Bubble-Gum Management

One problem is the fusion of pop-psychology with so-called management. Americans love pop- psychology, it’s easy to read and talk about; it’s bubble gum for the mind. It’s a lot easier than studying math or finance. The result is a flood tide of puffed up pap that I call “bubble-gum management.”

If you’re trying to keep a business afloat, the three basic things you’ll look at are the profit and loss statement, the cash flow statement, and the balance sheet. Meshed with that, most larger businesses will probably have a business model by which they can forecast financial activity for the coming years. Bubble-gum managers won’t be of much help with this stuff, though.

No, they’ll dispense meaningless bromides like “studies show that a dissatisfied customer will tell 26.4 people about his bad experience, which means that you should do everything you can to keep all your customers happy.”

Oh, puke. Whenever I hear that phony-baloney line “studies show,” I tune out. And where is the proof that kissing the butts of the most wildly irrational customers is a way to increase profits? There is actually an optimal level of customer service for any given business, and if the business delivers higher or lower quality service than this amount, profits will slip. That’s why you have to stand in line at McDonald’s to order your lunch; McDonald’s could certainly have higher quality service, but the minimal level of service it delivers maximizes profits. For them, it’s optimal.

The mere term “optimal,” however, is beyond the grasp of bubble-gum management types. An optimum is a mathematical concept, in which something (say, profits) has to be maximized, while other things (known as constraints) have to be held within certain limits. The term for this is “constrained optimization,” which usually involves solving a number of equations each with a number of variables. Some braniac named LaGrange invented the easiest technique for solving these sticky problems. What they did before LaGrange came along–I don’t know.

It takes a pretty big and sophisticated project to really resort to formal and rigorous optimization, most of us do it in a more intuitive way. Every store owner, for example, has a sense of an optimum times for his business to be open, based on factors such as demand, the cost of labor, the cost of keeping the air conditioning on, etc.

Even trial and error is a useful method; if, for example, a business is thinking about refinancing a loan, it may drop different loan assumptions (interest rates, up front fees, and such) into a financial model, in order to see which type of loan would bring the happiest results. We’re back to the number-crunching thing again, of course, and you’re not going to get any help in this realm from the bubble-gum managers.

No, they’ll be telling you to “empower your employees” so you can operate at a “new strategic paradigm,” or whatever other buzz phrases are in vogue these days (I don’t keep up with them). Bubble-gum managers are the business equivalent of witch doctors, and if your business really needs help, you’ll be wise to steer away from the quacks.