Chapter 5
How Can I Ensure I Will Be Successful?
The crisis of today is the joke of tomorrow!
Introduction
After completing this chapter you should be able to
Administer the Howard Hughes test to your client.
Develop and implement a Position Description for yourself.
Structure your work and responsibilities so that you are doing what is most important.
Focus on the client’s metrics for performance.
Identify and report on the client’s Critical Success Factor.
Keep out of the day-to-day minutiae that will detract from your effectiveness.
No Guarantee of Success, So Improve Your Odds
Before we get into the specific skills, we need to spend some time on five best practices. Each practice is easy to adopt and very powerful. Combined, these practices will help you deliver what the client expects, while making you productive and effective.
Going into an opportunity where you are the contract Controller or CFO means that you will have some hard work to do. You will use the efforts of others to get there. Together these best practices build a structure that ensures your success.
Not every engagement that you undertake will require you to work at the strategic level. This fact does not excuse you from being able to think and act strategically, while understanding how a CEO views their business. We will start this chapter by seeing if you can pass the Howard Hughes Test in activity 5-1. If you fail this test you may want to reconsider whether you truly have the ability to be a contract Controller or contract CFO.
Tactics for Creating Success as the Part-Time or Contract Hired Gun
There are five sure-fire best practices that will guarantee your effectiveness in the role of part-time or contract Controller. Each is a tactic that you need in your Hired Gun toolkit:
Define your role with a Position Description.
Determine what is most important.
Enhance their metrics of performance.
Help them fly in formation with their Critical Success Factor.
Keep your eyes on the forest.
Lessons from the HH Test
Knowing and helping your client understand the client’s Critical Success Factors will make you invaluable.
The purpose of the Howard Hughes Test is to remind you, as the financial contract professional, that you must find and report on what is important. Of course your challenge is refining and honing in on what is important for your client or employer. Different people in the organization will have different definitions of what they feel is “most important.” The best way to deal with this challenge is to administer to each manager the Howard Hughes Test. Based upon what they tell you they need to know, then that becomes what you measure and report on for them.
As the Controller or CFO, you must get out of the habit of reporting financial metrics and the historical information you currently report. You must begin to transform your monthly reports into a feedback tool that provides key metrics to decision-makers on a daily, weekly, and of course monthly basis. Some Controllers are finding that in order for their employer to keep up with the competition or marketplace, they are required to report on some key data hourly.
The best way to make this transformation easy and effective is to add performance metrics into the reports that you prepare. Performance metrics, which will be defined next, must be those things that measure what is important within your organization. Not all the metrics need to come through accounting. Some will come from the operational employee’s own databases. You will match those statistics with your financial data in order to give the decision-makers valuable insight: actual performance and how it translates into sales, costs, or profits.
Get over the fear that you will not be able to audit their numbers and that one of their bad numbers in your reports will harm your credibility. As their vendor of information, you must spend time with each person who keeps their own database of operational data and understand where their numbers come from and how they are generated. After understanding that the numbers are wholesome, you must give them the smell test each time you include them in your reports. This requires you to really know and understand what is going on in every aspect of your client’s product or service cycle. This is also the responsibility of a financial professional. Get out of your office each day, walk around, and talk to people who are unfamiliar with accountanese.
Tactic 1: Define Your Role
Consultant’s motto: Time is revenue!
Unless you proactively negotiate for the support you need to accomplish what the client asks, you will not be successful! An extremely powerful tool that you can use to define the role and support is a Position Description.
Hired Gun Tool: A Position Description
A Position Description is much more than a typical job description. It is a tool and best practice that helps you to fully define a job and put emphasis on what the company wants—results. These are clearly defined in the Expected Results section.
ELEMENTS OF THE POSITION DESCRIPTION
Elements of the Position Description include
Qualifications for the job
Specific job duties
Expected results from the employee
Impact of the job on the organization
Authority levels for the position
Specific difficulties the person may have
Interpersonal relationships
Any other key items necessary for success
While having a job description is something every Hired Gun and member of the support team should have, the Position Description will enable the leading-edge Controller to be very successful. This assurance comes from proactively defining your role for the client using the above elements. The emphasis on a typical job description is on the duties, while the focal point of the Position Description is on the expected results. By emphasizing these, you eliminate the need to cram every conceivable task in the specific duties.
This approach really pays off when you use this tool on the marginally successful employee who hides under their reasoning: “But that task is not in my job description!” By defining what you expect of them, you eliminate this popular excuse and self-limiting belief.
Expected Results
You define and get your client’s (employer’s) agreement on what these are before you get deep into the job.
This section helps you stay focused.
Impact on the Organization
You agree with your client (employer) on obtaining the resources you need so that you can have the impact desired and achieve the expected results.
This clarification helps in your leadership role.
Authority Levels
You define what decisions you can and cannot make and ask for those that will support you in getting the expected results.
This definition helps you to know what is really important.
Special Difficulties
You spell out those things which will limit your ability to get quick or lasting results, like needing to upgrade the technical skills of your existing staff or having to invest in new technology. The things identified here are usually those limitations that could prevent you from getting the expected results.
This section helps you and your client (employer) to be mutually accountable to each other.
Interpersonal Relationships
You agree with your client (employer) on the people that you have responsibility to and for, whom you regularly communicate with, and where you fit into the organization’s structure.
This helps you to keep your eyes on the big picture and see the forest.
BENEFITS OF USING A POSITION DESCRIPTION
Why should you have a PD for yourself and each member of your support team?
