CFO Success Series: Managing Key Resources

To build our future we must invest in the present.

Not long ago I had a conversation with colleagues about the value of an audit. It made me reflect on how the really good businesses I know surround themselves with the skills they need. They are rarely at a loss for getting great advice on a topic critical to their success. If they don’t require a key skill full time they tap into advisors they can count on to deliver what they need. These companies are experts at:

  • Identifying the key skills their business will need in the foreseeable future
  • Building relationships and a network that includes all these skills

Back to the audit. As we compared notes it was clear, the best run companies on our list used their CPA’s as a business resource, not a financial cop. Conversely, poorly run businesses frequently viewed the “cost” of an audit or review as something excessive and non-value added. They relied on their tax accountant to deliver financial advice. The analogy…It’s unlikely your all-star car mechanic would be your first choice to fix a plumbing problem in your home.

Shareholders, banks or partners may require an audit but using your CPA as a business expert beyond attesting to your financial statements is where their real value lies for your company.

This concept goes beyond financial audits and CPAs. Bankers happen to know a lot about the economy and have fact-based ideas on where its headed. A banker in your business space can be very valuable to your planning process. Likewise, insurance professionals, are experts in risk management. An insurance broker familiar with your industry can add immediate value by identifying ways to mitigate key risks in your business you may not have considered. Go down the list of other services that are business critical to determine if you have the relationships built to quickly tap into these skills. Examples include; legal, training, recruiting, technology, mergers and acquisitions, etc.

After identifying what critical professional resources are missing from your in house team, identify what outside agent has the right knowledge base and mindset to fill your resource need. Frequently what prevents us from taking this step is the fear of “being sold”. In the early stages of researching and developing these relationships this fear may prevent us from developing the right groundwork to build our resource pool.

Like employees, our outside advisors need to be paid for the value they create; it only makes sense that we will provide them a return on their investment equal to some portion of the value they create. An attitude of building a lasting relationship with these experts is the only way to build the same type of trust in the relationship that you expect to have with an employee – after all, we want them looking out for the company’s interest in the same way our employees do.

I am not suggesting you recruit a bunch of outside advisors. Take stock of where you are headed, understand the skill sets required to achieve these goals and develop your skills pipeline in a manner that allows you to tap into key resources when you need them.

To build our future we must invest in the present.

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The Link between Leadership and Sustainable Success

Welcome to CFO.University’s audio version of Robert Baker’s CFO Ed Talk, The Link between Leadership and Sustainable Success. Robert invites you to learn how to build long-term sustainable success and a team that everyone will want to join.

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I’d like to invite you to join a hypothetical team. But I’ve got to warn you, we’re not doing so great. We work 10-12 hours a day, sometimes six or seven days a week. But we’re not hitting any of our goals. In fact, relationships are breaking down. There’s lots of blame going on all around and morale is at an all-time low.

Is that a team that you want to join? Do you want to join the team that’s not complete, not empowered; a team without clear communication of strategy and/or results; a team lacking the celebration of success? No, I didn’t think so. I believe that all people want to win. But it’s not about beating the competition. It’s about coming together with a group of people, agreeing upon goals and then accomplishing them, succeeding. I believe that breeds more success. We can create sustainable, successful teams by creating an environment where teams can win.

Building a Winning Team
Building a Winning Team

The first step in creating that environment is to build the team. When Herb Brooks was appointed the head coach of the U.S. Olympic hockey team in 1980, everyone thought he would go around the country selecting marquee players from each position, but he didn’t. He actually assembled his team from a group of relatively unknown college players, but these guys knew how to play together as a team. They had defense, scoringand goaltending. They had coaching and they had tenacity. They had the whole package.

When assessing the completeness of your own team. There’s a tool you can use. It’s called the Belbin test. It requires each team member to answer a series of questions. Those questions reveal the type of role that person tends to play in a team setting. For example, there’s a Shaper. This is the person who tends to keep the team on track, marching towards their goal and not going off on a tangent. There’s a Plant. This is a person who is full of ideas and every once in a while, one of those ideas really sticks. There’s a

Resource Investigator. Somebody who’s really good at going inside and outside the organization, pulling together resources needed to accomplish the task. And then, there’s the all-important Finisher, the critical element to any team. This person is really good at finishing up the fine details needed to make sure that action sticks.

The Belbin Test
The Belbin Test

There are nine different roles prescribed by the Belbin test. That doesn’t mean you have to have nine people on your team. In fact, most people play two or even three different roles. If you don’t have all those roles represented on your team, then you need to think about how you’re going to close that gap. Are you going to bring more people on your team or is somebody on the team going to step up and fulfil that role? So equally important as understanding how complete your team is, the Belbin test also helps everyone on the team understand what their role is. That really changes the way you work together as a team.

Having created the team, the next step is empowerment. It’s really important that every person on the team owns the successes and failures. Each person on the team should be encouraged, actually required, to speak up, speak their mind and do everything they can to create the highest quality product for the team. When your team emerges from behind closed doors, everyone will beunited and aligned around the strategy and what their role is in accomplishing that task. They own the success or failure of the team.

Having empowered your team, it’s time to create the strategy. This is done with your team. It’s the team’s strategy to own, create and communicate.

Strategy is one of the most overused words in the business language. We have a strategy for growing sales; we have a strategy for cutting costs; we’re going to cut out the competition and conquer this market. But you know, without a well thought out critical SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis no strategy is complete. A SWOT Analysis involves looking at your company; internally at its strengths and weaknesses and externally at its opportunities and threats.

Build Strategy
Build Strategy

Your strengths might include access to low-cost labor or raw materials. Perhaps you have a technological innovation, a patent or trademark. Weaknesses might mean high cost. The high cost of materials, labor or perhaps it’s a lack of capacity. Opportunities frequently focus outside of your organization such as developing new products or markets. They involve opportunities for growth. There are several different ways to segment your market and identify opportunity for growth; for example, a geographic expansion, a new product line or maybe an innovation that one of your suppliers makes available to you. Threats, on the other hand, come from the competition. This is where your competitors are using their strengths to come after your weaknesses. What piece of your pie are they trying to take? By combining your strengths and your opportunities you can create offensive plays, strategies that are going to lead to expanding your market share and increasing profitability. By analysing your weaknesses and your threats you can create defensive plays to prevent to competitors from eating away at your share of the market and profits.

Communicate Directions and Priorities
Communicate Directions and Priorities

Having completed that strategy, it’s time to communicate. If we look at the sport of rowing there’s a position known as the Coxswain. The Coxswain is a person that sits at the back of the boat. They alone are looking forward. They are the only person who has an eye on the goal of the team. The team depends upon the Coxswain to steer the boat so they travel the shortest distance in the least amount of time. The organization depends on the leader and the leadership team to identify where they are going. How do you take that strategy and turn it into a very clear vision of where you’re going and how you are going to get there? The other role of the Coxswain is to control the engine of the boat. The engine of the boat is represented by the other eight members of the team that are doing the rowing. The Coxswain does this by signalling a strokecount to the first person in the boat and each of the other team members follows that stroke. The Coxswain can turn up the stroke count. They will keep an eye on the competition, look at the environment, the stream, the current and determine what’s necessary for their team to win. In fact, that team depends on the Coxswain to let them know what it takes to win. Likewise, your organization and leadership team are looking towards you to help them understand just what’s necessary. Where are we behind? Where are we doing well? Where do we need to put forth more effort? I have found the best way to do that is with a simple color-coded scoreboard. Taking no more than 10 metrics that represent the way your strategy will be achieved and then providing regular feedback, at least on a monthly basis, of how you’re doing for those metrics. If you’re not hitting the metrics the color is red. If you’re close, but not quite there, it’s yellow. And if you’re achieving your objective, it’s green.

Having communicated the results and provided feedback regularly throughout the year, there’s only one thing left to do and that is to celebrate success. It’s critical that for the closure of the project, that the team celebrates the success that’s been achieved. It’s equally important that you recognize the high performers. They have to be recognized across the organization for the accomplishments and their contributions to the goal. The cycle continues as we rebuild the team for the next iteration. You do that by building your bench with special attention to developing tomorrow’s leaders. Have tomorrow’s leaders use model to lead smaller teams in the organization. This exercise grows the person. When we grow the person, we grow the leader and that strengthens tomorrow’s leadership team.

Create an Environment for Winning
Create an Environment for Winning

In summation, I believe we can build long-term sustainable success by creating an environment where teams can win. You might be thinking, well, I’m doing most of that. But if you’re not doing it all, then it’s not going to be sustainable. So, go home, look in the mirror and ask yourself are you doing everything you possibly can to create an environment where your teams can win? If not, you know what to do. Just do it.

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Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

Don’t miss

Perfecting the Close Part I - Introduction to the Formal Closing Checklist

Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

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Perfecting the Close Part I - Introduction to the Formal Closing Checklist

Don’t miss:

Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

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Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

Don’t miss:

Perfecting the Close Part I - Introduction to the Formal Closing Checklist

Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

​Not a member-scholar yet? Join our financial community here!

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Put a Pivot in Your Step

In times of uncertainty big opportunities are often missed, resulting in silent and unseen costs. Big payoff almost always means big investment, either of organization focus or money—or both. In uncertain times, the probability of payoff is harder to figure, and even well-managed companies experience this impact:

1. The highest-return window is missed. Instead, either there is no action, or the action that is taken is watered down. That skimpy action will likely have even less payoff than expected, but it nevertheless diverts precious company focus away from the business’s current income and cash foundation.

2. The most profitable option is skipped. This only makes sense when filtered through the fear of failure. Options that are both likely and very profitable are scarce as hens’ teeth, as my mother used to say (pure Oklahoma). Delaying one is often more risky than the risky action that prompted it.

3. The most powerful customer move is delayed.A clear stroke for customer value is tough to find, and if it’s avoided, it leaves room for your competitor to figure it out and provide it to your customers. A lost customer is the most expensive customer there is-just think of the value of all future sales to that customer, their referrals, their purchase of related products, their feedback on where your firm can improve, and so forth.

SPEED BUMP: Delay opens the door to competition or lost customers.

What to do instead? Try the Pivot. Like the move in basketball, it means pinning one foot (the Pivot Foot) to the floor, and rotating on it to place the other foot (the Power Foot) in a new spot. It has started more hooks and layups than even Kevin Durant can count. Let’s break it down:

The Pivot Foot:

This is the group of current offerings that your customer values the most, which also provide the foundation of your business. Here’s what to do:

1. Name it: Spell out the pivot concept, rename it the foundation concept, and define which parts of the business are included.

2. Boost it: Measure it, talk about it in every meeting, reward people for it.

3. Improve customer connection with it: Ask for a customer story every week from each department of your company about it. Share the stories with your team and your customers.

The Power Foot:

This is the growth part of the business. It’s the place where risks can lift you up. Here’s what to do:

1. Pick one project: Focus on it until it stands on its own feet or shrivels.

2. Name a growth team: Charge these folks with both plan and execution.

3. Measure it: Growth, profit, and customer response are the basics.

4. Report it: Except where security truly blocks it, tell the progress news to everyone in your company, and to the customers involved. The more people are “in on it,” the better.

SPEED BUMP: Protect the Power Foot Team like a fragile plant.

At one of the companies where I worked, new product development endangered growth because it took so long. We split off engineering and “test” functions from plant operations. Development engineers could make quick tests of new concepts and parts without tangling with ongoing operations. Time to market and revenue improved by one-third.

ACCELERANT: What’s your Pivot Foot? (Note to diligent reader: Only when you’re clear about your Pivot Foot will you give your Power Foot the full commitment that it needs to be successful.)

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Finance: The Foundation of All Economies

Welcome to CFO.University’s transcript of Steve Rosvold’s CFO Ed Talk™, Finance: The Foundation of All Economies. In his CFO Ed Talk™, Steve addresses the critical role financial professionals will play in the lifestyle of generations to come.

Enjoy. Learn. Engage.

Don’t have time to read through the article? Watch or listen here!


I have some great news. We are living longer. According to the World Economic Forum, my children have a 50% chance to live to 100. That’s 12 years and a 14% increase in a single generation.

We must overcome two major challenges in order for our heirs to benefit from their extra longevity.

Debt Addiction

The first major challenge is solving our addiction to debt. I’ll give an example using the U.S. federal debt, but this is just one instance. Too much leverage is found in many other areas of our economy.

In 2005, the per capita income of Americans equalled five months of our federal debt. In 2017, that number moved up to 13 months of income per American for our federal debt. If we roll that forward to 2030, that number will be 39 months of federal debt. Our debt is growing at a much faster pace than our income.

Now if you have a weak stomach, you might want to close your eyes and plug your ears for this next statistic. By the time my children are ready for retirement their share of the U.S. federal debt will stand at $3.8 million or 28 years of their income. Those are overwhelming numbers and it’s not sustainable. So, we have to find a fix for it.

Shift in Responsibility for Retirement

Our second major challenge is training our citizens to manage their retirement programs. The responsibility for retirement has been shifting from government and employers to civil servants and employees over the last 40 years. In 1935, the Social Security Act established a fund to keep the elderly in the United States from being on welfare. This fund has largely been successful, but in the next 20 years, the social security trust fund is expected to be depleted. In 1978, a new type of corporate retirement plan was established in the U.S.. The 401K Plan allowed companies to replace their defined benefit plans with a defined contribution plan. This change forced more of the funding responsibility for retirement to employees. It also gave employees 100% of the investment risk in their retirement plans.

The result of these two major changes in our retirement programs have shifted the burden of retirement planning to our civil servants and our employees. Financial professionals, with our experience and skill sets, are positioned to lead us in overcoming these challenges. Overcoming our addiction to debt and training our citizens to manage their retirement programs will allow our heirs the financial security to retire.

What is an Economy?

The definition of an economy is management of available resources. This covers many different types of organizations, including individual households, communities, states and national governments. Sound financial principles are instrumental in running our economies.

Four Reasons our Economies are in Trouble Today

First, our fiscal scorekeepers in our larger economies are politicians and politicians are disciples to their policies, not disciples to good financial practices.

Second, many of our economies run a habitual deficit. The CIA World Fact book indicates that 83% of the nations in the world ran a deficit last year. Economies that habitually run a deficit either end up in bankruptcy or create economic turmoil for their participants.

George Bailey helping the working class afford a home in
George Bailey helping the working class afford a home in “It’s a Wonderful Life”

Third, debt can be a good thing; but too much debt is always a bad thing. An example of good debt is highlighted in one of my favorite movies, It’s a Wonderful Life. George Bailey, a banker, lends mortgages to the working class of Bedford Falls. They replace their rent expense with equity in a home and they are one step closer to the American dream.

However today, that dream is unravelling as auto loans, credit card debt, and student loans pile up to create a mound of debt that we can’t dig out of. Another example of well-intentioned debt; in 2009, the U.S. federal government went on a spending spree to yank us out the Great Recession. Unfortunately, that spending spree hasn’t stopped. Government debt isn’t like a mortgage where it’s supported by a house or an asset that will appreciate in value. It’s more like credit card debt, where 30 days after a purchase, the asset is consumed and what remains is only debt. Our addiction to debt has allowed us to invest in dreams we can’t pay for.

Fourth, we have not trained our citizens to plan and manage for their retirement. We passed on that responsibility, but we haven’t trained them to accept it.

These are all serious problems to overcome but we must overcome them soon or social, political and economic calamity will be the only answer. It’s not possible to predict the outcome if we let things get to that point. Fortunately, there is a solution and a key part of that solution is financial professionals using their skills and experience to help lead us out of this crisis.

Four Reasons Financial Professionals are Key to Overcoming these Troubles

First, scorekeeping; Independence, logic and well thought out decision making are all trademarks of our profession. Our discipline is based on facts, analysis, and collaboration. Those are characteristics that make for a great scorekeeper and our economies need great scorekeeping. We need to know where the economy came from, where it is at today and understand what course corrections must be made to secure the future for its participants.

Second, financial professionals quickly learn the importance of balancing a budget. We spend a great deal of our time implementing strategies that prevent our economies from suffering. We understand that revenues must exceed expenses. It’s no coincidence that one of the main tools of our industry is called The Balance Sheet.

Third, as financial professionals, we are trained to successfully finance activities in fast moving, highly complex environments without jeopardizing the future. Debit in moderation can be a catalyst to growth. Too much debt can sink or collapse an economy. The discipline of finance allows us to invest in dreams that we can pay for.

Fourth, we have a great opportunity to do our own investing for our own retirement plans. Unfortunately, we haven’t trained our citizens to take on that responsibility. However, think of what financial professionals do every day in their jobs. They create models that help us plan for the future. They prepare budgets. They prepare forecasts. All these tools help us look into the future and plan. These are exactly the tools our households need to plan for their retirement. It’s a perfect fit - the financial professional helping citizens without finance training to plan for a successful retirement.

So, let me say it again. I have great news. We are living longer. We have some challenges to overcome; Challenges that are best solved by the skills and experience of financial professionals.

I’m asking you as an executive in our financial community to take on the responsibility of teaching the citizens of our economies some of the financial knowledge you have learned over the years:

  • Teach a friend how to prepare and manage a budget.
  • Help a young household learn how to prepare their personal financial forecast.
  • Educate your employees on how to maximize their 401K benefits and their retirement benefits in general.
  • Educate a politician on the perils of too much debt.
  • Evangelize about the benefits of using sound financial principles to improve our economies in the future.

Sharing a needles eye portion of your financial knowledge with family, friends, colleagues and politicians will have huge benefits to our economies and the livelihood of our heirs.

Visions with finance turn dreams into a long-lasting reality.

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The Top Development Questions to Ask Employees

Suzi Alligood, Vice President of People Development & Culture at Xenium HR passes on some great tips and pertinent questions that will help you and your employees stay on the same page regarding their professional development path; one of the keys to employee retention.


In today’s employment climate, employee retention is crucial to a business’s success. In many industries, there are more jobs available than there are people to fill them, so when someone leaves a company, it often takes some time to find their replacement.

That makes the statistics we see about job-seeking and retention pretty staggering. At any given moment:

  • 81% of employees are “passive job seekers” and would consider leaving their current role for the right offer (Hays)
  • 56% of workers are planning to look for a new job in the next six months (PayScale)
  • 51% of U.S. workers overall (60% of millennials) are considering new employment opportunities (Gallup)

Lack of workplace professional development and career advancement opportunities continue to be top reasons why employees change jobs. One way you can build employee loyalty and engagement is through routine development conversations with each of your employees.

It may seem counterintuitive, but the onus is actually on employers to start this conversation. Many employees won’t feel comfortable asking about these kinds of opportunities unprompted, as they won’t want to seem ungrateful or accidentally tip off their employers that they’re looking for more outside the company, too. And without open communication from management, employees will assume advancement opportunities don’t exist.

Ideally, employees take ownership for their own success. But that doesn’t let managers and supervisors off the hook entirely. Taking initiative to identify your employees’ big-picture needs is better for your employees, as it helps them feel heard and valued, and in turn, it’s better for your employment brand.

Supervisors tend to shy away from these conversations when promotions are not in the foreseeable future, but that’s not a good reason to avoid the discussion entirely. Whether or not you have promotions or development opportunities available anytime soon, you should be talking to your employees about their drives and desires for their careers. If you don’t, someone else will.

Suzi recommends sparking the conversation with these questions:

  • Do you feel fully utilized in your current role? If so, can you identify the factors that make you feel fully utilized?
  • Please highlight your positive experiences at the company in the areas of learning, development, and growth. Are there ways we could increase that growth?
  • Can you help me understand your career progression expectations and where you would like to be in the company two years from now? Do you desire to move into a leadership role? If so, what are your expectations, ideal timeline, and concerns?

Once you know what your employees want, you are in a better position to brainstorm development opportunities and set reasonable goals with them, not for them. Then, take some time to think about what you can do now to help prepare them for a future role. Even if the employee ends up working elsewhere, you will have done the right thing by the employee and your employment brand.

Watch Episode 06 of Transform Your Workplace

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Is Your Competitive Philosophy Building or Killing Your Culture?

Welcome to CFO.University’s transcript of Erik Gillam’s CFO Ed Talk. Is Your Competitive Philosophy Building or Killing Your Culture? In his CFO Ed Talk Erik shares how to build a team culture that is happier and less stressed, leading to increased productivity and profit.

​Enjoy. Learn. Engage.


​Think about the last time you were really stressed out or discontent. How did it make you feel? I know when I get that way, my palms get sweaty, my stomach goes in knots and I feel almost paralyzed. The last thing I’m thinking about is how productive I am at work or the next big thing that’s going to help change my company. So, I can give you statistics about how happier employees or less stressed out employees are going to make your company more profitable. But you probably already know that. That’s common sense. So, how do you develop an environment with your team that increases happiness and decreases stress and discontent? I was struggling with this question a couple years ago when I decided to do an activity. This activity involved me. Every night before bed, I would write in my journal. I’d write about what happened during the day, if I had any stress and if I did have stress, what caused the stress. Six months into the project, I decided to stop and look back through my journals. The main theme that I took from this activity was that I was really stressed out in situations where I had a perceived lack of control. Let me give you an example. It’s promotion time, so and so may get promoted and I might not get promoted. I don’t have any control over so and sos performance. I don’t have any control over the promotion cycle. All I have control of is my abilities. Nonetheless, it was stressing me out. I dug deeper and came up with two core catalysts for what caused these feelings - Competition and Subjective Self-View.

​Competition and Subjective Self-View

Competition is baked into our DNA through millions of years of evolution. We’ve been competing for food, shelter and resources for generations. It’s even alive in the culture that we have today. We compete in athletics, academics, to get into the right school, to get the right job and to get the right spouse. Here’s an example of competition in a place where I didn’t even think about it happening. I’m driving on the freeway, during rush hour and I’m in the middle lane. All of a sudden the lane to the right of me starts moving faster. So, I switch lanes. That white car that was in front of me is now my competition. I don’t know why. I don’t know this person. But as my lane goes ahead, I feel better about myself. As my lane stops, the middle lane goes and he passes me, I feel terrible. What have I done? How did I make this choice? Why is that my default?

​Subjective Self-View - The way we look at everything in the world, including ourselves, goes through the lens of the things and the actions that we’ve had throughout our life. One thing that’s natural with everybody is making what we are best most important to us and what we are worse at the least important. I’m going to paraphrase the Bible a little bit, but I think it brings out my point. The Bible says, “Treat others the way you want to be treated”. Must I think so highly of myself that the best thing I can do for anybody is to treat them the way that I treat myself? I will go back to driving for my next example. You’re driving down the highway and you come up behind somebody who’s going five or 10 miles an hour slower than you are. What is this person doing on the road? How do they have a license? What are they thinking? On the other hand, if somebody flies by going 10 or 15 miles an hour faster than you are. This is a crazy person! They’re going to get somebody killed. I should call the cops. I hope they get pulled over. But you, every time you’re driving, you’re always going the right speed. Whether you’re late for a meeting and you’re trying to push it or you’re right on time and taking it easy. It’s all subjective. Competition together with this subjective view of oneself is a recipe for stress and discontent.

​Goals Change Your Focus

​What can we do? How can we solve this problem? You have to have specific goals. Goals move the focus from other people and how you compare to them and put the focus on something you have control over. You set your achievements. Goals can’t be just words. There are five specific aspects of a goal. I suspect everybody has heard the acronym SMART before. I can’t stress enough, how important it is.

​SMART - Specific, Measurable, Attainable, Reasonable, and Timely. It’s tough to get all five parts in one goal. I’ve had people come to me and say, “Erik, my goal for this year is to increase industry knowledge or increase knowledge of finance”. Well, what does that tell me? That’s pretty broad. Will you be able to sit down with me a year from now and tell me that you’ve met that goal? A SMART example of this goal could be; I want to increase my knowledge of interest rate swaps. To do that, I’m going to read three articles and give a presentation at the end of those six months. Is it specific? Yes, I want to increase my knowledge of interest rate swaps. Is it measurable? Yes, it’s three articles and one presentation. Is it attainable and reasonable? You should be able to get that done in that amount of time. Finally, is it timely? We’ll know at the end of that six months, if you have met your goal or not?

​Steve Jobs is an example of somebody who had very specific goals. Do you think when he was sitting down with his design team coming up with the idea for the iPhone, he said, Guys, I think we need to make something a little better than the competition or we need to make something a little different. No, he said, I need a phone that doesn’t have buttons. I want the whole face to be a touchscreen. I want a phone that’s going to change people’s lives. We could argue that some of Steve’s goals weren’t timely and he did put some stress on people. But, he was very effective and helped grow Apple to be the giant it is today.

​Let’s go back to the driving example. This time, I am going to put goals to it. Instead of just driving from point A to point B and trying to get there as fast as I can, I set a goal for myself. I gave myself a buffer. Normally it takes me 45 minutes to go from point A to point B in traffic. I gave myself an extra 10 minutes or 55 minutes. Now when I’m driving, it doesn’t matter if I stay in one lane or get in the other lane that’s going to save me one or two minutes. I know I have a 10-minute buffer. It takes the stress out of the situation.

​Goals help you not only in the workplace but in your personal/family life too where you can apply these same principles. Set goals for how much you want to save. What adventures you want to go on in the next 10 years. How you want to treat your spouse and how you want to raise your kids?

​At the end of the day. We all want to work with people that are healthy, happy and less stressed out. You have an opportunity to increase profit and productivity without spending one extra dollar by setting up a process where you implement goals. Take control of your goals.

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Technology Investment Strategies for Business Success

It has never been more important for businesses to make the right technology investment decisions. Businesses currently spend an estimated 2 to 5% of their revenue on technology purchases. Studies show there is a strong correlation between profitable growth and well-aligned technology especially when the investments are focused on differentiating the business in the marketplace. Unfortunately, technology spending can sometimes be derailed by competing agendas, poor communications, and long wish lists. How can these important business investments move beyond the technical necessities needed to just “keep the lights on” and tackle improvements that solve the bigger problems businesses face today?

​The Global CIO Survey reports that 57% of technology budgets are used to support fundamental business operations, while only 26% of the spending focuses on needed business changes. A mere 16% supports innovations that will power the business into a successful future. In a world where IT has become a critical component of business operations, technology is a key differentiator and an enabler of success. So how should a small business determine where to direct their scarce resources to get the greatest “bang for the buck”?

​A Portfolio Approach

​Successful businesses optimize value by adopting a portfolio approach to technology investments by using a strategy similar to a stock portfolio. Some high-risk investments may deliver outstanding but risky results, while other more conservative investments are likely to lag behind but give consistent results. Smart executives measure the performance of technology investments in terms of value, risk, and reward. Taking a venture capital mind-set on some of the investments will boost value and produce a bigger impact.

​Align with Your Strategy

​Focus investments on specific business goals such as revenue growth, for example, improving customer market share. Another goal may be to better serve existing customers to increase their spend. The former strategy lends itself to investment in better marketing and customer targeting technology while the latter requires customer relationship management and service support systems. Always verify that technology investments are closely aligned so they support the strategic goals.

​Prioritizing technology investments is a bit like making sausage…it is not a simple process. There can be conflicting opportunities and constraints to balance. If too much is allocated to maintenance of existing systems, new projects and innovations may languish. This can ultimately impact competitiveness and long-term revenue. A spending balance across innovation, growth, productivity and maintenance coupled with a mix of targeted investments based on business objectives, time constraints and risks will yield an excellent outcome.

​Smart leaders follow a multi-year strategic technology investment plan that allows for growth, change, and improvement. It is easier to identify technologies that help specific initiatives when there is an overarching vision to provide clarity.

​Some key questions to consider:

  • ​ Are there opportunities for growth or significant improvements in certain functional areas?
  • ​ How do the leaders in your industry use new technologies to create a competitive advantage?
  • ​ Does it make sense to invest time, money, and staff on a single large project vs. several small but less impactful changes?
  • ​ Are there any new business risks requiring technology investments that can’t be ignored?
  • ​ Which investments will either grow revenue, improve profits, or reduce risks the most?

As technology becomes even more pervasive, long-term investments make the difference between being a thriving vs. static business. The key is to reach management consensus with a realistic view of the benefits, costs and impacts for each technology decision. Yet just writing a big check is not enough. Technology investments must also be strategic–and at the same time focused on the most important competitive initiatives–so they deliver the expected impact on the bottom line.

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Do You Know What the Income Trap Is? You’d Better

Welcome to CFO.University’s transcript version of Joe Connors’, CFO Ed Talk “Do You Know What the Income Trap Is? You’d Better”. Joe’s entertaining and wise message reminds us “It’s not what you make it’s what you keep” and how building net assets is frequently more important than growing revenue.

