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

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

At the time, I replied,

“Well if that’s the case, if Sales are the waitresses of the business, than Accountants are the dishwashers.”

I was Controller at the time.

You might think the worst aspect of washing dishes, I’m talking commercially here, is the fact you are cleaning up other people’s messes.  I don’t think it is.  I think the worst part is mind-numbing repetition.

Welcome to hell. Population: You

As Guy Forsyth (singer/actor) famously says in the movie, Waking Life:

“Did you ever have a job that you hated and worked real hard at? A long, hard day of work. Finally you get to go home, get in bed, close your eyes and immediately you wake up and realize… that the whole day at work had been a dream. It’s bad enough that you sell your waking life for minimum wage, but now they get your dreams for free.”

That kind of repetitious work.

If, by the end of preparing your report, you find yourself never wanting to set eyes upon the thing again, you’re a dishwasher my friend.

One job I had, I was actually “trained“ to print off a paper copy of a report from our accounting system in order to then physically key punch the numbers into, not one, but 2 excel spreadsheets.  Every. Single. Month.  This wasn’t twenty years ago, this was 3 years ago.

That was a dishwasher moment for me.  Does my report have insight and analysis?  Does it tell the story of the business?  WHO CARES!!!!  I want this report out of my sight!

Now, I know I’m not supposed to tell you to buy our product.  I know that.  PT Barnum must be spinning in his grave with the rise of the “don’t be salesy” philosophy – particularly prevalent in social media circles.  It was the style at the times… is what we’ll say looking back years from now.  PT Barnum was, of course, one of the greatest self-promoters of all times.  He famously said, “Without promotion something terrible happens… Nothing!”.  He also said, “There’s a sucker born every minute”.

So, this is me not selling saying, we can show you how to get rid of your dishwasher jobs.  A few walkthroughs over the phone with our guys to get you set up and your dishwashing days are over.  At least, with respect to certain repetitious report creation tasks.  When you can’t get the report you need without putting in some serious dishwashing time and think, “there must be a way” then you’re likely in a position where a call with us could help you.

As PT Barnum also famously said,

“Those who really desire to attain an independence, have only set their minds upon it, and adopt the proper means, as they do in regard to any other object which they wish to accomplish, and the thing is easily done.”

Now, this is a Friday post, so in the tradition of Fun Friday check out these clips once the office has cleared out.  The first is easily the best dishwasher quit scene ever made from a little known animated classic called American Pop.  The second is a clip from the aforementioned Waking Life; another classic (non-dishwashing related).

Enjoy!

Related posts:

1. Running the gauntlet of Year End Business Reporting
2. The Roots of Business Reporting Technology
3. Quarter End Reporting – A Time for Reflection

(There are number of definitions out there, but I think the above serves the purpose)

There’s a lot of Buzz around the concept of Design Thinking at the moment.  A great deal of content has been produced, but I’m not sure how much has been directed toward the accounting and finance community.  During the past 2 years for us, listening to someone talk about “radical innovation” usually entailed mostly hand-wringing and, well, … expletives.  It’s understandable to have missed some of this.

So, I’m not sure how much about the topic has filtered in.  Maybe that’s a good discussion point for the comments:

• How much of the Design Thinking paradigm has filtered into the accounting and finance community?
• How applicable is this school of thought to accounting and finance?
• Do you believe there is a place for Design Thinking in accounting?

I’m interested in “jumping in” because I think there’s a natural connection between the way of thinking that underlies Design Thinking and the way of thinking underlying big parts of accounting.

The three main activities of Design Thinking are actually used extensively in our field.

I think we can all relate to:

1. The Mystery: pondering questions to enhance understanding of what is, or has, happened

2. Developing a Heuristic: a rule of thumb that helps narrow the field of inquiry and work the mystery down to a manageable size

3. The Algorithm: formal system for managing knowledge

We might consider this process when reviewing month end variances, or considering an asset’s useful life for amortization purposes.  Maybe we are reconciling transactions, ascertaining fair value, or while planning business combinations.  There’s an investigative nature to accounting that requires these critical thinking activities.  Maybe it’s something we wish we did more of.  Maybe these lessons bear repeating.

Viewing it from this perspective, the accounting and finance functions are subject to the same pressures affecting any other group as we try to balance the broader vision with our day-to-day routines.  When does the complacency of routine dull us to the level of engagement required to maintain the effectiveness of our critical thinking?

