At Andromeda we joke about workshops being both “Finance for Non-Finance Managers” and “Non-Finance for Finance Managers”.
What do we mean by that? (To coin a phrase.) Nikolai ran a workshop this week for a client – a quick 4-hour “Entrepreneurial Challenge” workshop for a very senior group that included the CFO, a Controller, the Director of HR, etc. At the end of the workshop our evaluation form asked “What are the real-world issues and concerns that you will understand, or deal with differently, after having been through this program?” and “How will this program affect your relationship with others?”
The non-Finance managers had comments such as:
- I will have a better understanding of the financial impact to the organization when selecting and executing strategic opportunities to pursue
- Need to understand the holistic picture and associate the financial outcome with the application
- Improve communication with Finance
- More rigor around ROI, business value, ROIC
Those are the kinds of comment that you expect from non-Finance managers, but they are all things that the senior Finance people already understand. What value do Finance managers get from the workshop? It turns out, at least from this event, that the biggest insights came from the realization that the Key Performance Measures that they put in place, and attach bonuses to, may be impacting others’ thinking and decision-making in unexpected ways.
Nikolai tells a great story of having a job as a teenager in a fast-food outlet with a late-night drive-through, in the middle of the Green Bay winter. A KPM was the speed with which customers were handled: it needed to take no longer than one minute for a newly arriving car to finish and leave the drive-through. But business was so slow that when a customer drove up at 10:30 and wanted fries, they had to make a fresh batch, taking an additional three minutes. They could have kept to good metrics by telling the customer to go park (which would have annoyed him) and then delivering him the fries (which would have frozen Nikolai and the fries). When the automated tracking showed that the average was taking too long, Nikolai gamed the system by driving his car around and around the building through the take-out lane twenty times without stopping.
Because there was no connection between the sales and the average time per car, the statistics became excellent, and the next day the Manager congratulated Nikolai for meeting his KPMs.
We connect this story to our “Australia story” of setting up branch operations in a new country: to break into the market, you first measure the branches on making sales, and they lose you money. Then you measure them on profit, and they tie up assets all over the balance sheet. Then you measure them on ROA, and they asset-strip. This whole area was where the senior Finance Managers, people with over 20 years in the company, had their big Aha! moments.
- Demonstration of KPMs and the unintended behavior that they can create.
- Better understanding of linkage between the financial #s and the realities of operations and decisions.
- Better understanding of top of mind decisions/KPMs of people in each department.
- The need to balance ROS, ROA and Asset Turnover to balance performance management.
In other words, they became aware that they had been setting KPMs without anticipating how their less-financial associates would be viewing them, or what steps these associates might take to maximize the metrics.
A good business simulation allows everyone to step back from their day-to-day role and look at the big picture of how the business operates. In so doing, everyone will find an opportunity to refresh their thinking, to see unintended results of some of their actions, and to improve the quality of their decision-making. And better decision-making will generate better financial results. That’s what Income/Outcome is all about: better incomes and better outcomes for everybody. Give us a call!