Enjoy. Learn. Engage.


The Income Trap

How many of you believe if you could increase your income it would solve a lot of problems? My name is Joe Connors. I’m a middle-aged business banker and over the course of my career I’ve seen a number of business financials and personal financials. What I’m going to tell you is that focusing solely on income is a trap. I call it the Income Trap. I’m also going to tell you the same trap that applies to individuals also applies to businesses, no matter their size. And what I’m also going to do is show you a few examples of how focusing solely on your income could put your business at risk.

​You may recall the old adage; “It’s not what you make it’s what you keep”. That applies as much to businesses as it does to individuals. Do not become a victim of the Income Trap. So, I said I’ve looked at a number of financials over the course of my career. How do companies or individuals avoid this Income Trap? Well, to cover this we need to actually pivot away from the income statement and look at the balance sheet and when I look at a balance sheet I try to figure out why is company A more successful than Company B? Why was Company A able to endure a recession or a reduction in demand or loss of a significant customer whereas Company B couldn’t endure that and maybe Company B failed? Well, what I’ve found is when you look at the balance sheet you get an understanding of why they were able to survive challenging times.

​The Speedometer and the Fuel Gage

​So, when I think of a balance sheet I tend to think of a fuel gauge. The balance sheet as a fuel gauge; that balance sheet contains the reserves that a company relies on to propel itself forward. When you think of reserves there are typically two categories; financial reserves and liquidity reserves. When you look at a balance sheet there’s a very common ratio called the debt to equity ratio. That will give you a sense for the financial reserves that a business has; essentially, total liabilities or total debt over total equity. When you look at liquidity, there’s actually a liquidity ratio and you can calculate it different ways but essentially the numerator is cash, marketable securities and perhaps even receivables in some cases and the denominator is total current liabilities. The higher the number is the better the liquidity ratio. The leverage ratio, the first one we covered, the lower the number the better.

Let’s go back to the income statement and the income trap. When I think of an income statement I think of a speedometer, it tells management how fast are revenues growing, how fast are expenses growing, how fast are earnings growing? And when management looks at that speedometer, it has a sense for how fast the company is moving. But the really successful companies pay as much attention to their balance sheet as they do their income statement. They do not fall into the Income Trap. So if you can think of the income statement as your speedometer, imagine you’re cruising on Interstate 40 in a red convertible Ferrari. You’re doing one hundred miles per hour. What an exhilarating ride! Now you’re in the middle of the desert, had you not checked your fuel gauge before you left you may run out of fuel in the middle of the desert and have no way out. Not paying attention to your fuel gauge is akin to not paying attention to your balance sheet. How many of you have run out of gas? How many of you have worried about running out of gas? I can tell you a couple of years ago, on a summer road trip, my wife and I had driven up to Calgary, Canada to attend the Calgary Stampede. We’re working our way south and west back to British Columbia and eventually back to home in Portland, Oregon about a sixteen-hundred-mile trip. As we’re cruising along Interstate 5 in Canada, Canada Highway 5, we noticed that our fuel gauge was almost on empty, and we’re kind of looking at each other and saying oh my gosh! We were on a downgrade so my wife puts the vehicle in neutral and we coast. Shortly thereafter we see a sign and that sign says the next town that we were going to hit was called Hope. We kind of looked at each other and said “My gosh, I hope we make it to Hope!” Well, we did make it to Hope, but I can tell you hope is not a strategy that I embrace, and hope is not a strategy I recommend for you. Examples – Getting Caught in the Trap and Avoiding the Trap

​Now I will come back to the Income Trap and talk about a couple of companies. Company 1, founded in 1985, is a high flying company. This company was focused on performance; the financial income statement performance. You can find quotes about this company where employees and associates have said, they felt that the only thing that mattered was profits. So this company did incredibly well. From 1999-2000, they grew their revenues from a little over forty billion to a little over one hundred billion, about one hundred fifty percent income growth over that two year period. When you looked at their balance sheet what you noticed was their leverage at the end of ‘99 was about two and a half to one. When you rolled it forward to the end of two thousand, it had nearly doubled to roughly four point seven to one. Actually, after the fact we know there were more liabilities and so the leverage would have been even higher. That company, in the third quarter of 2001 reported its first loss in four years. Two months later, in December, that company filed for bankruptcy. Company Number 1 was called Enron. Do you think Enron fell into the Income Trap? Now I’m going to talk about Company Number 2. Company Number 2 founded ten years later in1995, was a company that lost money for the first eight years of its existence. This company was growing revenues every year, it had losses, the losses were increasing but then they gradually began to diminish. That company in the fourth quarter of 2001 reported its first quarterly profit. That company did not fall into the Income Trap. In fact, they spent an awful lot of time understanding their balance sheet and their liquidity reserves. The trend that you see is that their liquidity or their liquidity ratio kept moving in the direction of one. They were generating as much cash as they needed to stay ahead of their current liabilities and meet their operating expenses. Company Number 2 is a company called Amazon. I don’t think I need to say any more about Amazon except that I would assert they did not fall into the Income Trap.

​We’ve talked about a couple of companies. Now I will present two individual examples:

  1. ​We have this couple, a professional couple. They’re both working, gainfully employed and they meet with a financial planner. At the start of the meeting, the financial planner shares with them that at their ages and their income this is how much they should have saved for retirement. When that number is flashed on the screen, that number is essentially two times or double what they themselves have saved. The financial planner pauses and then he looks across the table and he says, “Are you OK?” The husband turns to his left, looks at his wife and notices that she is crying. That couple had fallen into the Income Trap. That couple was me and my wife.
  2. ​We’ve got two hypothetical folks, Jim and Bill. Jim makes one hundred thousand dollars a year, Jim drives a Lexus, he leases a new Lexus every three year, he lives in a high rent district he travels a lot for business so when he’s home he tends to eat out a lot. So even at one hundred thousand dollars a year Jim is not able, on an annual basis, to save any money for retirement. Now we look at Bill. Bill makes thirty-five thousand dollars a year. Bill oftentimes makes his own meals, brings his lunch to work and actually drives a Toyota Corolla. That Toyota Corolla is paid for. Bill does not live in a high rent district. Bill actually has been able to save about five thousand dollars a year. So, with a simple exercise when you look at Jim and you look at Bill, Bill over the course of forty years will have saved essentially a million three in retirement funding (you can do the math with using an eight percent compounded annual growth rate). It’s going to be a pretty significant number by the time he’s ready to retire. I would say Bill has not fallen victim to the Income Trap. Jim, on the other hand, forty years from now, will have nothing in retirement and he will have been solely focused on the income statement.

​Falling into the Income Trap Increases the Cost of Capital

We’ve talked about Enron, we’ve talked about Amazon, we’ve talked about me and my wife. We’ve talked about Jim and Bill. What I want to do is pivot to the final point I want to make, “There is something else”. To illustrate this I often look at the Cost of Capital Curve. The Cost of Capital Curve is essentially a model that shows how a company moves along this curve. As it moves down the curve, it attracts a lower cost of capital. As it moves up higher on the curve, it’s a higher cost of capital. So generally, if a company has been a good steward of its financial reserves and its liquidity reserves, it’s going to be more effective at attracting a lower cost of capital and you know they say it takes money to make money? I’m actually going to explain to you how it can take less money to make more money. MFG Company approached me and several banks a number of years ago and they wanted to borrow a million dollars for a piece of equipment. Ultimately when you looked at MFG, they didn’t score very well in terms of their leverage. Their leverage was way too high and so many of the banks who might have offered that company five percent interest rate on that money weren’t able to help them. What did MFG do? It went to its equipment vendor and used a form of financing that would be akin to leasing, but the cost of that financing was fifteen percent. So on a million dollars (The actual price was two million. But let’s keep the math simple) that would be about one hundred fifty thousand dollars a year. Had they not been a victim of the Income Trap and spent as much time on the balance sheet, they would have been successful attracting five percent capital. Now think about that, the difference, one hundred fifty thousand versus fifty thousand. Had they not succumb to the Income Trap, that additional hundred thousand comes back into the company and allows the company to continue to improve its ratios and be able to attract that lowest cost of capital, so I would argue that MFG became a victim of the Income Trap.

Hope or Plan?

​So, we’ve been on a journey, you’re all on a road trip and we’ve covered a number of things. It’s not what you make it’s what you keep. Pay attention to your balance sheet. Do not become a victim of the income statement. Understand your ratios, your leverage ratio and your liquidity ratio. You will save money and safeguard your business. You know, the acronym for balance sheet is B.S. Your balance sheet is not a bunch of B.S. You should pay attention to it. As you journey through life toward your destination, you’ve got a couple of options, you can hope, or you can plan, you get to choose.

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Stop Using Lean to Cut Costs

Welcome to CFO.University’s transcript version of Andrea Jones’, CFO Ed Talk. Stop Using Lean to Cut Costs. Andrea advises CFO’s to start using Lean to increase revenue, and stop using Lean to cut costs. She provides a clear-cut model and real-life case studies to drive her points home.

​Enjoy. Learn. Engage.


Imagine this scenario, your company didn’t make its earnings last quarter, and you as the CFO have the unenviable task of bringing those numbers to your leadership team. Everyone’s going to start talking and pretty soon someone will come up with the idea that you need to cut costs. Maybe you’ll even decide to use Lean to cut costs in your company. Well, you wouldn’t be alone. A recent headline from CNBC states, Coke goes Lean to cut 1200 jobs as part of an $800 million cost savings plan. Today, so many companies use lean to cut costs, that Lean has become a four-letter word in many organizations.

​Several years ago, a company that I worked for would constantly reissue Lean mandates to cut costs and cut jobs. Well, it doesn’t have to be this way. Interestingly, when Jim Womack popularized the term Lean in his 1991 book, The Machine that Changed the World, he was referring to how Toyota would produce products with little to no waste while adding value to the end customer, and revenue for the company.

The DAER Model

Now, if you’re as profitable as you would like to be, maybe you don’t need to read the rest of this talk. But for the rest of us, there’s a way that you can use Lean to not only cut costs but to increase revenue in your company. This is the DAER model. It stands for Define; define the problem or the issue in your organization that you’re looking to address. Collect some data around that issue to really figure out what’s happening. Then Align your team to that data, make sure that everyone understands the issue and further is aligned also in what they need to do about fixing it. Next, Execute to that plan. And finally, realize the Revenue that comes from your efforts in this area.

​Case Study – Debottlenecking the Production Process

Consider the following case study. A manufacturing company had a stated six week delivery lead time. Well, they weren’t making that lead time and they were concerned. So, when I ask them, what is your actual average lead time? They really didn’t know. So first, we had to collect some data. After we collected this data, we found that their lead time was actually seven weeks, on average, not six. But the interesting thing about the data was that no matter what you say about Lean and touching the product, needing to change the form, fit or function, in order for each touch to be, quote, value-add, they were actually spending 75% of their time in production doing nothing. The product was just sitting there waiting, nothing was actually happening. So, it really didn’t matter what they were doing when they touched it, as you can see, in the green bars on the chart to the right. The red bars signify the 75% of the time that the product was sitting around doing nothing. Well, once we had collected and showed this data to the team, everyone jumped on board and was very aligned to the problem. Then we had to come up with what we were going to do about that. We decided to use a Pull System. A Pull System takes the theoretical constraint of a system, in this case, when the machine would actually produce the product, which is the large green bar toward the end of the chart, and pulls everything in toward that step. So, we didn’t have to do anything ahead of time. We didn’t have to worry about all the other steps. But we would pull things over towards that step. Everybody was aligned to this and we moved ahead towards execution. The way we executed was by adding a buffer, a Kanban in Lean terms, in front of that machine. So, while the machine was running, there would be four pieces of production staged in front of it. Soon as it was done, it would move off, pull the next one on, and everything would move up a spot. An open spot was the indication for the upstream steps to get ready for that piece of equipment. The program was designed to stage the materials and put everything in front of that equipment.​

All they did was change their philosophy by pulling things onto the equipment rather than pushing them over in random order, but you can see the staggering results. The chart to the left shows in red, the 35 business days or seven weeks of time that it took them to produce the product before the Pull System was in place. After the Pull System (Kanban) was put in place production time declined to 11 business days, represented by the green bar. So, they removed over three weeks (69%) out of this whole process. And what does that do for their revenue? Well, from a financial perspective, their cash flow is improved because they’re able to invoice sooner. Their inventory turns are up. Their throughput time is down so their throughput itself is up. Machine utilization is up. Equipment capacity is up because again, they took weeks out of the production cycle. On average, they were able to do more in any given year without adding any additional overhead costs.

​But the best thing that happened for this company was that now they were able to go to their customers and say, “Hey, would it be a competitive advantage to you if we can deliver in about two weeks rather than the six or more that we were delivering in before?” They were able to increase their sales and therefore their revenue even more.

​Now, you might be saying, Well, that’s all great. I’ve heard about Lean manufacturing, it works well in a manufacturing environment. But I’m not in a manufacturing environment. So how can this lean thing work for me?

​Case Study – Properly Allocating Resources

​Well, consider the case study from a web platform company. This platform company was onboarding about 50 customers a month to its web platform and it moved to 350 in one month when it added a sales channel partner. So, you can imagine that this onboarding process, which was about five steps, was very manual when people were onboarding 50 clients a month and when moving to 350 in one month everybody was super frustrated. They couldn’t get through the process. Work was starting to stack up and no customers were actually on their web platform to even earn revenue in the first place. So, there was a big problem. We really needed to figure out where in that five-step process were the big opportunities. So again, we started to collect some data. In this case, we collected the backlog. So how many customers were waiting at each step? Well, interestingly, in both step 2 and step 4, there were training steps. Now you can see from the chart to the right that step four had a gigantic backlog. But what was the difference? In step two, there was a five to one training ratio. Five customers to one trainer. In step four, that ratio was one to one. Now, it doesn’t take a rocket scientist to know that if you go from a five-lane highway, down to a one lane highway, things are going to get backed up. And that’s exactly what had happened to them. In fact, they had 630 customers waiting at step four, just to get through that process. I calculated that it would take them about six years to get through at the rate at which customers were coming in. Six years is an awfully long time to wait to earn revenue on your web platform business.

​So, now that the problem is well defined, you would think that people would jump right on board and be aligned to what to do next. This is an interesting situation though because the manager who had set up that step 4 to be the one to one trainer was actually not bought in. That manager really believed it needed to be one to one training there. So, they didn’t do anything about that right away. Instead, they added some online software to schedule people. So, if someone quit or canceled at the last minute, they could backfill easily. They added training slots for step four. They made sure all of their trainers were cross-trained. That helped some, but it still didn’t address the main bottleneck. They didn’t level load every step in their process. After this went on for a few more months and the problem was just exacerbated. They realized and all became aligned that the problem was in step four and they needed to address it. After that, execution became very straightforward. All they had to do was increase the ratio at step four so that the entire system was matched and level loaded. They were able to get customers on board within a few months and start earning revenue from their online web platform company.

Don’t’ Embrace a Stone Age Excuse

Now, maybe you’re thinking to yourself, hey, that’s great. It would be wonderful to have the time, to really define a problem, to come up with all this data, analyze it and work to get the team on board. Sounds like a terrific idea. But I am just so busy. I’m so busy doing my daily work. I don’t have time to do anything else. Anything else is overwhelming. Too busy to think about this? Well, as you can see from this cartoon, being busy is a pretty convenient excuse that’s been around for a while. So, I dare you. Use the DAER model to consider how you can use Lean to increase revenue in your company. Define the problem. Figure out what’s really happening and use data to really see that and get everyone aligned to the problem and to the data. Align all of your team to what really needs to happen. If you take the time to finish the define and align steps well, the execution becomes relatively straightforward. And don’t forget, realize the revenue that comes from your efforts. Now, if you’re always using Lean to cut costs, well, you’re probably not going to be too popular with your employees. But if you can message Lean in the way in which it was intended, to add value to your customers and revenue to your company. Well, you tell me CFOs, What could be more important than that?

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Without Change, the M&A Boom Will Stunt Economic Growth

Welcome to CFO.University’s transcript of Grant Jones’ CFO EdTalk Without Change, the M&A Boom Will Stunt Economic Growth. Grant highlights studies that show M&A is a statistical failure. But he gives us hope with three ideas on how to improve the rationale for doing acquisitions, as well as improved success rates.

​Enjoy. Learn. Engage.


​I liken mergers and acquisitions to terminal illnesses. We all either know somebody or have ourselves been impacted by a terminal illness and our outlook has been quite negative. I blame this negative outlook on the famous quote by Albert Einstein that goes “We keep doing the same thing over and over again, expecting different results”. This is also known as the definition of insanity. To give some scope to the problem, we’re actually coming out of record M&A activity. From 2010 through 2017 we’ve had 67,094 reported transactions. This led to $6.55 trillion exchanging hands. Well, it’s all the big deals that get the big headlines. According to PitchBook, roughly 70% of all deals done around the globe are less than $100 million in transaction value. This means the overwhelming majority of transactions are actually your local, family-owned or privately held businesses.

There were some substantial economic benefits. First and foremost, this created substantial liquidity for the exiting owners to move on with life, or simply move on to retirement. Coupled with this was the acceleration of the entrepreneurial cycle. These exiting owners went off and created new ideas or new businesses. There was also a huge lift to the financial and banking sector. As we came out of the Great Recession, the banking sector was crippled. To do $6.55 trillion in acquisitions means we had to go out and borrow substantial amounts of money. This was a great lifeline for the banking sectors as we came out of the recession.

​If you were to go Google M&A success rates, you would get a different story. M&A is a complete statistical failure. Regardless of your source, Forbes, McKinsey, Harvard Business Review, they would all argue that M&A fails over 50% of the time. Now, failure is somewhat in the eye of the beholder. But, across the board, all these would define success or failure as not accomplishing the goal that they set out with when they moved forward with an acquisition. Now, if we were to do some basic math, if we spent $6.55 trillion on acquisitions, that means we wasted $3 to $4 trillion on acquisitions. It could at least be argued that there was a huge opportunity cost for what could have been. Now since 2010, we’ve had some real doozies. In 2011, Google acquired Motorola for $12.5 billion. Two years later they sold it off for $2.81 billion, almost a $10 billion economic waste.

Then again, in 2014, Microsoft acquired Nokia for $7.9 billion. Just one year later, they wrote off almost the entire amount. Apparently, it was a tough time to be buying cell phone companies. However, most experts would say the worst deal in history was in 2011 when Hewlett Packard acquired a company called Autonomy for $11.7 billion. One year later, they wrote off $8.8 billion to eventually sell off the pieces in 2016 for $170 million dollars. This was roughly an $11.5 billion economic waste. Now, some would argue that there’s residual value to these acquisitions. And I would agree. However these write-offs aren’t without consequences. No question, there was substantial job loss as well as loss of shareholder value. But, so what? Why does this matter? Forbes estimates that between 2015- 2025 there will be $10 trillion of business value transition. This means in 10 years, $10 trillion of business value will find new ownership. If these success rates hold true, we have the potential for $5 trillion of more economic waste. Now, if you were to go back to that original Google search and ask, why does M&A fail? You’re going to get all the same sources to tell you all the same reasons. I’m going to summarize these into two categories.

Why M&A Fails

​The first one being poor integration. This includes topics like a cultural mismatch, missing key leadership roles or not keeping talent. This also includes lack of a solid due diligence process; where the skeletons reveal themselves after the acquisition or even the ego of the acquirer getting in the way, “ It’s going to be our way or the highway”.

​Then there’s acquisition rationale. This is not having a strong selection process or what’s deemed poor strategic fit. Often times, this means there was an overestimate of synergies, frequently a financial model including cost cutting that can’t be realized. And then there’s this grand revenue scheme where one plus one’s going equal five and they end up falling short. You could also simply have poor deal terms or just overpaid which leads to poor decision as desperation rules the day? While I would argue integration is important, if you didn’t have a strong rationale for why you did the acquisition in the first place, it’s going to fail.

How to Improve M&A Success Rates

​So, here are three ideas that will help improve our value creation rationale and improve our success rate.

1. The first one I title “Keeping up with the Joneses is not a sound strategy”. Much like in the analogy, when you see all your neighbors buying new toys, companies are going out and saying, well, we must grow through acquisition too or we risk falling behind. This is a terrible strategy for growth. Additionally, there are substantial economic pressures to grow through acquisition. We’ve been in the slow growth economy for a period of time now, and it’s quite frankly, not suitable for shareholders. So key executives look around and say, “Well, if we can’t grow organically fast enough, then we must grow through acquisition”; regardless if it’s our core competency to do so. Many companies don’t have the competency to run a selection process, negotiate a good deal, and then find the synergies to be successful.

2. Secondly, on a twist of a famous JFK quote, “Ask not what the acquisition can do for you, but what you can do for the acquisition”. Too often companies go into their strategic planning meetings, and they sit around, and their conversations go something like this. You know, we really should grow our geographic reach. “Do we know anybody in that territory we can go buy?” or “You know we really want to expand our product line”. Who do we know that we can go acquire to help us grow? This me, me, me, attitude actually jeopardizes the opportunity to be successful. The companies that are most successful with acquisitions actually focus on “What is the acquiring company doing well?” and “How can we help them do even better?”. The buying group that I think does this the best, is your large buyout private equity firms. They don’t come in with any preconceived, egotistical growth strategy. They’re simply looking for attractive companies to buy that then they can leverage their expertise, experience, and influence to help them become even more successful by focusing the on company they acquire. This allows them to then reach their goals of returning their profit to their investors.

3. Lastly, it’s not about the numbers it’s about the people. As I mentioned, I believe companies spend too much time on their financial models. Figuring out how they can they cut costs, or have these grand revenue schemes instead of focusing on the people before the acquisition. I think companies should be spending way more time on the Org Charts, the people and the customers that made the company valuable in the first place.

​Many case studies would say that the acquisition done by Procter and Gamble of Gillette was a great success. This was attributed to their thorough investigation of the people. Many thought that Procter and Gamble being the bigger company that their executive team would stay in place, but actually this was not the case. They took their time and took the best talent from both Procter and Gamble and Gillette and made a best in class leadership team. They also created a culture that had collaboration and best practice sharing. So it really created a best in breed team for the company to grow going forward.

​So, if you don’t have these three foundational value creation rationale; you could have the best integration team in the world and it’s just not going to matter. To me, integration is simply a detailed project plan that outlines how you’re going to achieve your goal, why you did it, what you did and who you’re doing it with?

​As business leaders M&A is all around us in one fashion or another. I’m really curious to see what the studies are going to be like in 2020, 2025 and then again in 2030. Did we learn from our mistakes and improve on all these case studies of historical poor performance? $10 trillion is on the move. I really do hope we’ve learned our lesson. Otherwise companies might as well go to Vegas and put the growth strategy on black.

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What Every CFO Needs to Know About Tax

Welcome to CFO.University’s transcript of Craig Vagt’s CFO Ed Talk What Every CFO Needs to Know About Tax. Craig wants your tax function to be a success and shares the concepts you will need to make that happen.

​Enjoy. Learn. Engage.


​At some point, you as the CFO are going to realize that you have responsibility over the tax function. This may come as a surprise, hopefully not, but it may. This will be the case whether you have an internal tax director or whether you rely on an outside advisor for your tax services. Your role will probably be a little more complicated if you’re relying on outside advisor. But in any case, you’ll have that responsibility. So knowing that you have that responsibility, you need to assess where your tax knowledge is; What do you know about taxes? What should you know about taxes? Do you think there’s a gap? How do you fill that gap? Well we’re going to talk about a few things here that will help you get through that process.

​The first is you need to identify what issues you’ve got to deal with. What are the total tax issues that the company has to face? Probably be best to make a list. What’s the first thing that comes to mind? Income Taxes, put that on the list. What do you know about income taxes? Where do you have to file? You’ll file federal return, you’ll file state returns, maybe more than one, you’ll file local jurisdiction returns, City, County. If you’re involved in international operations, you’ll have to file foreign tax return. Keep all those in mind, create a list, know where you’re going to file, know the due dates, know the estimated tax dates if you’re going to have to pay taxes in any of those jurisdictions. That’s all very important.

​When you come to the States, you’re going to ask to have to ask yourself, well if we have operations in more than one state, say we’ve got a manufacturing facility in California and a warehouse in Arizona, the entity made $1 million. How do we split that income between the two states? Those are rules called allocation and apportionment rules. You don’t need to know the rules for each state, because they can differ. They can differ to the point where one state may allow a consolidated filing if you have more than one entity and another state may forbid consolidated filing. So the differences could be quite large. Maybe some states rely on payroll, sales, property, ratios of those in and out of the state. But you need to identify those, keep those in mind, not the details; you just need to know that those exist. What do you know about the tax return itself? Page through it. Take a look at the last page where it reconciles book income to tax income. That will be a big help. So that’s income taxes.

​How about property taxes? What do you know about property taxes? Who in your organization actually files property taxes? What information do they rely on? Do they rely on the general ledger? Does the general ledger have information about where property is located? What happens if you have property that moves from jurisdiction to jurisdiction? Your construction company and your equipment moves from jurisdiction to jurisdiction? Is there a way to track that? You need to make sure you understand that. Maybe you use the depreciation schedule as the base for your property taxes? Has anyone ever looked at the depreciation schedule to make sure there aren’t assets on it that you don’t own anymore? We find that’s frequently a problem. People are good at adding assets, but not so good at taking them off.

​How about excise taxes? Not all companies file excise tax returns, but many do. So you need to put that on your list if you have that in your purview. If you’re involved in international operations, duties would fall on that list. So you need to put that down.

​How about payroll taxes? Payroll tax is kind of an interesting idea because frequently it’s handled in the HR department, right? That makes sense, the HR department knows who’s on the payroll, they know what the rates are, and they know what benefits people get, so that makes a lot of sense. But let me pause at a hypothetical for you. What happens if you have an installation in Montana, you’re not located in Montana, this is the first time you’ve ever gone to Montana, you send somebody to Montana to assist with the installation. Somebody in the HR department, one of your smart people in the HR department says, wait a second, we’ve got people in Montana, maybe we should be filing a tax return in Montana. They look at the rules and based on your facts, yep, you’ve got to file. What do you do?

​Well, this is a two-part question. The first part is, What are the rules? and this person is determined that you have to file, that’s important. The second question is, Will you file? Now I’m a tax advisor and I don’t advise people not to follow the law. But I’m well aware that pragmatically, companies will say, we have never been in the state before, we’re going to be there for one day, we’re never going back. We don’t want to enmesh ourselves in filing a return in a state where we’re going to have to wait for two or three years to extract ourselves all the time paying somebody to file those returns.

​Who should make that decision? Should it be the HR director, they have visibility to the HR issues. They have no visibility to the income tax issues or the sales tax issues. So that decision should be made by the CFO.

​Sales Tax Sales tax is the wild west of taxes. And what I mean by this is you would hope, you would hope that with sales taxes being so ubiquitous in the United States that the rules would be somewhat consistent. ; Absolutely not the case. Every state has a different rule. In the time I’ve been preparing for this presentation, a couple weeks, I believe there are two states that have changed their rules. Let me give you an example of what I’m talking about. You live in Wisconsin, you’re going to buy a book, if you go downtown and buy the book you will pay sales tax. The bookseller will collect the tax, remit it to the state, states fine, everything is copacetic. But you go online to buy the book, you buy it from somebody in New Mexico, do they collect sales tax? Well, they may, they may not. What you’ve stumbled on is a concept called Nexus.

​Nexus is the term tax people use to describe the connection between a taxing jurisdiction and a taxpayer such that the taxing jurisdiction can compel the taxpayer to either file a return, pay tax or in the example I’ve just given collect sales tax. Well it would be nice if those rules were all consistent; and ironically, we’ve had this issue for a long time and the Supreme Court ruled on this and said, well, to compel an out of state seller to collect sales tax, the out of state seller has to have a physical presence in the state. Well, that’s pretty clear. You got a body there you’ve got some equipment, a warehouse. States don’t follow that rule. Massachusetts has expanded the rule. Massachusetts says, well, if somebody in Massachusetts goes online and buys something from somebody in New Hampshire, and the seller in New Hampshire puts a cookie on the buyer’s computer, that cookie is physical presence, is that physical presence? I don’t know, they think it is. Somebody will have to determine that in the courts. And that’s where the case is right now.

​A couple states, Alabama and South Dakota, have said, we don’t frankly care what the Supreme Court said, we don’t think you have to have a physical presence. When somebody pointed out the conflict to the tax director at Alabama, he said, so sue us and that’s what’s happened. There are cases all over the country that relate to the sales tax Nexus issue. The point is not to know all these rules, that’s clearly not going to be the case. Your tax advisor is going to know that. What you have to know is that there are rules and they can change. So if you have no operations in Kansas, and send somebody into Kansas, you need to know what the consequences might be.