The client, or employer, may expect you to accomplish things without giving you the support and authority to get it accomplished. The Position Description will enable you to quickly determine what you need so that you can negotiate for them. This is your biggest benefit for using a Position Description in your engagement, but that is not the only one.
The other payoffs are numerous, and here are some specific ones. A Position Description
Communicates clear expectations to everyone.
Clarifies goals in advance.
Reduces overlaps and gaps among the many employees’ duties and responsibilities.
Reduces uncertainty about what is expected.
Documents performance because it is the basis for evaluations.
Shortens the learning curve for new employees.
Gives a clear definition of the job requirements to any applicant.
Helps you keep your eyes on the forest.
TIPS ON MAKING THE POSITION DESCRIPTION EFFECTIVE
The following tips will help make the Position Description effective.
Results-Oriented
Make the emphasis of everyone’s PD on the results you expect from them. To ensure that the PD remains fresh and current, update every employee’s PD at least semiannually or every time you conduct a performance evaluation, whichever comes sooner.
Proactive
Be sure that you state the expected results in a proactive manner. This encourages you and your employees to take the initiative and become more of a self-starter. This evolves your role of being more of an encouraging coach and less of a supervisor.
Flexible
By focusing everyone’s attention on the expected results instead of their duties, you automatically instill greater flexibility in yourself and the employee. If you want to develop employees who remain proactive and seek out areas of adding value, then make each employee’s PD flexible.
Broad
Today, the ideal employees are those that see the big picture, so it is important that you make the PD broad enough to cover more than just what the employee is doing currently. By developing their PD with a wide variety of expectations, you instill in the employee the need to see both the forest and the trees in their job.
Your own Hired Gun Position Description does not need to be broad. Only cover the current scope of your assignment.
Brief
The ideal PD is only one and a half pages long. As much as possible, you want to create a PD that is no more than two pages. If you can get the PD on one page, you make it even more effective and memorable; its length will depend on how many duties you include. Remember, the more you detail the expected results, the less you need to spell out in the specific duties.
The following are examples of two Position Descriptions. One is for an Accounting Assistant and the other is for a part-time Controller.
Example 5-1: Position Description Example for a General Accounting Assistant
Qualifications
The person filling this position will have a minimum of two years entry-level accounting experience or college education. They will have the interpersonal skills and problem-solving experience expected of a professional. Their technical knowledge will include, at a minimum, usage of PC based computer systems and related applications, knowledge and usage of Lotus 123® or Microsoft Excel®, e-mail, web searches, and database entry.
Expected Results
Within nine months of being on the job, the employee will have accomplished these goals:
Show measurable improvements in accounts receivable collections, reducing Day Sales Outstanding (DSO) from the current 60 days to 35 days.
After completing cross-training, have a good understanding of the duties and functions of accounts payable and payroll processing.
Take over maintenance of general ledger and the preparation of related internal report package from the Controller.
Principal Duties
Timely collection of accounts receivable, including follow-up and documentation
Accurate monthly inventory reconciliations
Accurate monthly reconciliation of bank accounts
In-depth analysis of general ledger accounts and preparation of detailed work papers
Cross-training and understanding of duties in the following areas:
Accounts payable processing and transactions (that is, coding, processing payments, and so on)
Cash receipts processing and transactions (that is, coding, posting, reconciliation, and so on)
Sales processing and transactions (that is, invoicing, summarizing, posting, and so on)
Payroll processing and transactions (that is, data entry, tax filing, deposits, and so on)
Other accounting-related duties and special projects as assigned and delegated.
Special Difficulties of the Position Description
Learning a complex accounting system quickly
Working with a difficult accounting software and cost system
Interpersonal Relationships
Direct supervisor will be the Controller.
Task supervisors will be Staff Accountant and the AP Specialist whenever cross-training and working within that person’s area of responsibility.
Person will also have daily contact with customers, bank employees, and company employees.
Participating member of the finance team.
Evaluation and Feedback
Quarterly performance evaluations will be made on the goals defined in the Expected Results and on the employee’s learning curve in the following areas:
Technical skills
People skills
Problem solving skills
Professionalism
Communication skills
Speed in getting cross-trained
Comprehension of training
Attitude
Enthusiasm
Proactiveness
Flexibility
Willingness to learn
Example 5-2: Position Description Example for a Part-Time Controller
Qualifications
The person filling this role will have five years experience at the Controller level in a production specialty-company environment. The person will have supervised at least five employees, from the recruiting phase through termination. The incumbent will have achieved certification as a CPA or CMA.
Expected Results
Within the next twelve months, the person is expected to
Increase cash flows by 10 percent.
Decrease DSO of accounts receivable by seven days.
Speed up the delivery of financial and management reports by four days.
Reduce accounting staff turnover and stay within the company-wide target of 10 percent.
Impact of Job on the Organization
As a result of this person’s role, Raelco will have competent financial leadership. The company’s system of internal controls will be monitored and reported on annually. The person is expected to provide a positive management model for peers and a leadership model for finance employees.
Authority of Person to Act for the Company
The Controller is authorized to sign checks without second signatory up to $5,000 and with second signatory up to $50,000. The person can make and approve purchases of non-inventory items up to $30,000. When drawing against the line of credit, the person can borrow up to $100,000 without the CEO’s approval. The Controller can obligate Raelco to administrative type contracts of no longer than two years or a combined value of $6,000.
Special Difficulties of the Position
Since this position is part-time (30 hours maximum per week), the Controller is expected to fully train staff and then delegate responsibilities and authority necessary to achieve goals and have the impact expected.
The Controller will need to fully understand the information systems, software, and hardware, since this person is responsible for the system’s readiness.
The Controller will be required to have a good understanding of the job and the organization within six weeks.
