Last week, we were talking with Cheni Yerushalmi, co-counder of Sunshine Suites, about Measuring What Matters.  I think the main takeaway, from an Indicee point of view, is that the company’s Financial Reports were deemed much less important to the running of the business than were Operational Measures.

Today, we’ll move away from some of the broad philosophical implications of the question, “How do you measure success?” that we tackled with Cheni and move into the practical side of what measurement tools are being employed in mid-sized businesses and what measures are considered important in a conversation with MAKE Technologies CFO, Wendy Van Donkelaar.

MAKE Technologies Inc. is a Vancouver based software solution provider that analyzes and modernizes all three aspects of legacy enterprise applications: business processes, source code and data. MAKE’s modernization platform, TLM, helps their global customer base to reduce the cost & risk required to maintain and modernize their mission critical systems.

Wendy Van Donkelaar is a Financial Executive and Chartered Accountant with over 20 years experience in the technology sector.

I was interested in getting her take on the role of I.T. Systems for keeping tabs on the health of the business through the use of reports and KPIs.  What I found was, 1) she is strapped for time just like every other Finance Manager I’ve met over the past 10 years, and 2) she employs a number of tools to get the answers she needs to effectively manage the company’s finances.

So, here’s the Q & A:

1. How do you analyze operational performance? We use SFA [Salesforce Automation], SA [Simply Accounting] and excel spreadsheets to analyze performance.
2. What are the critical operations KPIs? Net new license and services revenues, Sales Funnel growth, Professional services utilization and G/M [Gross Margin], # of partner deals, # of presales presentations per quarter.
3. Do you analyze results on a project-by-project basis? Yes using an excel spreadsheet we are currently evaluating project management systems.
4. How is the Finance function changing/evolving with the onset of new technologies? The function has changed from one of historic information gathering to one of predictive analysis.
5. How do you view the role of spreadsheets in your line of work? Used for summarizing weekly Dashboard metrics and Board reporting.
6. Has your view of spreadsheets changed over time? How so? In my past, spreadsheets where often used for gathering and collating data so that analysis could then be performed.  It now seems like that step has been taken care of by SFA, SA or ERP [Enterprise Resource Planning] tools and I focus on smaller sets of data for analysis.

What does it all mean, man?

I’d like to highlight a few things in Wendy’s responses that, in my view, have a profound impact on all of us.  Call them sweeping generalizations if you must, but I see these responses as indicative of the typical situation for those of us working in mid-sized companies doing the accounting.

First, we’re living in a multiple-systems world.  By and large, when we are producing reports we are doing so by gathering data from various systems and collating that data into a cohesive picture of the enterprise.  The systems tend to operate independently of each other.  And inevitably, excel becomes the default aggregator.  Is this your experience? Make a comment!  What systems are you running and how do the systems integrate?

Second, inside the business, operations reports trump financial reporting any day of the week!  Check out the answer to question #2.  Of seven measures given, only one is truly a GAAP number.  Compliance dictates spending a great deal of time on Financial Reports, but these don’t provide actionable data in the same way that things like capacity utilization, or net new business, or sales pipeline does.  Share some of your operational measures in the comments!  What’s the focus in your workplace?

Third, predictive analysis has become mainstream.  There was a time that this topic was reserved for B.I. technicians, I.T. analysts, and academics.  More and more it’s becoming a practical requirement from management.  So, how do you management your predictions?  What oracle are you consulting? How many tea leaves must be read?  How can we know the future?

Let’s get some comments going!

Related posts:

1. Bringing Design Thinking to Accounting and Finance
2. Accounting for Interdepartmental Language Barriers – Accounting and IT Part 2
3. Accounting for Interdepartmental Language Barriers – Accounting and IT

What do all of these people have in common?

These guys all make a living through establishing rapport (trust), listening, and through their skillful use of questions while interviewing.

Think Like a Reporter

As a business professional, whether you’re in accounting & finance, sales, marketing, or IT, you need good information about your environment.  Some of the best information tends to be locked up in the head’s of all the people you work and interact with through the normal course of your day.

Why not try “interviewing” your colleagues?

I’m talking about anything from stuff about business process to procedural and administrative workflows, operations design, and business and financial report requirements. Pick a topic and ask questions on it.

The opportunity exists to understand all the systems operating around you better when you start thinking like a reporter and asking good questions.

Let’s be clear.  I’m NOT talking about badgering, browbeating, hectoring, pressing feet to the fire, inquisition style questioning that’s designed to embarrass or belittle your colleagues.

So, what makes a good reporter?

