For Public Service and Not-for-Profit organisations, drilling down, and especially reporting Management Burden, will be very useful to stakeholders, internal and external, to assess the organisation and Management Processes.

The 3-part Fan-out should always be reported/written with Hierarchy Depth: [F_S/F_M/F_T/, D].

Eg: [12/3.5/6, 7.25]

Calculating Workforce size:

For the organisation, [12/3.5/6, 7.25]:

• total supervisory and management staff = management fan-out raised to the power of managerial hierarchy depth. (M = F_M^D-1 + F_T).
• M = 3.5^7.25-1 + 6 = 3.5^6.25 + 6 = 2514 + 6 = 2520.
• approximate supervisory staff = management staff divided by management fan-out. (S = M/F_M).
• S = 2520 / 3.5 = 720
• total first-line staff = supervisory staff times the supervisory fan-out. (W = S * F_S)
• W = 720 * 12 = 8640
• The first-line to management staff ratio ( 8640 to 2520, or 22.6% mgt of 11,160) can be calculated, but the management burden as a proportion of salaries/wages cannot be derived.

Note: Because summary statistics are reported and are all that is necessary for good comparisons, exact headcount/FTE's cannot be derived from the metric. In special circumstances, discussed below, exact numbers might be added to the metric.


FTE vs Headcount?

The Hierarchy Depth must be reported in Headcount, not FTE.
But both numbers are meaningful for Fan-out and I don't have a preference,

Presumably, nearly all managers and most supervisors will be permanent employees, so in the pyramid above the first-line, FTE and Headcount are identical.

In workforces with a high proportion of casual labour, like large retail operations, headcount must be reported not FTE, to get a true picture.

An 'F' could be added to the supervisory fan-out for clarification. eg: [5F/3.5/6, 7.25], For enterprises which feel both numbers are needed for a true picture, the supervisory fan-out in terms of Headcount should be written first. viz: [(12, 5F)/3.5/6, 7.25]

Smaller Enterprises, Depth less than 3

Why is a Depth of 3 interesting?
It is the first level at which managers report to managers and the top-line manager only has managers reporting to them.

• For an owner/operator enterprise, the depth, 'those above first-line', is zero. viz: [0/0/0, 0].
• When a business gets its first employee and the owner becomes a supervisor, the depth is 1. viz: [1/0/0, 1]
• As the business expands, leading hands or team leaders are hired. The owner is still a supervisor and the depth is 1. An owner with a staff of 15, including leading hands is: [15/0/0, 1]
• The next breakpoint, is the hiring of the first supervisor (as distinct from team leaders). The owner is now a manager. The depth is 2. At this point, good businesses will have appointed, even if not listed companies, a board to advise them and to provide some external review, feedback and accountability to the owners. Avoiding double-counting, a single-owner business with 4 supervisors and 32 staff would be: [8/4/0, 2]
• After the next step, managers reporting to managers, all business are equal under this model. viz [8/3.5/6, 4] and [(12, 5F)/3.5/6, 7.25] tell an investor, stakeholder or manager that both organisations have similar management processes and overheads but one has a much higher part-time casual workforce.

When a business has co-owners and no supervisors (and hence no managers), the fan-out for supervisors, managers and top-line manager should be written as 0.

Eg: [0/0/0, 0]

When a business has an owner(s), no employed supervisors and no managers, the fan-out for managers and top-line manager should be written as 0 due to the lowest-level principle. As discussed below, the first-line workforce size cannot be uniquely calculated, because the effective supervisory staff, the owners, isn't specified. The metric is ambiguous in these cases:

Eg: [(12, 5F)/0/0, 1] could describe an organisation with one owner and head-count 12, or two owners and head-count of 24.

Metric Deficiency: Workforce size for small organisations and exact Supervisor Count.

The proposed metric does not inform interested parties of the total headcount or FTE of first-line staff an organisation, only summary statistics of management. First-line staff numbers could be added as a preceding term when the organisation is small. For larger organisations, management and first-line staff numbers can be computed from the metric.

Eg: [(12, 5F), (12, 5F)/0/0, 1] or [(24, 10F), (12, 5F)/0/0, 1] to disambiguate the one or two owner example.

And for a large organisation with a large casual workforce:

[(12,500, 6150F), (12, 5F)/3.5/6, 7.25]

Application

The Fan-out and Depth figures can be used to accurately define "Small", "Medium" and "Large" enterprises. The ATO defines a small business as having an aggregate turnover of under $2million a year, and everything else by default, is "large". There is another break-point at $20million/year, where taxes must be paid monthly, suggesting that "medium" sized entities have turnover between $2- and $20-million/year.

At the average weekly wage and with 25% on-costs and staff costs of 50%, $2-million/year is currently 10-15 FTE's.

The US SBA (Small Business Administration) defines 'small' as under 500 (local) employees. Any entity larger is a "large" business.

Company size definitions:

• Micro-Business: less than [0.5F/0/0, 0]
• Small Business: up to [20F/0/0, 1] and for low-intentsity manufacturing [100/0/0, 1]
• Large Business: over [500F, s/x/y, z], where x and y greater 0, and z greater 4.
• Medium Business: [10-500F, s/x/y, z], where x greater than 0.