Interpersonal Relations
The Controller supervises all the finance employees, which include
Accounts payable specialist.
General ledger accountant.
Accounts receivable specialist.
Accounting clerks.
Inventory specialist.
Financial reporting specialist.
The Controller is a member of Raelco’s senior management team, which consists of
CEO,
VP of Sales and Marketing,
VP of Services,
Director of Human Resources, and
Director of Production.
The Controller will be the main or backup contact with these interested parties:
Vendors
Customers
Banker or Loan Officer
Legal Firm Partner
CPA Firm Partner
Leasing Company Representative
LESSONS FROM THIS ACTIVITY
Mrs. Rapid wants Pauline to decrease the inventory shrinkage problem. Put yourself in her shoes when Mrs. Rapid informs Pauline:
“I hired you to fix accounting. You cannot change any of our compensation policies, only HR can do that. You may not visit the stores and talk with employees, because that is the VP of Stores’ responsibility. I won’t allow you to change any of our existing procedures. You may not fire any Rapid employees—we don’t allow that sort of thing here.
One more thing: There is no money in your budget for travel or training.”
Anything Pauline attempts to do to “fix” the problem will fail! She is better off resigning or quitting.
This can and will happen to you, unless you are given the correct amount of support and the appropriate authority to meet the expectations placed upon you.
From Pauline’s situation, you can now see why you need the Position Description in your Hired Gun toolkit.
Tactic 2: Determine What Is Most Important
“Decide what you want, decide what you are willing to exchange for it. Establish your priorities and go to work.”
H. L. Hunt
Find the Client’s Pain!
The biggest challenge for the part-time or contract Controller is to determine where the urgency is needed in their firm or client.
While their accounting system may be in shambles, there are probably other areas that are in worse shape. If solutions are not found quickly, the company could be in serious trouble (if it is not already).
EXAMINING THEIR PAIN REQUIRES TRUST IN YOU
When I mention their pain, it refers to the fact that your client’s executives, managers, and employees have problems that are not getting resolved. As their Controller, you are the logical choice and most qualified person on whom they rely to help them get rid of their pain. You understand how the business operates, you understand how the finances work, and you (hopefully) understand the key players (that is, decision-makers) and what makes them tick. One of the most rewarding aspects of the job of the Hired Gun is to be regarded as the resource that employees think of first when they need a solution which they are unable to find themselves.
This does not mean that your coworkers and colleagues will get answers from you. What you will do best is employ your tools to help them find their own solutions. The last thing you want is to place yourself in a position where you cannot get your own work done because you are always solving everyone else’s problems.
An effective way to get out of this productivity-eating situation is to see yourself as a consultant to others in the organization. A good consultant best serves their client when they enable the client to arrive at their own solution to a problem, one that instills accountability in them. In order to do this effectively, you must ensure that others trust you.
MEASURE THE IMPORTANT THINGS
Even though the basis for accounting is to account for things, not everything we count matters. This is one of the hardest lessons to learn for the CPA who moves from public accounting into the Controller or CFO’s chair. In public accounting, we were brainwashed on dueling concepts of auditing the details, balancing to the penny, and ignoring the immaterial. This chapter includes five best practices that will enable you to serve your organization as the “CEO of an information business.” That is how the accounting team must see itself—as a service business whose sole product is to provide quality and timely information through operational performance feedback.
WAYS TO DETERMINE WHAT IS MOST IMPORTANT
Take the following actions so you will know where your help and expertise is needed:
Meet with all the executives and managers, asking for frank assessments.
Ask lots of open-ended questions as you inquire about how things are done.
Ask “what-if” questions when learning about why things are done.
Ask employees to describe their challenges.
Talk with the company banker and CPA advisor.
Perform analysis of recent financial and management reports.
Develop a working model of how the company operates.
Develop and use nonfinancial performance measures.
Help the company understand and focus on its Critical Success Factor.
Meet with All the Executives and Managers for Frank Assessments
Be sure to build into your project budget time to spend with as many executives and managers as possible during your first two weeks. Their insight combined with your financial acumen will give you information about what the client wants and needs.
Your biggest challenge will be to recognize if they are being honest with you.
Ask Lots of Open-Ended Questions About How Things Are Done
For your first month on the project, do most of your communication in the form of open-ended questions. This will help you determine what is most important.
Ask “What-If Questions When Learning About Why Things Are Done
In addition to your open-ended questions, as you begin to understand how the client does things, remember to ask a lot of “what-if” questions. Employees who have been on their job for more than a year have a tendency to forget the reasons behind the work that they perform. Over time, employees have a tendency to repeat the same actions and decisions, without ever questioning why they are being done. For you to be successful in a contract role, you must understand the why.
As you go through each process, think about key “what-if” questions that will help you to identify changes that need to be made. If, within the first few weeks of your project, you can come up with several concrete recommendations that will improve profitability or increase productivity, your client will love you and discover how invaluable you are.
Ask Employees to Describe Their Challenges
Besides asking managers and other leaders about the problems and opportunities, remember to ask employees about these as well. In a dysfunctional organization (firms that are most likely to be your client), managers do not listen to employee suggestions and ideas. Over time, employees stop making suggestions.
By really listening to the employees you will get a long list of suggestions for change. Better yet you will turn employees into allies and resources.
Talk with the Company Banker and CPA Advisor
If the conditions call out for it, be sure to spend some time talking with the client’s banker and their CPA firm. This is a tricky proposition and requires lots of tact and salesmanship. If the client is in trouble, hence the reason you are brought in, they may not want the banker to know how deep the problems go. It is important that their banker understands your role and why the client engaged you. This definitely will be a consideration if part of your responsibility is to prepare financial statements that go to the bank. We will cover the issue of independence in chapter 8.
