Galileo Galilei, the 17th Century Italian astronomer, once wrote, “Measure what can be measured, and make measurable what cannot be measured.”
This is very good advice for any business, but sometimes it is not so straightforward. Some things are relatively easy to measure. However, measuring that which cannot be measured is often a challenge for any company.
Like many businesses, at ENL Group we are very, very good at measuring things. We know what our materials cost, what our payroll is, and the money that we need to set aside to regularly service our machinery. We know the square footage of our premises, the amount of materials we recycle, and the average length of time that staff stay with us.
Most other well-run businesses would say the same. Running a business demands attention to detail. Knowing where money is being spent, or where it can be saved, is essential in driving efficiencies for both ourselves and our customers.
However, there is also a risk that just because some things are easy to measure, businesses are tempted to focus only on those things. This is potentially short-sighted because it assumes that things that cannot be measured are somehow less important. It can also lead to poor short-term decision-making, which fails to realise that the long-term impact on the business can often be substantially higher than a short-term gain.
These costs are sometimes referred to by management gurus as the ‘intangible costs.’ Such costs are much harder to quantify, but that does not mean that businesses should not try to heed Galileo’s advice and, “make measurable what cannot be measured.”
For instance, as a leading plastics injection moulding company, ENL is proud of its heritage and its absolute commitment to high-quality in everything that we do. This is part of who we are, and a core value that underpins all of our work.
If, as a company, we cut the size of the team that deals with customers, or reduced the quality of components that we produce, then we would very rapidly lose the reputation for quality and good customer-care that we have spent over 60 years building up. The cost of that reputational loss is hard to quantify, but it is immense. It might not appear in next month’s or even in next year’s balance sheet. But we are in no doubt that cost would eventually impact on our bottom line.
The simple fact is, that reputation is incredibly valuable to our business. Yet no balance sheet ever has an asset column marked ‘Reputation’. It is an intangible. But that does not mean it is not important and should not be factored into decision making about how we work.
All companies will have their own intangible costs, which need to be considered when looking at their overall performance. Take the example of an airline that reduces the size of its seats. In the short term, the reduction might make sense, allowing more passengers and more profit. However, if it is a brand that has built a reputation for quality then, very quickly, higher paying business customers might seek an alternative, damaging the company’s bottom line. The intangible cost of a drop in quality has not been factored into the decision-making process.
Similarly, any company that selects a delivery partner solely on price may end up with late or missed deliveries, and a spike in the number of complaints which itself will cause a direct financial cost to the business.
These are all specific examples but in each the general point is the same. Knowing who you are as a business, and being clear about what matters to you, needs to be at the centre of your decision-making processes. This is why clarity on values is so important. It is then the job of boards, and senior managers, to hold the business to those values when delivering the vision of the company.
Looking After Your People
Another area where intangible costs often come into play is in staffing. If we employ a new member of staff then their salary is a tangible cost. We know how much it cost to recruit them, and we know what salary we pay them each year. There is a specific financial value we can attach to them.
However, if they replaced an engineer who was retiring after decades with the firm, then the intangible cost to ENL would be the loss of that experience and expertise.
This is why retaining high-quality and experienced staff is of such central importance to ENL Group. It is our people who have the in-depth knowledge of our business, our products and our customers. It is our people who develop the relationships with customers that allow us to focus on delivering in a way that meets their changing needs.
Developing that experience and expertise takes time. If a company has a constantly revolving door when it comes to staffing then that may be sign that something in their support and reward structure is not working.
Where Does Real Value Lie?
We are reminded of the tale of Picasso who was once asked by a woman in the park to draw her portrait. He rapidly sketched her. When he handed her the sketch and she asked the price, Picasso replied “$5000”.
The woman was outraged. “But it only took you five minutes!” she said.
“No Madam”, Picasso replied. “It took me my entire life”.
The value of the picture was not in the time spent drawing it. It was in the skills learned over the course of a lifetime. In business as in art, the intangible cost of experience and expertise is often where the true value often lies. Businesses forget about that at their peril.
About ENL Group
ENL Group is based in Portsmouth, UK and Veľké Kostoľany, Slovakia. Established in 1958, we have been servicing UK-based and European companies for decades. Working with a secure supply chain, ENL provides quality components for quality-driven customers – with full certification for all of our products and quality checking at every stage.
Operating 24/7, we design, manufacture and deliver critical components for our customers across the UK and Europe.
Contact Us for more information about ENL and how we can help your business.