​So now you’ve identified all these tax issues what are you going to do? Well you’re going to identify a tax director. Let me give you a several ideas. The first thing is to find a candidate who is technically competent. That pretty much goes without saying, right? Why would I even mention that? For two reasons:

  1. ​ You need to find somebody who’s technically competent in your industry. Taxes are very industry specific and you need somebody who understands those rules for your industry.
  2. ​ It’s highly unlikely you’re going to find one person that knows all those rules in all those states for all those taxes.

​So, what you’re going to have to find is somebody who has access to the expertise that they don’t have personally. Large firms do that internally in different departments. Smaller firms can do that through alliances. So, you need to find somebody who has the technical expertise that’s important to you with solid relationships they can fill voids with.

​Second of all, you need to find somebody who is proactive. It’s hard to determine but you need to put that into your list of criteria.

​And finally, you need to find somebody you can talk to. Someone you can communicate with. Who when they answer your question, you not only understand the answer, you understand why they’ve given you that answer. There’s a big difference between just finding a rule and understanding why the rule applies.

​So, you’ve identified the taxes that you’re responsible for. You understand the concept of apportionment and how income goes between states. You understand Nexus. You’ve identified the qualifications required of your tax director - a person who’s technically competent, proactive with good communication skills - and engage them

​Having done all that, you need to open that communication line. The easiest way to do that, put them on speed dial.

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System Implementations Can Be Successful

Welcome to CFO.University’s Transcript of Andrew Lee’s CFO Ed Talk, System Implementations Can Be Successful. Some of America’s best run companies fail when implementing an ERP system. Andrew describes how three simple concepts; lead, limit and organize can make your system implementation a success.

​Enjoy. Learn. Engage.


​To this day, eight years later, I remember pulling into my driveway on a Friday evening a little later than normal, turning the car off and laying my head down on the steering wheel. Three days earlier we had launched our new ERP system and it was not going well.

​So, I used the rest of the weekend to reprioritize the project plan and work on a couple open issues. By the end of the weekend I’d convinced myself maybe things weren’t so bad. That maybe as the project owner I had taken on a little more stress than the rest of the company.

​Monday morning, I came into the office; the first person I see is sitting at her desk crying. She didn’t know how to use the system; the system was not working; she couldn’t do her job. According to the research firm, Gartner, seventy-four percent of ERP system implementations are considered failures.

​According to that same firm, ninety percent of future implementations through 2018 will fail. Why? What are we doing wrong? Google ERP implementations and you’ll find stories about some of America’s best run companies and their implementation failures. CFO’s get fired for these things. Shouldn’t we figure it out?

​Since that time, I had the opportunity to do another implementation. It wasn’t perfect but the results were like night and day. Within three months, our efficiency was better than before we launched. Within one month, our accuracy was better. Our team had the tools they needed to stay in better contact with customers, sell more, run a more robust website and a more efficient operation. Most importantly the team loves it.

So, what changed? What did I learn the second time around? What I want to share with you today are some simple but powerful concepts based on the following; lead, limit, organize. Do this and you’ll run an effective implementation and avoid getting fired.

Lead = Prepare, Involve, Super Users, Visibility.

​First is to prepare. Prepare the team. Change scares people. Most people don’t like it. What’s even worse is the unknown and you have both of these factors during an implementation so it’s no wonder that people have emotional breakdowns. Talk to them, help them see what’s coming and share the project plan with everyone.

​Your team needs to see the light at the end of the tunnel. They need to be excited about the project. If you can do this well, their jobs are going to be easier. They’ll be able to sell more and make fewer mistakes with less manual entry. You will want them to see that because; that’s the light at the end of the tunnel. You also want them to be prepared for problems.

Productivity Increase expected at launch
Productivity Increase expected at launch

​People are likely very excited about launching the new system. The promise of better, quicker more insightful tools can cloud the present. They often look past the time and effort still left to reach those goals They may be expecting productivity is going to immediately increase at launch.

Productivity actually declines for a time at launch
Productivity actually declines for a time at launch

​What actually happens, unfortunately, is that when you launch productivity goes down before going up above pre-launch levels. It is really important that the team is prepared for and aware that there will be problems so when those problems come up they don’t think the world is ending and that it’s a complete failure.

Productivity will recover and exceed past levels.
Productivity will recover and exceed past levels.

Also show them that you will get back to where you were and in the longer-term, things will be way better than they ever were before. So, show them these graphs repeatedly throughout the process.

​Next is to involve. It’s the people in your organization that are actually doing the implementation, not you. You just need to lead them. So, the best way to involve people is by involving them from the very beginning. Have them help you make and be a part of the purchasing decision. Have them help you weigh the pros and the cons.

​People don’t need to get their own way all the time they just need to know that their voice is being heard. Involve them and you’ll have their buy-in from the start.

​Next are super users. Super users are a great resource for you. You want as many of them as you can get. Ideally one per department would be great. Doesn’t matter what their rank or their title is, you just want people that are excited about the project and maybe have a little bit of skill in this area. They’re a great resource because you can push open items to them. More importantly, they’ll be able to help get the rest of the organization excited and bought into this project. So, we talk about needing to get buy-in from the top, what we really need is to get buy-in from the bottom and then all the way up.

​Fourth is visibility. Your team needs to see progress. This is going to be a really long and grueling project and remember your team is doing this in addition to their day jobs. So, it can be really difficult on morale when you start to run into problems. Two things that can help are; number one, make sure that all of the open issues are visible and number two, show this graph.

​The blue bars are the current outstanding open issues by date and the green bar is the cumulative number of issues that have been resolved. It’s really important to see that because even though there’s some really important challenges that need to get figured out, you can also show the team we are figuring things out. You are actually making a lot of really good progress. So we reviewed a chart like this for the company as a whole and then one for each department.

Summarizing the first concept, Lead; Prepare your team for change and fall in productivity before real improvement takes place, Involve the people who do the work, develop Super Users from experts who are excited about the project potential and make sure progress is visible to the project team.

Limit the project using phases.

​What if I told you there’s one mistake you can make that will make you three times more likely to go over-budget and beyond due date. This mistake is tangible. It’s black or white unlike that leadership stuff I just talked about.

Customization, modifications and scripting. Avoid them like the plague. Now let me clarify, the reason our team loves our system so much is because we’ve customized it to fit our business needs. We have almost a thousand active scripts running on any given day and we’ve taken several outside modules and implemented them because we like their functionality better than the native functionality. So, understand when I say I’m a big fan of customization; it’s really easy to see what looks like a gap in functionality and want to put a workaround in place for it. You may be right but remember that when you do this you’re taking a system that’s been tested by hundreds of thousands, possibly millions of users and actually creating a brand-new system; a system that you then have to test. And remember that you’re also adding a variable that’s probably going to affect other transactions that you never planned on.

​So, don’t think of the launch as the finish line. Think of the launch as step one. Step one, get the system in place. You’ll have plenty of challenges as it is during the first few weeks. Then after you’ve been operating in that system for a little while you’ll have a much better understanding of what modifications really are necessary and how to prioritize those different modifications.

​Just make sure that when you do that you make that list visible to everyone with due dates and phases so that people can see that those issues are going to be addressed. So, launch now customize later.

​Summarizing the second concept, Limit; Don’t think of the launch as the finish line, think of the launch as step one. Step one, get the system in place. place. Once you’ve been operating in that system for a little while you’ll have a much better understanding of what modifications really are necessary.

Organize = Project Management Software, Accountability Structure

​Organize the implementation. An ERP system is probably the greatest test in project management. If you can do this; you can manage just about any project. But it is going to be challenging. You have to bring your A-game and it has to be really well organized. So, I recommend using a project management software. You can use Trello or Microsoft project. You can even use excel.

​The point is, it does need to be really well-organized and using a software can help. Now, a project is just made up of a whole bunch of different tasks or open issues or components; whatever you want to call them. I’ll call them open issues. Each open issue, when you set it up needs to have four basic things.

​The first is what is the action or the open issue, the second, is commonly missed but really important, “What is the definition of done?” So, what are all the individual things that need to get completed in order for you to consider it done. Something like documenting the process may seem really mundane; especially, when somebody has 10 other things to do. They’re probably going to miss that one, unless from the outset unless you’ve defined it as something that needs to be finished to meet your definition of done. Third is owner. Have one clear owner, not two or three. One person that’s responsible for getting this issue taken care of. Fourth, what is the completion date? Agree on the completion date with the owner. It’s got to be realistic of course and fit in with the project timeline. These four things are pretty basic. You’re probably aware of them already but you’d be surprised how often they’re not followed. That probably has a lot to do with all of the implementation failures that are out there. What we’re really talking about here is creating an accountability structure.

​Without any one of these four things it’s really difficult to hold anyone accountable. So, that takes us to our final point which is holding the team accountable. When there’s an issue, there will definitely be times when an open issue goes beyond its due date. What do you do when that happens?

​The first time the conversation should be really just about asking questions. What got in your way and what are you going to do differently next time? Also go ahead and reset the completion date. Once it’s in the past it tends to lose a little bit of meaning so go ahead and reset it for the future and get some new urgency behind it.

​The second time an open issue goes beyond its due date; the conversation should probably have a little more intensity. But also remember, that this is a really complex project and there could be factors at play that are outside the control of the owner.

​So, when you have that conversation, be willing to jump in and help. Figure out what the problems and barriers are and see what you can do to take away those barriers.

​Summarizing the third concept, Organize. Use software to help. Create an accountability structure. Hold the team accountable. And don’t just call the team to task but be willing to jump in and help.


​These simple but powerful concepts will assist you in running an effective implementation…. and avoid getting fired.

​Lead, limit, organize. Lead by preparing the team, involving them and giving them visibility into what’s coming. Limit the project by using phases and organize the project by using a project-management software and creating an accountability structure. Hold the team accountable and most importantly be ready to help.

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A CFO’s Guide to Measurably Reducing Healthcare Costs Right Now

Thanks to John Sbrocco for sharing the chapter he wrote for Breaking Through the State Quo, How Innovative Companies are Changing the Benefits Game to Help Their Employees and boost Their Bottom Line with our Member-Scholars.

Stop Gambling

Atlantic City is a wondrous place; I remember visiting years ago, when the casinos were filled, and the players were waiting in line for a table. Today, most casinos are closed, and those remaining are empty with $5 tables on weekends. As I sit down at the roulette table and watch the ball run around the track, you can see the eyes on players filled with nothing but hope.

This look of hope is what I see from too many employers come renewal time. Unfortunately, most employers’ hope lands on green double zero as they watch the insurance carrier win their ante for the next twelve months. If the employer strategy is to annually interview consultants in a grand search for the lowest cost fully insured carrier, how can the future be bright? If an employer does not address the major issues as to why healthcare costs are spiraling out of control, they are simply gambling with the future of their companies.

Managing Risk

Employers manage risk for every aspect of their business. Whether it be vetting the new drivers for their fleet or a work place safety program to avoid accidents on the job, they must take into consideration these risks that could hurt their bottom line and even put them out of business if they are not strategically managed and accounted for. This is called supply-chain management. It is very clear why the C-suite is in control of these decisions and strategies in place year after year. However, when it comes to the management of the benefits package, I don’t see the C-suite involved. My question is how many other multimillion dollar departments in your company do you let HR manage? Is your HR/Benefits manager the right person to manage the 2nd largest item on your P&L? After all, this individual is typically adverse to change and disruption to employees.

It continues to surprise me that almost all employers that I meet with do not have ANY risk management strategies in place for their health plan that is doubling in cost every nine years, and reducing the value of the company. So why is it that so many employers don’t have strategies in place to reduce this rising cost? It seems to me that the status quo mindset has led them to believe there is nothing they can do about it since they have been failing for so long at curbing this financial burden. If you are reading this book, there is good news. Its contents should help you break loose from the grips the status quo has on your organization.

Employers and their employees have become accustomed to believe the story the “BUCAs” (Blue Cross/United/Cigna/Aetna) have been beating into their head for decades. “You have to be enrolled in our networks because we negotiate big discounts on your behalf, and you would go bankrupt without us.”

What if I told you that their discounts are typically over 50% and that can sound appealing. However, it’s based off an imaginary number no one pays. A 50% discount on a $5,000 cell phone still nets out to you paying $2,500 for a cell phone. So not only are they over-charging you for health care services, but they are charging you a fee in your premiums to access these overpriced contracted providers. You see, this is not the insurance carrier’s money they are playing with; it is the member’s money they use to pay providers, and they get to keep a percentage of what is paid. The more they pay out, the more the carriers and providers make.

That doesn’t even factor in the hidden revenues streams in the system. Sound like collusion? That’s exactly what it is. I have seen my secretary negotiate better discounts on surgeries than PPO networks with no pushback from the provider after saying we don’t participate in your network and will pay cash. Add that up and what you pay for is a network that over pays its providers and facilities on average 300- 400% of what Medicare pays, and in some cases, as high as 1700%!

Now please, tell me the reason you need them? Is this starting to get you mad? I sure hope so, because you have been taken advantage of for years. If you are too busy for this to be of concern to you, then just close the book now. The solutions I will be talking about requires you to change your “there is nothing I can do” mindset. I want you to get ready for the inside secrets on how to take control of your health plan and beat the insurance carriers at their own game. I am talking about strategies to cut healthcare costs today, not by managing mem-ber’s health, but by strategically slashing the unit cost of care.

Overpaying for Services

How can we expect to reduce the cost of our insurance premiums if we aren’t addressing the main factor driving the increases? 90% of the premiums you pay are directly or indirectly related to the claims.

So, ask yourself what you are currently doing today to control the claims spend inside your health insurance plan. If one of your answers includes the big discounts provided by PPO networks, you can just start the chapter over. How can a PPO network, that overpays its providers and makes more money as claims spend increases, reduce the cost of your healthcare spend? These PPO networks have contracts on services like MRI’s that pay in the range of $400-$6,700 for the same MRI, depending on what facility you go to. So, if they wanted to pay out less, wouldn’t they list the prices and direct you to the lower cost facility? This example is how you should be managing your healthcare spend if you want to control the cost of your claims. Unfortunately, employers have been led to believe the insurance carriers are doing this for them. Take a minute to think and realize how silly that is…this is the health insurance equivalents of letting the fox guard your hen house.

Are you looking to cut claims spend by 15-25%? Our most innovative employers are providing employees medical services at 1/3 of the cost for most procedures and of higher quality. If an employee buys healthcare services at a lower cost without sacrificing quality, an employer can start to bend the curve on rising health insurance costs. Is it really that hard to have this type of strategy in place for healthcare services? Take a look at how many Amazon boxes are sitting outside your neighbor’s door on a weekly basis. You see the forward-thinking employers are providing employees with free care for major services when they make smart healthcare decisions.

Providing an employee a knee surgery for $20,000 from the best surgeon in the region compared to a surgeon recommended by your primary care doctor who did three knee surgeries last year at $60,000 a pop, will certainly start to bend the health insurance curve. Sometimes, you will find doctors performing surgeries at three different facilities; however, they vary in price by five times the amount. Is it starting to make sense as to why your health insurance costs continue to spiral out of control? You have been providing employees with an unlimited credit card to use for healthcare expenses. Is it their fault that their spending habits are out of control?

Now that you know the C-suite should be more involved with the healthcare program than a few hours annually, let’s look at some numbers for motivation. Stop accepting the BIG house ABC brokers’ less bad renewal increases that are below industry average. Those “Legacy Best Practices” have not helped you beat the system; it’s helped keep their pockets lined with the products they represent. Now I know it’s easier for your organization to be wrong with the group, then right by yourself. I can only help if you are willing to step outside the box the status quo has most employers trapped in.

Is the Cartel Controlling your Prescription Cost?

In the 70’s & 80’s, Pablo Escobar was the most powerful drug lord and the leader of the Medellin Cartel. He was earning as much as 420 million a week! His trade flourished so much that he was smuggling nearly 15 tons of cocaine every day. Some would ask how one person could become this powerful and so rich without being stopped. It was quite simple: eliminate competition, get the support of the people, and become a politician. If you didn’t go along with it, then he would kill you.

Fast forward 30 years, and take a look at the BIG 3 Pharmacy Benefit Managers/Cartels: These companies made 280 billion dollars last year by passing drugs from the manufacturer to the plan members. Their business model has been very similar to the Medellin Cartel. They started by getting the support of the people to help lower the costs of drugs by buying in bulk. Unfortunately, they now have grown to the size that they can control the manufacturer by manipulating their formulary lists since it covers so many members. They also built a lobbying group that is the largest in the country (bigger than the next 3 combined) to protect them from competition outside of the US, which creates a monopoly and keeps prices sky high! The lobbying group was able to put a law in place with politicians that make it illegal for Medicare to negotiate drug prices with the manufacturer. How is it that the largest payer of healthcare is not allowed to negotiate prices on bulk buying? We can buy fish from Japan and lettuce from Mexico, but not our medication from Canada?

We have a system that’s incentivized upon rebate value. If you eliminate the competition and hold 80% of the market, you can control the manufacturers by requiring them to provide monster rebates back to the Cartel for filling their medication. If the drug manufacturer does not provide the rebates the Cartel wants, they can simply drop them from their list of covered meds and potentially kill the patients taking that medication.

Who is paying for these rebates? The members of course. Harvoni, the newest Hep-C drug spreading like Castro’s distribution of cocaine in the 70’s, costs about $94,500 per treatment in the U.S. Somehow, the exact same drug costs a measly $900 in India. Who is picking up the difference…the Cartel.

I recently reviewed a drug filled for toenail fungus remover that provided a $700 rebate back to the Cartel for one fill! Now, if the member paid cash for the prescription, they would have paid $500 vs. $1,200. The Cartel has the incentive of a $700 rebate to make sure that prescription gets filled. You see they earned the trust of the people and now the members aren’t educated enough to realize who is the one ripping them off.

When the Cartel is removed from the system, we can provide employers solutions that cost the plan typically 30 cents on the dollar for high dollar meds. A recent employer spending $700,000 a year on prescription cost cut their spend to $300,000! What could your company do with $400,000 more in EBITDA?

How Do You Fix It?

Unfortunately, most employers have accepted the status quo and believe if their renewal comes in below trend, they are getting a bargain. They are now budgeting for 8-10% increases annually!!! To me, that kind of mindset will blow up your company’s profits and empty your employees’ pockets in no time.

Today, the average employee is spending 20% of their income on healthcare costs. So, what can be done to break this trend? If you are not using risk mitigation strategies to manage the internal spend of your healthcare costs, you need to wake up. There are solutions that will lower employers PEPY (per employee per year) spend down anywhere from $2,000-$5,000 annually. For a 1,000-life employer that comes out to $40,000-$100,000 per week! It’s time to get passionate and start winning!

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How Can You Win A Rigged Game?

Three Steps to Helping Employers Successfully Reduce Healthcare Costs.

Imagine one of your sales reps takes a client out for a steak dinner and submits the receipt for reimbursement. Later you learn that your finance team didn’t even look at the receipt and auto-adjudicated the reimbursement to the sales rep. Then you take a closer look at the receipt and you see a charge from the chef, a charge from the expeditor who glanced at the plates as they went out the door, a charge from the waitress, and a facility fee from the restaurant. Then you learn that this particular restaurant charges 500% more than other restaurants charge for the same dish because they aren’t known for steak, so their chefs just aren’t very efficient in preparing it. How angry would you be? You would probably contact the restaurant and demand an explanation and you may even demand your money back.

Now, we all know this type of egregious billing practice doesn’t exist within the restaurant industry. However, it does in another industry. It’s in the healthcare industry where egregious billing practices wreak havoc on health plans across America every day, with providers and hospitals playing the role of the restaurant cooking up prices that no mathematician can explain, and the insurance company serving as your finance team paying the bill with your money without taking a glance at the medical receipt. Healthcare costs continue slicing into every organization’s revenue stream and there seems to be no end in sight.

Today, employers are stuck playing a game where the odds are stacked against them. In fact, the game is rigged. The healthcare system isn’t broken as many would like to suggest. The opaque and confusing system is operating exactly the way it was designed. At the end of the day, healthcare is a product and a product requires revenue. Unfortunately, employer-sponsored health plans, including yours, are caught in the middle and are victims of the revenue goals of the healthcare system. So, how can your organization win? Can you win? The good news is you can, but there are three steps your organization must take to come out victorious.

Step 1: Quit Accepting Predictably Bad Outcomes

Step one to winning the healthcare game requires you to stop accepting predictably bad outcomes. To give your organization the best chance at winning, a change in mindset must occur. Employers have to quit budgeting for “less bad” rate increases. The health plan must become an investment that benefits the organization and produces healthier outcomes for the employees. However, to do this, the behavior around health insurance decision making has to change. We must stop celebrating the status quo. What does status quo decision-making look like? Well, consider this. Upon receiving the news that your insurance company is requesting, yet, another double-digit increase to your insurance premiums, here’s the typical conversation that will take place between you and your insurance broker:

Broker: “How much of an increase are you willing to accept?”

You: “Our finance team has budgeted for an 8% increase.”

So, what does your insurance broker do? She goes back to the insurance company and negotiates the increase down to 7% and everyone is happy. Sound familiar? Folks, this is a predictably bad outcome. You are still losing. Yet, somehow, the acceptance of predictably bad outcomes has become a “best practice” for many Human Resource departments. Why? Accepting predictably bad outcomes comes with little work and little disruption, but here’s the problem with this strategy. Accepting predictably bad outcomes is the equivalent of placing a band aid over a gaping wound. The band aid is only going to protect you for so long because the gaping wound, the rising cost of your health plan, is going to continue bleeding, and before long, it’ll become an infection spreading across your organization eating away at both profits and wage increases.

The time has come for you to start challenging your insurance broker to create predictably good outcomes. However, “shopping” health insurance companies annually is not a part of a winning formula. By asking your insurance broker to continuously evaluate and shop insurance companies, you are managing the wrong supply chain. Switching one insurance company out for another is like re-arranging the deck chairs on the Titanic. Your health plan is still headed for the iceberg. To rid yourself of this infection known as predictably bad outcomes, you have to start focusing your energy and efforts on the providers and hospitals your employees are accessing each and every day. This is the supply chain you need to be managing.

Step 2: Turn Your Health Plan Inside-Out

The current health plan design inside most organizations is flawed. Year after year, employers continue to build health plans backwards. First, the insurance company is chosen. Next, the insurance company’s network of providers and hospitals is evaluated to make sure it adequately covers all plan members. Finally, work is done to create a set of deductibles, co-pays, and out-of-pocket limits, giving your organization the makings of a health plan. Yet, as insurance costs continue to rise, you begin shifting the burden. You increase deductibles, raise out-of-pocket limits, and ask your employees to pay more—all in an effort to mitigate the impact of rising costs, and by doing so, you’re ignoring the biggest problem inside your health plan. The problem is not your plan design. The problem is not the insurance company you’ve selected. The biggest problem inside your health plan is the experience your plan members are having inside the healthcare system. I don’t care if your plan offers a $500 deductible or $5,000 deductible, this experience today is unacceptable and it’s the decisions your plan members are making inside the healthcare system that are driving your health insurance costs. Should you be concerned about this? Yes. When you review your organization’s P&L, health insurance will be the second- or third-highest cost on the P&L (need support for this statement) and there is not another cost rising faster than health insurance, nor is there a bigger source of revenue-leak inside your organization.

Step two to winning the healthcare game requires you to build your health plan inside-out. It starts by focusing on the healthcare supply chain and your plan member’s interaction with the healthcare system. So how can you do it? Managing this healthcare supply chain comes down to a simple formula. Whether your health plan is fully-insured or self-funded, the majority of your costs are tied (directly or indirectly) to the claims activity inside your health plan.

Calculating the total claim activity is established through the following formula: total units of care x the cost per unit of care. Stated in a different way: the total number of claims multiplied by the cost of each claim. Now, you’re never going to eliminate all the units of care inside your health plan, nor should you want to. When your plan members need to access the healthcare system, they should. However, you can help your employees reduce the unit cost of what they’re paying for the healthcare services they’re buying without sacrificing quality. Focus your efforts here. Giving your plan members access to the right tools and solutions to reduce the cost of the healthcare services they’re buying is imperative to winning the healthcare game.

You must give them access to tools to purchase MRIs and CT scans at a lower cost. You must give them access to tools to purchase medications at a lower cost. You must give them access to solutions that can provide vital second-opinions to determine if their healthcare services are even necessary. In a system where misdiagnosis and inappropriate treatment plans have become main stream, you cannot leave your plan members navigating the system alone. Giving them access to the right tools and solutions will create reduced insurance costs, better outcomes, and happy plan members.

I love these recommendations – again can we provide more how to do it, a form to fill out with your contact points on it they get stuck?

Step 3: Give Your Plan Members a “Caddie

Step three is probably the most important piece to winning the healthcare game. Today there’s an abundance of tools and solutions that create predictably good outcomes for employer-sponsored health plans. Many of these solutions are helping plan members change the way they purchase the healthcare services they need – saving a ton of frustration and money. Utilizing these services would seem like a slam dunk, right? However, the tools and solutions necessary to building a successful health plan inside-out often go under-utilized. Why is that?

As technology continues to paint the healthcare landscape, employees have access to more navigation tools than ever before. Want access to a doctor over the phone? There is a solution for that. Want access to price and quality data for an upcoming surgical procedure? This is a solution for that. Want access to large, pharmacy discounts? There is a solution for that. Today, plan members can make effective and accurate healthcare decisions with a couple of clicks on their smartphone so why are we still struggling with utilization?

Here’s the problem: Your employees don’t want to know to how to navigate the healthcare system. When healthcare “happens” to them, they are not going to stop to think about which tool or solution they should be using, in that moment, to make the right decision. It is here where most effective cost-containment solutions quickly become ineffective. Utilization suffers when employees are required to engage the solution on their own. Now, give employees multiple solutions to address the various channels of the healthcare system and confusion reigns.

You have to get back to the basics. You have to make it easy for your employees to make accurate and effective decisions throughout the healthcare journey. Cost-containment tools and solutions work. They give your organization the opportunity to significantly reduce insurance costs while creating better outcomes for your plan members, something no insurance company or network can provide. What your health plan needs is a “caddie.” Much like a caddie in golf helps the golfer determine the appropriate club to use given the specific shot, a healthcare “caddie” will help your plan members utilize the right tool and solution based on the specific healthcare need. Give your employees access to advocates who can help them use the game-changing solutions you have built into your health plan. Give your employees the convenience of having to call one number or use one app. Give your employees the confidence knowing that making the right decision is easy.


You see, winning the healthcare game is not that hard. When you stop accepting predictably bad outcomes and start focusing on the employee’s healthcare experience, you will turn your health plan into a revenue-generator protecting your #1 asset like you never have before. You will realize that it is no longer about the insurance carrier or the network access it provides. Focusing on the healthcare experience creates predictably positive outcomes for your employees and your company checkbook. However, engaging your cost-containment solutions must be easy and convenient. A health plan “doorman” becomes the glue that wraps the perfect health plan together. One number. One Card. One app. It really can be that simple.

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Perfecting the Close - Part I - Introduction to the Closing Checklist

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Most Leadership Training Doesn’t Work. Why Not?

Forbes Coaches Council member Aaron Levy has proposed that leadership training fails because of the structured way it is presented. Most leadership training programs are designed to present new skills in an easy-to-deliver, event-based format. The big problem with this approach is that it doesn’t deliver a change in behavior. According to Levy:

​“Habit formation doesn’t just happen. Our brains aren’t wired to adopt a new habit that quickly. No matter how good and engaging the presentation is, habit formation takes time. It occurs when a new action, like the leadership skill of listening with intention and attention, is practiced over and over.

​Each time you practice listening in this new way, neurons in your brain are firing and creating a new neural pathway. The more you practice, the stronger the neural pathway becomes and the easier it is for you to listen.”

​To truly develop leaders, to give them the tools and skills they need to progress from individual contributors to powerful leaders, Levy proposes a 3-phase process that works.

​Phase 1: Learn

​Workshops should deliver new skills, explain why they are valuable and how they can be applied to the workplace. But the majority of programs spend most of their time on this phase, even though it simply sets the stage for the more-important application phase. Levy suggests spending only 15% of any workshop on this knowledge-building phase.

​Phase 2: Apply

​Leaders should begin applying new habits right away, both during training and in real-world application after the workshop session ends. Spending 80-90% of the time applying the new skill and reflecting on how it can be improved activates and strengthens the neural pathways.