Tact is also necessary when talking with the CPA advisor. If you were not sourced by their CPA firm, a bit of jealousy may be evident. I have experienced situations where the CPA firm was not cooperative with me because their ego was hurt. They were not asked to bid on the project. The CPA firm may misunderstand your role and think that you are trying to replace them.
Be sure to carefully explain why the client engaged you and their expectations of you. Many experienced contract Controllers and CFOs, after this air clearing conversation with the client’s CPA, say they received full support and encouragement. “We are glad that they finally had the courage to get some professional help,” is the sort of comment you may get from the CPA firm when their client is in deep trouble.
Perform Analysis of Recent Financial and Management Reports
Again, during your first few days of the project, spend time going through both their external and internal financial reports. Most Hired Guns tell me that they have a financial analysis protocol that they use for every client. Just going through the numbers and doing proper financial and ratio analysis will give you a clear understanding of both the client’s problems and where you need to focus your efforts.
Develop a Working Model of the Company’s Operations
A friend of mine, Gene, who has been doing contract CFO work since the mid-80s, only works with manufacturing companies. Prior to agreeing to work with a prospective client, he spends a day with them trying to put their business model into a financial spreadsheet. Gene told me, “If their CEO cannot describe his business in a way where I can build a financial model, then I do not want to work with that company. Their problems run deep, starting with the fact that the CEO does not understand the business.”
About 15 percent of the Hired Guns I met over the years have a specific spreadsheet tool that they use to deeply analyze the client or prospective client. You might consider investing in such a resource, if you are serious and want to make a long-term commitment being a Hired Gun.
Develop and Use Nonfinancial Performance Measures
Tactic 3 covers the best practice of performance measuring. As you go through and analyze your client’s financial and operational states, remember to focus on the nonfinancial metrics. If a company is trying to pull the wool over the eyes of their banker, they will do it through the financial reports. It is in the operational statistics that you will find the truth that the client may be trying to hide.
Help the Company Use its Critical Success Factor
In Tactic 4, the how and why of the Critical Success Factor best practice is explained.
Why It’s Hard to Find the “Real” Cause of an Issue or Problem
The real issues, which are the root cause of someone’s lingering problems, are often hidden. They may be hidden behind a veil of smoke because of
Excessive ego.
Fear of failure.
Fear of incompetence.
True incompetence.
Game playing for power.
Understanding why barriers exist and never go away by themselves aids the Hired Gun in seeing through them. In addition, there are two common pitfalls that contract or part-time professionals fall into. Once you are aware of them, you can avoid them.
#1 BIG MISTAKE OF THE HIRED GUN
Not Defining the Problem Accurately.
Information for defining the problem comes from
Your personal knowledge.
Your expertise.
Discussions with the person that needs or demands the solution (that is, primary client).
Discussions with the people who are impacted by the problem and who will be affected by the solution (that is, secondary clients).
Gap Analysis or similar research.
Investigation or audit of the systems, processes, and documents involved.
Your intuition.
You may need to use all of these in defining the problem. The big mistake you make arises because you rely heavily on only one of them. You get comfortable in using what has worked for you in the past and hesitate to rely on other assets or tools. Look at this list and determine which of these talents or assets you rely most heavily on to the exclusion of the others.
#2 BIG MISTAKE OF THE HIRED GUN
Not Using Others to Sound Out Your Reasoning or Logic.
This big mistake occurs when you don’t test your reasoning with others who are not involved in the problem. You fall into this trap for three reasons:
You are in a hurry.
You have not built or do not use a network of peers.
You do not think that you need to.
No matter how smart or experienced we are, we all need a way to sound out our reasoning or logic. Doing so is not an admission that you are incompetent, a feeling that most professionals have lounging in the back of their head. Rather, it is an enlightened view.
When you turn to someone who you trust and you know can remain objective, you are simply asking them to look for flaws or biases in your thought process. As human beings we all have biases. These assumptions about how life works interfere with your ability to be objective and inability to find the optimal solution to a problem.
Never be afraid to ask others to be your sounding board and to help you clarify your thinking so that you remain objective. This is an important trait of the contract professional.
Tactic 3: Enhance Their Metrics of Performance
“One accurate measurement is worth a thousand expert opinions.”
Grace Hopper, Admiral US Navy
Far too many businesses measure what is easy or what they think is important—growth, profits, or share price. By weaning the client off this dependency and helping them to find the proper solutions, you will be very successful.
Hired Gun Tool: Scorecard Metrics
A major tool for the Controller who wishes to be of value to their client is the performance measurement process. This best practice of selecting, measuring, tracking, and reporting on them will show others that you think strategically and holistically.
PERFORMANCE METRICS DEFINED
Let us examine performance measures by defining them, then determining what makes good ones.
A performance measure is a metric of an important activity, which is quantifiable, measurable, and meaningful. You use it as a yardstick that objectively measures achievement toward a specific business objective. The metric usually compares an input to an output.
Performance metrics can range from financial ones such as DSO, and 90 day AR, to operational ones such as inventory turn rate and scrap percentage, to customer-focused such as average number of daily customers and website hits, to process-related such as number of backorders and on-time delivery. There are even metrics to measure vendor performance and employee satisfaction.
The purposes of using performance metrics are to help decision-makers know quickly and accurately what is going on in their specialty and to help accounting do more situational analysis via trending and less variance reporting.
