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Value before cost

Rupert Merson  is a partner in BDO Stoy Hayward and a member of the BDO Centre for the Family Business. He is also a fellow of London Business School. He may be contacted on Rupert.Merson@bdo.co.uk

Investing in your values is sound advice for any family business. Rupert Merson discusses how to strike the right balance for continued success

Acynic, according to Oscar Wilde, is a man who knows the price of everything and the value of nothing. For the family business in particular it is important to get the relationship between value and cost the right way round. For too many families, the business is all about cost and the family is all about value. This sort of mercenary mentality damages both business and family. As Oscar Wilde noted, "I have put my genius into my life; all I've put into my works is my talent". For the family business with ambition, talent isn't sufficient.

How does the relationship between cost and value go wrong? For many businesses the problem lies in the fundamentals of management. 'If you can't measure it you can't manage it' is a comforting mantra for those of us trying to manage organisations. Switch the mantra around and we have a recipe for perfect management: make sure you have the right measurement tools and you can manage anything. Hence the power wielded by statisticians, accountants, and the measures they devise.

But even accountants harbour a suspicion that too much of what matters within the business escapes our attention, despite our sophisticated methodologies. Our businesses always seem far too complicated to be reduced to the easily measurable. It's as if what really matters can't be measured at all, and because it can't be measured, it can't be managed either.

As Charles Handy, widely recognised as Europe's best known and most influential management thinker, has observed, the first step down the alley is to measure whatever can be easily measured. The second step is to disregard what can't be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can't be measured isn't really important. This is blindness. The fourth step is to say what can't be measured doesn't exist. This is suicide.
 
With some managers, it's more a case of management not just missing something, but actively doing damage. There's the case of the management team brought in to professionalise the business that's grown beyond the founding family. Of course, the business needs the discipline and methodology that new management brings – but it runs the risk of diluting the personality, energy and flavour that were critical to the success of the family business in the first place. The problem is compounded by the fact that new ­management will have evidence and Key Performance Indicators (KPIs) on their side – whereas the old guard will rely too much on sentimental assertions and war stories. The new rational, empirical world is one in which the finance director in particular has always had a key role to play. The Head of the Treasury of Upper Egypt, during the Old Kingdom took for himself the title of 'Governor of all that exists and all that does not exist.' Many family owner-managers, thinking nostalgically of the days before they had a decent finance director will argue that little has changed since 2500 BC.
 
Given that no successful family business can survive without the disciplines of management, how can it ensure that the business survives with its sense of distinctiveness, indeed the bedrock of its competitive advantage, still intact?
 
It's all a question of balance, of course. Several business thinkers over the years have drawn a distinction between leadership and management. It is more important for managers to recognise that the irrational needs can be managed effectively. Manage­ment teams that do this well identify these ­difficult-to-measure but important characteristics of the organisation and its business proposition, and bottle them. Personality traits of the founder don't have to be lost as the organisation grows, they can be converted into elements of the brand, and managed.
 
The biggest barrier to the successful growth of any business is the capacity and capability of management. But too much of the wrong kind of management, particularly in family businesses, can do more harm than good. Ensuring the family business invests in its own values is one of the best way of ensuring it appreciates in value.

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