​Homework assignments, where leaders apply their new skills outside the safety of the workshop setting, brings a new dimension to the learning. Real growth occurs when new skills are applied outside a comfort zone, in an unstructured setting.

​Phase 3: Reflect

​Debriefing after the application phase, or coaching to reflect on what worked and what could be improved, keeps leaders accountable for completing the homework assignments and helps them assess their performance for further improvement. In habit formation, the reflection process is still triggering the newly created neural pathway. This essential phase allows leaders to visualize or reflect on a single behavior hundreds of times, turning it from a skill into a habit. Habit adoption is a learning process, requiring time and commitment to be successful.

The Learn-Apply-Reflect Model

​Habit change requires commitment from the organization. By practicing new skills and putting them into action, leaders can apply them to real-world situations, reflect on their success, and build new leadership habits faster than any other approach.

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Some Say LOI’s Aren’t Worth the Paper They’re Printed On. We Disagree.

Thanks to Chinook Capital Advisors and CoFounder, John O’Dore for allowing CFO.University use of this article.

Signing a Letter of Intent (LOI) is a major milestone in any business sale transaction. It’s important to understand which elements of a well-constructed LOI are necessary and why, which are binding and non-binding, and which deal points should be negotiated in the LOI phase versus being deferred.

An LOI is more formal and detailed than an Indication of Interest (IOI). The LOI should include all relevant business terms that are part of the deal with enough details to prevent any misunderstandings later in the process. The buyer usually presents the LOI to the seller and it is very important that an experienced M&A attorney review a buyer’s LOI since the LOI is the framework that the attorneys will later use to develop the binding Purchase and Sale Agreement (PSA).

So why not just go straight to the PSA and skip the LOI? Because the LOI has sufficient detail for the parties to decide if there’s a deal to be had, and it also allows the seller to compare offers from multiple buyers before moving on to due diligence and the PSA with just one buyer.

A few trends have developed over the past decade or so on the level of detail included in LOI’s as well as the amount of time spent negotiating the terms included. Today, it is not uncommon for an LOI to go through multiple drafts and include more specific legal and financial provisions, especially those related to seller representations, warranties, and indemnification provisions.

Although an LOI is generally non-binding, there are a few terms that the parties will want to be binding.

Typical binding provisions include:

  • Exclusivity (no shop provision)
  • Confidentiality
  • Access for due diligence
  • Break-up fees
  • Allocation of expenses

Typical non-binding provisions include:

  • Deal structure (stock vs asset sale)
  • Price and terms (type and timing of consideration)
  • Plans for key employees post transaction
  • Seller’s role post-closing

A well-crafted LOI should be something that both parties’ attorney can easily understand and incorporate into the PSA without too much negotiation. Be cautious if a buyer says, “let’s leave that for now and we’ll refine it in the purchase agreement.” Either they are sloppy, or they just want to get past the LOI stage so they’ll be the only buyer left in the process and have more leverage to negotiate important issues down the road. Negotiating terms in the LOI is often the only time the seller has leverage on key deal points.

If the buyer or their attorney are not accustomed to doing deals, then they may not be aware of all the elements of an effective LOI.

At a minimum insist that the LOI address the following:

  • Purchase price and how and when it will be paid and the source of financing
  • Stock sale vs asset sale
  • Allocation of purchase price for asset sales (depreciation recapture can have a huge impact on the taxes you owe)
  • Terms of seller notes or earnout (if any)
  • Real estate lease details if seller is leasing facilities to the buyer
  • Transition expectations for previous owners – how long, what are their roles, compensation? Working capital (how much is included and how is it defined?); Will receivables be guaranteed? What assets and liabilities are included and excluded?
  • Is there excess cash, who gets it and how is it defined?
  • Specifics of any non-compete agreements
  • Any contingencies – employee interviews, financing, assignment of contracts, Phase 2 environmental assessment, etc.
  • Holdbacks or any non-standard representations, warranties or indemnifications
  • Due diligence timing and requirements
  • Will a quality of earnings report or other level of financial review be required and who will pay for it?
  • When will certain sensitive information such as detailed customer lists be shared? Waiting until after the purchase agreement is signed or even after money is in escrow prior to close might make sense
  • Expected closing date
  • An exclusivity period is common, but make sure it has a time limit (say 90 days) where you can go talk to other buyers if things aren’t working out; remember, a seller’s failure to meet deadlines should end the exclusivity granted to them in the LOI
  • Timing on announcements to employees, suppliers, and customers

This is not a complete list, but covers many of the common terms that should be addressed. The less that both buyer and seller assume the better.

We advise that you consult your M&A advisor, attorney and tax advisor before signing an LOI. By being organized, having experienced advisors, and knowing which aspects of an LOI to focus on, you will be able to:

  • Maximize value
  • Improve your probability of closing the transaction on your terms
  • Reduce the time from signing the LOI to having money in your bank account

LOI’s are certainly worth more than the value of the paper they are printed on, and the color of that paper is green!

You can find out more about CCA at or get in touch with John.

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Why Failure Isn’t About Losing

The word “failure” has a stigma attached to it I believe should be challenged.

Failure is a noun defined by the Merriam-Webster dictionary as:

  1. omission of occurrence or performance
  2. lack of success
  3. a falling short
  4. one that has failed

The term failure as used in business, sports and relationships is almost always associated with a bad happening. When was the last time you heard something failed and you screamed “Hooray!”? As the definition points out “failure” is normally a term used to describe an event, occurrence or some outcome not being achieved. Unfortunately, the word failure often gets attached to people who are related to some failed event, occurrence or outcome, i.e. definition four above, “one that has failed”.

If we set a goal and don’t achieve it, we failed at achieving our goal. But I don’t believe that makes us a failure. Think about this. If nobody was courageous enough to set meaningful goals and possibly fail, what would we have? Mostly nothing. Imagine a world with mostly nothing.

Ellen DeGeneres is credited with saying, “When you take risks (set meaningful or difficult goals) you learn that there will be times when you succeed and there will be times when you fail, and both are equally important.” How do we bridge the gap between setting meaningful goals and failing to meet those goals? Below I use two sports analogies as examples, but the same principle applies to business and relationships.

When I was 10 years old I dreamed I’d grow up to be a right-handed hitting Rod Carew. Carew was a great left-handed hitter for the Minnesota Twins, a Major League Baseball team. My dream lasted until I was 12 when I realized hockey was really fun and running a football with other kids trying to tackle me was a major adrenaline rush. Did I fail at my goal to be the next Rod Carew? I sure never saw it that way. I found other interests I really loved. By 10th grade I swapped baseball for track and went on to play football and run track in college. Admittedly, I didn’t make as much money as the next right-handed Rod Carew but I wouldn’t trade my teammates and experience in college for the Minnesota Twins or the Major Leagues.

When your team sets a goal to be the state champions, it sets all kinds of great life-long lessons in motion. Teamwork, physical conditioning, learning a playbook, developing and executing a plan, performing under pressure, love for your teammates and staff; all providing lessons to be applied to the rest of your life. If you lose in the championship game are you a failure? You may not have achieved your goal but the really important lessons learned were the result of working to achieve your goal, not reaching the goal itself.

The term “pivot” provides a way to incorporate learning from a failure into constructive growth. Pivot refers to a shift in strategy that keeps one foot firmly in place while setting a new direction by applying insights from past success and failure.

I believe goals (defining risks you are going to take) are extremely important to provide direction and give context to any endeavor we consider important. I also accept that adjusting our goals, setting new goals, and most importantly, learning from the journey toward achieving our goals, is what creates success in life.

Let me submit this for your consideration; the only personal failures in my life will be the significant regrets I have control over that I don’t rectify before I die. Does that fit into your concept of personal failure?

I plan to write Merriam-Webster with the following suggestion: “Please revise your 4th definition of failure to ‘one who hasn’t tried’.”

I believe that is the only characteristic of failure we can hold a person accountable for.

Set meaningful goals - then learn from and enjoy the journey.

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Should We Expect More From the Close?

​Three Outdated Beliefs about Balance Sheet Account Reconciliations, a Key component of the Financial Close, that May be Driving Low Management Expectations on Quality, Productivity and Cost.

​In an effort to be leaner and more efficient, it is hard to believe that we may be unintentionally allowing low expectations to flourish. Interestingly, while senior management’s process improvement agenda targets areas like budgeting and business intelligence within finance and accounting, the monthly account reconciliation process – a recurring and manually intensive key compliance activity for developed businesses – has been largely overlooked. Gartner research has found that “many firms’ reconciliation processes are mainly manual (with no enterprise technology solution)” and cited several critical challenges that come with manual reconciliation management. And is there a link between automation and the bottom line? Very likely. In a 2017 survey1 of finance executives of more than 200 public and private U.S. companies, 40% of respondents felt that the cost of compliance has increased over time and only 1% of respondents felt those costs decreasing over time.

While other areas within Finance are scrutinized for targeted improvement, why is it that the often laborious balance sheet reconciliation process remains untouched in many organizations? Perhaps this phenomenon stems from traditional management expectations around general ledger account reconciliations and their long-accepted limitations. In this paper, we will explore these common perceptions and beliefs.

​Belief #1: The objective of the month-­‐end reconciliation process is to ensure that all reconciliations are completed.

Reliance on Completion Statistics Alone May Satisfy Internal Requirements but Can Provide Management with a False Sense of Security

​The objective of the month-­‐end reconciliation process is to correct errors in the balance sheet and anticipate potential adjustments, which may not necessarily correlate with the completion of all reconciliations. Because internal controls typically prescribe only timely completion of balance sheet reconciliations, organizations with hundreds, or even thousands, of balance sheet accounts and a tight timeframe to perform their reconciliations expend much of their resources during the monthly close on meeting the timeliness component. As a result, identification of write-­‐offs and analysis of open items – the ultimate goal of performing reconciliations – do not enjoy adequate attention. Combined with the challenge that executive level insight, such as companywide balance sheet exposure and exception aging, is time-­‐consuming to produce without a dedicated reconciliation management solution, finance functions are often ill-­‐equipped to generate insight beyond the completion status.

​Disproportionate Emphasis on Timely Completion May Compromise Reconciliation Quality

​The quality of individual reconciliations is most often compromised when the staff prepares a roll forward in place of a true reconciliation, where general ledger balance is compared against an independent source. Transaction roll forwards are not effective reconciliations because they simply replicate the general ledger activity and cannot surface reconciling items. Unfortunately, roll forwards are an expedient choice when, in addition to day-­‐to-­‐day operational activities, accountants must reconcile by hand hundreds or thousands of balance sheet accounts each month.

Belief #2: Spreadsheet, offline documents and email are dependable and cost effective tools for reconciling accounts and managing workflow.

​Spreadsheets Have Inherent Risks That Are Not Well-­‐Controlled

​The spreadsheet is steadily gaining notoriety as one of the riskiest end-­‐user applications used by today’s business professionals. The enormous flexibility that allows for nearly any type of computation and manipulation places overwhelming ownership on the spreadsheet creator to build in system controls during spreadsheet design to prevent and detect user errors. But more likely than not, many financial spreadsheets in use today do not have adequate system controls since they are almost always created by individuals who lack formal instruction in systems design. U.S. regulators seem to agree. In 2009, the Public Company Accounting Oversight Board (PCAOB) urged external auditors to focus more of their testing on financially significant manual spreadsheets in its Report on the First-­‐Year Implementation of Auditing Standard No. 5. And although finance departments today still employ Microsoft Excel® for key activities like account reconciliations, budgeting and long term planning, controls over spreadsheets remain weak. (address how to put these controls in place as an interim step to moving to a more appropriate system) A recent spreadsheet usage survey conducted by the University of Loyola Marymount showed that 88% of U.S. public companies surveyed still do not have a computing policy specific to spreadsheets.

Reliance on Disparate, Undedicated Systems Drains Productivity and Wastes Resources

​Relying on email and offline document storage to manage preparer, reviewer and approver activity presents several issues. Policy and procedural information such as account materiality, key attributes and preparer instructions are often kept separately in a hardcopy binder or a company shared drive. Because off-­‐line documentation cannot “follow” each balance sheet account and be available at the time of reconciliation preparation, their impact on controlling reconciliation consistency, however well-­‐intentioned, is limited.

​Email and personal hard drives exacerbate version control and force managers to search for files and manage workflow, when their time would be better applied reviewing reconciliations and performing aging analysis. With scattered review notes and multiple drafts at various stages of finalization located in email inboxes or various hard drives, efficient coordination between reviewer and approver is difficult. Very often one or more of the following occurs, draining resources and adding little value to the process:

​ • Updates are made in different drafts, prompting the reviewer or preparer to retrace his or her steps

​ • Offline discussions and meetings occur to clarify statuses and issues

​ • The completed final reconciliation is not retained in the company shared drive but rather buried in personal email inboxes

​Belief #3: Limited reporting on account reconciliations is Acceptable.

​Management’s Control over the Account Reconciliation Process Remains Largely Peripheral

​Beyond rudimentary measurements that are gathered periodically by hand (e.g., Account Population, Not Started/In Progress/Completed statuses), management typically receives little or no real-­‐time information for decision-­‐making during the reconciliation process. In addition, critical insights such as balance sheet risk exposure by financial statement line item, impact of write-­‐off adjustments and worker productivity assessments are nearly impossible to generate real-­‐time in a manual environment. Absent better tools and more precise data, oversight activities must rely on basic, after-­‐the-­‐fact data and spot checking of individual accounts. While these metrics glimpse at the reconciliation process at a point in time, they are poor substitutes for direct and immediate insight that management can use to make real-­‐time assessments and decisions on the balance sheet.

​It’s Time to Expect More

​According to the Association of Certified Fraud Examiner’s 2014 Report to the Nation, the account reconciliation ranks as a top five occupational fraud detection tool. Being one of management’s best defenses against financial statement misstatement and fraud, ensuring reconciliation accuracy and integrity is vital to maintaining confidence in the financial statements. Traditionally, this process is costly to the Accounting function in the form of man hours, poor controls and missed insight. Reliance on manual effort and disparate systems not only produces a host of administrative “busy work,” but also creates hidden costs in the forms of errors and rework. In addition, lack of meaningful metrics reduces the executive team’s ability to optimize the value of the monthly reconciliation activity, gauge work productivity and drive efficiency into the overall month end close.

​At the same time, this is an area with significant process improvement potential that finance executives can seize. Account reconciliation and close automation removes the challenges associated with traditional reconciliation management so that the finance team can remove administrative distractions and focus more on value added work that matters.

​Are you best in class in these important closing functions?

  • ​Schedule, track and sign-­‐off on recurring closing activities each month.
  • ​ Centrally archive critical journal entries and close documentation.
  • ​ Standardize the month end reconciliation process for consistency and repeatability so you have full confidence in the balance sheet.
  • ​ Reconcile accounts with speed and accuracy so work gets done faster.
  • ​ Do away with spreadsheets and administrative activities so accountants accomplish more while doing less.
  • ​ Work remotely yet maintain total transparency and accountability.
  • ​ Maintain high quality standards on work done during the close.
  • ​ Speedy management review and certification.

​ Footnotes

1This references the Robert Half Management Resources and Financial Executives Research Foundation study: 2017 Benchmarking in Accounting and Finance Function

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A Guide to Financial Process Redesign

In the article, Process Mapping - A Great Technique to Streamline Admin Operations, we praise the benefits of Process Mapping as a tool to streamline financial operations. We compared processes to engines; if they are cared for properly they operate at a high level but if they aren’t, performance degrades and eventually, they quit working.

A Process Redesign exercise can tune up - even overhaul - old processes that have accumulated grease, grime and serious leaks in the form of bad habits, extra steps and worn out practices.

Staff members develop habits and create processes that over time cause delays and increase costs. Sometimes these unnecessary steps are an unforeseen result of company policy. They may be a holdover from a previous ownership. They could be the result of an imperfect amalgamation of companies, where managers adhere to old procedures while imposing new ones. All these process kinks accumulate over time, creating inefficiencies that add nothing to customer value.

If the examples above sound familiar to you, a Process Redesign project may yield big benefits. The first step is to name your key processes. That may sound elementary but it’s a fundamental step that prevents confusion down the road and allows the team to spot missing pieces easily. It also helps to see the whole canvas of work, making it easier to visualize the impact of eliminating, combining or changing steps. The next step is deciding which processes to redesign first. Consider starting with a smaller, high impact process to get some traction and experience. Then move on to tackle the larger more complex activities.

CFO.University has developed a Process Redesign Workbook that will guide you through your redesign project. It includes step by step instructions, worksheets that standardize the approach, a summary to compare processes and an example to refer to if you get stuck.

Process Objective and Work Initiators

Once you have selected a process to redesign, all stakeholders must agree on the main goal of the process. (i.e. make our customers aware they owe us money, comply with our banks requirements, close our books by “x” date, pay our vendors according to terms, etc.). It’s important the main objective is agreed upon before continuing.

Once the process objective is agreed upon, begin the groundwork required to complete the Process Documentation Worksheet, a key tool used in the Process Redesign Workbook:

  1. Identify the Process Owner. This is the person held accountable for the success of the process.
  2. Identify the Work Group included in the process.
  3. Determine the Work Initiators. Work Initiators start the process. (i.e. Bill of Lading received from the shipping department, a statement received from the credit card company, a construction completed form received from operations, etc.). They also drive the volume or units of activity related to the process.

Process Interview and Narrative

The interview step is the most revealing aspect of the redesign process. The goal is to expose all the steps; including how mistakes are corrected and informal side systems (these are typically created when employees seek to avoid repeating past mistakes or they are more comfortable with a past practice than the most recent one adopted by the company). The interview should capture the process as it works today.

The written narrative that comes out of the interview defines the current state of the process. The key topic areas to capture in the interview (see the Process Documentation Worksheet in the Process Redesign Workbook) are:

  • Period being covered
  • Number of Work Initiators in that period
  • Description of each step in the process
  • The time required to complete each step in the process
  • If the volume of a particular step is not driven by the Work Initiator, capture the relative volume number for that step. Volume is an important data point used to calculate the total labor cost to perform the process
  • The estimated average cost per hour of the team performing the steps in the process.

Once the narrative is drafted, review it with the team for additions and corrections.

Visual Flow Chart (Process Map)

We also suggest creating a flow chart or map of the process. The imagery of the flow chart makes it easy to see where bottlenecks, duplication and time create inefficient steps. The visual depiction of a process also helps the company balance a need for controls with the requirement for speed and efficiency. An example flow chart is included in the Process Redesign Workbook.

Here is a good example at what the interview and process map can uncover. At a company we recently prepared a process map for, an employee retained a hard copy of all documents she received, including electronic files. We learned this employee had been disciplined in the past for not being able to quickly come up with a response to a question regarding a document that had come across her desk. To avoid this in the future, she made hard copies of all documents that crossed her desk or were emailed to her. Imagine the waste of time and resources this took. The simple solution was to agree on a request response time that gave her time to research a question while still meeting the time needs of the requestor.

Summary Data

After the data is entered into the Process Document Worksheet it is automatically summarized on the Summary Data Tab of the Process Redesign Workbook. Key information is also converted to an annual basis.

The Summary Data tab provides comparisons on these components of any process:

  • Hours invested in the process
  • The number of Work Initiation Requests
  • An estimate of cost of labor invested in the process
  • Cost per Work Initiation Request
  • The impact your Process Redesign will have in terms of the above components.

How to Redesign the Process

To put you in the right frame of mind, here is an example of a common process improvement area. An employee keeps a spreadsheet in Excel because they don’t trust the company’s own enterprise resource planning system (ERP). If a company’s processes don’t give employees what they think they need, they develop separate, off-line, files. Eventually maintaining both the “sanctioned” processes within the ERP system and the “off-line” processes in Excel creates a burden that crumbles under its own weight. This behavior not only gobbles up the extra time it takes to manage two separate systems, the systems themselves need to be reconciled… which can more than double the extra work.

In the quest to improve the process, start with steps that simplify and eliminate waste. Process waste is defined as errors, anything done twice, dual record-keeping and unnecessary time between activities. In one company, administrative controls significantly increased time lags, errors and costs. A trusted advisor and process mapping expert captured key functions, including contract control and contract execution, in a process flow diagram. By applying best practices to the key processes, the company reduced that time by over 50 percent, cut errors by 27 percent and sliced costs by more than 40 percent. The company grew more quickly and became more profitable.

An Outside Perspective May Help

A company can do process mapping internally. But employees are often too closely involved to spot the improvement opportunities. Many times they are the architects of the current processes. Having a fresh set of eyes and a process mapping expert provides an independent view and deeper experience.
Have new employees, employees not involved in the process or outside third parties conduct the interviews and prepare the Process Redesign Workbook. Also, include them in or have them lead the redesign process.

Use the tuned-up engine from your Process Redesign efforts to help transform the way you do business. You will save time and money, reduce lead times and create better, decision worthy information. The follow-on impact will improve the bottom line and better prepare your business for growth.

Use the Process Redesign Workbook Demo!

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Happily Ever After - Achieving a Fairy Tale Month-End Close

Core Guiding Principles for the Month-End Close

What Should the Close Process Be Like?

A strong month-end close differs for each accounting team. However, the following central themes are shared among teams that close the books confidently and consistently, month after month:

Accuracy. There are rarely material errors once the books are finalized.

Predictability. The universe of month-end activities around the close is well-understood. When one activity is delayed, the implications downstream are clear.

Anticipatory. Issues and exceptions are flagged proactively so that they do not become “fire drills” and delay the close.

Flexibility. Cross-training and ruthless standardization makes it easy to back each other up and reallocate workload during the close.

Signs of a Weak Month-End Close Process

Even absent a material error event, there are still tell-tale signs of a weak close process that include:

Unpredictability. This month’s close is different from the month before, and it’s hard to tell what next month’s close will be like.

Time Lag. Most companies rely on the month end close to ensure their management reports are effective tools for decision making. The value of these reports decay as time passes. The longer it takes to close, the less valuable the information is for making good decisions.

Poor Auditability. There is not enough validation, support, and audit trail. T’s aren’t crossed, and I’s aren’t dotted every time. This creates holes in your audit, forcing you to rely on the mercy of the auditor to pass. Not a good position to be in.

Fragility. The infrastructure is still too reliant upon the heroics of the people. When everyone is not performing at maximum efficiency, the process breaks down.

Poor High-Level Insight. Weak and incomplete close processes almost always lack high-level reporting. Why? Because in order to execute reporting, you need data that can be produced consistently and accurately—both of which are usually missing in a less mature process.

Reign in the Chart of Accounts

One of the biggest factors that impacts the work during the close is the chart of accounts. For any close process improvement work, the ideal starting point is to work on an effective account structure. The more active accounts there are, the more work there is to be done.

More accounts means…

• More opportunities to record transactions to the incorrect account

• More reconciliations

• More management review needed at month-end, such as variance analysis

And that’s why we start with the chart of accounts, so that we can properly manage all the work it creates downstream. We want to arrive at a set of accounts that strikes the balance between giving management adequate insight to run the business and making sure the workload makes sense for the accounting department at period-end. This exercise is best done in a setting where accounting, finance and treasury (AFT) leadership is present and can guide the business in adjusting the chart of accounts.

Here are the most common reasons for the chart of accounts becoming outdated:

• Changes in product or service offerings

• Mergers and acquisitions

• Systems change

• Poor control over account creation

Risk Rank, Use Materiality & Other Thresholds

This exercise aims to apply boundaries to our month-end focus. This is important because, at every step of the way, we need to decide what’s more critical to the business and hence deserves more resources. What this also means is that certain areas will be deemed less important to the business and hence resources will be taken away.

No one likes to hear that. We all would prefer 100% coverage over everything. In the quest to get to everything all the time our coverage becomes very superficial. Everything has been touched. But because there is a great big rush to get through the work, there is little comfort that the work is performed correctly and thoroughly.

Here are the three most common ways to set boundaries for our accounts:

• Risk Rank

• Utilize Materiality

• Set Thresholds

Risk Ranking

There are many ways to logically risk rank the criticality of accounts. The most common methods are:

Inherent Nature of the Account. Some accounts are naturally more risky no matter what’s happening in the account. For example, new accounts, liquid accounts, volatile accounts, marked to market investment accounts, miscellaneous or suspense accounts are inherently more risky.

Balance Size. Accounts with larger balances are not always, but are sometimes, more critical. These don’t have to necessarily be the largest accounts on the balance sheet dollar-wise. They could just be relatively larger, compared to the asset class or the P&L.

Past Events. If there was ever a material event—like a big adjustment—that has happened relating to an account, then we will want to watch it closely, because now this account has priors.

High-risk accounts are those where we pay special attention. Medium-and low-risk accounts on the other hand, do not require as much review during month-end.

Materiality and Other Thresholds

We then move onto materiality and thresholds. All successful projects thrive on setting and respecting clear boundaries and limits. The close process is no different. We need to clearly understand where the acceptable thresholds are for every type of activity so we can distinguish between what deserves our attention and what doesn’t. Common types of materiality and other thresholds include:

• Account balance materiality for reconciliation

• Percent tolerance for variance analysis

• Journal Entry amount threshold that requires second level sign-off

We cannot account for every situation where we will or will not tolerate an exception or an estimate, but the important part here is that we start drawing our boundaries so that the scope of the work during the close each month is finite. We make these decisions as a team. Management, as well as your auditors, needs to be aware and buy into both the concept as well as the methodology and outcome.

Auditor support and input is critical in deriving estimates and thresholds to determine priority of actions taken during the close. Always inform your auditors and seek feedback on the chosen methodology.

Establish Goals and Milestones

There is no one-size-fits-all when it comes to goals and milestones. Even within the same industry or the same size business, there are always nuances that make one accounting group able to do things another cannot.

Available technology, staff skill set, and complexity of regulatory requirements are all determining factors in this. If you’re looking or thinking about a close process improvement initiative, chances are your ideal close process looks nothing like what is happening today, and there’ll be a lot of changes in store. Change takes times, and it may not work right away. The team may have to tweak the process and try again, so the path to improvement is not linear and can even be discouraging. The key here is to tie the outcome of the project to employee objectives and performance reviews, gain quick wins to build momentum, and then attempt the more hairy goals.

Below are some of the most commonly used goals and milestones:

• Subsystem close day

• Reconciliation completion date

• Accuracy of preliminary financials

• Variance analysis completion date

• Number of non-standard journals

• Percentage of work done before Day+0

• Number of man hours dedicated to key activities

• Amount of work kicked back that requires rework

• Number of late submissions

• Frequency and nature of unexpected incidents

Protect Your Time by Saying “No”

The best way to close faster and with more focus is by doing only what’s necessary to get the books closed, until the financials are finalized. That means:

• Non-close related activities within accounting should be kept to a minimum during the close

• Close related activities themselves should be evaluated to see how many can be completed, or partially completed, before Day +0 arrives

• During the month, the accounting team can review accounts and transactions for errors so that they are not surfaced during the close to catch the team by surprise

• Special projects halt and take a back burner during the close

• Other departments, vendors, and partners should be discouraged from consuming accounting resources during the close

Sometimes it takes saying “No” to get what you want.

Improve the Technology Infrastructure

People, process, and technology work in an interconnected way. An organization’s existing technology is the foundation of our infrastructure. The people within the organization then use a combination of manual activities and your enabling tech to weave it into processes.

Once the process is built, it will further elevate the people in it because it allows them to achieve consistent results with less effort and frees up time to focus on higher value work. And if you want to exponentially increase the capacity of your people and process, you must introduce more automation to replace manual work.

Your key processes are like steps on a ladder. You build, nurture, and refine them so that the people can move higher and higher up on the value chain.

Be Audit Ready

When it comes to audit, it’s not just about showing auditors that your numbers are correct. You must have the burden of proof to show that the close and financial reporting process is sound, sustainable, and well controlled. This is achieved by:

Being organized around the Prepared By Client (PBC) process. First impressions matter, and this is your first point of contact. Whether you’re being asked to load into the auditor’s application, or do it through spreadsheets, be as organized and prompt as possible. Track everything that is delivered and ask for positive confirmation.

Executing key controls consistently. Management’s execution and monitoring of key controls is something auditors examine as part of determining the health of your organization’s financial reporting process. It’s critical that in this area, key controls are executed with precision and documented thoroughly each time.

Demonstrating clear understanding of the process. Don’t skimp on policy and procedures documentation. Cross-train employees and ensure that each team member masters and understands the importance of each month-end activity so that the tasks are executed with intention and purpose.

Achieving Happily Ever After…

By adopting the core principles that top “closers” exhibit, your organization can achieve a Happily Ever After close that pays dividends to the accounting team.