I’ll go into a few pointers and some media, but I would also encourage all of you to watch the CBC’s Amanda Lang interview some people.  In my view, she is far and away the best question-asker in media right now.  She’s a great example of doing all the right things through the course of an interview to engender trust of both the interviewee and the audience as well as to ask insightful questions that allow for detailed answers.

The Role of a Reporter

Mathew Ingram, formerly a technology reporter with Globe & Mail and now blogger with GigaOM, sums up the job of a traditional reporter beautifully in his recent TEDx Toronto talk, Five Ways New Media Will Save Old Media, as:

“we called people up and asked them irritating questions and then wrote down what they said”

Whoops! Sorry, wrong clip.  Do we have the right clip?  Do we have a clip?

Ah, okay, what he said was,:

“If you’re writing about a story, somewhere someone out there knows more about that story than you.  In fact, a lot of people might know more about that story than you.  So, you should allow them to tell you what they know.”

This is the essence of reporting.

Now, when he said this, he was actually talking about having newspapers incorporate comments and input from readers into the process of journalism and not specifically about interview etiquette.  But, in the New Media world there’s less and less difference between the audience and the subject.  Here’s Mathew’s TED talk where he describes this evolution:

I think Mathew makes a good point as well in recognizing the importance of having a dialogue going.  In “traditional” reporting, there may have been the perception of a one-way exchange.  The reporter asks, the subject answers.  That’s only half the story.  It’s a conversation and like any good conversation it’s a two-way street. But, it’s a conversation with purpose.  You are the guide.

Simple Tips

Broaden your sources

Think about this question: Where do we get our information?  Bob Woodward, one of the journalists that brought down Nixon in the Watergate Scandal, tells us in the following clip that we get information 1) from people 2) from documents (or evidence) and 3) from the scene (observation).

He make a great point about talking to people.  He says, talk to A BUNCH of people.  Not just one person.  In a day, he may talk to a dozen people around the same issue in order to gain that broad perspective of views.

Asking Questions

Basic journalism tells us to focus on the Five Ws (that isn’t really 5… or just Ws, okay, so don’t use Journo’s for calc’ing your Net Profit):

• Who? Who was involved?
• What? What happened?
• When? When did it take place?
• Where? Where did it take place?
• Why? Why did it happen?
• How? How did it happen?

Of course, all questions are not created equal.  Journalism 101 blog lays out some ground rules about the soft skills, but suffice to say I don’t think you want to make people feel stupid.

In general, keep an open mind and ask open-ended questions.  Keep that question engine going in your mind so you can delve more deeply as opportunities present themselves.  LISTEN, so you can key off of what the subject is telling you.

Remember, you are questioning yourself during this process as well.  All of those assumptions you may have embedded in your thinking need to be questioned throughout this process.

Say Thank You!

and, of course,

Be Prepared

‘Nuff said!

Here’s some additional resources that should help you build up your skills.

Media Training Basics: Mastering Tough Questions from the Media by Harvard Business Service

How To Ask Better Questions by Judith Ross at Harvard Business Review

Learn To Ask Better Questions by John Baldoni at Harvard Business Review

The Four Principles of Interviewing by Columbia University

From Chapter 13 of Sun Tzu’s famous, Art of War, on the use of spies:

“The means by which enlightened Rulers and sagacious Generals moved and conquered others, that their achievements surpassed the masses, was advance knowledge.”

“Advance knowledge cannot be gained from ghosts and spirits, inferred from phenomena, or projected from the measures of heaven.  But must be gained from men.”

Added Bonus

Sun Tzu’s Five Types of Spies

1. Local Spy

2. Internal Spy

3. Turned Spy

4. Dead Spy

5. The Living Spy

Enjoy!

Related posts:

1. Understanding Business is a Game of Questions
2. The Meaningful Scorecard
3. Improving Your Month-end Throughput

This isn’t a month-end tirade.  Instead, I’m feeling nostalgic so I thought I would share a story from my past.  It’s been some time since I’ve been subjected to the time pressure of month-end & period close activities. For as much accounting has its common elements, every company’s month-end experience is different.  I’ve worked for a number of different companies in a number of different sectors, and no two were the same.

One of the things about Accountancy, and it’s often cited as one of the profession’s advantages, is the ease with which one can move between industries.  The common elements enable it; bank rec’s, financial statements, “the binder”, you know the drill.  I think this is true to a point; however, I have also noticed that we can build up domain expertise as well as anyone in an organization. I’d be interested in hearing your thoughts on this bit.