The choice is between being truly able to internalize this active, participatory way of thinking; or, just looking in the file for what was done last year.

Roger Martin (Thought Leader in the field and Dean of the Rotman School of Management at University of Toronto) cautions against casual use of the term, Design Thinking, when he was questioned recently by Nora Young on CBC’s Spark podcast.

She closes the interview with this:

Nora Young: The other part of me, the cynic, thinks ‘this is just another management buzzword’.  How do you get people to take this really seriously and do the kinds of stuff that’s really required to rebuild the organization rather than just paying lip service to it?

Roger Martin: Well, I think it already has passed into management buzzword; right so, and I think this has happened many times before, where the world of business gets excited about some concept and typically that concept has some validity and some utility; but then, it gets pushed far beyond what it should have… and lots of people who know nothing about it actually hop into the terrain and it gets diluted…

If it hasn’t already happened with Design Thinking, it will.  I don’t have rose-coloured glasses on about that phenomenon.

You can see that Martin differentiates between the inevitable decline into buzzword status of “Design Thinking” with the value of the concepts at its core.

Let’s look at the core stuff while accepting the dilution of the term.  And, if Martin has no illusions, neither should I:

I could be one of the very people Martin warns of.

In my view, the core concepts are more foundational, more universal; this construct of Design Thinking is just the shiny, new wrapper.  The way of thinking that underlies the theory is the critical component.  What it’s called tends to change, but what’s required to make it happen does not.

Peter Senge, author of the well known management book, The Fifth Discipline, and Director of the Center for Organizational Learning at the MIT Sloan School of Management sums it up in an exchange with another management guru, Bill O’Brien (deceased), ex-CEO of Hanover Insurance here:

Peter Senge: If everybody thinks this is so great, how come it doesn’t exist?

Bill O’Brien: We have no idea the kind of commitment required.

In this exchange, they are referring to the management paradigm of their day, Systems Thinking (circa 1990). The difficulty in achieving benefits from these theories turns out to be every bit as universal as the underlying concepts.

The equation is, easier said than done multiplied by talk is cheap.  Without action, nothing happens.  Without action, regardless of whether we talk about Systems Thinking or Design Thinking, it’s “just another management buzzword”.

In Systems Thinking, it’s about exploring patterns of interdependency, dispelling the myth that we are all highly independent.  A lot of it involves the same stuff as Design Thinking; asking questions, revising assumptions, understanding relationships.

Think: Action

The Design Thinking model is really well defined in this excerpt from the Noise Between Stations blog:

Based on a review of writing on the topic, I have synthesized for myself what I understand design thinking to be…

Collaborative, especially with others having different and complimentary experience, to generate better work and form agreement

Abductive, inventing new options to find new and better solutions to new problems

Experimental, building prototypes and posing hypotheses, testing them, and iterating this activity to find what works and what doesn’t work to manage risk

Personal, considering the unique context of each problem and the people involved

Integrative, perceiving an entire system and its linkages

Interpretive, devising how to frame the problem and judge the possible solutions

Read more: http://noisebetweenstations.com/personal/weblogs/?page_id=1688#ixzz0WPzb9vRa

This is all substance over form stuff.  How does stuff actually get done?  What happens when what something is called does not match what it is?  How does structure influence behaviour? And vice versa.

We know about this stuff, but don’t always think actively about it.

What’s our next move?

As a group, it’s our responsibility to take the lead on innovating our financial and managerial reporting and accounting systems.  I’m mainly referring to Operations Reporting here; but quite frankly, I think Financial Reporting could use a look too.  How can we more effectively achieve our reporting goals while enhancing value for users?  Where is optimal value and how does that value point change over time?

The following clip is Tim Brown, CEO of Ideo, discussing Design Thinking.  I encourage you to watch and then think about how Design Thinking can be applied in our field.

Roger Martin on Tim Brown:

“he’s great at designing relationships with his clients, ways of getting stuff to actually happen”

Share your thoughts in the comments!

Remember; the links throughout the article lead to additional content if you want to learn more.

Related posts:

1. Accounting for I.T. in the Finance Department
2. Accounting for Interdepartmental Language Barriers – Accounting and IT
3. Accounting for Interdepartmental Language Barriers – Accounting and IT Part 2