A strong close process allows for a more balanced workforce and fewer after hours work each month. Routine and administrative work is kept to a minimum, so that the staff can focus on special projects and higher-level work.

For management, a disciplined close process enables more accurate forecasts and faster analytics, which invariably result in a more nimble organization that stays a few steps ahead of the market. Auditing becomes less of a burden while audit results improve simultaneously.

All of this is within reach. It requires leadership, patience, a willingness to try (and sometimes fail), and some good tips along the way to guide the team into a better close.

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The Upside of Agitators

The myth is that folks who disagree are hard to be around and don’t care about personal relationships. What if the truth were that folks who ask good questions deliver these benefits to their organization?

​ 1. Improve meeting quality

​ 2. Improve plans

​ 3. Improve execution

​ 4. Move toward reality

​ 5. Move to action sooner

​What if you could help deliver these, and be admired and respected to boot?

SPEED BUMP: Folks who ask the real questions are invaluable.

​These insights are validated in research reported by Charlan Nemeth, UC Berkeley psychology professor, in her book In Defense of Troublemakers. Groupthink is real, is frequently damaging, and blocks rapid access to truth, she says. Her studies are based upon juries. Here’s a power quote from a review in the Wall Street Journal: “Juries that included dissenters ‘considered more facts and more ways of viewing those facts.’ Consensus… ‘narrows, while dissent opens, the mind.’”* Worse, our desire to agree with others (groupthink) pulls us away from different and sometimes better solutions. And brainstorming, according to Nemeth, with its lack of critical evaluation, encourages the collection of bad ideas (as you likely expected).

​What can we do with this?

​Learn to ask questions and encourage others to do the same. Nemeth says that hard questions speed things up instead of slowing them down. Here are some starter questions to get even the most compliant person to step into the ring:

​ 1. Why should we do that now?

​ 2. What is the benefit of that?

​ 3. What is the evidence for that?

SPEED BUMP: Build your questioning muscle by asking questions.

​The foundation of questions is real curiosity, and a willingness to use your private thoughts to formulate a question about something that just doesn’t seem “right.” It may be a hunch, and it may be wrong, but the question it prompts may spur the meeting toward the right end.

​One way to kick-start a group is for the leader to ask questions like the above, and to ask each group member to ask one question sometime during every meeting.

​And…let the speaker answer the question. Don’t intervene or “help.” Show your folks that you have the confidence in them that you say you do.

ACCELERANT: Which group will you galvanize with questions this week?

​A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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What Does it Mean to Be a Member-Scholar?

It means you:

Are Driven to be the best Financial Executive you can be…

Believe that time invested in learning is a great way to hone skills and grow your career…

Have a Care and Share philosophy about learning and teaching…

Know that building a large network of dedicated financial professionals and advisors to the CFO creates a resource base of significant value…

Recognize the disciplines of Accounting, Finance and Treasury combined with great Leadership skills are fundamental to improving not only the companies we work at but the communities/economies we serve…

Join us today!

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Financial Planning and Analysis (FP&A) Leaders are Failing to Deliver Higher Strategic Value

​Recently, Prophix Software released its findings from the survey, Defining the Evolution of FP&A: Benchmarks, Challenges & Opportunities. The survey which was carried out in 2017 received feedback from over 300 FP&A leaders from all companies of all sizes across the globe.

The survey was conducted to establish the maturity of analytics solutions across the globe, the effectiveness and efficiency of FP&A leaders’ planning processes, how companies are leveraging technology to improve FP&A processes, and to gauge internal perceptions relative to the value of FP&A.

Although certain parts of the results are encouraging, FP&A teams significantly need to improve on their role of delivering higher strategic value to their companies.

In today’s fast-moving markets, characterized by intense competitive pressures, shorter product life spans, complex business environment, increased volatility, and heightened uncertainty, it is imperative that a company’s FP&A people, processes, and systems are highly mature, effective, efficient, and leverage the necessary enabling technologies.

While going through the survey findings, a couple of statistics captured my attention.

  • 55% of the survey respondents reported being in a basic or developing state of the FP&A analytical maturity.

Comment: This basic level of analytical maturity brings to light the fact that a culture of continuous innovation and improvement is not the norm in finance at most companies. As the custodians of data within the organization, Finance is in position to lead analytical development, but at many companies this is not the case.

Surprisingly, 50% of respondents are mindful of technology but seldom upgrade. This statistic alone is concerning. Why are FP&A leaders reluctant to change? Are they happy with the status quo? Are they lacking the resources necessary to transform? Is it ignorance in its purest form? Answering these questions for your company is a great first step in moving beyond basic FP&A analytical maturity.

This transition also requires a cultural shift that can only occur when the value of analytics are understood and taught throughout the organization.

Attending industry conferences, seminars or webinars and reading thought leadership resources as well as listening to their podcasts can help FP&A leaders keep abreast of trends and benchmark their company’s performance against peers.

  • Only 12% of the survey respondents have access to the right data, at the right time, to inform strategic decisions at their companies.

Comment: Having access to the right data, at the right time is key to making good strategic decisions and driving business performance. Unfortunately, 88% of respondents do not have this access. This means the majority of critical decisions in companies across the globe are based on gut-feel and not evidence-based.

In today’s Big Data age, it’s startling to know that companies are not leveraging advanced analytical tools to aggregate and analyze data from disparate sources and generate key nuggets on customer experiences, competitor behaviour, trends, emerging risks and opportunities.

Moving forward, FP&A leaders need to make use of data management framework that facilitates the creation of a central data repository and ensures everyone in the company has access to relevant data whenever they need it.

This can only happen if the company makes the key decision to advance its analytical maturity model. Highly manual processes make it difficult to update FP&A models in real time, thereby inhibiting quick decision-making processes.

With the recent advancements in technology and declining costs to implement new software, the investment required to enhance FP&A processes have been significantly reduced. This reduction in cost makes the return on developing new analytical capabilities higher than at any time in history.

  • Only 10% of companies reported that they find it somewhat easy to perform scenario analysis.

Comment: In today’s volatility, uncertainty, complexity, and ambiguity (VUCA) business environment, companies must be proactive, develop superior forward-looking capabilities and be ready to deal with any disruptive forces threatening their survival.

They must become more flexible, adaptable and be increasingly aware of the impact on business performance of changes in the environment. This will help them take corrective actions more quickly and efficiently.

Unfortunately, 90% of the surveyed companies are finding it difficult to perform scenario analysis. As already reported, over half of them are still reliant on basic and highly manual processes which in turn makes it difficult to consider all possible scenarios in their FP&A models.

For the 10% who are finding it somewhat easy to perform scenario analysis, what are they doing right? They have managed to figure out that FP&A is a collaborative process extending beyond the walls of Finance. Also, rather than use fixed time-specific budgets, they are using driver-based rolling forecasts to see beyond 12 months. Where does your company fall in collaborative planning and rolling forecasts? Make it your charge to develop these important capabilities.

Engage the wider business community, learn about the external and internal factors influencing strategy execution, how they are all interrelated and gain a deeper understanding of the key drivers of business performance. Leverage new technologies, calculate probabilities and update your FP&A models in real time. Set these as objectives and work your plan to get there.

  • 55% of respondents conveyed that their companies don’t think that FP&A delivers high strategic value.

Comment: According to the survey findings, 51% of the time spent on FP&A is allocated to data collection or validation. Thus, instead of spending more time on generating insights and influencing business decisions, FP&A teams are busy reporting on the past and justifying reported results.

This is understandable given the high levels of technological immaturity in many companies. By leveraging advanced analytical tools, FP&A will be able to reduce time spent on data collection, reconciliation and cleansing and free up resources that can be used to deliver higher strategic value.

FP&A teams should regularly liaise with business teams and establish their reporting and information requirements. This will help ensure that resources and time are not being wasted on non-value adding activities.

Take a candid review of your current FP&A people, processes and systems; against the backdrop of the points above. Identify your deficiencies, discuss them with your team to develop implement an improvement plan to deliver higher strategic value to your company


1. Is your FP&A function in a basic or developing state of analytical maturity?

If No, skip to the last question

2. What action will you commit to taking to improve your understanding of the analytics needs of your company?

3. Select a potential project to improve your data analytics and develop a financial model to understand and explain the ROI to your team. (the right analytics at the right time to make a better strategic decision)

4. Determine the % of time of your FP&A function is spent on data collection or validation?

5. If that % is too high, what is your next step?

6. How will you use this learning in your business?

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Innovation Can’t Thrive Without These Fundamentals in Place

Sound business systems precede innovation.

Before innovation can be a catalyst to business growth strong business practices must exist.

Innovation, the process by which an idea or invention is translated into a good or service, is a critical component of growth in many businesses. It occurs when the value of the product or service increases while the cost to deliver the product or service decreases; or when the new value/cost ratio¹ is significantly higher than the old ratio. The value of innovation is illustrated with the following diagram:

The diagram starts with the old state, Old Value – Old Cost = Old Benefit (A). True innovation tackles both the value of the product or service and the cost to deliver it; creating a step function improvement in the new state, New Value – New Cost = New Benefit (B). The Innovation Value = New Benefit (B) – Old Benefit (A)

Innovation relies on creativity, exploration and freedom. Frequently these characteristics are regarded as the opposite of discipline, control and structured process. However, without strong business practices that recognize and nurture advancement in good business systems, innovative practices are unlikely to make it to commercialization.How can a company know if its business systems are ready for innovative growth plans?

“Innovation readiness” can be measured by assessing six key areas in a business. These areas indicate how prepared the business is to evaluate and absorb new activities.

The building blocks for growth-oriented business are:

1. Transactional Processing: This area is the foundation of any business. It is a mundane skill but especially important in preventing delays and errors as new activities are launched. Transactional processing that is timely, error free and cost effective will free up resources to focus on innovation.The fundamentals of transaction processing include; purchasing, payments, inventory, order processing, invoicing and collections. These processes should be efficient, scalable and flexible enough to handle new business.

2. Information Reporting: Understanding financial positions and other key business metrics allows companies to:

  • recognize innovation successes and failures quickly;
  • improve the innovation cycle time;
  • implement successful innovations faster;
  • be confident and agile regarding innovation decisions

Developing and communicating key performance measures, such as return on investment or minimum margin requirements will help guide the innovation process toward products or projects that drive sustainable growth. Albrecht Enders, a principal at endersgroup, a local innovation consulting company, uses the value/cost ratio in the early phase of projects to measure the potential of an innovation. Without solid financial systems in place to provide key metrics like the value/cost ratio Enders says companies can waste valuable resources on projects that have poor return potential.

3. Governance: Clear boundaries around authorities and responsibilities add to the innovation foundation by focusing resources, preventing duplication and eliminating gaps that exist in the governance framework. Too often these “controls” are viewed as inhibiting innovation when good governance actually streamlines the process of resource allocation, eliminates uncertainty around approvals and hastens the decision to move forward with or terminate work on an innovation.

4. Planning and Forecasting: Having strong tools and skill sets in planning is critical to “feeding innovation”. Leveraging the cross functional groups required to develop, launch and support new products requires a well thought out roadmap and navigation system. The process of looking ahead, or forecasting, to help create the future is a necessary step in the evolution of innovation.Good forecasting models that incorporate an innovation strategy provide context to the R&D and other upfront investments required for successful innovation. When these expenditures are viewed as unrecoverable costs and not as investments in the future, spending on innovation is reduced. This action can lead a business to “death by a thousand cuts”.

5. Financing: Successful innovations often require capital to move into the commercial stage of development. Financing can come in many forms and from many sources. Funds can be internally generated, originated from bank loans or, for higher risk projects, equity issuance. Depending upon the project, vendor or customer financing may also be available. The key here is to have a funding origination plan that fits each innovation being developed.

6. Growth Capabilities: Scalable systems and processes combined with access to human resources capable of commercializing an innovation is the last building block of the innovation foundation. For example, Enders noted that distribution systems and order processing are critical to launching new products successfully. Without scalability or available people new growth derived from innovation can overwhelm a well functioning operation and sabotage the success of the product.

Conducting an assessment of these areas, either internally or by an independent firm, will help identify where a company’s innovation foundation needs strengthening. Often a small but targeted investment can significantly strengthen a foundational area and put a company in a much better position to capture the benefits of its innovation strategy. An added benefit to these investments is the overall operation will improve in performance whether or not an innovation is adopted.

Learn more about innovating with endersgroup.

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How to master second-curve thinking and career success

Will fast-changing economic cycles impact your future working career? You bet!

​Predictions tell us that the nature of work will be forever changing, and more people will have portfolio careers in their working lives. But, learning new skills to deal with rapid change cycles, transforming your mindset and embracing life-long learning journey will get you there. This article explores these critical aspects.

This blog is serious and wide-reaching. So, I’m delighted to have joined forces and co-write this blog with my friend and strategic business partner Randy Wall, President of the Engineering Leadership Institute.

​The age of unreason

​During the Dotcom era of the 90’s decade, we witnessed the unprecedented change due to the emergence of dazzling new scalable computing power and technology. Today, technology is continuing to revolutionise our lives and dramatically reshape our work cultures and perspectives of work. During this era, business guru and writer Charles Handy, in his book, The Age of Unreason foresaw how these changes would profoundly affect our lives as we move further into the 21stcentury. He envisioned that work and life would mean continually reinventing ourselves and to be re-grounded in a new sense of success focussed on life-long learning, connection, community and purposeful direction.

​Back then, Handy predicted the demise of full-time employment and the rise of the personal portfolio economy (ie multiple jobs and or career activities) that we are witnessing today, 25 years later. Individuals will aspire beyond working for organisations and instead become the masters and experts of their own brand and careers. Again, this is playing out too where people have several jobs, roles or career paths. He also predicted that businesses would have to respond to ever-increasing waves of change cycles. Besides, he said, companies will become ever more reliant on hiring independent expert know-how to deploy transformational change.

​Now, in 2018, looking back, Handy’s vision is shaping today’s reality.

Change and the Sigmoid Curve

​When we stand back and analyse change, it follows a predictable pattern that can help us to make sense of change, and where we are going. Here’s a ‘handy’ model:

​Handy suggested that all change initiatives can be represented by the above S-shaped curve which has intrigued humanity since time began. This curve-logic sums up all human activity, work projects, new products, implementations of strategy, the rise and fall of companies, governments, empires and all life itself. It all starts slowly as a new endeavour, then builds up experience, it ascends to a crescendo of success, then after a while, it wanes and eventually gets spent.

​We know that way-back in history past change cycles came around in hundreds of years. During the industrialisation era of the 20thcentury, change cycles meant jobs-for-life were no more and change began happening in decadal cycles. At the start of the new millennium change cycles compressed further to every 3-5 years. But, today, technology is forcing adaptive change at multiple levels in annual or even faster cycles. For example, Hi-Tech products such as smartphones become outdated by faster, better, more efficient, smarter hardware every year – and last year’s model - ‘so last year!’ Ever advancing Artificial Intelligence (AI) means associated software updates are rolled out to those products even quicker.

​On top of all this, AI and supercomputers will mean many of today’s jobs will cease to exist tomorrow but, we can’t even begin to guess what those new jobs will be in tomorrow’s world. Current predictions inform us that automation and AI will mean many manual-based jobs will probably disappear. But, the truth is ‘resistance is futile’- playing the Luddite never worked before and is certainly not the answer now. Technology advancement and AI is an inevitability. Instead, we need to embrace future curves, ride the waves of change and learn to adapt and change our mindsets and skillsets along the way!

​The paradox of our times

Handy said that ‘The paradox of our times is that by the time you know where you ought to go [and what you need to change], it’s too late to get there. More dramatically, if you keep going the way you are, you will miss the road to the future.’Bummer isn’t it?

​The paradox, perhaps of our times, is that we have to deal with even more paradoxes! For example, as technology inexorably advances on its own non-linear change curve it will create more unemployment and unrest. But, at the same time, it creates gaps in higher skillsets, as well as demand advances in our consciousness too (we will expand on this point shortly).

​So, we will have to learn more complex ways of interacting and working together and not only with each other but, ironically with AI too – another paradox!

​So, we are indeed living in an age of unreason and uncertainty. But, how do we make sense of all this change for ourselves?

​Perhaps more importantly, how do we find belonging, purpose and identity to live in a truly mobile and globally connected community?

​Read on dear reader, read on:

​Ta-Da! Enter second-curve thinking

​Thankfully, there is a get-out-of-jail-card beyond the above curve – the secret is to create a new second curve before the first one peters out.

​Therefore, it requires a more disciplined approach and learning to become aware of the signs and to feel the vibes, and the winds of change earlier while the first curve is still in full flow, before the first curve dips down (see the infographic below). This is where resources and energy are optimised and available to get the new second curve going and through its initial stages of experimentation. Handy calls this second-curve thinking.

So, the above Sigmoid curve depicts anticipating a future change at point A, or at the cross-hatched area, before point B.

​It all seems logical enough but, counter-intuitively we instinctively find it hard to act on second-curve thinking, because we’re still on a roll on the first curve. The challenge is to start reinventing ourselves when things are going just fine, so we anticipate and overtake the ‘decline-phase’ of the first curve.

​Wait it out – point B thinking!

​By default, human nature tends to react to change only when it’s staring us in the face and we run out of choices or options – that’s at point B. But, at this point, the resources and energy have dwindled and it is much harder to kick-start a new initiative here. Like redundancy and finding a new job, for example, a small business that’s run out of steam, not being selected for a Job that we need or, even producing a product or service that is no longer relevant etc.

​At such times, it’s only when we stand back and reflect on the circumstances leading up to finding ourselves at point B, we start to piece together where we missed the signs and took a wrong turn – hindsight is a wonderful thing!

​Therefore, second-curve thinking requires us to adapt to a smarter more disciplined thinking approach to predict and work on change around point A instead.

​The reinvention game

​In today’s economy, second- curve thinking is very relevant indeed. I began this article describing the rapid changes we are all subjected to in the ever-advancing technological era. While some careers may remain more stable than others (teaching and caring professions for instance), many of us will be forced to rapidly and continuously change the strategic direction in our businesses and working lives to respond to these advancements. More pertinent perhaps, second-curve thinking will be about reinventing yourself along the way. It is not merely about organisational change anymore. It will become much more personal.

​Mentioned earlier was the notion of a portfolio economy and as such advancing technology change will mean that many of us will have to manage the twists and turns in our portfolio careers in the working world too. Inevitably, that, in turn, will involve mapping our personal strategies and career branding through many change curves during our working careers.

​Furthermore, it will become more common for us to face the prospect of being regularly re-grounded during our working lives. And for many millions of people earning a living will mean seeing things differently with new eyes. Part-and-parcel of a portfolio career means our work will become highly personal and have to align more and more with who we truly are (our authentic self). We will need to develop a new sense of connection, community and purposeful direction to our work. To boot, reinvention change curves will be perpetual and ever-changing.

​Reinvention examples

​I (Andrew), for example, have experienced three significant career-change reinventions over my working life so far since the 1990’s. I started my career as a Chartered Engineer (as did my friend and US business strategic partner Randy). I then retrained into IT as I foresaw the upcoming technology revolution. Today, we both run our own leadership development company’s, developing soft skills, emotional intelligence for high-performance teams to drive tomorrow’s workforces. Randy, similarly reinvented his career too by studying a Masters in Social Science, and we both continue to ride new second curves of change and reinvent the approach to our work. While that kind of radical career change might not be the same for you, it will become a more common story moving forward into the future for many more people.

​Note, the differentiation between career change and approaches to work. Reinventing our careers might, for some, very well occur a handful of times during our working lives. But, reinventing our approach to our work in response to the ever more rapid technological change cycles, will undoubtedly occur much more regularly for the majority of working people – perhaps even every two years in the next decade or so. Such adaptation will become a standard part of working life. In organisations, restructures, takeovers and mergers will continue apace, resulting in ever faster job and title changes.

​Interestingly for businesses, average retention of staff at the end of the 90’s was roughly six-seven years. Today, staff turnover is about two-three years or less. For organisations, reinvention means new leaders, not the incumbent ones rise up to take the helm of new changes in strategic direction and often they create the energy of a new second curve.

​Success focussed skills and life-long learning

​Randy and I predict that as part of managing our portfolio careers and reinventing ourselves, we will not only need expertise and know-how but, success focussed skills as well. For example, the ability to work with others in high-performance teams will be crucial.

​We believe that success focussed skills and life-long humanistic learning will become part-and-parcel throughout our careers - such as soft-skills and emotional intelligence. Humanistic skills are vital for teamwork - aiding us to operate cohesively and collaboratively. Interestingly, technology marches relentlessly ahead, then the demand for humanistic skills increases too.

​Also, organisations will need to invest in creating high-performance cultures too - this is crucial. Recently Randy, ELI and I collaborated on presenting a number of seminars (How Soft Skills Drive High Performance) in the US on this very topic. We believe that this matter is gaining a lot of traction in the business world today.

​Another equally important aspect of success and life-long learning is developing your mindset. This is about working on yourself and your attitudes, behaviours and beliefs to overcome your limitations and your past conditioning - this is your fixed mindset (see infographic below). By default, a fixed mindset stops you from facing change.

​Change is also perceived to be harder the older we get as our mindset becomes more rigid and fixed. In Japan, they have a saying for older people that refuse change – they call them wet leaves that just stick around. But in the portfolio economy, it will be change that sticks around and so our minds will have to remain agile instead of atrophying.

​In contrast, as you can see from the above infographic, developing a growth mindset creates personal internal resources and resilience that helps you to remain positive, optimistic, to better deal with the unknown and handle uncertainty. It also helps you to align yourself with your purpose and who you truly are as well as your inherent strengths.

​In short, we all need to learn to become ‘less sticky’ with familiarity and embrace second-curve thinking as a way of life instead.


​The Sigmoid curve and second-curve thinking is the key to stay relevant and competitive for both individuals and organisations.

​In the technology lead economy of 21stcentury, automation will change the notion of your work and more people will have portfolio careers.

​Advancing technology will create more rapid change cycles and you will have to reinvent the notion of your own career several times.

​As our economy advances you will need the balance of both expert know how and humanistic skills to remain agile, resilient, purposeful and profitable too.

​As you adapt to continually changing cycles, your consciousness levels will expand too, and you will start to notice that your work directly contributes to making a tangible difference and a better world for everyone.

​Transforming from a fixed to a growth mindset, building a strong set of success-focussed humanistic skills and adopting lifelong learning will give you the tools to master second-curve thinking and your career success.

Read this and more from Andrew Jenkins.

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CFOs – What Language Do You Teach In?

I had an interesting discussion with Andrew Codd recently. Andrew, in addition to having deep expertise in FP&A and data analysis, runs The Strength in the Numbers Show, a weekly podcast focused on the development of finance professionals.

During our discussion we touched on a key skill that helps financial professionals grow into business leaders. Being multi-lingual in the languages of business.

The foundational language of business is based on accounting and finance principles. It is the universal language that connects all companies, industries and even economies. A strong grasp of this language is critical to building a successful career in accounting, finance or treasury (AFT). “Seeing” the economic essence of a company by glancing at the financial statements is gift finance professionals don’t give ourselves enough credit for. So first, don’t underestimate the value your training and hard work as a professional brings to your company. Have an opinion based on facts and let it be heard.

Taking those steps will provide you with the reputation as an expert in your field. To become a leader at your company or in your industry it’s important to become a teacher. To be an effective teacher your teaching should be done in the native language of your students - the commercial language of your company and industry.

Here is an example. When I started my AFT career, I worked for a grain trading company. I didn’t hear the word income statement or balance sheet uttered by a commercial manager during my first two years on the job. The concepts important to the success of the business had to do with terms like “long and short”, “basis”, “elevations”, “basic hedge”, “position”, “spreads”, “bullish/bearish”… I could go on. Even terms I thought I knew, like “margin”, meant something different than I had learned in school. (It was used to describe the cash we had to put up with the futures exchange to own futures contracts.) Oh, the team was very focused on earnings. They just called it the “P&L” (not profit and loss and, certainly not, the income statement).

Learning the commercial language of our company was important. Around it we could construct the communication tools that fit the P&L model our managers used in making their decisions. They did not look at our income statement. We developed a method using positions and inventory values that presented the P&L in their language. Our job was to translate the financial results into results our whole team understood and could use. The bottom line was the same but how we got there was totally different than how I learned to build an income statement in Accounting 101.

Our exposure to so many parts of the business puts us in position to be great resources (teachers) to our colleagues. Take the challenge, learn the commercial language of your business and teach in it.

There is an emerging language in business (many would say it’s already emerged) that revolves around technology. The days of an IT manager and their team managing the server in a data room and personal computers at our desk is long gone. In today’s world information moves at lightning speed. The CFO and their team have a choice. They can embrace this change and lead the digital transformation at their company or be overwhelmed by it and lose their relevance. In the past 500 years a key role for AFT leaders has been to convert data, into information, into action. A key resource enabling us to perfect that role was a deep and broad understanding of accounting and finance. Much of the insight we delivered came from deep analysis of the internal workings of our organizations through the lens of the financial statements. Not long ago, benchmarking added an outside twist to the teaching we could deliver and more recently, the development of financial tools lead to the creation of financial models that improved our foresight and increased the accuracy of our predictions.

Today’s technology gives us the resources that dramatically increase the data available to help us manage our businesses more efficiently.

Data is an asset to be converted into information that helps drive insight and better decisions. This has been the key to successful organizations for thousands of years. It’s only recently that the amount of data available to us has grown at a pace that is difficult to keep up with. The irony is, the data has always existed. We had no means to practically analyze much of it; so we never tried. Technology has given us the means to procure, warehouse and analyze data previously un-minable.

The basic three-step approach hasn’t changed:

1. Identify the data the company must capture and analyze

2. Determine how the data can be converted into information

3. Develop methodologies to incorporate the information into the decision-making process.

… but it has become more complex in today’s world of Big Data. This complexity will create huge value for businesses that learn how to manage it. Answer this question, “If our company doesn’t adapt to this new complexity will we quit growing or disappear?”

Technology is no longer cloaked in mystery or its power possessed by a few. The technology challenges we face today include:

• clearing the clutter to understand what technology can benefit our business most

• making the business case for our technological architecture

• implementing the architecture

And when implementation is complete, sometimes before, we face the same challenges with new technology and start process all over.

This brings us back to the emerging business language of technology. A broad understanding of technology available or on the horizon that could benefit (enhance profitability) or harm (increase competitive pressure) your business is critical to your success as the champion of delivering decision making information to your organization. Learn the language, leverage new technologies and reap the benefits.

Listen to the podcast.

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How to Make a Difference With the 3 Languages of Finance

The foundational language of business is based on accounting and finance principles. It is the universal language that connects all companies, industries and even economies. A strong grasp of this language is critical to building a successful career in accounting, finance or treasury (AFT). “Seeing” the economic essence of a company by glancing at the financial statements is gift finance professionals don’t give ourselves enough credit for. So first, don’t underestimate the value your training and hard work as a professional brings to your company. Have an opinion based on facts and let it be heard.

For insightful notes on the podcast visit The Strength in the Numbers.

​Not a member-scholar yet? Join our financial community here!

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

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Get Ready for Artificial Intelligence

Billions are being invested into Artificial Intelligence (AI) applications, research, etc. Find out why companies are spending so much and start your AI journey by completing the Assignments built into Dave’s presentation.

Check out Get Ready for Artificial Intelligence now.

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For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part IV

Part IV Getting After It: Take the Next Step and Make Your Investment in AI

If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite, Part II - The Benefits of AI and What You Will Need to Make It a Success and Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects yet, please do so before continuing on.

There are four major investments you’ll need to make to use AI successfully in your business.

1. Develop an AI Strategy: This investment is about learning how to apply AI to your activities and selecting your best course of action. Consider using outside experts to help augment your thinking in this area if you are just starting your AI journey.

  • The first step of strategy development includes learning about AI, determining how it will be applied to the CFO responsibility areas, assessing the value of AI application for those areas.
  • The second step is to gauge the data needs (availability, accuracy, volume) and the cost of “creating” data that can generate the output required. “Quality, effectiveness, efficiency and insight are the four key pillars that really make this valuable stuff…” according to Nick Frost, KPMG Audit Technical Lead Partner.¹ Watch for these characteristics in your data. If they aren’t present, be wary of how you use your final product.
  • Using the value noted in a. above and the cost determined in b. an AI Strategy targeting the areas where AI will have the most impact can be constructed.
  • Skill/System assessment and timeline. Determine where growth in skills and systems are needed. The scope of these needs will also help create the resources required and a timeline. From a risk perspective, consider starting small (high expected return, low initial investment) and allow for greater investment as success is realized.
  • Include a change management plan to assist employees and other stakeholders in understanding the strategy and the impact it will have on them.