Today, I’m thinking about some work I did for a mid-sized media company here in Vancouver.  I was brought in as a chair-warmer Analyst while the company restructured and relocated its back office to Toronto.  My predecessor had jumped ship early (before his job was scheduled to disappear), but Toronto wasn’t quite ready to steer the department so the local Controller (who was also on the block) needed someone to wait it out with him.

This was not one of those nightmare month-ends ( I’ll save my nightmare stories for closer to Halloween… and maybe April Fool’s).

I had some pretty standard stuff to do; the bank rec wasn’t pretty, standard payroll auditing for a few hundred employees, a systems conversion meant that we had to chase down some entries that got dropped from one of the back office systems, and then there were the Revenue Reports for the managers.  The Controller did all the financial reports.  He would often describe his month-end consolidations style as the brute force method.  He understood 1) the importance of having a process and 2) the tenacity that is a requirement for the profession.

I’m going to focus on the Revenue Reports for the managers that were part of my month-end process.  I would collect data from the accounting system, from the system that recorded the advertising sales, and the system that generated the physical page layouts (capacity).  This business has a number of publications being produced.  Each publication required a report.  After which, the completed reports were emailed and yes, were printed, for each of the managers.

You’ve probably guessed buy now that I put all of this data into a spreadsheet.  Thinking back, could the company have benefited from Indicee? It probably would have taken a bit of work to set it up and the reports would have looked a bit different, but Indicee probably could have provided the information I was putting into these reports.  But that’s not what I want to tell you about.

I want to tell you about how I learned the process of completing these reports.  The incumbent, clever fellow, had developed his process for these over a number of years and in relative isolation.  He had it down to a science; but, all that knowledge was locked up in his head.  When he walked out that door, the process walked out the door with him. Typical in mid-market companies.  Documentation on complex processes that have evolved over time tends to be weak.  In this case, the damage would be shortlived because these reports were being killed when the head office transition was completed.  In the meantime though, I was left to decipher and de-engineer the reports and get them out to the managers.

To the point:

In the course of my investigation, I found that neither my boss nor some of the other managers actually knew what large parts of the reports meant!  Or why they should care! The process of creating the report, even with practice, was big.  Why was I going through all of this if the end users had no clue what I was giving them? Why had my predecessor done so over the course of a number of years? A pretty big portion of the reports were just wasted effort.

My theory is that reports evolve over time.  This one had evolved, but it hadn’t “lost it’s gills” so to speak.  It was standing upright and talking, but it had a tail.

http://www.cafepress.ca

Tightening up your month-end throughput means recognizing the Darwinian nature of your reports.  Questioning your end users, your internal customers, is key to understanding what parts are no longer relevant.  You’ll need to be persuasive within your organization in order to overcome the natural tendencies toward the status quo.  Be prepared to quiz people.  This part is easier said than done, but with tact and a collaborative attitude gains can be made.  I suggest using the analogy of accounting as a manufacturing process.

Month-end, like any good manufacturing process, needs to be free of waste.

It’s a question of throughput.

That’s my story for today.  For more on stories, I recently produced a guest blog post on the Sage Peachtree Community site called, The Importance of Stories.  Don’t worry, month-end will be there when you get back.

Enjoy.

Related posts:

1. The Importance of Stories
2. The Meaningful Scorecard
3. Sharpen your Business Analysis: Think Like a Reporter

As George Akerlof and Robert Shiller discuss in their widely acclaimed book, Animal Spirits (How Human Psychology Drives The Economy, and Why It Matters for Global Capitalism),

“The human mind is built to think in terms of narratives, of sequences of events with an internal logic and dynamic that appear as a unified whole.  In turn, much of human motivation comes from living through a story of our lives, a story we tell to ourselves and that creates a framework for motivation.  Life could be just ‘one damn thing after another’ if it weren’t for such stories…. Great leaders are first and foremost creators of stories.”

Think about the stories that define your life.  How do these stories influence your perspective?  How do they influence how you see yourself?  What are the stories that resonate most strongly in your life?  What stories do you choose to relate to other people?  There’s a growing body of knowledge, that aligns with the passage above, saying these stories are fundamental to the formation of our identities.  This is a powerful thought.

Yet, traditionally in accounting and finance, stories are an afterthought.  We are taught to focus on the numbers.  We create the balance sheet, income statement, and cash flow statement in accordance with GAAP, leaving storytelling to the sales and marketing departments.  My experience has been that it’s very difficult to generate engagement through the use of the financial reports, and in retrospect, I think it’s for this reason.

