A “Year” Isn’t Real

When the U.S. Census results came out this week, we were greeted with headlines like this from The Washington Post: "Census data shows the number of White people in the U.S. fell for first time since 1790."

Beneath that pretty stark headline, the reality of the 5 million decrease in the number of people identifying as White was a bit more complex.  

For example, the article states: “The number of people who identify as multiracial has changed considerably since 2010. It was measured at 9 million people in 2010 and was 33.8 million in 2020, a 276 percent increase.”

And: “Some of the changes may be due not only to actual increased diversity but also to changes in how people self-identify. The bureau’s design, data processing and coding procedures have made it easier for respondents to identify as more than one race.”

Or put another way: the narrative in the headline might not be true at all! The simple and obvious math based on the official data might be misleading.   

Of course, race itself is a completely made-up construct, so any "objective" analysis is already dicey.

So what does this have to do with leadership?

In organizations, we create potentially false narratives from subjective constructs all the time! 

The primary culprit: accounting. 

This past week, I was facilitating a nonprofit board’s annual retreat. We were looking at a comparison of the organization’s finances between 2020 and 2021. 

As I’m sure you’re thinking, there's only so much analytical value in comparing results during an unexpected public health and economic emergency to any other time period. 

And even though everyone knew this, the mere fact of having data from those two periods side-by-side invited a discussion on that very comparison.

A similar thing happened when looking at the results for the first six months of the year. Despite knowing that some of the revenue is back-loaded due to the organization’s end-of-year campaign, it was hard not to look at the partial data and make judgments about where the organization was “ahead” or “behind.”  

What was most striking to me about the conversation was just how easy and intuitive it was to start forming narratives. There was no specific prompt; we just started creating patterns—myself included! 

What’s dangerous about this is that the accounting data—especially when it’s a “standard” report—seems like something we should trust. It’s hard to start with the assumption that it might be lying to us.  

Another construct that can be misleading: the annual budget. 

Surely, an organization needs a budget, and everyone else does it as a yearly plan, right? Yes, but even this “standard” process is a construct. 

The first reason is that a “year” isn’t real. 

Obviously, there are real activities that take place  on an annual cycle—school years, government budgets, summer travel season, and holiday purchasing come to mind. But other than that, the end date of the budget is a completely arbitrary choice.

Particularly when there is uncertainty (basically, everything in the world right now), the plan one creates today could be out of date in a few months. Yet, for most organizations I’ve worked with, in the face of change, the artificial construct of the budget will endure. 

Beyond that, an annual plan is suboptimal because it says a lot about what happens on December 31 of this year, but nothing about January 1 of next year. If the organization doesn’t have a rolling budget that’s constantly updated, it risks treating those two days as categorically different when they’re essentially the same (other than the hangover, of course). 

Finally, standard accounting also tends to obscure what’s actually happening in the organization. 

The most obvious example that you most often see is Employee Salaries presented as just one line item. What you can’t see: How many employees? Of what type? What are they actually doing? 

You’ll also frequently see Employee Salaries separated from Benefits and Taxes. But for the most part, these expenses derive from the same decision—once you hire someone, you’re committing to all three!

I could give many more examples! The point is that artificial constructs exist all around us. As the concept attributed to mathematician Alfred Korzybski goes: A map is not the territory. And data we’re often fed as leaders is definitely not the organization. It’s an abstraction.

Given our immense power as humans to create stories, our task is to be appropriately skeptical—especially, I’d argue, when the data or the construct seems “standard.”

In practice, that looks a lot like asking: 

What do you mean by that? 

What questions are we trying to answer? How does this data you’re showing me help us answer those questions?

What’s not measured by this data?

This, of course, isn’t an argument to abandon financial reporting or annual planning. But really scrutinizing how these constructs affect our understanding can reveal opportunities to make them more useful tools for decision-making.