2. AI Software Selection: The investment in software will include the cost of the software and the expenses of the internal and external team members working on the process.

  • Use your Strategic Plan to target AI vendors that serve the areas highest on your list.
  1. On premise or cloud solution
  2. Data storage costs
  3. Integration with current systems.
  • If AI is new to you stay small and focused on high return, bite-sized efforts you can learn from.

  • Use your network to validate claims made from vendors in terms of system results, implementation timeline and cost.
  • This investment will include the direct payments for the software and internal costs for the selection team to do their work.
  • Our “AI Capital Investment Analysis” tool will help you summarize and communicate your planned investment in AI.

3. Implementation to Operation: It is important to focus the cultural change required during this stage to create an environment that craves the new learning AI brings to the table. The combination of our team’s desire to use AI wisely and a sound AI system add up to success. If either is missing, there is a good chance your implementation will fail.

Here are the implementation steps:

  • Research and mitigate the risks related to the implementation and data management.
  • Train and hire the skills to manage the system and leverage the new capabilities created by the AI.
  • Identify and manage the risks that are likely to occur because of the implementation.
  • Procure and implement the technology that fits your strategy.
  • Monitor and adjust the AI inputs and outputs to create optimum value for the AI stakeholders.

4. Ongoing AI growth: Your AI strategy document is the road map that will be used to plan AI follow up. It is a living document that requires updating.

  • Manage the ongoing operating costs of the AI system
  • Implement AI applications per the Strategic Plan
  • Change the priorities in the Strategic Plan as necessary
  • Consider new applications (see 1 above)
  • Assess current operating AI systems for optimization annually.

Artificial Intelligence holds great promise for financial professionals. It’s a key ingredient to enhancing the business partnering momentum established in the new millennium. Creating our AI Strategy, securing the skills to choose, implementing and operating AI systems, and growing these capabilities are new challenges demanding the attention of the CFO. Developing more efficient and “smart” transaction systems while improving decision support activities are huge value drivers for businesses today. Our ability to harness the power of AI to these means will be a significant measure of our success.

We’d love to hear about your AI experience (email us at!

¹Eleanor O’Neill, “How is the accountancy and finance world using artificial intelligence?” CA Today, July 31, 2016

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For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part III

Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects

If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite and Part II - The Benefits of AI and What You Will Need to Make It a Success yet, please do so before continuing on.

Where the CFO can invest in AI to create a positive impact.

Now that we know what AI is and its benefits for finance, how can a CFO develop a plan around how to apply it in their business? To borrow a phrase from Stephen Covey, Begin with the end in mind. Visualize where you want to be and work backwards, considering what is preventing you from realizing your future today. This step will help prevent you from building AI around current systems and processes that are encumbering your digital transformation.

The next step in identifying where to invest in AI is to summarize the outputs your team creates for the company’s stakeholders. Define output as anything your team delivers to a stakeholder that they use. Examples of outputs include; invoices to customers, financial reports to management, pay checks/stubs to employees, borrowing base to the bank, work papers to the auditor, KPIs to the Board of Directors, credit information requests from vendors, accounts receivable aging report to the credit department, new project investment analysis for the CEO, productivity reports for the COO, etc.

​To be highly effective the implementation of AI is a multi-discipline exercise that will require resources from many parts of the business. A good example of this can be illustrated when using AI to assist in auto invoicing and payment applications. The sales department, manufacturing and shipping departments will provide data that allows these two functions to operate autonomously. The data from these departments will be incorporated into algorithms that function to determine how much, when and to whom to send an invoice; and, how to apply payments when the bank reports them as received.

​ Below are some important criteria to think about when selecting where to apply AI:

1. Stakeholder focused; Serve your most important constituents first - Customers, Vendors, Employees (including management) and Directors

2. Determine where AI has the largest potential impact

  • ​ Where improvements speed, accuracy and/or volume have significant impact
  • ​ Revenue generation
  • ​ Cost savings

3. Understand the complexity of AI application.

  • ​ Data requirements
  • ​ System requirements
  • ​ Process requirements

Measuring the (financial) benefits of an investment in AI for a business

​Just like any other business case development, it is important to measure the benefits of investing in AI technology. These benefits are either tangible or intangible. Tangible benefits are those that can easily be quantified, you can put a value against. On the other hand, intangible benefits are difficult to quantify, but expected to occur as a result of the investment.

​So, is one set of benefits better than the other? Our answer is no. Both tangible and intangible benefits are important. But only tangible benefits can be used to calculate the financial return of AI investment. This can be looked at from the perspective of additional savings or income generated as a result of AI.

​However, the challenge for many CFOs when it comes to implementing new technological solutions for their companies is clearly defining how success will be measured and quantifying the ROI.

​Since the adoption of AI technologies is not yet widespread but still in the pilot phase we suggest CFOs take a simplified approach to calculating the value of AI projects and follow these steps:

1. Identify a specific problem. Although AI is promising to be a huge game changer for your business, AI is not the answer to all your business problems. Don’t fall into the trap of investing in AI for the sake of investing, or worse, succumb to “herd mentality”. To successfully benefit from AI, first identify a specific problem that may be solved though AI. The AI Identification Worksheet discussed earlier can help you here.

​2. Define the outcomes. What will success look like in your company? What is the result you are targeting, and can this be defined in monetary or percentage values?

​3. Measure the results. After clearly defining the outcomes, the next step is estimating the performance of AI against your baseline measurements or outcomes. The spread between your expected performance and the baseline provides with the expected benefits of the proposed AI solution. Put in place a system to measure the actual results

4. Identify and calculate the costs (investment) incurred in delivering the results. Here you need to consider things like initial investment costs, ongoing support costs and the impact on cash flow.

​5. Calculate the return on investment (ROI). This final step involves calculating the ratio of money gained (or lost) relative to the amount of money invested (the total cost). If the projected ROI meets your hurdle rate, you’ll move ahead with the project. Set up to schedule to review the actual performance vs. the expected results to develop the feedback loop to improve your investment model.

Below is an example of calculating the ROI using the steps above:

1. Identifying a specific problem: ABC Company P2P process is highly manual and incurs annual labor costs of $300,000. During a cost and profitability analysis exercise, Brenda, the company’s CFO established that due to high error rates and rework as a result of these manual processes, the company is incurring additional overhead costs of $100,000 per annum. She remembered that from one of the CFO conferences she attended, the speaker spoke about AI and the technologies potential to drive process efficiencies. She proposes to the Board that the company invests in AI, specifically for improving P2P and test the concept.

​2. Defining the outcomes: After a series of meetings with various functional leaders, stakeholders and consideration of various factors, Brenda presents to the board her findings. By piloting AI for the P2P function, the company stands to achieve annual labor cost reduction of 10% and overhead reduction of 15%. The Board approves the project, expecting savings of $45,000 excluding the potential benefits from higher accuracy and improved vendor relations.

After conducting a thorough market analysis of the suitable AI solutions available, with the support of the Board, Brenda engaged the services of FinancePro, a cloud-based software provider specializing in AI software for the CFO office.

​3. Measuring the results: After conducting a thorough market analysis of the suitable AI solutions available, with the support of the Board, Brenda engaged the services of FinancePro, a cloud-based software provider specializing in AI software for the CFO office. It is now 12 months since the pilot project went live and the Board wants to know if the company managed to achieve the 10% labor cost and 15% overhead cost reduction targets. Brenda compares last years’ costs against current years’ costs and her targets of 10% and 15% cost reductions have been met. In year 2, the company estimated benefits of $60,000.

4. Identify and calculate the costs (investment) incurred in delivering the results: Although the cost reduction targets have been met, Brenda believes that these figures evaluated in isolation are not helpful for evaluating the overall investment. She therefore decides to identify and calculate the total cost ABC Company incurred in meeting these targets. She takes into account all initial costs such as license fees of the new AI software, implementation costs and employee training costs for the full amount of $30,000. She also calculates ongoing costs such as maintenance and support, communications and data storage costs which amounted to $20,000.

​5. Calculate the return on investment (ROI): This is calculated as follows

​ • She uses a cash on cash analysis to determine the 2-year ROI:

​In this example, ROI is calculated by taking the total financial benefits ($105,000) subtracting the total financial costs ($70,000), dividing by the total financial costs then multiplying by 100 to arrive at the ROI (50%). This calculation is over a 2-year period but can be applied on an annual basis as well. We have developed a simple model to help you summarize and compare your AI projects. Use it to:

  1. ​ Analyze and select AI projects,
  2. ​ Get your executive team familiar with the financial benefits of AI and,
  3. ​ As a performance measurement and improvement tool once an AI project has started.

Click here to get your AI ROI Calculation model.

Next Up: Part IV Getting After It: Take the Next Step and Make Your Investment in AI

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For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part II

Part II The Benefits of AI and What You Will Need to Make It a Success

If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite yet, please do so before continuing on.

Potential Benefits of AI for Finance

The potential applications of AI are varied and being considered in virtually all sectors and industries. Today, companies are using AI algorithms to predict start up success, block spam messages and comments on social media, and boost webpage ranking. Lawyers are leveraging the same AI software to speed up legal research, and Financial Advisors have recently been piloting AI to monitor huge data sets and provide data-driven decisions. This handful of uses points to an exciting AI-driven future.

The Finance function is no exception. According to one of the CEO survey findings on the performance of their CFOs published by KPMG, although CEOs are increasingly expecting their CFOs to play an important strategic business partnering role, the gap between CEOs expectations and the actual performance of CFOs is still huge.

CEOs believe, instead of helping them understand and address the business challenges they are facing, CFOs are spending significant time on financial reporting as well as compliance and regulatory issues. In the eyes of the CEOs these activities are more rear-view focused and do little to help them prepare for an uncertain and volatile future.

AI has the potential of helping CFOs close this gap. AI technology can help CFOs automate end-to-end financial processes, make them much more efficient than previously, and spend reduced amounts of time and resources on repetitive and laborious tasks. This in turn helps them spend more time on strategic issues partnering with the business.

Examples where Finance can benefit from AI include:

1. Invoice Processing: Employees spend a significant amount of time on Procure to Pay (P2P). Manually entering invoice data resulting in high and costly error rates. Using an AI powered system, CFOs can significantly simplify and automate these manual processes. Because of the many data points on an invoice, an AI system can “learn” the relationship between the individual elements of an invoice. In the future, based on previous experience and data, the system autonomously processes the invoices and allocates them to the appropriate general ledger accounts. If there are any misallocations which are corrected by an expert, the system learns and improves from such interventions.

2. Bank Reconciliations: The reconciliation of account data and receipts as well as the allocation of banking information can be carried out faster and reliably using AI. The software retrieves both sources of data directly. Independently-learning algorithms match the document information with the transactions in the company’s bank accounts. This renders the bank reconciliation process much more reliable, transparent, and most importantly it can be carried out in real-time. This in turn helps CFOs to evaluate in real time the liquidity position of the business.

3. Budgeting and Forecasting: By using AI, CFOs will be able to improve the accuracy of their company’s forecasts, speed up and automate closing the books with lower compliance and auditing costs. Traditionally, CFOs have relied on financial data housed in ERP systems to drive budgeting and planning processes. This reliance on internal data alone to drive key performance decisions excluded important external data. Thanks to today’s advancements in computing processing powers and speed, CFOs are now able to make use of data sources once deemed inaccessible. AI algorithms are able to aggregate data from multiple data sources, analyze this data very quickly (in real time), identify patterns, calculate the probability and impact on business performance and feed that information into the forecasting model.

New skills, expertise and knowledge required to deliver and operate AI systems

As with any other new technology or system, delivering and operating AI systems requires new skills, expertise and knowledge. New technologies are enabling CFOs to do more with less and create added values for the organizations. Finance and Technology used to be miles apart. Not anymore, the two are now joined at the hip. The CFO has to be tech-savvy and possess a stronger understanding of the new technologies in the market, how easily they can be integrated into the company’s overall IT infrastructure, and their potential to drive business performance.

In addition to having knowledge of the technology landscape, these skills are also a prerequisite:

1. Quantitative: To successfully support effective decision making, CFOs have to make sure that the advice given to business partners is evidence-based and not mere guess work. Having strong analytical capabilities is therefore critical. As data volumes and types continue to grow at exponential rates, making sense of it means the traditional skill set of the Office of Finance has to change. New data analysis capabilities are required; developers, data scientists, data engineers, data architects, data visualization experts, behavioral scientists and cyber security experts working together with traditionally trained Finance professionals.

2. Deep Process Knowledge: Tasks where the desired outcome can easily be described and there is limited need for human judgement are generally easier to automate. Not all Finance processes are candidates for automation. Some processes are higher-value adding requiring judgement or creativity, and are therefore not easily automated. The CFO must be able to differentiate between transaction processing and value-add processes and select the suitable ones for applying AI technology.

3. People Management: Leadership, communication and change management abilities are all essential. Whenever there is talk of AI, the conversation ends up being a debate of

Machines versus Humans. There is a common belief that AI has evolved to replace workers. We believe this theory is far-fetched. Implementing AI is also about people and not software alone. Automation is a huge opportunity but it’s also about “augmented intelligence”. In other words, combining human intelligence with technology-enabled insights to make smarter choices in the face of uncertainty and complexity. The CFO must be able to address any employee fears that might arise, clearly communicate the rationale for adopting AI, and motivate and inspire their team to embrace the change. People are often the differentiator between success and failure. If they don’t buy into the vision of what the company is trying to achieve, the initiative is bound to fail. Also, emotions rise high during such initiatives because of conflicting priorities and as such, it is important for the CFO to manage and resolve such conflicts.

A recent article published by McKinsey in the Harvard Business Review¹ highlights another skill that is important as organizations start working with these new technologies – Data Translator. According to the authors of the article, translators are neither data architects nor data engineers. They’re not even necessarily dedicated analytics professionals, and they don’t possess deep technical expertise in programming or modeling.

Translators draw on their domain knowledge to help business leaders identify and prioritize their business problems, based on which will create the highest value when solved. They then tap into their working knowledge of AI and analytics to convey these business goals to the data professionals who will create the models and solutions. Finally, translators ensure that the solution produces insights that the business can interpret and execute on, and, ultimately, communicates the benefits of these insights to business users to drive adoption.

Thus, as the role of CFOs increasingly evolves into that of a strategic advisor or internal consultant, it is imperative that CFOs develop and improve on these data translation skills. In today’s data-driven era, where data science skills are in high demand, not all of us are cut to be data scientists.

¹Nicolaus Henke, Jordan Levine and Paul McInerney, “You Don’t Have to Be a Data Scientist to Fill This Must-Have Analytics Role?” Harvard Business Review, February 5, 2018

Next Up: Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects

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For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part I

Part I Leveraging AI in the CFO Suite


In their role as curator of critical information for their company, Chief Financial Officers must create processes and develop systems that filter out noise and focus only on the most important, actionable information. The plethora of data being created is growing at astronomical rates making this role much more crucial and much more difficult. In this article we’ll explore how CFOs can take a practical approach to integrating artificial intelligence (AI) into their operations.

First let’s define AI in a manner that applies to its use in finance.

AI is information derived from algorithms applied to data set(s) normally accomplished with little or no human intervention.

  • Algorithm: a set of steps that are followed to solve a mathematical problem or to complete a computer process
  • Information: knowledge you get about something: facts or details about a subject

In his book, The Design of Business, Roger Martin describes the stages of learning that go from mystery to heuristic to algorithmic. The financial processes at many companies are heuristic, made up of general guidelines but containing many steps, developed by trial and error, and known only to the process owner. These processes lock corporate technology in the minds of one or a few individuals; creating technology risk and a training burden when staffing transitions occur. Developing an AI system and framework to effectively select processes that should incorporate more AI is rapidly becoming a core skill required for CFO success.

Until recently, many financial applications of AI have helped uncover altogether new techniques or capabilities. For example, program trading in the financial markets came about because AI could “crunch” numbers (the price of a basket of individual stocks) fast enough to allow traders to arbitrage an index against a portfolio of individual stocks.

In addition to the speed factor, AI now is being used to replace repetitive, linear tasks and increase our information output capacity. Both uses have wide implications for the CFO, including;

  • Choosing a system architecture that will capture AI most effectively for your organization
  • Managing your talent in a manner that is socially responsible
  • Developing and acquiring talent that captures the benefits of our AI system investment
  • Mastering the ability to manage the Decision Pyramid

How to Leverage AI in Finance

To date, most of the investments in AI for business have to do with specific industries; stock trading, portfolio management, banking and insurance underwriting. Customer development and customer service have also benefited from large investments in AI. The CFO responsibility areas, although ripe with automation, have not adopted AI to the extent these other industries or functions have. The opportunity is vast, but we need a methodology to identify where to start and continue our AI investment.

The main benefits to AI are derived from three aspects; speed, accuracy and volume. Logically, we should apply AI to areas where the total value (increased revenue and reduced cost) of the following three variables is greatest:

  • Speed: The incremental value of time as applied to a process or delivering information
  • Accuracy: The incremental cost of error or lack of precision in a process or information
  • Volume: The incremental cost of each unit of volume in a process or in reports and analysis.

Identifying the value of these different variables is the key to selecting an appropriate AI strategy and developing a work plan to implement it.

There are two main ways AI can enhance the CFO responsibility areas.

  1. As a Process Improvement Mechanism. In this case AI will be applied to the transactional work to complete it more quickly, more accurately and/or more of it.
  2. As a Decision Support Mechanism. Here AI is applied to the data used to create the information in a report or analysis to improve the decision support. This support is enhanced through quicker, more accurate and/or more information.

Illustrations of these two types of AI applications can be visualized using two examples:

  1. Procure to Pay (P2P): Using AI on the P2P process may yield big improvements in process effectiveness which will lead to lower costs and a reduction in errors.
  2. Budgeting and Forecasting: Using AI in the Forecasting process expands the scope of data that can be incorporated into the model, including the shift from exclusively using internal data to expanding the model to include external data. This use of AI will improve decision making by reducing the noise in our outputs due to using more robust input data.

We have a developed a worksheet to assist in targeting where AI will bring you the most value. The worksheet is patterned after the Four Pillars of CFO Success and includes the major CFO technical competencies (i.e. CFO competencies ripe for AI application). Some critical thinking about each competency will allow you to develop a comparative scoring schedule to assist you in building an AI strategy.

Click to get your AI Identification Worksheet

Next Up: Part II The Benefits of AI and What You Will Need to Make It a Success

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What the heck is adjusted EBITDA and why is it so darn important?

Successful business owners preparing for a sale are quickly introduced to words they may not be familiar with: “EBITDA” and “Adjusted EBITDA.” Suddenly, why are these the only numbers that seem to matter?

​EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a basis for determining the value of privately held companies. Its purpose is to serve as a blunt tool to approximate pre-tax cashflow from operations. With EBITDA, a company’s value can be estimated based on transactions that have taken place between other companies of similar size and characteristics. For example, many lower middle-market privately held companies typically sell between 4 to 6 times adjusted EBITDA, depending on the industry and other factors. Specifically, EBTIDA is used to analyze the profitability of a company regardless of capital structure or the tax strategies employed.

​However, for EBITDA comparisons to be useful and accurate, adjustments must be made to an EBITDA calculation. These adjustments are necessary to turn the EBITDA into a more accurate number (adjusted EBITDA) that represents the earnings capacity of a business.

​Business owners contemplating the sale of their business should have an idea of what their adjusted EBITDA is and how certain inputs affect this value. Typical recasting adjustments made to arrive at an adjusted EBITDA include the following:

​Basic Adjustments

​ · Interest on debt (line of credit or long-term debt)

​ · Income taxes (Not gross receipts taxes – sorry WA residents)

​ · Depreciation

​ · Amortization

Adjustment to market rates

​ · Owner salaries and bonuses; what would market salary be to replace the owners?

​ · Rent (if real estate is owned by the business owner)

​Discretionary expenses / Owner perks

​These must have nothing to do with the business, and should be material:

​ · Owner health or life insurance

​ · Owner retirement contributions

​ · Personal vehicle expenses

​ · Charitable contributions

​ · Personal trips or entertainment expenses

​ · Salary payments to family members who are not involved in the business

​ · Etc.

​Bonuses, retirement plans and other benefits for employees are NOT discretionary. If employees receive these on a regular basis, then it’s something they consider as part of their compensation, and taking those away will be viewed as a pay cut.

Non-recurring expenses

​Operating expenses that are one-time or unusual and generally not expected to recur in the future, such as:

​ · Legal, accounting, or other professional fees for lawsuits, audits, special projects or similar events

​ · Moving expenses if the company relocated or expanded (estimates are OK since these may be hard to track)

​ · Major upgrades to computer systems or similar that could have been capitalized

​It can be frustrating for a business owner to have everyone focused on this obscure number when there are so many other aspects of the business. As stated, EBITDA and adjusted EBITDA are blunt instruments that don’t consider many important financial drivers such as working capital, cash vs accrual accounting, and balance sheet considerations as well as other non-financial value drivers including culture, owner dependencies, customer concentrations, industry trends, product life cycles, etc. Adjusted EBITDA is an important number, but not the only number that matters.

​Our point is, you do need to wrap your head around adjusted EBITDA. An accurate adjusted EBTIDA is a metric that valuation specialists use as an indicator of future performance and as part of a formula to determine overall company value. Your accountant or your M&A advisor will be great resources to help you calculate and analyze these numbers. EBITDA and adjusted EBITDA calculations are usually needed for each of the past 3-5 years and the current year to be able to see the profitability trend.

​Next time someone asks you what you think your business is worth you can tell them, “Six times weighted-average adjusted EBITDA, of course”.

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7 Tech Terms CFOs Should Know

It’s 9 am and you’re running late for a meeting with your IT manager. You know she’s going to be throwing around “techie” terms that make no sense and you haven’t even had time for coffee yet! While we can’t get you the coffee, we can give you a crib sheet of technical terms and what they mean in plain English.

VPN – Also known as a Virtual Private Network, this allows users to securely connect over the Internet by using software to create an encrypted private network. Instead of having to worry about the security of a coffee shop connection, you can connect to your VPN and be just as secure as if you were in your own office.

API – This stands for Application Programming Interface, which allows different pieces of software to work together so they appear to be a single software. APIs allow different software components to work seamlessly together at lower cost.

ERP Software – Enterprise Resource Planning software allows a company to manage the many parts of running a business, from human resources to accounting, all in one place. Companies purchase the modules that are relevant to their needs, and the ERP software does the rest by managing the collected data in an easy-to-use fashion.

Technology Stack – This is another way to describe the portfolio of components that make up an office network. Successful businesses of all kinds work toward a Standard Technology Stack to maximize integration and support so they receive a good return on their investment. See our previous blog

Client Side – This term refers to the software and hardware that delivers what the employees interact with rather than what happens behind the scenes at the server. People interacting with the right devices and well developed software result in good Client Side productivity.

Ransomware – Just as it sounds, ransomware is a form of malicious software that gets into a network and will hold either the data, individual computers or the entire network hostage until a sum of money is paid. See our previous blog To prevent this from happening keep improving security and staff training. Don’t let up after the first training, keep up with changing threats. Before your company is struck with ransomware make sure you can recover from an attack by frequently testing the daily backups.

Managed Services – A method for improving operations and receiving an improved Return on Investment from technology resources. For more information visit our previous blog The way to have a well-managed technology stack is by engaging an outside service provider to proactively plan and manage the company technology. The best Managed Services providers use strategic planning, advanced tools and state-of-the-art techniques to continually improve technology performance and reliability.

Armed with this simple vocabulary you should be able to hold your own when meeting with the manager responsible for your business technology. And never neglect to ask for clarification of a term—the wellbeing of your company’s technology is more important than an embarrassing moment.

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Do you trust your business continuity plan?

All businesses–regardless of size–have a digital presence. This mandates that both mundane and mission critical data must be regularly backed up and ready for recovery at the drop of a hat. Whether it is managed in-house or outsourced, business owners and financial managers don’t always know what data is backed up, how often it’s backed up, where it is stored or how long it will take to recover when disaster strikes.

Here are some questions around data backup and recovery that should be asked to whoever is responsible for this function:
The key take away for business managers is that backing up your data and storing it either onsite or in the Cloud is only part of the solution if your business suffers catastrophic damage.
Data backups are far from perfect. Company data can still be lost through corrupted files, power outages and accidental deletions. Sometimes data can be re-entered but information captured on the fly as transactions occur is gone unless your servers that or back up new information as it is entered. Are these used at your business?

  • Is the company data safely stored and readily available?
  • Is it easy to recover? If stored in the Cloud, how will you recover if the Internet is down?
  • Is sensitive data encrypted? If you handle important customer data or intellectual property, it should be encrypted. Laptops and all mobile devices that store and transmit company data should also be encrypted. The bottom line? Encrypt all sensitive data when it is backed up.
  • Should backups be stored both onsite and offsite? Onsite data is much easier to recover rapidly which reduces the time needed to recover from problems such as hardware failures. Offsite data, on the other hand, is essential in the event of a fire or flood.
  • Can you afford lost productivity and revenue if your data is destroyed? If yours is like most businesses the answer is “no”. That’s why a workable disaster recovery plan that has been well thought out and practiced is so essential.

It is critical to understand that backing up your data, even daily, is not the same thing as a disaster recovery plan.

Corrupted files can often be recovered within the same program that the user is working in, such as Word or Excel, but other applications don’t offer this option. Do you know the capabilities of your software applications?
Should your company’s data be catastrophically breached or be irrecoverable by ordinary means, a disaster recovery plan will provide a guide to the restoration process.

Disaster Recovery Plans

When implementing a new plan or reviewing the one you have keep these points in mind:
This plan will be your “cookbook” to follow when total chaos occurs. If contact information is incorrect or steps are missing in the process the recovery time will increase. That’s why it is imperative to review, test and change the plan as the company evolves.
Business continuity goes beyond a defined process or plan, and when full continuity is achieved, a company is prepared to not only recover from a disaster but also limit the adverse effects of the event. Implementing business continuity practices ensures that the appropriate people have access to critical functions. This is why business continuity cannot be achieved simply through one solution or technology.

  • Document at what point the recovery kicks in and who makes the determination
  • Include alternate locations that key recovery personnel can work from in order to recover company data
  • Regularly review and update contact information for key recovery personnel
  • Document the order of events required to fully recover operations

Business Continuity

Companies must plan their business continuity strategy on two fronts: planning for how to continue business processes in the event of disaster and choosing the appropriate business continuity solution to support these processes. If a company lacks the correct solution(s) in place, access to data vital to their functions could be unavailable for hours, days or even weeks depending on the level of damage and/or the amount of data that needs to be recovered. Frustrated employees, lost clients, revenue deficits or business closure are all possible in an extended recovery scenario.
Cybercriminals armed with ransomware are a formidable adversary. While small-to-mid-sized businesses aren’t specifically targeted in ransomware campaigns, they may be more likely to suffer an attack. An IT staff that is stretched thin and outdated technology is the perfect environment for a breach to occur. Security software is essential, however, a proper ransomware protection strategy also requires a strong backup and recovery process.

When assessing disaster preparedness every aspect of the planning process must be viewed from both a technological and human standpoint.


If your business suffers a ransomware attack, properly managed backup technology allows a roll-back of data to a point-in-time before the corruption occurred. When it comes to ransomware, the benefit of this is two-fold. First, there is no need to pay the ransom to get the data back. Second, restoration is to a point-in-time before the ransomware infected your systems, the system will be clean and the malware can’t be triggered again.

Regardless of the cause, once this disaster is over and recovery is complete, now is the time to determine the cause of the outage. Remedying the “root cause” will harden the business against future failures.

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A C-Level guide to computer changes

Smart business owners know that improving their computer systems keeps them competitive. These changes are often undertaken to improve efficiency, reduce costs and increase revenue. While it’s unlikely that management will perform the actual processes, it is helpful for them to understand their choices.

Three terms that are used to describe these changes are Upgrade, Conversion and Migration and, unfortunately, they are often misunderstood and sometimes misused.

This is perhaps the easiest concept to understand. It simply involves taking an existing software or system and changing it to the most recent version. For example, Microsoft issues new versions of their operating systems every couple of years which are applied using the upgrade process they provide.


Upgrades often fix security or functional issues leading to improved performance. Sometimes major new features are included in an upgrade and, if so, plan on scheduling staff training time.