There’s a reason why people say the Notes To The Financial Statements will tell you “where the bodies are buried”.  The reason is that only in The Notes do we find stories.

From a regulatory perspective, for external reporting we’re fairly hog-tied as to what we can do.  GAAP is king.  These constraints are institutionalized and provide a structural grounding for capital markets that is required for a host of reasons.

Internal reports, on the other hand, present a tremendous opportunity to begin using stories to provide context and colour to business results.  This is the area of accounting and finance where we can really affect some change NOW by bringing life to the numbers.

In the following clip, Ira Glass (son of an accountant and award winning host of This American Life on Chicago Public Radio) describes using anecdotes to convey ideas and says,

“the power of the anecdote is so great, no matter how boring the material is, if it’s in a story form where there’s an anecdote happening,  it has a momentum in and of itself… like being on a train that has a destination”

(hat tip to Presentation Zen blog for a good post on this same clip)

Ira Glass summarizes the process of telling a story as:

1. Start with an action

2. Raise a question from the beginning (the bait)

3. Answer the question

4. Repeat

5. Moment of Reflection (the “why”)

Enjoy!

Related posts:

1. Running the gauntlet of Year End Business Reporting
2. Accounting for I.T. in the Finance Department
3. Improving Your Month-end Throughput

“Buy the ticket, take the ride” – Hunter S. Thompson

Now, this isn’t a critique of the inevitable conflicts (real and perceived) inherent between these various groups.  Nor is it a post about the differences between Accounting and Marketing.  In order to do that, I am missing one critical piece.  My good friend Dan’s “Top Ten Differences between Accounting and Marketing List“.  Maybe with your help, readers, we can convince him to give it up.  Add your thoughts in the comments section!

NO.  This post is about posing a simple question:

How are your Year End spreadsheets doing?

Year End is upon us!  Everyone knows, thanks to these accounting blogs:

• Look at Last Year’s File
• Accounting Nation
• Accounting WEB
• CPA Trendlines
• re: The Auditors
• Junior Deputy Accountant (warning: Language)
• and Going Concern

Everyone knows that Audit Professionals have been raked over the coals of more stringent regulation and oversight the past few years (for all the good it’s done!).  And, if my experience is at all representative of our collective experience on the industry side, the auditors have been passing all of that regulation onto you!

Preferred method of passing = The Paddle

The paddle will be heading your way again soon enough.  Time to rollover all those Year End files and clean up for prepping 2009’s close.  The rigors of financial reporting compliance are staring us right in the face once again.  Oh, and Merry Christmas by the way.

Of course, I think that if the past 2 year’s have taught us anything, it’s that regulation is ineffective in preventing fraud.  I would like to know where Frank Abagnale jr. stands on this issue.  Abagnale is the character upon which the movie Catch Me If You Can is based and for the past 35 years he’s been helping the FBI, businesses, and government cope with matters of fraudulent activity.  I highly recommend his book, Art of The Steal, for anyone interested in learning more about specific industry-related fraud risk.

Ultimately, prevention is the key; and if that’s true, historical financial reports will never fulfill that role.  I realize that doesn’t mean we shouldn’t try, but my view is that (anecdotally) auditors are getting hung up on details that bear little or no relation to the real risks.  Reason has been traded for checklists.

Be that as it may, you guys are still going to be toiling over this stuff, at their mercy, in the very near future.  At the same time, you will be expected by your management team to provide ACTUAL insight into the ACTUAL operations of your ACTUAL business.

Operations.  This is where the rubber meets the road.  Here is where you can’t “juke the stats“.  Yet, due to the pressures around the financial reports (case in point above), our operations reports are given second billing (if that – after payroll, A/R and collections, admin, etc).  To give you an idea of how much they are marginalized, there isn’t even a Wikipedia entry for Operations Reports!

I don’t see the issue with the auditors changing or going away anytime soon.  For me, there’s no reason to be optimistic or to engender optimism in you regarding that!  This is the system we live with for the moment.

Operations Reporting has to find a way to fit within the time constraints given these other pressures.  Either it fits in by 1) doing less or 2) doing more in less time.  How would you prefer to deal with your Operations Reports?

Do you have questions about the difference between Financial Reports and Operations Reports?  What are your views with respect to how this all fits together?  Let us know in the comments (and don’t worry, no salesperson will visit you).

When you talk about the true viability of the business, what does it really mean?

Closing links:

• Here’s a great segment talking about why we should question Ratings Agencies
• Embedded copy of IDCs Predictions for 2010

Enjoy!