Example: In the Electronic Distribution business, the key metric that everyone monitors is known as the “Book to Bill” ratio. This metric is Orders Received/Orders Shipped. The standard is “1.” Having a “1” ratio means that the company is healthy, and any deviance from “1” means there is a potential problem that needs addressing immediately.
CRITERIA OF A GOOD PERFORMANCE MEASURE
A good performance metric is more than just something that you can easily track or one your accounting system automatically generates. Metrics that measure what is important need to meet the following criteria:
Focuses attention on a critical activity
Is measurable
Is monitored regularly
Provides frequent and timely feedback or insight
Includes a mix of financial and operational measurements
Is simple to understand yet has the pulse on what is occurring on an hourly or daily basis
GOALS OF USING PERFORMANCE MEASURES
Sadly, people have a short attention span. In addition, brain researchers tell us that we can only hold three or maybe four data points in our brain before we run out of bandwidth. In a nutshell, the goal of using performance measures for providing timely and quality feedback to others is to give report users simple data points that are meaningful and that they can remember. When they remember them and the metrics are meaningful, this greatly increases the likelihood that managers will pay attention to that metric.
Overall, these are the specific goals to justify that the Controller uses metrics in their reports. Performance measures
Support the strategy by highlighting goals.
Express measures for critical drivers.
Express performance targets.
Reduce confusion day-to-day.
COMPONENTS OF A GOOD PERFORMANCE MEASURE
Performance metrics are both simple and complex. The simplicity is that the metric measures one activity or event. The complexity occurs when you put two or more simple metrics together and they create an index or benchmark. The components of a performance metric include
The Input(s).
The Output(s).
A Method of Measuring.
A Degree of Measurement—Quality or Quantity based.
An Assessment of the Measure—as expected or unexpected.
MEASUREMENT COMPONENTS
In order to use metrics wisely and effectively, the Controller and the finance team must ensure these six components exist:
The Inputs must be clean, meaning that any errors or faulty assumptions are corrected before the data goes into the transformation process (that is, if the month-end A/R balance is understated then the metric of 3 percent 90 days is faulty).
The Outputs must be consistent and actually reflect the activity or performance that is being measured. Most metrics are a measurement of Input compared to Output.
The Method of Measurement needs to be one where the data is relatively easy to collect and does not need to be manipulated or adjusted in order to make it meaningful.
Before you collect a specific metric, you must have determined what the measurement of it means in terms of desired performance. If the metric is quality-based then the definitions of the varying qualities must be predefined. If the metric is quantity-based then the targets or minimums and maximums must be established to ensure that performance is improving.
In order to make metric measuring a value added activity, there must be some target, standard, or budget set to the metric so that the person monitoring the metric can quickly assess whether things are going well or not.
While not always possible, the best metrics will tell the reader why the performance or activity is not going as it should.
CLASSES OF PERFORMANCE MEASURES
Productivity-Based
These metrics are the simplest to set because they are relatively easy to account for and most often used to determine whether someone is being productive, which we hope translates to being effective. An example is the measurement of the average time it takes for an employee to make collection calls compared to the number of delinquent customers they actually contacted.
Achievement-Based
These metrics are relatively easy to establish because they are usually time driven. Examples include closing the general ledger by the second working day or having all the accounts payable vouchers posted by 4:00 PM on Friday.
Composition-Based
These metrics can be described as how many pieces exist and are used for comparing one person’s performance against the total. For example, you divide the entire vendor list alphabetically among your three Accounts Payable Specialists: Perry, Merry and Kerry. Perry works with the vendors from the letter A through D, which constitutes 33 percent of your payable activity. Merry has vendors from the letter E through M, which constitutes 42 percent of your payable activity. Kerry handles vendors N through Z, which constitutes 25 percent of all vendor activity. You can compare this metric against the number of invoices each person entered for the month.
RIGHT METRIC MIX
Depending upon your goals and the critical performance you need to measure, you will select the appropriate performance measures. In public accounting, for example, the majority of the metrics we use to measure employee performance are productivity-based. In internal accounting, the majority of the metrics we track are productivity-based and achievement-based.
Metrics—Objective vs. Subjective
The best type of metric is objective in nature. This means that they cannot be manipulated or swayed by emotional issues or judgment calls. It may not always be possible for you to have a complete set of metrics that are always objective. Some of the metrics in your scorecard will end up being the subjective kind, those that are subject to a person’s judgment.
You can create conditions so the metrics that fall into the subjective category will not be used to cover up problems or present things in the best possible light. An example of such a metric is your firm’s safety record. By defining upfront exactly what constitutes a reportable safety issue and by having a methodology to ensure that every injury is reported, you help to remove the subjectivity out of that particular metric.
Another thing that you can do to make a subjective metric reliable is to conduct an occasional audit of the data and its collection process to ensure that people are not biasing the input or spinning the output. Using the same example of your safety record, obtaining independent information from supervisors and from employees about injuries would prevent the two groups from colluding to keep your firm’s safety record high.
If you really think about it, almost every metric has a subjective component. Therefore, to ensure that metrics measure the important things and that they are used to make smarter decisions, your emphasis on training employees about metrics is to help them understand the value of each metric. This includes training on not only how to collect the data, but how the metric is used and the decisions that stem from each metric. During training, the firm’s leaders need to talk about good decision-making and the consequences of poor decision-making.
Over time, with experience in collecting, reporting, and fine-tuning the metrics that you use to measure business activities, you will find numerous ways to turn in each metric from subjective to objective. Again there is nothing wrong with having subjective metrics in your firm’s or client’s scorecard. The concern about subjective metrics needs to be on whether or not employees can manipulate the data or present the information in ways that undermines the honest feedback that you are attempting to collect.