Tips when upgrading:

This term is applied when one set of data or information needs to be changed to make it compatible with another system. For example, you may have client information and sales data that you want to integrate into a financial system to help with sales forecasts. The two systems have to use the same data format for this to occur. One of the formats needs to be converted or modified to match the other. While a conversion can create huge efficiencies for the organization, the process can be time-consuming.

  • Prior to upgrading, have your support group check for the compatibility of any applications in other functional areas such as accounting, customer management, etc. that work in conjunction with the system you are upgrading.
  • Be sure to have the technicians make two backups and verify that they work before starting the upgrade


Tips when converting:
Business owners often confuse “migration” with “upgrade” and use the terms interchangeably. A migration, however, is more like doing an upgrade and conversion all at once. Migration is the process of moving from an application to a totally new one rather than continuing with one that is outdated. If additional resources are required, the process will also require a new server as well. The goal in a migration is to preserve the historical data and place all data into the appropriate locations in the new system.

  • Look for available options within the software for converting data
  • If needed, research third party conversion tools that work with your applications
  • Determine which data you need to convert

Application Migration

Migrating to a new system tends to have the greatest efficiency improvements but it also has higher risks if it is not well planned and executed. Businesses looking to make a bigger leap forward through the addition of new features usually choose to migrate to a newer option.

For effective migrations, data on the old system must be mapped to the new system, and after being moved, the results must be verified to determine that the data was accurately translated. Also, it must fully support the processes in the new system. Automated or manual data cleansing is commonly performed before or during a migration to improve data quality, eliminate redundant or obsolete information and match the requirements of the new system.

The migration process also includes changes to the new system settings so it operates as needed for your business. Time must be allocated for training and to get back to the normal daily production pace from before the changes.

Application migration can be a complicated process due to the differences between the original and new environments. Elements such as operating systems, management tools, networking architecture and storage systems can differ so make sure your team researches all these issues.

Cloud migration

Cloud migration is the process of moving data and applications from on-site computers to the Cloud, or moving them from one Cloud environment to another. Cloud migration projects are complicated because the data being moved is stored and managed remotely by external organizations that often store data in multiple locations. As a result, special considerations must be made in regard to data portability, privacy, integrity, security and business continuity.

Tips when migrating:
A migration project commonly has multiple phases so it is essential to have a seasoned project manager who can break the migration into manageable chunks such as data conversion, creating new reports, verifying compatibilities, implementing the solution and training staff. The business partner or vendor you choose and their ability to manage the project will impact your budget.

  • Plan, plan and plan some more to make for a smooth migration
  • Copy the data to a test environment and run repeated migration trials until it works right every time
  • If the migration fails, return to the pre-migration point and try again another day

A migration can be stressful, but it can also be an opportunity to see delightful improvements. Once a business has gone through the process of selecting the new system, most can’t wait for the rare chance at a fresh start.
So consider using a business partner for these procedures to ensure that the ride will be smooth and the results will be well worth it.

The Benefits of Outsourcing Technology Changes

  • When upgrading: all applications will be thoroughly tested to verify the upgrade doesn’t “break” them. Often, upgrading without sufficient testing leads to unexpected downtime
  • When converting: established procedures will be used to make the process faster and less stressful on the staff
  • When migrating applications: standard application migrations procedures will be used to make the process finish faster and cause less disruption
  • When migrating Cloud resources: an experienced outsourced technology services company will properly plan and execute the work and streamline the process to ensure success

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Persuasive Technology Board Presentations

A board presentation about technology can strike fear in the hearts of many a C-level executive. Fortunately there are steps that can be taken to not only meet the board’s needs and expectations but win their lasting support and respect. Given the importance of technology to overall business strategy, as both enabler and growth driver, technology discussions make regular appearances on board agendas.

A persuasive presentation describes business outcomes that result from technology changes.

Many boards encourage technology dialogs to help them better understand the critical role it plays in the business. But that doesn’t make the prospect of speaking to the board any less daunting. In fact, keeping the board informed and educated about the state of technology in the organization has become more difficult. Both the quickening pace of technical change and the increasing tech-related risk that companies must manage have made this information vital to the decision-making process.

Cybersecurity has quickly risen to a top agenda item for boards, given their responsibility to guide their management team’s risk mitigation strategies. The challenge is to inform the board without drowning them in too much data. The key is to pick the most important topics and craft a clear, concise, and compelling message.

Here are several guidelines for creating a persuasive explanation:

Know your audience

It’s important to understand the board’s stance on technology topics in general and specific ramifications in particular. Do they have “hot buttons” that may derail the presentation? Do they view this issue as an opportunity or a threat? Knowing how to frame the information helps to start off in a good position.

Play to the room

Know what most interests and motivates the board. Do they have a particular focus on growth, operational improvements, new opportunities, compliance or cybersecurity? Most boards appreciate presentations that give them a better handle on emerging and strategic opportunities and risks.

Stay on top of the news

Be aware of technology or business news and consider how trends and risks may impact the business. What’s happening in other companies has relevance for your business too.

It’s all about the outcomes

Clearly identify the real business benefits of any proposal. The best approach is linking technology investments to the company’s growth and profit strategy. Weaving technical items into a discussion of business outcomes will go a long way when asking the board to approve expenditures.

Be clear and concise

The first rule for dealing effectively with busy board members is to not waste their time. Keep the presentation short and focused and give them further details on paper so they can delve into the fine print on their own time. Come to each board meeting armed with a big idea and a well-curated set of data to help them see around the corner and feel confident about your leadership on the topic. Because board members are removed from the day-to-day operations of the company you can’t assume they will always be on the same page as the operational management. Prepare to move on if the board quickly gets a point and slow down for topics where there is a deeper interest than originally anticipated. Delivering information connected to business outcomes goes a long way in persuading a board.

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How Effective is your Technology Support?

​How do you know if your IT staff or technology service provider is right for your business? Do they really understand the fundamentals? Are they following best practices?

Many owners and C-level executives resist getting into the weeds when the topic is technology. They hired an outsourced vendor or in-house support staff to take care the technology so they don’t have to. Many think that as long as the computers work all day and haven’t been breached, all is well. They don’t need to know the specifics…or do they?

Some will say “I’m just not an IT person”, while others are truly concerned that the people entrusted to maintain these critical systems may not know what they are doing. What level of involvement is appropriate to assure the health, productivity and security of the technology environment?

Even if you don’t doubt the ability of your experts, here are some key questions to ask to shine some light on the situation. The answers will quickly demonstrate if the most fundamental aspects of your company technology are understood and correctly managed. It doesn’t matter if you don’t know much–if at all–about data wiring or a network diagram because the answers (or non-answers) will tell you all you need to know.

These key questions should be easily answered by any competent technology support group and backed up with documentation and details. If paperwork doesn’t exist or hasn’t been updated in a long time it may be time for a change.

  • Can you show me the certification and documentation for our data wiring?
  • I’d like to see our detailed network diagram with a list of the critical components.
  • Would you show me our technology licensing and warranties and their expiration dates? (Hint: nothing should be expired)
  • Show me the logs for the backup system with proof we can restore data in a timely manner.
  • Describe the credentials or certifications of anyone who works on our technology.
  • Is our technology support agreement all-inclusive? If not, what specifically will be billed extra? If the monthly cost is artificially low, look closely at the exclusions.
  • Will a live person answer the phone? And more importantly, will I have to repeat the issue to every person who works on it?
  • Do you partner with us to create a strategy to improve the technology? If so, ask for examples. If not, they view their service as a commodity purchase that doesn’t offer value beyond the basic agreement to keep things operational.
  • Do projects have a detailed fixed-price quote with a scope of work or are they just estimated? With estimated projects you may face “sticker shock” as the final cost balloons due to a scope that was created “on the fly”. Poorly written proposals can obscure what is included and what is billed separately or not at all.
  • What is the cost for afterhours support? Technology breaks at night, on weekends and holidays. If there are additional charges for afterhours work they can add significantly to the cost of services.
  • Do they provide value when meeting with our management team? Reports that are dense with data that hasn’t been distilled into actionable information don’t help you make informed decisions. Without analysis it is difficult to tell if the technology is aligned with business goals to drive improvements.
  • Is full application support included in the price? Solving problems with applications is labor-intensive and requires specific expertise. If this service is billed separately it will add cost and, when absent, the staff will lose valuable time trying to solve software issues.
  • Is coordinating with related vendors such as ISP, phone, and wireless covered? Your technical support should have the expertise to deal with your other vendors to make sure things work.

Engaging your internal IT staff or outside provider in a conversation at this level will verify if you have technology support that contributes toward business success.

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Data security: real risks, real results

As a small-business owner or manager, you may think your company is too small to be concerned about data breaches and data risk management. If so, you aren’t alone. Sixty-eight percent of business owners surveyed in 2017 by the HR firm Paychex reported that they are not concerned about cyber threats. And to the extent they are concerned, they assume others will feel the pain.

In a recent Harvard Business Review, Alex Blau reported that “many C-level executives believe that their own investments in cybersecurity are sufficient but that few of their peers are investing enough (a belief that, given how widespread it is, can’t possibly be true).”

In fact, data breaches are a serious and increasing threat for small organizations and their leaders. In a recent Ponemon Institute survey of businesses with fewer than 250 employees, 54 percent of respondents reported a data breach in 2016 (this, of course, excludes those not detected). Traveler’s Insurance reported in 2015 that 62 percent of data breach victims are organizations with fewer than 500 employees.

So why don’t we pay as much attention as we need to? One reason: It’s hard to estimate the cost of data breaches and the ROI of related investments. Breach costs include cleanup, forensics, lost efficiency, exposure to legal claims, and reputation damage — all of which vary widely from industry to industry and company to company. Still, as difficult as it is to quantify the risks, they are real, and as often is the case in small organizations, we need to rely on estimates and judgment to prioritize efforts.

A good technology risk management plan can reduce the likelihood of a breach, provide the tools to identify security problems when they happen, and minimize the damage caused.

The good news: The same measures that reduce data breach risks also help avoid costly disruptions by improving the overall reliability of information technology, and allow quick recovery from mistakes and failures. Here are three straightforward steps to develop a risk management plan:


Evaluate the sensitivity of the various data that you create, store, and modify. Prepare for continued operation during failures and disasters, consider cyber-insurance, and develop written security and incident-response plans.


Over time make changes that manage risk and provide the best “bang-for-the-buck” protection of sensitive information. This includes firewalls, backup systems, patch management, strong authentication, password management, encryption, and replacement of systems that are out of manufacturer support.


Cybersecurity is a process, not an event: Assign responsibility to internal or external resources to review logs and provide employees with continuous security awareness and social media training. Proactively maintain and replace systems. Regularly test, review, and improve your security plans to include new vulnerabilities.

Even the smallest of businesses can do this. Require that someone inside or outside the organization is continually overseeing cyber security. Develop a risk summary, commit to small steps each year, and continuously monitor improvement. It will all be worth it when your business escapes unscathed from the latest cyber attack.

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Reducing your Frustration with Technology

There is no doubt that business executives dealing with Information Technology have more than a few frustrations. That’s why we’ve identified five of the more frustrating aspects of Technology Management along with some suggestions for dealing with them.

​Successful use of technology will generate great benefits for a business.

Frustration 1: IT is complicated.

​This is a big field of study with many specialties and complex language. There is hardware for networking, point of sale and workers (PC/laptop/tablet/smartphone). There is software for order management, customer management, financial management, marketing, manufacturing and the list goes on.

​Each of these items needs to work together flawlessly to ensure smooth business operations. The best way to do this is with software packages that connect to each other either through integrations that are native to the software or by being bundled together into a suite or line-of-business package. These software packages should be well integrated so they eliminate entering data from one system into another. Using a Cloud-based platform is one way to address the issue. These systems perform all of their operations on equipment located in the Cloud using an internet connection for access. This approach can reduce cost, improve system interoperability and increase user access.

Frustration 2: IT takes time to learn.

​Learning anything new takes time. To quote a line from the Manhattan Transfer “First you crawl then you walk, scat then you talk.” The learning curve for all the technology your business uses could take years!

​The best way to manage this is to have qualified IT staff (either in-house or outsourced). Finding and keeping IT staff can be expensive because the best practitioners have multiple opportunities and it is a very competitive marketplace. Additionally, there is no guarantee that the person you hire can perform all the parts of the job well. One way of addressing this is by hiring an outsourced IT firm for support and advice. They constantly train and develop their staff and are knowledgeable about the latest technology and how it can improve your business.

Frustration 3: IT practitioners speak a “funny” kind of English if it is English at all.

​After all, what is a “subnet” and what do “octets” have to do with them? Why should I care if about the API and that we need to add another one? If the data cache is full just empty it, right? Technicians have their own language to describe their universe and understanding them can be difficult.

​Many technicians have not developed the skills to translate technology concepts into business language. Project management skills are often lacking so many businesses now have a new position called “business relationship management” to help fill the gap. A business relationship manager is conversant in technology and its language and equally conversant in the language of business, finance and operations. This role is unique because it requires a foot in both worlds. Some companies hired a CIO (Chief Information Officer) to perform this service but smaller business would typically use an outsourced technology management advisor for this role.

​Frustration 4: Security gets in the way of access.

​Security is essential because it is critical to keeping your intellectual property, financial information and employee private data safe. To keep sensitive data safe, you must make it difficult to access. One approach is restricting user access by accounts, device, location and perhaps even the time of day. You may have to issue different user IDs and passwords for various systems that have different naming conventions and password security requirements. Single Sign On across multiple applications and platforms may solve the problems with multiple passwords. Another option gaining traction is multifactor authentication.

​Unfortunately security can sap valuable time and resources. What frustrates executives is the fact that there can be no rock-solid assurance the business is totally secure.

​Frustration 5: IT can be expensive.

Most organizations view the cost of IT as all of the equipment acquisition, licenses, leases and salaries. Costs such as operating power, cooling, the square footage used and other below-the line costs (link to Iceberg) are often not factored in. The costs that come from outages, application issues and misconfiguration errors are often overlooked too. These costs can be identified and managed with someone who understands the link between technology and business success.

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Learn to dance in the rain

In leadership, unexpected curveballs can strike out of the blue at any time. So what do you do when bad things happen? Neuroscience has some remarkable useful tips. This is the sister blog to the very popular ‘Leaders, use your brain for a change.’

DUCK! Here comes another of life’s curveballs

In leadership, unexpected curveballs can strike out of the blue at any time. Often, we have no control as to what, where, when or why these happen.

But here’s the rub - you are in control of how you choose to deal with them.

I don’t know about you but, when bad things come along, I just want them to go away. That reminded me of this famous quote:

But, what does it mean to dance in the rain?

To dance in the rain is a metaphor. It means: “that a person has learned not to allow circumstances deter them reaching their full potential. They don’t wait for bad things in their life to go away. Instead, they have a positive attitude and take challenges head on and enjoy the journey.” (Christine Smith, Family and Consumer Education at Wayne County, North Carolina 2013).

I believe there are some useful lessons here, to apply to leadership.

Hmm - fate, Or destiny? Choices, choices!

I have observed that often people seem to spend their lives reacting to life’s circumstances. Driven by fear or out of habit, they seem conditioned on going along a path set by fate (events outside their control).

But every once in a while a person just like you comes along and knocks down all the obstacles that fate puts in their way.

These are the people that realise free will is a gift. But, here’s the thing - you won’t know how to use it until you unwrap it.

Therefore, one day you won’t have to follow fate because you put the effort in and tested yourself. You deserved the right to reach for your destiny instead. It isn’t an easy road, but one less travelled!

But, when something rains on your parade, dealing with it still takes courage, character, attitude and conviction. These are essential leadership qualities. What’s more, neuroscience says you can train your brain to develop these. We will explore this next.

Uh oh! - we found this monkey in your brain

Sometimes in our lives, when it rains, it pours. That can trigger one or more limiting beliefs. These are basic survival neuro-pathways that your brain can build. When a limiting belief is in play, it fires off all sorts of negative mind chatter that fills up your head with bad thoughts. For instance:

Typical, why does this always happen to me?

Why am I never worthy (or good, pretty, clever) enough?

I always get things wrong; I’m a failure, why do I never learn?

Professor Loretta Breuning, Ph.D. neuroscience expert, author and founder of the Inner Mammal Institute picks up this theme. She says, ‘when your brain senses threat it releases a spike of cortisol - the stress hormone. Cortisol is nature’s emergency alert system. That spurt arouses your survival and protection reactions to avoid a threat. Cortisol creates a bad feeling and that also sparks your limiting beliefs to get your attention.’

It is the wiring of the downstairs part of your brain that warns you of external signals of danger or anything like what has hurt you before. Loretta goes on to say, ‘if you always treat that cortisol blast as if it’s a real threat, you end up with more being triggered’ – and your negative mind chatter hijacks your brain.

So, a practical way to deal with difficult circumstances is to recognise a bad feeling as it happens. That feeling is an old neural pathway that has set off the flow of cortisol. Loretta believes the trick is that when you sense it, give your body time to dispel the cortisol release. Back to my metaphor, to dance in the rain! It is useful to find a distraction to interrupt any limiting beliefs and exit those old patterns.

You get to decide and choose in every moment. (Loretta Breuning)

Train your brain for a change - happy days

Leaders know that they are at their best when they engage their upstairs (thinking) brain. Not only is your upstairs brain infinitely capable, did you know that it also has access to your happy chemicals such as dopamine, oxytocin, serotonin and endorphin?

Loretta says that your upstairs brain looks for facts that make you feel good. When you engage your happy chemicals, they give you a boost. Moreover, they override the feel bad factor of cortisol. Every rain cloud has a silver lining!

Loretta recommends that you can:

Take a step toward a goal, whether a huge goal or tiny goal. This releases dopamine, the reward chemical because your brain anticipates reward instead of anticipating pain.

Stimulate oxytocin – the hug chemical too, with a little faith, take a small risk or a step toward trust (a little bit of real trust is much better than lots of fake trust).

Prompt serotonin by comparing yourself favourably with others instead of wondering what they might say and think about you.

Trigger endorphin with a belly laugh - a real laugh. So, make time for humour and things you find funny. Endorphin is released to counter pain too. So, it gives us a feeling of joy when we work hard to overcome an obstacle.

See all these in action and check out this inspired video clip of a child’s simple, but profound words on a rainy day. At the same time, it teaches us not to sweat the small stuff:

Oi, you! Yes, you. Look in the mirror - that’s who’s in your way

Here’re are ten useful tips for leaders. They help you engage the upstairs part of your brain along with your happy chemicals. They also teach you not to take yourself so seriously at work and in life:

Have a go at taking the occasional risk. Like the mother in the film, challenge your embarrassment. Nobody will care if you get a bit ‘red-faced’ once in a while

Set yourself a goal to take a few chances. For example, take time out to build your team, or present your ideas and passions to wider audiences

Drop the pretense that you are The Big Cheese. Eat a bit of humble pie for a change and start to accept other peoples’ ideas too. You might surprise yourself

To make a mistake is okay. But your fixed mindset will tell you that you aren’t capable if you fail. So tell yourself that to learn from failure leads to better success

It’s okay to lose once in a while - things don’t always work out. The trick is not to make a habit of it

Give yourself a slap on the back whenever you stop yourself being harsh and critical. Learn to feel good about others and yourself instead

The ultimate source of happiness is a positive mindset. So, see the funny side of your oversights and flaws

Be generous, kind and above all forgive others (how are you doing with that one?). Have gratitude too

Nothing is permanent

Smile, if you want a smile back.

So, work on these tips, get out of your own way and every now and again dance in the rain. Let go of the little things and don’t let problems rain on your parade!

Read this and more from Andrew Jenkins.

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Human Resource Department Return on Investment Model

​A few years ago I was asked to give a presentation to the local chapter of the Society of Human Resources Management. They were interested in learning about finance and how to apply it to human resources. Initially I gave them a primer on accounting/finance 101, linking it to personnel management. As the discussion moved on, a number of participants lamented about their Human Resources department having a difficult time expressing the financial value they add to their company.

As our discussion progressed they agreed the three key value contributors nearly all HRDs have in common are:

1. Recruiting: This includes understanding the talent required by the company, sourcing and onboarding that talent.

2. Skill Development and Deployment: This includes developing the company’s talent and deploying its talent in the most effective way possible.

3. Cultural Development: Because they are charged with bringing on the right talent and developing that talent, human resources nearly always takes on the role of corporate culture steward.

This narrowed down the main business contributions HRD makes. Now the hard part. How could we devise a simple means to estimate the value creation for the business in these three areas?

Our discussion turned to developing an ROI model. We decided base the ROI on the net benefits (revenue or cost savings net of expenses) from these three areas less the cost of operating an HRD divided by the cost of operating the HRD or

(Net Benefit from Value Contributors less the Operating Cost of the HRD) / the Operating Cost of the HRD

Building the financial model for each of three key value contributors.

The model we agreed on is based on one year of activity. This timeline creates some limitations but in general has many positive aspects.

The first section requires some standard data that will be used in other calculations; Total Company Compensation paid during the past year, Number of Current Employees and the Average Years of Employee Service. (note: italicized items reflect how this variable is described on the HRD ROI tool itself)

The next sections describes each key value contributor identified above.

1. Recruiting: We hire people with the expectation they will be more valuable (increase revenue or decrease cost) than we pay them in compensation. It’s incumbent upon the hiring manager and HRD to understand this dynamic. (Think about how many times we hire for a vacant job because the job is vacant, not because we know what the job is worth. Hire for required skills, not open jobs).

When recruiting for a position the discipline to estimate the value (revenue or cost savings) the skills for that position contribute to the company is an important component of the process. It’s certainly harder to do for some roles than others, but it must be done for all hires to evaluate the ROI of HRD.

New Hires Revenue or Cost Savings as % of Total Company Compensation: In the model we use this field to capture the gross benefit from our Recruiting efforts. We have you calculate the figure based on Total Company Compensation. For example, if you hired 3 employees last year and their expected benefit was $500,000 and the Total Company Compensation was $ 5 million, you would use 10% ($.5m/$5m) in the input field

New Hires Comp as % of Savings: This is a direct cost for the new hires.

Recruiting Costs as % of Comp: If you incur outside recruiting costs when hiring new employees enter the % of News Hires Comp… to estimate the outside recruiting costs.

2. Skill Development: As with recruiting, skill development is expected to add revenue or improve the cost structure in an organization. This value contributor challenges you to determine the financial benefits from skill development and the cost for that training.

Skill Development: In this section estimate the value of enhancing current skills or developing new skills within the company. Include this figure as an annual lump sum in the input field.

Training Costs as a % of Skill Development: This figure represents the cost of enhancing or gaining new skills within your current employees. We ask you to calculate it as a % of Skill Development revenue to help you focus on this relationship.

Note: the value of enhanced or new skills can accrue over many years so it is not uncommon for the Training Costs as a % of Skill Development to exceed the revenue (benefit) generated from a single year’s Skill Development. Be aware of this when reviewing the overall ROI for the HRD.

3. Cultural Development: Maintaining or improving the culture of an organization is a long-term investment. We believe its impeded by high employee turnover, so our approach is to measure cultural development based on average years of employee service. The higher the average years of service, the greater the value contribution of culture to the organization. In general, the model assumes good recruiting and skill development will retain employees and a longer serving average workforce will contribute more value to a company.

Cultural Development: In somewhat arbitrary fashion we begin adding the value of culture to the model when the years of average service exceed five years. For each year of service over 5, we add 1% of the Total Company Salary and Benefits as the Benefit under Cultural Development.

Cultural Development Cost: In line with the 5-year rule noted above, when the average employee service is less than 5 years we “charge” a Cultural Development Cost to HRD department in the same 1% increments used for the Benefits section.

Annual Cost of the HRD

The final component of calculating the ROI of the HRD is the cost to operate a Human Resource Department. To assist you in the process we have sorted the costs into 4 buckets:

Compensation: This includes the salary and benefits of HRD employees. This cost is input as a % of Total Company Salary and Benefits to gain insight on how HRD fits into the total organization.

Occupancy, Communication and Other: These costs make up the other annual expenses incurred by the HRD. Note, be careful not to double up on costs that may have already been included in the Total Direct Costs.

Net HRD Investment Benefit: This is the net of Total Gross Benefits less Total Direct Costs less the Cost of the HR Department

ROI = Return on Investment: This is the return the company is getting on the Cost of the HR Department based on the figures you included in the worksheet. If this is your first time through this exercise there are probably a lot of questions (and concerns). That is really the whole point. This can be a catalyst to drive great discussions around The Pillars of Human Resources, Recruiting, Talent Development and Culture.

Below is an image of an example of the Human Resource Return on Investment:

Here is a link to Human Resource Return on Investment Tool for your use.

Pitfalls to watch out for:

This model penalizes startups and fast-growing companies whom by definition or design have an “inexperienced” employee base. That makes sense to us because we expect more resources must be committed to maintain or develop the desired culture in these situations.

It may not be simple to project the benefits or costs of recruiting and skill development. Unfortunately, that doesn’t make it any less important. Use the discussions around these areas to develop understanding between management and HRD on what is required to begin a recruiting campaign or commit to specific skill development efforts.

The benefits of skill development may be an annuity. In this model they are treated as a single year benefit. Be aware of this when using this tool - just like you should when you make the skill development investment decision.

I hope this explanation helps you get started from the beginning this time around and makes this worksheet a great framework for your company to build discussions around the value of your HRD. Please comment freely and send along your improvement ideas.

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Business Valuations Help Owners Grow and Protect Value

The wealth of 70% of small business owners is tied up in their businesses, making their companies their primary retirement savings vehicles. But without knowing the value of the business, how can they know when they can stop working, or what kind of lifestyle to expect in retirement?

A business valuation can be critically important in planning your future. There are different levels of valuation detail and you don’t need to spend a lot of money to gain productive insights.

Thanks to innovative technology, a business valuation no longer needs to be the complicated, invasive process that it used to be. Today, leveraging the power of big data and sophisticated software, useful business valuations can be created in a few hours. Many business intermediaries (including Venture 7 Advisors) will complete them free of charge for clients.

There are many ways that a business valuation supports building and protecting company value. Here are a few of them:

Increase the value of your business. Finding out what your company is worth is the first step to making it worth more. A comprehensive valuation will tell you if your company is headed in the right direction or if there are specific steps you can take to enhance value.

Timely Strategic Decisions. The value of a business depends, in part, on the current merger and acquisition market. Every owner should be prepared to align their exit plans with market realities. Periodic business valuations reveal opportunities for early or especially successful exits. They may also reveal the advantage of postponing an exit. Either way, a valuation enables strategic decision making.

Capital infusion. Outside investors and lending institutions review business valuations as well as business plans, shareholders’ agreements, investment memoranda, and other information before investing or lending capital. Objective valuations improve your capital options and negotiating position.

Tax reduction strategies. A valuation report can lead to tax benefits an owner might not otherwise claim, making more cash available for growth and increasing your options for exit structure and timing. A current valuation is required for S-Corporation elections, estate tax settlements, calculating capital gains tax liabilities, and for income or property tax disputes. (Note: an informal valuation estimate may reveal opportunities to reduce taxes, but a formal opinion of value, performed by a certified valuation professional, is recommended for the implementation of major tax strategies.)

Employee incentive programs. The best incentive plans motivate employees and keep them on board based on formulas that link compensation (cash or stock-based) to growth in business value. An objective business valuation is essential to administering a fair plan.

Dissolution of partnership or partial exit by an owner. When business partners agree to part ways, they have to find a fair and equitable split of interests. A business valuation allows the partners to make decisions based on facts, not opinions. Most partnership agreements call for updating company valuations annually, a requirement that many business owners neglect.

Divorce. Business ownership is usually a marital asset, and is often a part of an owner, partner, or shareholder’s divorce settlement. Spouses may approach divorce settlement proceedings with independent business valuation reports, so historical valuations could provide important insights.

Insurance planning. Nearly three-quarters of small businesses do not have adequate insurance coverage. When an owner doesn’t know the value of his/her business, it’s impossible to determine how much insurance is needed. Also, if an owner is injured or wrongfully distracted from business, a historical valuation could help recover losses.


Too many business owners operate for years without really understanding how their day-to-day decisions impact the value of their company. An objective valuation helps owners to prioritize efforts that are most likely to increase and protect long-term business value. There was a time when securing a valuation required an expensive and invasive process, but those days are over. Modern technology makes securing a meaningful business valuation easier than ever.

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Can your business grow too fast?

Entrepreneurs are passionate about their products and services. Their strengths are often in those business disciplines closest to the customers and product: sales, marketing, engineering, and production. Financial management and accounting are often viewed as necessary evils. As a result, small business owners often postpone investments in strong financial management practices until the company reaches some mythical milestone in the future. And that can cost them dearly in the long run.