Top 10 IT Predictions for 2010

Related posts:

1. Business Reporting ≠ Dishwasher Job
2. The Roots of Business Reporting Technology
3. The Importance of Stories

“Hard work is a prison sentence only if it does not have meaning”
- Malcolm Gladwell, author of Outliers

“Finding the one or two key numbers that drives success in your business, and bringing them to everyone is very powerful in a business”
– Joe Knight, co-author of Financial Intelligence

The inspiration for this post was a management improvement video (13 minutes) posted on You Tube by http://www.harvardbusiness.org of an interview with Joe Knight, co-author of the book series “Financial Intelligence”, Business Owner, and Harvard Business.org blogger.  The central message of the interview was that everyone in an organization benefits from understanding the numbers by which success is measured within a business.  The trick is finding the right numbers.  Particularly in today’s climate hearing about transparency is nothing new, but what doesn’t get as much play is this idea of narrowing the focus on measures of performance.

With respect to the numbers: Thanks to technology, we now have ALL the numbers available ALL the time. Reports have become super-robust because they can.  Although there’s an argument for providing surplus information and letting the end user choose which parts to digest, there is also a great danger.  Knight argues that providing less information to end users can actually produce better business intelligence.  The process of asking the questions and finding the underlying systems within an operating group can enable a more focused, effective approach to providing reports. First, understand the work flow and underlying system of work for operations groups; then, develop measures around them.  It’s easy to say, but when was the last time these conversations have taken place in your business?

“Business is like a game, and if you don’t understand the finances, you’re basically playing a game where you don’t know score”
- Joe Knight

According to Knight the emphasis should be, and this is where the interview really resonates with me, on providing a small number of operational metrics in a simple way and providing them to everyone.  He rightly points out that the people receiving this information probably don’t want to be accountants, and have little or no interest in double-entry accounting “no matter how exciting it may appear to be”.  For Accounting and Finance guys like us, it then becomes an exercise of translating Business Intelligence into Practical Intelligence in the reports we create to achieve an optimal value.  It would be like one of us attending an advanced physics lesson.  We would get way more out of it if someone simply dropped an apple on our heads.  Sometimes less is more.

The implied point here is that results are distributed throughout the business, not just to top managers.  Doing so, creates what Knight dubs “psychic ownership” so that even though employees may not BE owners of the business they start to ACT like owners.  This occurs when an employee can make the connection between his/her own actions and the financial result.  That is why the choice of what gets communicated is so crucial.  Finding one or two key drivers to the business that correlate with the financial results will accomplish this task.  Malcolm Gladwell, (author, and columnist for The New Yorker), makes a similar point, in his best selling book Outliers, about the importance of being able to see the link between effort and reward.  Gladwell contends there are 3 important qualities that define “meaningful work”, 1) autonomy, 2) complexity, and 3) a connection between effort and reward.  FYI, Outliers provides some interesting views through a number of entertaining anecdotes ranging from Bill Gates’ early days to The Beatles.

The book is about elements that contribute to the conditions for success.  The effort-reward piece is illustrated using The Garment Industry of 1890s NYC.  This turns out to be the roots of several top litigation firms in New York.  The moral of the story is that being able to see the connection between effort and reward creates a positive feedback loop.  Hard work becomes meaningful work.  I highly recommend it.

Ultimately, the “score” of the business is represented by the Financial Reports, right?  As accounting professionals, we know the complex process whereby these reports are created. As well, there are the intricacies and nuances associated with the interpretation of these reports.  We have the proper training to derive meaning from them.

Based on my experience, most of us are keen to share any and all of this information (confidentiality permitting) with colleagues.  In the video, Knight argues that we may be guilty of over-sharing; providing far too many KPIs.  If “KPI” is being used to describe every line item in the P&L, you’ve got a problem. The Law of Unintended Consequences kicks in, inadvertently confusing people.

There have been several studies recently on the behaviour of shoppers that would appear to bolster this line of thinking.  Shoppers who are given an abundant choice of product buy less than those given just one or two choices.  If we view the recipients of our internal management reports as “shoppers” and the reports we create as our “product” in conjunction with this behavioural insight that Knight suggests, we can create more effective reports.  At which point, as Gladwell illustrates, we will be able to show the link between effort and reward.

The result is the Meaningful Scorecard; communicating the numbers to people in “a way that gets at what’s important” and “how it affects them”.

So, the question is, what actions and activities correlate with success in your business?

Related posts:

1. RELEVANCE
2. Running the gauntlet of Year End Business Reporting
3. Improving Your Month-end Throughput