You’re a total loss for your employer.

I’m psychic. I sense your thoughts. Without ever having met you, I know this fact: you are, in fact, a total loss.

Okay, I cheated. I don’t have to know anything about you, your work habits, your productivity or your employer’s SIC code. All I have to know are a few basics from the Generally Accepted Accounting Principles (GAAP), the rule book by which all accountants live.

When a company buys a computer, the accountants debit cash and credit tangible assets. The balance sheet doesn’t change at all. One kind of asset, money, has simply changed into another kind of asset, a computer.

When a company pays your salary, on the other hand, the accountants debit cash and credit expenses. Assets go down and expenses go up. You appear on the Loss side of the Profit and Loss statement.

Don’t blame your employer. Don’t blame the accountants. If you have to blame anyone, blame Pacioli, the Italian who invented modern accounting several hundred years ago.

After a brief flirtation with less tangible forms of management, much of American industry seems to have moved back to managing by the numbers. This has its good side, because companies really do have to turn a profit or they stop being employers except to attorneys specializing in Chapter 11 proceedings.

It has, of course, its downsize … uh, downside … well, I guess I was right the first time.

Accounting systems are an important tool for managing an organization, just as a hammer is an important tool in debugging a computer program (it may not be effective, but it can be very satisfying). Well-run organizations use their accounting systems to keep score. I grew up as a Chicago Cubs fan, so I know what happens when nobody really cares about the score. You have fun, but you never go to the World Series.

Accounting systems have two big drawbacks as guides for making critical strategic decisions. The first is pretty simple: they’re the map, not the country.

Everyone knows the map is not the country. This cliche points out an obvious characteristic of maps: they leave information out. If they didn’t, they wouldn’t be maps – they’d be countries.

Accounting systems leave out lots of information. They don’t track employee skills. They have nothing to say about customer loyalty. They’re mute on the quality of the latest advertising campaign, although they can report its cost to the penny.

Managing an organization using only the numbers generally leads to a lack of investment, because many critical investments, like employee training, preventive maintenance, and research and development (and yes, if you manage IS you need to fund some research and development) go by the wayside, victims of accounting’s lack of descriptive power.

Accounting systems have a second deficiency, too: they have no ability to reveal causal relationships. Preventive maintenance may lead to lower repair bills. You’ll never demonstrate this on a Profit-and-Loss Statement. Employee training may lead to more effective workers. Since the chart of accounts has no entry for employee effectiveness, the gains lack visibility.

Your new router may have forestalled a major outage. It doesn’t matter – your accounting system can’t book the value of events that never happened.

The moral of this little story: manage to the numbers, but never manage by the numbers.

Internet Update

In the Internet Collapse vs Free Enterprise match, the score is one to one. Bob Metcalfe gets a point from Sprint, which has started to kick some IP addresses off its network during periods of peak load. It beats collapse, I guess, but somehow, monitoring the on-ramp of a freeway, kicking off all the Fords doesn’t seem like brilliant engineering.
My point comes from MCI, which has announced a massive upgrade because it expects larger profits from the increased capacity.

The consensus of the InfoWorld Electric Forum on the subject (www.infoworld.com): traffic jams and outages yes, complete collapse no.