MAKING PERFORMANCE MEASURES WORK
These suggestions will help you gain the full benefits of performance measuring.
When using soft data, be sure that there is no incentive to invent or add a positive spin to the data.
Help managers find the weaknesses and identify failures of their existing performance measures.
Use the 80/20 rule in designing and reporting on performance measures.
Identify the fewest activities that have the greatest impact on stakeholder value.
Combine financial and nonfinancial measures together for a single metric.
Categories and Examples of Performance Measures
The following are categories of performance measures, including examples for each category.
Environmental Indicators
Safety record
Pollution prevention efforts
Market and Customer Indicators
Market penetration
Share of wallet
Competition Indicators
Speed to market
Percentage of revenue from new products
Internal Business Process Indicators
Defect analysis
Capacity utilization
Human Resource Indicators
Employee morale level
Employee satisfaction
Financial Indicators
Economic Value Added rate (see chapter 2)
Activity-based product costs
Tactic 4: Help Them Fly in Formation
“In our factory, we make lipstick. In our advertising, we sell hope.”
Charles Revson, chairman of Revlon
Have you ever watched a flock of geese flying? Each goose knows its role and what is expected of it, so that the flock reaches its destination. You will be successful as a Hired Gun when you assist your clients to fly in disciplined formation like the geese.
Hired Gun Tool: Critical Success Factor
The purpose of this best practice is to ensure that you understand how the company’s most important performance is directly connected to the profits and to the employee’s day-to-day decisions and actions. Except in small companies or professional service organizations, rarely does the average employee understand how his role fits into the big picture of what the organization is all about. Yet, studies have shown that when employees understand how their role fits into the scheme of the business model, they become more effective, remain loyal, and stay accountable.
The purpose of the client’s Critical Success Factor is to be an early warning system!
In this best practice you will discover that you can connect the most crucial strategy to people’s day-to-day actions. Better yet, you will be able to improve reporting on what is important and what is important to measure.
Let us deepen your understanding of this best practice by going into some key terminology.
STRATEGY DEFINED
Strategy is a hypothesis about cause and effect. This hypothesis says, “If we do this then our customers will pay us this.” For example, Starbucks’ hypothesis is: “If we make coffee snobs of our customers they will pay premium prices for our products! “ Their strategy or hypothesis works.
Boeing had a hypothesis that was “If we make jets that are reliable, safe, and fuel efficient our customers will pay premium prices for our jets.” That worked for a while until Airbus found a way to make safe, reliable, and fuel efficient jets at a cost less than Boeing’s.** Boeing’s theory fell apart because they omitted from their strategy: “Listen to the customer! “ Boeing’s leaders have been working hard since the early 90s to recover from this oversight. (** Ignore any heartache you have about how several European governments may be subsidizing Airbus and hiding the true cost of making jets!)
Your client’s (firm’s) strategy is a theory and only remains one until it is proven that you can execute your strategy. This is why the Controller’s feedback is so critical in making a business model successful and sustainable. Your feedback, if focused on the strategy, tells your client’s executive team whether or not they are able to apply their theory of cause and effect successfully.
ORGANIZATIONAL ALIGNMENT DEFINED
Organizational alignment is when all the elements of an organization work together in concert within the company’s ideology (see Strategy) and the type of success it intends to achieve.
CRITICAL SUCCESS FACTOR DEFINED
A company’s Critical Success Factor is a strategy or uniqueness that defines the most important performance of a business because it determines your success or failure.
The Critical Success Factor answers this question: “What do we need to do in our business to differentiate ourselves from our direct competitor?”
Your Critical Success Factor is the highest level performance measurement.
Examples
Starbucks’ Critical Success Factor is making coffee snobs of their customers.
McDonald’s Critical Success Factor is consistency and value of their products.
Microsoft has a Critical Success Factor of integration of their software product family.
Boeing’s Critical Success Factor is the safety, reliability, and fuel efficiency of their jets.
Wal-Mart’s Critical Success Factor can be defined as constantly streamlining distribution so that their product’s selling price is lower than anybody else’s.
Costco differentiates itself from Wal-Mart by having a Critical Success Factor of focusing on their customer and providing a smaller range of products and services at consistently low prices.
It is incumbent upon the Controller and CFO to isolate their client’s (employer’s) Critical Success Factor. If the leaders of the organization are smart and business savvy they already know what that factor is and can explain it. If they do not, give each leader the Howard Hughes Test to find out how they measure the success or failure of their business.
PERFORMANCE DRIVERS THAT COULD BE CRITICAL SUCCESS FACTORS
Performance drivers that could be Critical Success Factors include
Surveys of your competition’s prices
Investments in innovations or new technology
Portfolio of assets
Number of customized offerings
Internal capacity
Lower than average product or distribution costs
Lower than average product development time
Targeted marketing mailings results
Performance Measuring Principle
We are all in the information business!
The Controller or CFO’s responsibility is to develop a reporting system that contains a series of integrated performance metrics which measure if the Critical Success Factor is being achieved and the business plan is being executed. To be successful in reporting faster, the Controller must concentrate on reporting metrics instead of historical financial data.
Drivers of an “Information Business”
Even if your client (employer) does not do business in a worldwide arena, you still need to be aware of what is driving successful businesses today. Though you may work for a typical mom-and-pop small business, your customers are constantly being lured away by a variety of means, such as the Internet, and by large firms who may not currently provide what you do, but are looking for ways to get into your marketplace.
