Before we go any further, a fungible isn’t something hippies munch away on in their vintage VW Campervans at a music festival.
Although fungibles can be quite addictive.
Or, more accurately, how most people think about fungibles can be addictive.
And, like most addictions, what starts off as a misjudged right-of-passage experience, quickly gets you hooked. In no time at all, you’re sleeping in a skip and eating out of restaurant bins in back alleys in the wee small hours.
Not literally, perhaps. But intellectually, for sure.
What’s a fungible?
I first heard the expression “fungible” in my accounting exams. (Valuation of fungible assets, anyone…? Fond memories…!)
A fungible asset is one where the units are fundamentally interchangeable with identical units of the same asset class.
One-ounce bars of 24-carat gold are fungible. Every one-ounce bar of 24-carat gold is identical in weight and purity to every other gold bar.
If someone else comes along and wants to swap one of their one-ounce bars of 24-carat gold with one of yours, subject to some quality and provenance checks, you wouldn’t care. Every bar is identical in all its physical properties to every other bar, and they are all worth exactly the same.
Also gold bars last for ever. Archaeologists still find gold bars in the tombs of kings from thousands of years ago. They never go off. And an ounce of 24-carat gold mined 5,000 years ago is worth exactly the same as an ounce of 24-carat gold mined yesterday.
Contrast that with a tray of baked beans on a supermarket shelf. They are kind of fungible in the sense that one tin of Heinz beans (don’t buy any others) is the same as every other tin…at least in the short-term.
But if I offered to swap a tin of beans I bought 10 years ago with the tin of beans you bought yesterday, you might not see those two products as identical.
What if the 10-year old beans have gone off and give you food poisoning? At the very least they’re probably not going to be as flavoursome as the beans your friend bought yesterday.
Although tins of baked beans have a long shelf-life, there’s a reason supermarkets pull the open trays of baked beans to the front of the shelf and put the most recently-delivered tray of baked beans behind it. That ensures the oldest (and presumably freshest) stock goes first.
So baked beans are fungible-ish, but although they are identical in the short-term, over a 10 year period they might not be fungible at all…even leaving aside the possibility of botulism.
And of course, that effect is magnified with short shelf-life products like salad and dairy. A year-old pint of milk is not remotely fungible with a pint of milk that just arrived in the supermarket, fresh from the diary.
But enough about your weekly shopping habits.
Why does this matter for your bottom line (whether or not you run a supermarket)…?
So what?
In a normal business setting, away from our supermarket analogy, the biggest problem with fungibles is that everyone thinks just about everything in a business is fungible, when the reality is – with very rare exceptions – that’s completely untrue.
Whether or not they use that technical expression, too many business people assume that every unit of everything is identical to every other unit of the same thing. Even though that’s almost never the case.
Imagine you’re due in court tomorrow, accused of a serious crime you didn’t commit.
Clearly, you need one unit of “lawyer” to defend you.
But lawyers are not fungible products.
Just for starters, if you’re ever accused of murder, I don’t recommend taking the lawyer who does your tax planning to defend you. That’s still one unit of “lawyer”, but if you think that’s a good answer, I suggest you pack an overnight bag and say farewell to your loved ones, as it’s very unlikely you’ll be seeing them much for the next couple of decades.
And I know you think that’s clearly a ridiculous thing to do. But I’m just exaggerating to make a point.
Ask yourself, could you possibly find one unit of “criminal defence attorney”?
Well, almost certainly yes.
But if you’re a business leader accused of murder, are you going to choose the unit of “criminal defence attorney” who qualified last week, or the unit with 25 years’ experience?
Those two units of “criminal defence attorney” are not the same. They’re not fungible.
Even if you go a step further, and you decide what you really want is one unit of “criminal defence attorney with 25 years’ experience”, might there be a difference between someone with 25 years’ experience who has won every case and someone with the same experience who has lost every case?
I know which one I’m more likely to want defending me.
So now we want one unit of “criminal defence attorney with 25 years’ experience who has never lost a case”.
Except that is likely to mean just one single person. If you’re lucky. Off-hand I don’t know any lawyer who could make that claim and, over the years, I’ve met a lot of lawyers.
At the start of the process, you think you’re procuring one unit of “lawyer”.
But that’s a completely inaccurate perception of what you need.
What’s more, what you really want might not even exist…or if they do, odds are they’re not sitting at home just waiting for you to call. They are at the top of their profession, and they’ll already have a jam-packed diary full of high-paying clients.
