Performance measurement is in an uproar. The collapse of the internet bubble, the bankruptcy of Enron, and the erosion of confidence in the accounting profession have placed the problem of measuring the performance of the firm – and of other kinds of organizations – squarely in the public arena. Enron's bankruptcy, in particular, is a watershed event. On the surface, it raises the issue of how a firm reporting pretax profits of $1.5 billion from the third quarter of 2000 through the third quarter of 2001 could file for bankruptcy the next quarter. The answers proffered so far are the expected: sharp if not fraudulent financial practices, cozy relationships with auditors and their consulting arms, even cozier relationships with Wall Street analysts, and directors so dazzled by Enron's growth and generous directors' fees that they failed to exercise proper fiduciary responsibility.

But there remains an underlying problem so daunting that to raise it is almost heretical: can we accurately measure the performance of firms like Enron or, for that matter, any firm? I raise this question because the answer is not clear. For decades we have accepted that the performance of non-profit organizations like hospitals and universities is difficult to gauge. To be sure, performance measures for hospitals and universities abound (mortality/morbidity/acceptance/graduation rates, patient/student satisfaction, professional reputation), but most are unsatisfactory because they are incomplete or susceptible to deliberate distortion or both.