From a big-picture perspective, these are the drivers of successful business organizations, such as Wal-Mart and Cisco Systems, to name a few. Notice how each one relies on having timely and insightful information to stay on top of this business driver, including
Cross-function and integration so the firm can provide more services and one stop solutions for customers
Links to customers and suppliers for instantaneous trend analysis
Customer segmentations to tailor solutions across specific target markets
Doing business on a global scale for economic reasons, like outsourcing tax preparation and customer service to India
Innovation
Knowledge workers
Your traditional financial statements do not provide feedback on the drivers of today’s Information Business!
AVOID THE CONTROLLER KISS OF DEATH
To anyone with more than three years of experience in the Controller or CFO position, the answer is obvious: “You cannot find feedback anywhere on a GAAP financial statement for these drivers!”
I gave you the self-test to remind those who are still using GAAP financial statements as the cornerstone of your Controller’s reports that you are not thinking strategically! From my informal surveys of Controllers across the United States and Canada, I estimate that between 25 percent to 35 percent are still using GAAP-based reports, such as the accrual Income Statement, the Balance Sheet, and the Cash Flows as the main internal reports that you issue to executives.
I am not saying that Income Statement and Statement of Cash Flows are unimportant. They are important only to external users, such as your bank and any sophisticated investor. The reports that executives and others inside your firm rely on most are those that are operationally oriented. CEOs rarely ask how much money you have tied up in receivables and inventories before making an operating decision. They want information such as daily production rates and orders received, number of quotes issued, and number of website hits to run the business.
This means that you must tailor your reports to what they are looking for in the way of feedback regarding the execution of their business plans. If you fail to do this, you will soon find that you will be replaced, or they will turn to and rely on other databases of information that do not reside in accounting. If people in your organization do this, it is known as the Controller’s Kiss of Death. Your data from the GL becomes subject to question and considered invalid or irrelevant.
Our responsibility to our client (employer) is to develop a reporting system that contains a series of integrated performance metrics, which measures if the Critical Success Factor is being achieved. This reporting system also tells you whether the firm is accomplishing the strategies that are driving your business model. Notice that to be successful in this the Controller must really understand how the business model works and understand the sales and delivery process from the outside in.
Tactic 5: Keep Your Eyes on the Forest
Never sweat the petty things. Never pet the sweaty things.
Daily Prioritization and Calibration
Controllers, accountants, and financial people tend to be detail-oriented (otherwise, we would not have accomplished as much as we have). However, sticking to the details is a downfall of the part-time or contract Controller. To be successful, you must start each day focusing on the forest, or you will get lost in the trees.
As the solution-maker, you cannot afford to get slowed down in the minutiae that employees deal with every day.
If your only experience has been as a consultant (that is, CPA firm employee) this may seem obvious. If you have recently been in an organization as a full-time employee, it is very easy to lose sight of the forest for the trees. This is where the skills of staying focused, establishing priorities, and sticking to your vision benefit you. These are covered in chapter 6.
WHY YOU MUST STAY OUT OF THE DAY-TO-DAY MINUTIAE
As I stated in chapter 4 on the attitudes of the Hired Gun, except for the person who has been a consultant for many years, the typical contract Controller started in a full-time employee capacity. Just as it is dangerous to be emotionally involved with the client, it is deadly to become involved in the day-to-day stuff that happens in every workplace. Besides a multitude of employee meetings, there are office parties, water cooler chats, sports pools, and so on.
Each day there is a tremendous amount of time and energy spent in every organization that is not necessarily productive or beneficial to the ultimate customer. Once, I was asked to help in a search for a critical missing file. My entire accounting team spent three hours searching for it. As a Hired Gun, you cannot afford to waste valuable time on things like this.
Before becoming involved in anything, just stop and ask yourself this question: “Will this activity move me a step closer to helping the client or will it provide me information that will make me invaluable?”
If the answer is an obvious “No,” then do not get involved with it. Over time, identifying these non-value adding activities will become easier to spot and easier to avoid.
The following are specific techniques to practice each day, which will enable you to stay out of the minutiae, as you work to solve the client’s problems.
This skill goes hand in glove with the skill of focus, which is covered in chapter 6.
WAYS TO SEE THE FOREST
Tips for avoiding getting bogged down in minutiae include:
Plan, plan, plan, plan, and plan some more.
Keep your supervision responsibilities to a minimum.
Establish employee teams to take on major responsibilities.
Hold frequent short meetings designed to accomplish things without the responsibility of leading them.
Delegate as much as you dare and then delegate even more.
Empower employees to make decisions and solve their own problems.
Keep track of where and how you spend your time.
Schedule and use quiet time to think and dream.
Rely on other people’s abilities and creativity.
Think strategically.
Think holistically.
Develop deep trust (covered in Skill of Leadership).
Plan, Plan, Plan, Plan, and Plan Some More
Each day that you work for the client, go in with a specific plan. Before ending your day (or time) with the client, make notes on what you need to do next. Plan not just for tomorrow but for two to three weeks from today.
Keep Your Supervision Responsibilities to a Minimum
Unless you are a part-time Controller, exclude yourself from taking on full supervisory responsibilities. This may be hard to do if you are filling in for an incumbent Controller or CFO. In a later chapter, there will be suggestions on how to do this in the section called Creating Opportunities for Others. In a nutshell, find seasoned employees who are able to take over critical supervisory responsibilities, so that you can spend your time on important things.
Establish a Team to Take on Major Responsibilities
One of the best ways you can serve your client is to take the accounting department and mold it into a real team. Today in accounting, a true team consists of generalists who can take on multiple roles. A talented generalist has the ability to do payroll one day and accounts payable the next. In addition, one of the traits of an effective team is the ability to make sure the work gets done, even when someone is absent or the work is not evenly distributed. This way of adding value to a client may not be possible in a short-term project. At least consider doing what you can to turn the accounting group from a department mentality into a team mindset.
