If you’re still using spreadsheets to run any aspect of your sourcing, procurement, or supply management operations, then you’re working at the edge of a steep cliff over a deep ocean waiting for the earthquake to come. I bring this up yet again because I recently stumbled upon an article over on the Harvard Business Review blogs on why good spreadsheets make bad strategies, which, by the way, they do.
It was a great blog post. We live in a world obsessed with science, preoccupied with predictability and control, and enraptured with quantitative analysis. Economic forecasters crank out precision predictions of economic growth with their massive econometric models. CEOs give to-the-penny guidance to capital markets on next quarter’s predicted earnings. We live by adages like: “Show me the numbers” and truisms such as “If you can’t measure it, it doesn’t count.”
What has this obsession gotten us? The economists have gotten it consistently wrong. And, moreover, the same economists who totally missed the recession turned back to the same quantitative, scientific models to predict how the economy would recover [after 2008], only to be mainly wrong again. CEOs keep on giving quarterly guidance based on their sophisticated financial planning systems and keep on being wrong — and then get slammed not for bad performance but for their failure to predict performance exactly as they promised mere months earlier. (Hence my distaste for Wall Street and my recent praise for private equity.)
Now, while CEOs and their CFOs would love to be able to extrapolate last month’s sales quantity and predict next quarter’s sales, but sometimes they find out that those sales weren’t as solid a base for growth as they might have thought — especially if some of the customer relationships underpinning them weren’t as strong as they might have imagined.
The fundamental shortcoming is that all of these scientific methods depended entirely on quantities to produce the answers they were meant to generate. They were all blissfully ignorant of qualities.
What people keep forgetting is that, in business, numbers are meaningless out of context. 1M in revenue this year means nothing if you don’t maintain whatever quality earned you that revenue this year. If you got the business because you had a better product, and you’re in an industry where products improve quarterly, and you don’t continue to invest in improvements, you can’t project 1M next year. Loyalty only accounts for so much in many categories, like technology and electronics.
So, as a forecasting tool, spreadsheets are even more useless than you tend to think they are. And they’re even worse as a business tracking tool if you’re engaged in global trade, because they don’t automatically update when the regulations and tax rates change. And paying the right amount can get you fined, and even jailed if it was determined that you did not make any efforts to insure proper payments and filings (if you’re an officer of the company).