Examples of Management Burden

The cost of managers is related to two things:

• the "fan-out". The number of people that report to a manager.
• the hierarchical multiplier. For each level increase in the hierarchy, what's the percentage increase in salary, assuming a constant multiplier?

The fan-out cannot be under two.
For that to be true, at least one manager has a direct-report count of 1, which violates a basic rule:

We have managers because there is too much work for one person to do.

I expect fan-out and hierarchical multiplier to be related: a larger multiplier if there are more reports.

Using Telstra as a rough model:

• There are ~30,000 (2¹⁶) employees.
• Front-line staff are paid ~$40,000, and, in the days of Sol Trujillo, the CEO got ~$10M, or 256 (2⁸) times the average front-line staff wage.

If there was a fan-out of 2, there'd be 15 levels of hierarchy and 50% of the workforce would be first-line and 50% management and supervisors.

Lets say it was 16 levels, so for every two levels of hierarchy, pay is doubled.
Each level would have a 1.414 (square-root 2) multiplier.

The table below contains some examples of Management Burden, B. In a real organisation with access to the accounting system, B would be calculated, not estimated like this.

The assumptions made in this example:

• 'Fairness' and consistency in apportioning the wage differential between every level of management, from supervisors to Top-line manager.
• More realistically, the gap between first-level employees and supervisors will be smaller than the gaps between management levels, as well as the supervisory fan-out, F_S, will be larger.
• "the senior management team", the Top-line manager and their direct reports, are likely to be on their own payscale.
• The effects of F_T, and difference to, F_M are ignored.

Columns:

• W = first-line workforce
• M = managerial workforce
• W + M = total workforce
• F_M = Fan-out of management
• D = Hierarchical Depth, layers above first-line employees.
• Max Wage Ratio = ratio of highest wage (CEO) to average first-line wage
• Hierarchical wages multiplier = assumed fair multiplier between each level of management.
• Avg Wage mult = Average (mean) wage of enterprise, as a multiple of average first-line wage.
• Wages multiplier = Total wages as a number of multiples of first-line wages.
• Mgt Burden = Management Burden, management wages as a percentage of total staff costs.

Management Burden with varying Maximum Wage Ratios

W	W+M	FM	D	Max	Hierarchial	Avg	Wages	Mgt
				Wage	wages	Wage	multiplier	Burden
				Ratio	multiplier	mult
16,384	32,767	2.0	14	128	1.414	1.698	3.395	70.54 %
16,384	32,767	2.0	14	32	1.281	1.389	2.778	64.00 %
16,384	32,767	2.0	14	256	1.486	1.923	3.846	74.00 %
16,384	32,767	2.0	14	1024	1.641	2.640	5.281	81.06 %
16,384	21,845	4.0	7	32	1.641	1.271	1.694	40.96 %
16,384	21,845	4.0	7	256	2.208	1.666	2.213	54.81 %
16,384	21,845	4.0	7	1024	2.692	2.197	2.929	65.86 %
32,768	37,449	8.0	5	32	2	1.167	1.333	24.98 %
32,768	37,449	8.0	5	256	3.031	1.405	1.605	37.7 %
32,768	37,449	8.0	5	1024	4	1.723	1.969	49.21 %

Discussion

The Wage Ratios chosen are indicative of:

• 32 = pre-1980
• 256 = a typical current multiple
• 1024 = high current multiple, but not extreme.

The worst case, giving both the maximum Hierarchical Depth and highest numbers of managers is with the lowest possible fan-out number, F_M = 2.

Organisations with higher Depth have slower lines of communication and more players involved in every decision and report. This was the observation behind the 1980's push to "flatten the organisation".

The management burden reduces considerably with a flattening of the hierarchy, with high management fan-outs. I would expect high fan-outs would only be possible with more routine operations. Organisations with complex, highly variable tasks require more communications in all directions and more management action, causing managerial workloads to quickly increase and hence obtainable fan-outs to decrease.

Whilst the Average Wage multiplier might seem modest, say the middle entry (F_M = 4, D = 7, Ratio = 32), with the organisation's wage being 27% higher than the first-line average wage (eg. $40,000 and ~$60,000), the wages paid to management are a significant proportion of total wages: 41%, quickly rising to be two-thirds of total wages, for no direct contribution to output.

For investors and prospective purchasers of organisations, the management fan-out and management burden provide a new insight into where input costs arise and how gross productivity is effected by them.

A balanced post on the EBM vs Alt.Med Debate.

[Post moved to other blog.]

I thought this article balanced and informative. I liked the stated intent "moving beyond virulence" in the title. Of course, Doctors and Friends against Alt.Med did their usual scorn and bile attack in the comments.

"Evidence-based medicine v alternative therapies: moving beyond virulence", 23-March-2012.

Main arguments:

• The absent patient
• Lack of critical reflection (on philosophies of health and the politics of medicine)
• Evidence-based medicine (the critical analysis of EBM)

There is a long comment by 'Anne Cooper', Osteopath, that I thought was good. [click on "show full comment" to see it all]
Her ending is very strong:

So instead of the FoS attempting to take a high moral ground, and at the same time appropriating the term ‘medicine’ (not to mention the title ‘Dr’), perhaps it could instead lobby for funded, high quality research that will enlighten us all as to why these unsubsidised therapies are able to attract and treat so many hundreds of thousands of Australians every day. Now that would be useful. Failing that, their campaign looks to be little more than a turf war.