Hold Frequent Short Meetings Designed to Accomplish Things Without the Responsibility of Leading Them
If you are serving as the Controller and you have work to get done through others, you will be required to hold staff meetings. It is likely you will be in meetings with other company managers. At the outset, inform your client that you will be absent from any meeting that does not have a specific agenda and defined outcomes. For those meetings that you attend, schedule your time so that you are only in attendance for the agenda items that require you to be there.
You do not have to be present at every meeting, but instead can send one of your employees to take notes for you and keep you informed about what went on. In addition, you can submit formal reports that can be summarized by one of your staff. Running meetings is a responsibility that can be turned into an opportunity for another employee.
Delegate as Much as You Dare and Then Delegate Even More
Chapter 6 offers suggestions on how you can accomplish this. Just make sure that you go into each project with the intention of delegating much of the daily work to others, so that you can focus on what the client expects you to accomplish.
Empower Employees to Make Decisions and Solve Their Own Problems
Since you will not be around 100 percent of the time, one of the most important things you can do to help an accounting department succeed is to empower employees to make their own decisions and solve their own problems. Just like establishing a team attitude, this takes time. Go into each project with the determination to move decision-making in accounting down to the lowest level possible.
A recommended strategy many Hired Guns adopt is to require that anyone who comes to you with a problem also brings you three suggested solutions. Unless the person fails to have thought through possible solutions, they cannot spend time with you until they do. From personal experience I find that, whenever I turn away people without solutions, only 40 percent of them will return for assistance and 99 percent of these will have a viable solution. The other 60 percent do not return because either they solved the problem themselves or realized that they did not have a problem in the first place.
Keep Track of Where and How You Spend Your Time
If you are not in public accounting, this may feel like a step backwards. However, this is very critical to your success in a contractor or consultant capacity. You must get in the habit of keeping track of your time. Keeping a log or timesheet is much more than a billing issue. For example, the client is expecting you to decrease the length of time it takes to collect receivables and improve the effectiveness of the collection calls. Keeping track of the amount of time you spend on this project will help you to determine if you are spinning your wheels or not dedicating enough time for this outcome.
From a revenue standpoint you need to also know how much free time you are giving away to your client so that you can factor that into your rate structure or to bid your next project better.
Schedule and Use Quiet Time to Think and Dream
At first this may sound funny but let me continue...
Imagine someone you work with is sitting at a desk staring out the window looking at the beautiful sky. As you walk by their office and notice this, your first thought is, “Marley certainly does not have enough work to do! “ Wrong!
We Controllers and CFOs spend far too much time doing and not enough time thinking or dreaming. We fear someone saying about us—“He or she is wasting time or does not have enough to do.”
The more time you spend quietly dreaming and thinking, the more effective you become. It is difficult to be creative when you are busy racing the clock.
Allow yourself permission to take between 30 to 45 minutes each day to sit in a quiet place to dream and think. Remember to have a pad of paper and pencil or your laptop handy to write down all the great ideas that come from your quiet time.
Rely on Other People’s Abilities and Creativity
Most of the employees that you will work with have a tremendous amount of ability and creativity even if they do not show it to you. Part of your role as the Hired Gun is to create the opportunity for others to shine. Try informing someone, in a sincere and humble way, that you require their assistance. You will be amazed at how much people are willing to help you.
Even though the client has hired you—the expert—to solve their issue, you are not doing this alone. You must rely on others.
Think Strategically and Holistically
Whenever wearing the hat of solution creator, keep the following in mind:
The Hired Gun’s initial goal is to uncover the client’s pain.
The Hired Gun’s ultimate goal is to build a relationship of trust.
The Hired Gun treats each person as a client in order to maintain a professional approach to problem solving.
The Hired Gun’s professional demeanor helps find realistic and innovative solutions for the client.
The Hired Gun’s professional demeanor helps build a relationship of trust with those who rely on the Hired Gun’s acumen and insight.
The Hired Gun strives to be an equal partner with the client because a partnership means that each party is invested in the relationship.
The client rarely knows what the source of their pain is because they are too close to the action to see things objectively. This is where the Hired Gun becomes invaluable.
Your most valuable tools for uncovering the client’s pain are
GAP Analysis (see chapter 7).
Probing Questions (see the Appendix).
Conclusion
This chapter highlighted five key tools that every contract accounting professional will need to have in their own toolkit. Starting with a Position Description, you (the contract Controller) can use this tool to help define the areas of responsibility you agree to accept and come to terms with what the client expects from you.
The second tool used to define what is important will benefit you in numerous ways. You can only have a satisfied client when you deliver what they expect and understand their needs from the inside out.
The third tool, performance metrics, will serve you in many ways. By helping your client (your employer) to measure the right activities, you will assist them in driving the appropriate behaviors that lead to lasting profitability and success.
Once you understand the correct set of performance metrics to build a viable scorecard, the next logical step is to apply the tool of defining the client’s Critical Success Factor. This factor is the most important and high-level metric that defines what the business is about. As an objective observer, you are in an excellent position to help the client define and then capitalize on their unique Critical Success Factor.
The last tool is crucial to your long-term success as a Hired Gun, which is to remember the forest. As accountants, it is very easy to get so focused on the task at hand that you lose sight of the big picture. As a consultant and person only devoting a limited number of hours to each client, you must be able to constantly look at the bigger picture for the benefit of yourself and of your client.