“You can’t measure everything!”
Was what a senior finance executive said to me as I began to challenge her to help me understand how she assessed the performance of individual members of her team on the intangible property of “how” they went about their work. It’s a dangerous myth that particular impacts accountants and CPAs and I share in this bite-sized episode some useful advice on not only dispelling this myth but also to use it to our advantage as finance professionals.
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Full Transcript
Andrew: [00:00:00] Hi everyone. And welcome to this.week’s Monday Memo. Or this week I’d like to share a snippet from a conversation I had, it was actually, I had a senior finance executive say to me, you can’t measure everything. And this came about as I was challenging her. To help me understand how she was assessing the performance of individual members on the intangible property of how they were going about say their finance business, partnering, or interacting with the business and delivering the business’s results in the right way.
[00:00:35] It wasn’t just about what they delivered, but. In her mind, how they delivered was very important, but I couldn’t get any specifics on how she was assessing the success of different team members. And it was making me think a bit well Oh was this more of a political exercise than one that was perhaps data driven, which was ironic, given that we’re both finance professionals. And I think this sort of statement of you can’t measure everything. It’s a particularly dangerous myth that, that afflicts a lot of traditional accountants and CPAs.
[00:01:09]I think it’s probably to do with perception of a lot of these things are intangible. And the first reason why I think it’s dangerous is because if you look at well known studies like ocean tomos analysis of the S and P 500, and some of you might’ve seen that chart where it goes back to 1975, and it says that 15, 17% or so of a company’s valuation was made up by intangibles.
[00:01:37] So 83% or so was tangible assets. And now you look at it 2020, so project forward 45 years or so, and 90% of the value of the S and P 500 is now based on an intangible value, not necessarily the value of the tangible life.
[00:01:55]And then when you look at businesses like Airbnb, Netflix, Twilio, Facebooks, Twitter, their market values far exceed the assets that are reported on the balance sheet. So at least, I guess from an investor perspective is, seems intangibles matter enough to them to want to value them and invest in companies that are substantially intangible ideas.
[00:02:17]And I’d also posit that things like customer retention and satisfaction, employee engagement, quality. If you’re a government, perhaps water cleanliness is important or providing education to kids, no matter what their gender is or to business aren’t governments, the impacts of climate change.
[00:02:39]These things matter because they matter. And that’s what’s happened, invented are being invented to measure such impacts. So a bit more on that in a minute. So that’s one big danger, a lot of the world is about intangible. So the other one further danger is that big business decisions and even big decisions we have to make as societies often require for their success to be successful, a better understanding of the intangibles because.
[00:03:09] Some executives, finance professionals. Sometimes when they believe some things are measurable, they then don’t even attempt or consider to attempt to begin to measure it. And as a result, the decisions they’re making or supporting are probably less informed than they could be. The chance of error increases, good ideas, get neglected resources, getting us allocated money gets wasted.
[00:03:33] And the future health of our businesses and societies are necessarily being put at risk. And this intangibles measurement myth is it’s again, very prevalent amongst finance professionals, particularly our more traditional colleagues who probably would define measurement as something being a D ability to quantify something or to confusion and exact value, or reduce something to a single number because implicit.
[00:04:03] In those definitions is this idea of hundred percent certainty, an exact quantification, but no room for error. And I know I’ve been around business for 20 plus years now. I don’t think we, we regarded much things as certain. There’s generally, so much uncertainty with stuff. And if you think about it, tangibles things like physical buildings.
[00:04:28] The laptops in front of you, cash in bank in the balance sheet the time. Cause you can feel some certainty with them. You can touch them. They seem a bit more real but there’s a bit of irony that lasts when I throw in cash and bank or cash in hand because money, it’s an idea.
[00:04:46] It’s a concept it’s intangible. If you look at things like Bitcoin, it’s completely digital. The Euro, that was an idea that 19 countries bought into to adopt a single European currency. So this traditional accountant’s definition, if that was the gold standard for measurement, I couldn’t see very little getting measured and I just wouldn’t see how scientists or actuaries or even industries like insurance or big tech would have even survived, are let alone thrived. So given things like the value of a Bitcoin is measurable and it’s only an idea, then surely we can also start to begin to measure the importance of that next big it investments in our organizations, the impact of employee morale, quality, new production methods, like flexibility and agile working. , even gravity, that intangible force that surrounds each and every one of us that keeps us stuck on our earth and perhaps behind our desks. Yeah. That could be measured by a smartphone, a piece of paper and a pencil. Really good YouTube clip on that one. I recommend you check it out.
