Biting into the Numbers

The first thunderstorms of the season had passed, the rain had stopped, it was still gray and windy, and the power – which had been out all day – had just been restored to our little island community on the Maine Coast. Somehow the prospect of our usual Saturday evening car trek 15 miles up the peninsula to town for dinner seemed not worth the effort to me. Even if it was June, it felt more like March.

Annie opened the cupboard. “How about some beans and franks?” she asked cheerily. “We even have some brownbread to go with it.”

I looked up from the computer as she paused for my response, and I realized that this wasn’t at all a worst-case ploy to get me off my duff, away from the client’s spreadsheet (yes, even on a Saturday!), into the car, and out for dinner. It was Saturday night. Beans and franks night. Growing up, that was always the way it was, for both of our families. (One of many parallels, starting with our being born in the same hospital, 20 days apart.)

Depending on the occasion, or maybe it was the season, there were variations on the beans theme: cooked with pork or without; in combination (pea beans and kidney beans), or not; baked all day, or just out of the can. But the hot dogs always had to be grilled, not boiled. And the brownbread had to have raisins.

Believe it or not, I thought of this as I turned away from the numbers on the computer screen. Beans and franks sounded great. So of course I said yes. Some traditions should never die.

And then I went back to the numbers (but just ’til supper). The numbers weren’t so great. They were basic – the income statement and the balance sheet, for a single month. Just the beans – no ketchup, no relish, no dogs, no mustard. “No wonder no one around the management table gets excited about this offering,” I thought. “There’s no context – nothing to bite into or to provide any understanding by the managers.”

Even lining the monthly results up against the budget wouldn’t do much for this management team. They’d look at the top line and then the bottom line, they’d hear the boss say “We have to do better,” and then they’d revert to the ongoing discussions of reorganization, realignment, and reward in an effort to “do better.”

So last week the controller and I got together to make the numbers more appetizing. We didn’t “cook the books” – that would be pushing the metaphor (and some other things!) too far. But we did develop our own menu in three basic food groups to feed to the managers:

  1. Financial results –
    • Variance analysis – Why did last month’s results differ from the budget? Are there significant trends that made the revenues higher or lower? Why, and in what accounts, did we overspend or underspend? Will we make up the difference in coming months?
    • The broader view – How does the past month compare with other months in the year-to-date spreadsheet? Is everything under control? Are people being held accountable for managing to the budget? How are we doing vs. the same period last year?
    • The crystal ball – Let’s reconsider the next three months apart from what’s budgeted. What do we know that will be different from plan? What are the implications? Is corrective action required? When? By whom? What’s the current projection for year-end, top and bottom lines?
  1. Sales –
    • The pipeline – How many new leads were generated by the marketing team last month? How many new proposals went out? How many did we close? How many are still in the pipeline? What’s the timing and the probability of closing on them?
    • The follow-up – What proposals did we lose? Which got postponed (no decision)? Who did we lose to? What was the price, and was it a key factor? How could we have been more competitive?
    • The autopsy – How much did this completed project cost vs. its budget? Did we charge extra for the upgrades? Did we make our target margin on it? How could we have made more?
  1. Personnel –
    • Personal productivity/utilization rate – What percent of each team member’s time was chargeable to projects last month? What was the percentage of everyone’s time that got charged out, vs. that which ended up in overhead (selling, admin, training, etc.)?
    • Ratios – How many dollars of revenue did we book for each dollar of salary? How does that compare with prior months? With last year? What’s the overtime percentage for the last payroll period? What’s our fully-loaded “shop rate” – the revenue that we have to earn each hour to cover payroll, payroll overhead, indirect expenses, SG&A, interest, and profit?

There aren’t a lot of fancy ingredients in this recipe, and it didn’t take a lot of time or extra effort to cook this up. Before the next meeting, we’ll whet the appetite of the managers by telling them that we have a lot of “food for thought” and that we’re planning to serve up the numbers in “readily digestible” form this time, rather than simply overwhelming them with “mystery mounds” of data.

With any luck at all, they will feed on this information and soon be propelled into action. Just like I am, after the traditional Saturday night supper.

Alligator Bites

“A brilliant strategy, blockbuster product, or breakthrough technology can put you on the competitive map, but only solid execution can keep you there. You have to be able to deliver on your intent. Unfortunately, the majority of companies aren’t very good at it, by their own admission…

“What matters most to strategy execution [is] Information,” 54 points (out of 100) vs. Decision Rights (50), Motivators (26), and Structure (25), based on “a database of 125,000 profiles representing more than 1,000 companies, government agencies, and not-for-profits in over 50 countries…

“Rational decisions are necessarily bounded by the information available to employees. If managers don’t understand what it will cost to capture an incremental dollar in revenue, they will always pursue the incremental revenue. They can hardly be faulted, even if their decision is – in the light of full information – wrong. Our research shows that 61% of individuals in strong-execution organizations agree that field and line employees have the information they need to understand the bottom-line impact of their decisions. This figure plummets to 28% in weak-execution organizations…

“[One of the longer-term corrective initiatives for the sample client company involved] pushing metrics and scorecards down to the group level, so that rather than focus on solving the mystery of who caused a problem, management can get right to the root cause of why the problem occurred. A well-designed scorecard captures not only outcomes (like sales volume or revenue) but also leading indicators of those outcomes (such as the number of customer calls or completed customer plans). As a result, the focus of management conversations has shifted from trying to explain the past to charting the future – anticipating and preventing problems.”

– “The Secrets to Successful Strategy Execution” from the Harvard Business Review , June 2008

Draining the Swamp

  • Save $40 a month by choosing a cell phone or a landline but not both.
  • Save $35 a month by reducing your homeowners or auto insurance costs by raising your deductible from $250 to $1,000 on each.
  • Save $100 a month by deciding your future is worth one less night out each week.
  • Save $120 a month with a grocery list, and don’t go to the store hungry.
  • Save $40 a month by bundling your cable and Internet services, or go to a basic package.
  • Save $75 a month by trimming the takeout tally. We spend too much money on food on the fly. Buy coffee instead of a cappuccino and a less expensive sandwich instead of sushi.

– “On Track to Millions” by Jean Chatsky, from Success magazine, June/July 2008