It’s very unlikely you’ll get a look-in.
It’s not just lawyers
And it’s not just lawyers.
People who think their business can be reduced down to units of production are addicted to simplicity.
That’s a level simplicity which doesn’t really exist. But if you become addicted to that view of the world, I guarantee you’ll end up with higher costs and lower revenues…the exact opposite of what you are hoping to do.
If you think one unit of “customer service operative” is infinitely exchangeable with every other unit of “customer service operative” that’s just as bad as selecting the newly-qualified lawyer to defend you on murder charges.
A warm, friendly, helpful person responding to a call and getting a positive outcome for the customer brings enormous value to your business.
Outsource it to someone halfway around the world who learned English via ChatGPT, and has very little idea of what it means to book a car into a main dealer for a service, and you’re more likely to be destroying value than creating it.
This doesn’t just apply to people, or service-based roles.
When I worked in the printing industry, there were a number of places we could buy paper from.
The paper was identical, whoever we bought it from.
It was about as close to being a fungible product as you are likely to get.
So who did we buy it from?
The paper merchant who gave us the best service. The one who would respond to rush orders. The one who would accommodate special requests without making a fuss. The one who took extra care to make sure our deliveries arrived on time.
The paper itself might have been a fungible product. But the process of buying the paper wasn’t.
Dumb cost cutters
What often happens in organisations is that, for some reason or another along the way, there’s a need to cut costs or drive up profits.
That’s when the dumb cost cutters get drafted in.
Or, if you already employ a few people naturally inclined in this way, it’s when you let them out of their cage to run their efficiency slide rule over the business after years of listening to them moaning about the extra cost of buying PG Tips for the staff canteen when Tesco Value Teabags would do just as well.
They’re the sort of geniuses who would make you hire a newly-qualified lawyer to defend you on a murder charge, purely because their hourly rate is a fraction of the rate someone who knows what they’re doing would charge.
They also think that as long as someone answers the phone, and they don’t cost too much, that’s a tick in the box for customer service. Even though that’s almost certainly destroying customer goodwill and reducing their future repurchase intent along the way, thereby reducing the value of your business.
They also put out a tender for the million sheets of paper you bought last year and choose the cheapest price, without pausing to consider that a printing press stopped for more than 20 seconds because of a late paper delivery from a supplier costs vastly more in press time than the tenner they so cleverly thought they had saved.
(They have probably also increased the costs for express deliveries, overtime costs, credits which need to go to the client for late deliveries, and 101 other things too. But those never go on the spreadsheet they use to show the boss what a good job they’ve done.)
To run your business at the lowest possible cost, what you need to do in a production sense is organise your supply chain and manufacturing process to be completely calm from start to finish. You need everyone working in a steady rhythm like the proverbial well-oiled machine.
Regular crises with late deliveries or wrong deliveries scupper all of that. Drama is always negative to your bottom line.
Quals vs quants
The fundamental problem in many businesses is that they think they live in a quantitative world, when the reality is we live in a qualitative world.
Too many people think it’s all about the numbers, when the reality is the numbers come second.
Over the years, I’ve found that if you get the qualitative elements right, the quantitative elements largely look after themselves.
I instinctively push against anyone who thinks we need one unit of “lawyer” or one unit of “customer service operative” or one unit of “a certain number of sheets of paper”.
But I’ve met plenty of people addicted to that fungibility myth over the years. People who believe any business can be reduced to numbers on a spreadsheet.
Like a street-corner dealer who gets high on their own supply, they make plenty of bad life choices.
They’re so busy having fun with fungibles, imagining that everything apart from their own genius is infinitely replaceable with identical other units of something that’s superficially similar, that they forget almost nothing in life is a fungible product.
If they were managing a warehouse full of gold bars, that might be OK because those really are a fungible product.
For almost everything else in your business, fungibility is a myth.
So why run a business on an assumption that it’s true?
Very few businesses run their logistics on the assumption the Earth is flat. So why would anyone run their business on the assumption that one unit of “lawyer” and one unit of “customer service operative” and one unit of “paper” are all fungible products when that clearly isn’t the case at all.
Start to think about problems and opportunities in your business more broadly. Lift your eyes above your spreadsheet where everything looks the same. Go and talk to your staff, your suppliers and your customers.
You’ll find that every unit of “customer” is not the same as every other unit of “customer”. Neither is every unit of supplier, or employee, or baked beans.
And once you get your head around that, you’ll make much better decisions for your bottom line.