[00:05:56]So where do we start? I don’t think you’re going to be able to convince people staunch in their views. That, that certain things can’t be measured, but I would suggest don’t be put off by people thinking that way because
[00:06:12]the intangibles are important and all you need to do to help them is help them accept two things.
[00:06:19] They just accept a couple of things is one that we can measure what matters, because if it matters, it means we must be able to observe in some way. So look at Isaac Newton. How he figured out gravity or Enrico, Fermi, how he calculated the force of an atomic blast using something simple like confetti take the concept of mentorship even as that’s possible to measure, because it’s one of those things you’d rather have more of the less are, right.
[00:06:47] Because it matters and might have some positive impact on the success of your career or whatever endeavor you’re undertaking. And the second take, I try and look for people to accept is. That measurement is not about absolute certainty. It’s more of a process that helps us reduce our uncertainty.
[00:07:06] No matter how fuzzy a measurement is, it’s still a measurement. If it tells you something more than you did than you knew before. So it’s a probabilistic exercise. Whereas one like double entry accounting, that was a model that was built on an absolute certainty. What about you, but how many of you listening have wasted nights trying to get that trial balance back to zero or reconciling the debtor’s ledger so that you’ve got every cent, penny or whatever accounted for.
[00:07:37] I said in business, a hundred percent certainty is fairly rare. And to help people start accepting these premises is to begin with asking the right questions. And there’s two of them. Again, let’s keep this episode in twos. One of my favorite sayings is that scientist, Charles Kettering a problem, stated is a problem.
[00:07:57] Half solved keeps two in my head. The first question is, let’s say you want to measure something like strategic alignment. You ask the person or I’ll bring it up and subject. What do you mean by strategic alignment or in your mind? What does strategic alignment mean to you? Now preferably I’d love to hear what their answer is.
[00:08:15] And then I probably stress let’s Google it because more often than not in this day and age, someone else has already figured out how to measure these things. So when I did the Google I suggest things like employee practice or patient communication strategy, linking of individual goals to strategic objectives.
[00:08:33] And the great thing is you can actually calculate or measure what percentage of each of those things is happening. Reduce the uncertainty for the decision makers. And that’s what accountants and finance professionals who’ve been doing for millennia. We’ve been measuring stuff and counting things, even if it was starting out on an Abacus in the early days.
[00:08:51] And then we can take those data points and tournament at penetration rates or Penn rates. And the second, secondly, the second question is why would you care? So you mentioned this. No. Why does it matter to you? What’s that uncertainty reduction of strategic alignment work to decision maker? I also like to think about this and I wouldn’t say it gives me a bad rep, but it drives my business partners or party.
[00:09:14] Sometimes it’s put your money where your mouth is. How much are you going to allocate of your budget? To reduce the uncertainty of that decision or this activity over other ones. It’s like getting your wallet out to pay for something. If it really matters to you and measurement of it does matter to you and it’s something you want to track then.
[00:09:31]Surely you can assign some sort of value to that uncertainty reduction. And again, I think it’s an activity that finance professionals were there to ask those tough questions. Sometimes it allows us to stay more relevant into the future. And that’s why we bring guests, mentors onto the strength in the numbers show because some of those conversations could feel a little awkward.
[00:09:50] We might feel a bit out of place, but that’s the value of mentorship, right? Is. Having an understanding of what the path was of someone else who already took it, reduces that uncertainty. So there’s value in that and allows you to figure out whether that’s a path you want to take or avoid. Because one thing I love about the gas mentors who come on to our weekly podcasts that we interview is they share things that also didn’t work for them, their hard won lessons, and that helps the rest of us avoid going down their paths or perhaps adjust our approaches.
[00:10:20] So maybe a bit more successful. And that then helps us have more informed decisions and hopefully help our decision makers and those who support in our work and activities. Hopefully they make better decisions, which is good for our organizations, our colleagues, our communities at large and society at whole.
[00:10:37]So whilst people might be right, so you can’t measure everything. I certainly believe you can measure the stuff that matters
[00:10:44] , and anyway, I’d love to know what you think if that is possible or not. Appreciate your thoughts, like always and what we also appreciate. And again, thank you very much for doing this a lot that you do. This is, we really appreciate it when you let your friends and colleagues know about the show, they can find on all the major platforms, iTunes, Stitcher, SoundCloud, YouTube, Spotify, and Amazon music.
[00:11:07]And you can also check out our website for show notes, key quotes, blogs, key resources, and much more.
[00:11:15]So look, I hope you found this week’s Monday memo, useful. Hope you have a fantastic week ahead and as always take care, stay safe and let’s keep on building our show into their numbers.
