Denominator Managers

Productivity…What is it?

Productivity is defined as outputs divided by inputs. Measuring the productivity of an organization is done the same way. For example, the productivity of a business is defined as sales divided by expense, or revenue divided by costs.

It is this equation that led Gary Hamel to coin the term, “denominator manager.” Denominator managers are ones who, due to limitations in their strength of leadership (e.g., vision, creativity, courage, skill, etc.), focus on cost reductions (i.e., the denominator), while they ignore or neglect value creation (i.e., the numerator). I’m sure you’ve seen the species.

Denominator managers can be wizards at manipulating wealth, but are impotent at creating wealth. They know how to cut fat, but not how to build muscle. They know how to harvest, but not how to plant and grow. They put conformity before creativity, productivity before quality, administrative efficiency before customer service, and value for shareholders before value for customers.

Denominator managers employ cost cutting as a strategy, rather than a tactic. Cost cutting is nothing more than a tactic by which you retreat and regroup after being outsmarted by the competition, surprised by the market, or punished by reality for testosterone-fueled wishing rather than vision-driven, intellect-fueled goal setting, so you can develop a new strategy to replace the one you had that didn’t work, or the one you failed to prepare. If cost-cutting were a strategy, then companies would be at the height of their profitability when they padlocked the doors.

A story told by Minnesota businessman, Harvey McKay, illustrates the impairment from which denominator managers suffer.

When asked how he enjoyed the orchestra’s performance of Schubert’s “Unfinished Symphony,” the denominator manager offered the following report:

1. For considerable periods, the four oboe players had nothing to do. Their number should be reduced and their work spread over the rest of the orchestra.

2. Forty violins were playing identical notes. This seems an unnecessary duplication, and this section should be drastically cut. If a larger volume of sound is required, this could be achieved with electronic amplification.

3. Much effort was expended in the playing of demi-semi-quavers. This seems an excessive refinement, and I would recommend that all notes be rounded to the nearest semi-quaver. If this were done, it should be possible to use trainees and lower-grade operators.

4. No useful purpose is served by repeating with horns the passage that had already been played by the strings. If such redundant passages were eliminated, the concert could be reduced to twenty minutes.

5. If Schubert had attended to these matters, he probably would have been able to finish the symphony after all.

Too many organizations are over-populated with denominator managers because the cultural ecosystem in most organizations encourages their propagation. I attribute this to several things. Chief among them is the fact that cost reduction is easy to do, easy to measure, produces immediately positive results that can be realized within a fiscal quarter, are thus richly rewarded, and can be done by an individually motivated mercenary in a position of power. This then has both a direct and a vicarious effect on others who aspire to positions of power in that organization — behaving rationally, they learn to emulate the behavior that they see is so richly rewarded.

Value creation, on the other hand, is incredibly hard to do, even more difficult to measure, and rarely produces results within a fiscal quarter. Value creation requires greater strength of leadership than cost reduction because value creation requires visionary teamwork, break-with thinking, and disrupting the status quo, which is guarded with the fervor of a holy crusade by those who benefit from the maintenance of the status quo.

Numerator leaders are mindful of the denominator; they understand, “No margin, no mission.” However, they also understand that you don’t sacrifice long-term goals for short-term objectives. Numerator leaders worry about cost effectiveness, not cost reduction. They employ creativity to grow and conformance to protect. Numerator leaders know that quality comes before productivity because if you chase quality you’ll get productivity, but if you chase productivity you won’t get quality — producing crap faster and cheaper than you did before just leaves you with more crap. Numerator leaders put customer service before administrative efficiency for the same reason — pissing off customers more efficiently than you did before just leaves you with more pissed off customers. Numerator leaders think of their organization as a holistic ecosystem, not as an assembly of discrete parts. Numerator leaders run their business as if for their grandchildren, not for the next fiscal quarter.

Clearly, being a numerator leader takes a lot more strength of leadership than does denominator management, so effective numerator leaders are scarcer to find and more difficult to develop. To make matters worse, in too many organizations, numerator leaders are endangered and they are not on the firm’s protected species list.

Are you interested in shifting your organization from denominator-management to numerator leadership?

We’re agilityIRL. We’ve been where you are. We can help.

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