Putting complicated matters in a numerical context can make it easier to deal with them. There is safety in numbers. But here’s the thing; although it may feel really good, you could end up making the same stupid decisions over and over again.
The reason finance can feel like such a safe haven is that once you get a good sense for present value calculations and risk assessment, you are getting really close to creating your own comfortable truths. We all hate managing what we can’t measure. Although assigning numbers to complex decisions seems to give us better managerial insight, it can also give you a false sense of control.
The crucial problem that public companies face is getting it right in the long run. As long as professional board members and executives have short term incentives it’s too easy to take the ‘safe route’; go with their trusted financial assumptions and just follow the market. The rationale is simple, if they do well they can take the credit, if not they can blame the market, or economy. The end result of focussing on short term profit is a lack of long-term investment and the company will eventually suffer.
A major problem is that financials still treat capital as a scarce resource and that we only rank and assess competing alternatives according to return. This was generally a good strategy when capital was scarce and expensive. Now however, markets are flooded with capital and companies are more liquid than ever before. If there was ever a time to make long-term investment it’s now! Yes, even if they don’t rank relatively high; at least they’ll give some return.
A finance professor will always be more convincing than a strategy professor, because he can provide ‘hard’ quantitative evidence, with decimals on top. In fact, if finance professors ruled the world there would be little or no investments – the assumed risks involved would kill everything.
Value creation is one of those typical areas where intuition and ambition more than often make for better advisors than fear and logic. Our society should be grateful to the generations of family operated companies that rely on dreams, intuition and experience, rather than fast food spreadsheets.