A Smart Growth Strategy Without a Foundation

This is the story of a manufacturer that was too busy growing and making profits to focus on financial planning. “As long as the company is growing and profitable”, their thinking went, “why waste money on sophisticated budgeting systems and financial planning?” Early in the company’s history, the owners could meet their limited capital needs through personal loans and deferred compensation. And it worked. The company grew steadily for many years, providing high-margin, semi-custom products to small customers.

As revenue passed $3 million per year, the owners decided it was time to compete for larger orders. They developed a strategy to produce high volumes of a few standard products and market them to larger customers. They also secured their first major bank loan to finance product engineering and manufacturing capacity.

The new business model was a stunning success. Average order size grew from $800 to almost $3,000 in only a year and revenue was accelerating, but there was a problem. The rudimentary annual budgeting process that served them well in the early years didn’t anticipate the working capital impact of selling higher volume orders to large customers. Their gross margins dropped, payments slowed and inventory climbed. The business was growing fast and profitable, but they were running out of cash!

Sleepless Nights and Lost Money

Their new working capital requirements were much greater than anticipated - more than the owners could cover through deferred compensation and personal loans. When they approached the bank for a substantial line of credit, they discovered that their liquidity problem had pushed them out of compliance with their original loan. The bank demanded financial reports and credible budgets that the owners struggled to provide. Production slowed, orders were lost, new customer relationships suffered, and the owners had many sleepless nights.

The company survived a tumultuous year and eventually resumed its growth, but the setback cost them a year of lost revenue growth and profit. It also lowered their revenue trajectory, which impacted their valuation when a large competitor purchased them three years later. Without the business interruption caused by the cash flow crunch, the owners would have realized at least $ 2 million for the company more at the time of the sale.

The Moral of the Story

The decision to defer investment in more sophisticated financial planning and budgeting systems was a costly one. By “saving” money on financial management early on, they lost profits, lowered their valuation by more than $2 million at exit and endured a year of unnecessary stress. If the company weren’t so successful to begin with, an error like this could have easily bankrupted them.

Growing a successful business requires a broad array of skills. Long-term success depends on assembling a team of employees and advisors with complimentary abilities. At Venture 7 Advisors, we’ve all successfully started, grown and sold companies, and we’ve helped our clients to develop integrated operational plans to avoid costly surprises like this. Don’t hope for success, plan for it with the help of people who have been there before.

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High Performance Teams - fact or fantasy?

Do high-performance teams really exist? It seems that very few people I talk to about this topic have ever worked with one. However, those lucky ones that claim to have speak about it with joy. So, are high-performance teams fact or fantasy? Read on to find out more.

Let’s begin with a definition of high-performance teams. This term refers to teams, businesses, or groups that focus on their goals, achieve superior business results and outperform all other similar teams and expectations.

What do the experts say?

Well to kick off, a Global and Development Director (and a friend of mine) prefers to develop functional teams. She defines these in managerial terms such as ability and skills, clear roles, duties and reporting lines, deliver against a clear strategy and have good communication processes.

In this way, she affirms that for 20% effort she gets an 80% return. Whereas to reach for high performance in her business may only be required for less than 20% of teams. So, she then turns to experts (like me for example) to fulfill high-performance team development programmes when needed.

Leadership gurus and authors point us to learn softer skills to a achieve high performance. Patrick Lencioni, for example, holds that teams mature by working through their dysfunctions first.

Richard Barrett, uses a values-driven approach. He argues that teams need to move away from basic fear, survival, and ego-driven needs towards growth values such as to find meaning, make a difference and have a purpose.

Daniel Goleman, coined the phrase Emotional Intelligence as an effective way for teams to learn how to perform at their best.

Bob Chapman, CEO, and author believes that leaders can create workplaces in which everybody connected with that enterprise thrives and that everybody matters.

Carol Dweck, the author of Mindset says, ‘[high performance teams and] growth-minded leaders, start with a belief in human potential and development — both their own and other people’s. Instead of using the company as a vehicle for their greatness, they use it as an engine of growth—for themselves, the employees, and the company as a whole.’

On a practical note, in the past, I have been lucky enough to have lead what I (and others) deemed to be a high-performance team. I still look back on that time with joy.

These were the success factors that made us into a high-performance team:

For us, our high-performance team just seemed to happen, and years later, we all have fond memories of that time. However, on reflection, there were some important factors that had an influence. For example:

  • We had the right mix of people, attitudes, ability, and managerial functions.
  • Also at the time, we worked for a thriving, stable and well-resourced FTSE 100 company in an economy that flourished.
  • We also believed in each other and growing and developing through the experience of being involved in something important and of purpose.

  • Furthermore, we had all benefited from first-class in-house soft skills programmes that matured us.

    Today, in my development work with leaders, managers, and teams I have noticed that to build a great team is more than functional business processes, KPI’s and metrics. While they are of course vital for business effectiveness, they are not the be-all-and-end-all for high performance. (Note that few of those are present in the above success factors). I believe that great teams transcend these things. Even if individual team members are highly skilled or talented, that does not mean they will make an effective team together. Those are different skills.

    So, how do you build high performance teams? What’s the secret?

    To make a real difference, you have to work together to create an excellent high-performance team.

    I argue that the success factors previously mentioned can be cloned and taught to any functional team.

    It’s not about some extrinsic magic formula that you apply from the outside in, however. Nor is it about a team full of the cleverest people. You cannot become a high-performance team that way. It does mean you must have the right purpose, people, skills, input, direction, management processes and environment. Moreover, however, it is about people growth from the inside out. That means personal development around soft skills and emotional intelligence. It also means shedding a fixed mindset and instead encouraging a growth mindset (see my latest book below). However, ability and experience need to exist too (that’s a given).

    The good news is it is possible to learn these types of intrinsic soft skills.

    Don’t be mistaken; this is not a namby-pamby or fluffy process, however. Not at all! To develop people and teams from the inside out requires a willingness to mature and grow as individuals and as a team. That takes courage, time and some effort to nurture these.

    To become a high-performance team needs dedication and willingness to take time out to develop. Moreover, to get there, you will need to:

  • Commit to growth as a team.
  • Develop a growth mindset as a team and shedding fixed mindset attitudes
  • Being humble and vulnerable with one another - let go of ego
  • Learn how to collaborate, cohere and boost your emotional intelligence
  • Work towards big goals.

  • The other benefit of high-performance teamwork means that you can then get on and run a successful business. Furthermore, you will not have to waste so much time on countless people issues.

    A suggested approach

    I have worked with teams at all levels for well over a decade now, and this model depicts how I help develop leaders and managers (or any functional team) to become a high-performance team:

    (Andrew Jenkins, my latest book, Developing High Performance Teams)

    First, it begins with the essential teamwork skills to learn how to build trust, harness conflict and to collaborate. When teams develop these skills, they start to contribute together to make an effective impact.

    Second, as already mentioned, you will need to grow as individuals and as a team too. Feedback skills to call out each other are powerful change agents. In this way team members let go of potentially limiting behaviours and become accountable to each other. A positive frame of reference, a growth mindset and purposeful language are also crucial for high performance.

    Third, agreed on team values, healthy habits, and behaviours create team spirit. A Team Charter, for instance, helps teams to commit to the fundamentals and reminds them how to collaborate effectively. Also, teams that plan together in creative ways to grow, provides purpose and direction to the business and is a critical leadership task. Besides, big goals keep teams motivated.

    Use the Team Trust Review Assessment to help launch a step function improvement in the way your group works together.

    Read this and more from Andrew Jenkins.

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    Leadership Recipe

    The leader’s main job is a little direction and lots of execution in the few essentials.

    Translation: The common literature tells us that the leader’s main job is direction (where should we be going?), but the common literature is wrong. This should be obvious. If mostly successful people pick a direction and go there, at least for a while, then there isn’t much direction-picking left to do during the year. Perhaps occasionally, but not frequently. Yet the instructions conjure up a vision of the prototypical leader looking a lot like Sacajawea pointing the way.

    SPEED BUMP: Pointing the way is necessary but not enough.

    The much higher-impact work is to deeply understand your business model. That means where is the money made now, where will it be made next year, and what will it take to capitalize on those insights. There are lots of activities in a business that accompany being in business, but the best leaders pick out the few bits of chocolate from the pudding.

    One of the biggest things you have going for you is your top two people. Most organizations have at least two; the fortunate few have more, but let’s look at the two.

    SPEED BUMP: How can you get the most out of your best people?

    It’s not about giving them big jobs to do, or more work. Instead, it’s two things:

    1. Place them on top of the highest-leverage activities in the company. Leverage means impact on sales and profit. It doesn’t matter what their technical skill is. What matters is their ability to figure out quickly what matters, who matters, and what’s needed for success—and go there.

    2. Once you’ve placed them, sweep away the trash around them.* The trash is not the people, it’s the policies, the rules, the “ways we’ve always done it”-anything that’s of questionable value and eats up the priceless time of your best folks. Their main asset is time. Whatever you can evaporate, dilute, transfer, or put on a boat to another country, do it. Then ask them what else is in their way and vaporize it unless it’s illegal or might really have value. When in doubt, remove it. It’ll be clear soon if it was an error, and it can be fixed fast, since someone already knows how to do it.

    SPEED BUMP: The best compliment you can give a leader is a vital and tough job.

    Competitive rowing (crew) in an “8” (numbers of crew) has a specific requirement for every position. Everyone knows that the cox is a skinny little person who could tame an LA freeway jam-up. “Engine room” is the tallest, strongest, meanest person on the crew, who has the combination of disdain for losing, ever, and pride in being the strongest on the crew. Believe it or not, people compete for that position, because it’s the highest-impact seat. Sort of like placing your best people.

    ACCELERANT: Who are your two best, and where will you put them?

    *Thanks to expert Heidi Pozzo

    A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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    Are You Ready For Robotic Process Automation?

    I’ve just come back from the Future of Finance Summit 2018 in London where one of the hot topics was robotics and RPA (Robotics Process Automation) and while this topic is not new it did help me clarify a few things. Essentially, it gave me a price point and some do’s and don’ts which I thought I would share with you so hopefully you become clearer about the concept as well.

    What is Robotics Process Automation?

    Let’s start with the basic question and demystify any odd perceptions of the concept. All it is, is an automated work flow where you use a piece of software to carry out a specific task. One vendor showed how they had 1,000s of standard robots that could be plugged straight into your ERP system and perform a specific task. If you have a process which they were yet to cover with one of their robots they would simply create it for you. The robot will execute the task for you without fail and around 99,95% uptime which is excellent for any given system uptime. You can run with fully automated tasks or you could build in manual checks should you wish so whereby you would confirm that a given part of the work flow had been performed before the robot would move on to the next one. Some of the tasks to be performed could be data pulls, sending e-mails, processing payments etc. but even some FP&A tasks and other more complex tasks could be automated.

    What are some of the do’s and dont’s?

    The robot can do repetitive tasks for you fast and efficient with no downtime and no breaks – I’ll show you the economics later. However, if you have a broken process it doesn’t make sense to plug a robot into it. You need first fix your processes and then plug your robot in. The good news is that you don’t have to redesign your full process landscape as you can plug robots into individual processes where than fully automating an end-to-end process. Ideally, of course, you would like to aim a full end-to-end automation but for many companies this is unattainable now in my opinion. Another thing to get right is to code the robot right from the beginning. Yes, it can do a lot of tasks for you fast and efficient but it could also be doing a lot of tasks wrongly fast and efficiently if you haven’t covered all the necessary steps in your process. In addition, you should have a clear plan with what to use the freed-up resources for. Do you let them go, retrain them or assign them to different tasks yet to be automated?

    Tell me what the robot costs then?

    To build a business case you need to know what to automate and the cost of said automation. The price point mentioned at the conference was 20¢ per task. If you then consider a worker who works 40 hours a week for 48 weeks a year (without any breaks which is unrealistic, of course, but arguments sake) then depending on the fully loaded FTE cost of said worker here are how many tasks the worker needs to perform per hour to compete with the robot.

    So, it’s just above 50 tasks per hour per 20,000$ annual fully loaded FTE cost. Now try for yourself with a simple task such as sending 50 e-mails to different people with slightly different content. How many can you do an hour? How many can you do a day? Now compare that with your own fully loaded cost and see where you stack up against the robot. Seems like a simple business case, doesn’t it?

    Where are you on the journey with Robotics Process Automation in your company or specifically in the finance function? Are there any learnings you can share from working with the robots? Finally, how far are you from being able to automate end-to-end processes such as OtC, PtP or AtR? I’d be very curious to learn about it!

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    Is Your Resource Allocation Destroying Value?

    Successfully allocating resources requires more flexibility than traditional budgeting allows.

    ​Resources are scarce. Whether you look at it from a global perspective or the company level it’s a fact that companies have to deal with. That is unless you’re Apply and are stockpiling 20 billion dollars of cash on your balance sheet. Companies must allocate their resources effectively to ensure it is put used where the chance of creating value is the highest. They must also use the allocated resources efficiently to ensure maximum output. In fact, we’d argue that resource allocation is one of the most important drivers of value creation which is why it’s a critical component of Business Acumen. This is the topic of James O’Brien’s and my on-going series about how CXOs can develop Business Acumen in their organizations and how business partners in support functions can drive value creation through increasing their Business Acumen. The article series is built on the research that has laid the groundwork for developing the Business Acumen Gauge.

    Why is resource allocation important?

    Well, that’s simple, isn’t it? If you look at the first sentence in this article i.e. the fact that resources are scarce and we never have enough to do everything we want we need to be smart about allocating resources. That’s why companies make strategic plans to decide what to do and what not to do. That’s why we have NPV models to determine which projects or investments will yield the highest returns. That’s why owners of companies and lenders to same have set minimum requirements on their returns. And, that’s why we do performance management of everything from investments to people to ensure that the resources we have allocated are used efficiently. Does it need further explaining? No, right!

    Now, let’s talk resource allocation

    Now that you’ve gotten the importance of this let’s discuss what it is, why so many companies and get it wrong and most importantly how you can help make sure they get it right. Resource allocation in a broad sense pertains primarily to the following elements.

    • Inventory
    • Equipment
    • Labor
    • Financial
    • IT
    • Knowledge

    These resources must be allocated to run the business on a continuous basis and is the key link between a company’s strategic and tactical plans and the operations planning and execution of same. Clearly, strategic and tactical plans aren’t worth much if the operations planning is poor and execution suffers as a result. That would lead to inefficient use of resources despite on paper being allocated very effectively. As a general principle resources should be allocated to the products, projects, departments etc. that yield or are expected to yield the highest returns. If this is done on a continuous basis and the performance follow-up confirms that where you allocate resources you get the highest returns then you have a sound business. The problem is in many companies this is not what’s happening and it’s due to one thing mainly. THE BUDGET! In many companies, the budget is the target for the year, the financial forecast, and the resource allocation. Unfortunately, it’s simply not possible for one number to satisfy all three purposes. For resource allocation, it means that resource allocation becomes a politically negotiated process done once a year where you will frequently hear comments like.

    “If it’s not in the budget you can’t spend it”
    “If we don’t hurry up and spend our budget for the year it will be smaller next year”

    Clearly, none of these statements and the actions following them are productive for value creation. Actually, they’re more likely to destroy value than create value. Now, there are many other processes than the budget that you can use to get a better resource allocation like Zero Based Budgeting or Beyond Budgeting but simply adhering to two simple principles will get you far.

    1. Keep resource allocation open all throughout the year
    2. Allocate resources to the areas of your business that are expected to deliver the highest returns

    Yes, it is that simple we also know that you need many sounds processes around these principles to make it work like a solid forecasting process that you can rely on for predicting where the highest returns will be and a transparent business case template and process that enables you to make data-based decisions and to follow up on the decisions you make later on.

    How do I know if my company has a good resource allocation process?

    Regardless of how you allocate resources, you could still be making it work for you. To understand if you have a good resource allocation or not below are some of the questions you should be asking and answering.

    • Is there alignment between strategic, tactical and operational plans?
    • Are there clearly defined goals including appropriate performance measures?
    • Is there a comprehensive understanding of the activities required to achieve the desired business outcomes?
    • Are there are clearly documented assumptions upon which resources are allocated?
    • Do you have statistical evidence of past activity that relates to similar future activity?
    • Is there a formal audit process of the underlying data used for decision making?
    • Are there regular reviews of activity comparing actuals to targets and forecasts?

    If you don’t have good answers to these questions you have work to do to create a better resource allocation as likely it’s not supporting value creation to the extent you would like. You can help your CXO design it around the two simple principles and by answering the above questions with a future desired state and process. Now it’s up to you and the leadership team to create a plan and execute it to optimize your resource allocation to truly drive value creation. Are you going to get started? If you have good examples of a well-functioning resource allocation why don’t you share it with our readers in the comments section?

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    Collaboration Is What Makes 1 + 1 = 3

    A source of ignition to accelerate growth: Collaboration

    ​A much used phrase in Business is ”No man is an island” and it’s very telling because many businesses are not a one-man band. Rather it’s multiple people coming together around a common mission, vision and strategy to create value for their customers, owners and themselves. That means they have to work together to achieve the best possible outcome. In other words, they need to collaborate towards achieving a common goal to be successful. That’s also why Collaboration is a key ingredient in having high Business Acumen. This is the topic for James O’Brien and my continuing series about how CXOs can increase Business Acumen in their organizations and how business partners in support functions can use Business Acumen to drive value creation together with their stakeholders. The series is built on the work behind the Business Acumen Gauge. This week we dive into how getting teams and peers to collaborate means that individuals can become more than the sum of their individual abilities.

    People say they want to collaborate but are they actually collaborating?

    Collaboration to many has become a buzzword that is said in all organizations but rarely truly exercised. You have to wonder how come but before we try to answer this question let’s look at what Collaboration really means.

    • Collaboration means being cooperative and willingly sharing information to improve the organization
    • Building team work and being a team player
    • Working across teams, functions, geographies etc. through finding common goals
    • Creating new opportunities for people to work together by breaking down barriers in the organization

    We doubt that this is news to you either as it seems obvious what it means working together with other people. However, how can 1 + 1 = 3 simply by working together? Well, to a large extent it is because people go beyond themselves to strive for a shared goal. It is because people agree to that they’re only rewarded when the team succeeds rather than the individual. It is because you fully trust in other people’s capabilities i.e. you leave a task with someone else without any doubt that they will deliver on it and do an excellent job. It is also due to the simple fact that people are different and have different capabilities that can complement each other. Without these complementary capabilities, your own strengths won’t be as effective as they could be. So, the 1 + 1 = 3 is a result of other people’s capabilities amplifying your own.

    If you’re willing to take those steps you have made progress towards opening to real collaboration and not just something where everyone is faking it and are trying to get as much out of it for themselves as possible.

    Can’t you give me a checklist so I can gage into if people are collaborating?

    Clearly there’s no straightforward formula to determining whether people are truly collaborating but a number of rules or let’s call it guidance can be laid out for people to follow to become better at collaborating.

    • First, people should be aware of the need for collaboration and striving for a common purpose.
    • Then it should be clear that the end goal is to reach a consensus on a decision. There might be disagreements or different viewpoints along the way but at the end of it people stand together behind the decision.
    • Despite the need for reaching a consensus people should also have room for deciding for themselves when things need to happen i.e. they can’t be dictated by others.
    • There’s a clear expectation for everyone to participate leaving no room for free riders.
    • There’s going to be a lot of mediation and negotiation to reach a consensus and this is perfectly well accepted in any kind of collaboration.
    • People should be openly sharing what’s on their minds.
    • It shouldn’t be expected that an agreement is always reached on the first suggestion that pops up. Alternatives should always be considered.
    • Everyone engages in the work and don’t wait to share an opinion only at the end.

    This makes it easy to see if what you’re participating in is a true collaboration or something else. It also allows you to call it out if people are not in it for the team but rather for themselves.

    Have you ever experienced a collaboration that worked to the benefit of everyone or are you mostly used to just meeting the buzzword? Share your experiences for the benefits of the reader and we’ll happily discuss how you can increase the effectiveness of your collaboration skills so you can increase your overall Business Acumen and become better at driving value creation!

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    Going Beyond Budgeting? Then Read This!

    Going beyond budgeting as experienced by Anders Liu-Lindberg.

    Most finance professionals can agree that budget season is not their favourite time of the year and while alternatives exist most companies are still using traditional budgets for their planning and management operating model. It’s kind of a paradox because when no one likes to do something or like when a company’s products are not in demand then typically over time better alternatives will take their place. Yet, with budgeting, this still hasn’t happened. In my mind, the best alternative is going beyond budgeting which I have written about in several articles previously, however, few companies have been truly successful transitioning to beyond budgeting and I think I know why. Hence, to make a real push for companies to take the leap and be successful let’s discuss the issues with beyond budgeting based on my own experiences.

    Here’s how it went when I took a company Beyond Budgeting

    Back in 2010, it was decided that Maersk should go Beyond Budgeting which meant that I was given the task of taking Maersk Drilling down that road during 2011. It was a very interesting project that involved a lot of senior management exposure which was great for me in my early career. The project seemed somewhat straightforward despite touching upon a completely new management operating model. Find a way for the company to do rolling forecasts, target setting and resource allocation in a new way aligned with the principles of Beyond Budgeting. Here’s what we came up with.

    • Rolling forecasts: Quarterly forecasts with a five-quarterly outlook where we asked our entities for a bottom-up forecast of a bit more than 10 accounts.
    • Target setting: Based on the Q3 forecast which contained the first full view of the next year we would discuss how this was aligned with our strategic ambitions and adjust if necessary.
    • Resource allocation: As we were dealing with large assets in the form of drilling rigs there would be two project accounts that contained significant projects that wouldn’t be capitalized. Essentially, here’s where resources needed to be allocated and as the development on the two accounts was not too dynamic we could do with a quarterly update and allocation of resources as part of the rolling forecast process.

    This might seem very simple and no big deal, however, it meant a substantial change for our operating managers as in the past they would do budgeting on a very detailed level and now they would only update a few accounts every quarter. It left them with little control over every subaccount i.e. when the drilling rig had spent some money on paint or pipes the operating manager couldn’t really say whether that was appropriate. Before they knew exactly how much was budgeted for on every single account. I think we can agree that command and control is an outdated management model yet this is where the implementation project failed and I think this is where many of these implementations fail. We didn’t plan and prepare for the cultural change needed for this to happen!

    It’s not just a process it’s a culture and mindset paradigm shift

    Most implementations of new ways of working typically only plan for the new process or system to be implemented but don’t tackle the people that have to operate it. That was also the case for our Beyond Budgeting implementation. We did not provide any meaningful support to the operation managers for changing their way of working. That meant that they continued to work in the old ways and got frustrated because they had let go of a lot of control and had no visibility to have the right discussions with the crew on the rigs for how to spend money. It wasn’t just the operation managers that needed support though. So did the finance managers who had not been part of the project. They were the ones who should act as change agents with the operation managers yet had no real support to do so. All in all, we changed a process but didn’t manage to change the way the company operated. That meant that the push to go Beyond Budgeting failed and nothing really changed.

    There’s a lesson in this for all companies looking for a new planning and management operating model be it Beyond Budgeting or something else. Implementing the process is easy but creating a real change is really hard. Especially if you don’t plan on doing some serious change management. In fact, I’d go so far as to argue that change management is the most important aspect of project management and is what will ultimately decide if you succeed or fail with your project.

    What’s your take on this? Has your company gone Beyond Budgeting or tried a similar shift in management operating model? If so, what were the learnings? What do you think is the most important aspect of project management?

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    Is Blockchain Even Ready For Mass Adoption?

    Blockchain education is a stumbling block to its implementation.

    Blockchain is a foundational technology that has the potential to transform business as we know it on a scale like what we’ve seen it with the Internet. Those are not my words but words from respected Harvard professors. However, to date there are few use cases and critics would say that the technology has serious limitations. That’s why in my on-going series about “Blockchain Opportunities And Risks For Finance” I have now teamed up with Kunal Patel to discuss the prospects of mass adoption of Blockchain based applications and business models and not least, of course, the potential impact on the finance function.

    Kunal is a thought leader in the space of FinTech, advisor to the large Indian Bank YES BANK where he advises on the potential of FinTech, a mentor for Blockchain start-ups in India and Singapore, and board member of the Blockchain Foundation of India.

    The benefits of Blockchain has been highly touted and Kunal definitely also sees potential there.

    “The biggest use cases for me are digital identity and KYC [Know Your Customer]. KYC is still a huge problem globally and there isn’t one solution, which can systematically deal with the problems countries, regions and organizations have put in place over the decades.”

    Ask anyone with knowledge about Blockchain and they will tell you about all the potential problems it can help us solve.

    OK, I buy the benefits so why aren’t we seeing faster adoption?

    So, with all the hype around Blockchain, all the potential benefits, and everyone showing so much interest in the technology why aren’t we seeing faster adoption? Kunal has a few perspectives to share on this.

    “Trust to a certain degree and education, which the general population lack when it comes to these new types of digital-based services.”

    However, even if the wider population understood what Blockchain was all about then there are still many barriers which Kunal helps me list.

    1. How to handle the massive data storage requirements when storing billions of transactions on Blockchain based networks?
    2. Regulation. When is it going to come and how will it affect what is feasible with Blockchain?
    3. Many senior managers in the corporate world are still clueless about Blockchain and many still associate it with Bitcoin only so how are these leaders going to leverage Blockchain for efficiencies and creation of new business models?
    4. Interoperability between organizations i.e. you might be able to use Blockchain for back-office efficiency gains but how will companies work together on Blockchain based platforms?

    And then we haven’t even mentioned the technology barrier of limited transaction speed and high energy consumption for performing the necessary cryptography to the make the Blockchain network work.

    So, I should just give up on Blockchain?

    The short answer is “no, of course not”. Anyone distrusting the pace of how technology can improve would be foolish as we seen countless times throughout history. There’s a high lik

    elihood that the same thing will happen to Blockchain or a similar Distributed Ledger Technology (DLT). Here’s Kunal’s take on it.

    “There is definitely awareness but as I had previously mentioned, a lack of understanding and education is a still a problem. Therefore, it’s implementation will take longer to push through even though it’s an obvious consideration.”

    Besides the fact that technology is likely to catch up and obliterate the current concerns and challenges then we continue to see more and more serious moves by large corporates in the Blockchain space. The announcement of a joint venture between Maersk and IBM is one of the latest ones. Kunal also sees quite a bit of adoption around him.

    “KYC – the benefits that bring to bring on new customers for digital banking and insurance products. Given that’s an area of focus for me, I can happily say that those specific point solutions which have tackled this problem have proven to be successful.”

    Kunal goes on to add further about adoption and use cases.

    “The use of specific applications, protocols are already being worked on, specifically on private-based Blockchain that I know some banks in India especially have put together.”

    We probably just have to acknowledge that Blockchain is still very much in an innovation phase where we’re only now starting to see early adopters pop up. That puts us still some time out from the critical mass needed to push the use of Blockchain into mass adoption. That and the fact that the technology is still not ready. However, this only means that we should all continue to realize the potential of Blockchain from our own perspectives. If you work in the finance function you should prepare yourself for what’s coming and how it will change the way transactions occur and are verified.

    What’s your take on all of this? Will we ever see mass adoption of Blockchain? Will a similar technology outcompete Blockchain even before we really get started? These are indeed interesting times and if Blockchain indeed will be as transformative as the Internet then I can’t wait to see what will happen in the coming years and then I have no doubt that we will see mass adoption of Blockchain.

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    Creating the Team to Sell Your Business

    Thanks to Chinook Capital Advisors and CoFounder, John O’Dore for allowing CFO.University use of this article.

    Selling a business is a bit like running a business If you don’t have a good team in place, all kinds of things can go wrong. And when things go wrong, value disappears, valued employees leave, and customers lose confidence. When enough mistakes pile up, the business itself can deteriorate and everyone loses. Believe us; we have seen this happen and we’re sure you have too.

    So just like a CEO needs to rely on the expertise of the Accountant, HR Manager, Marketing Manager, etc., someone selling a business needs trusted experts to guide the process.

    Maybe you’re skeptical. We get that. You’ve built a business up – probably from nothing – and you’ve figured hundreds of things out along the way. Surely you can figure out how to sell a business, right? And isn’t every dollar spent on “experts” one less dollar for you at the sale?

    Here’s what we know from helping hundreds of owners with business transition and liquidity events.

    · First, selling a business is a full-time job, so it’s hard to do while running your business at the same time.

    · Second, using experts makes the selling process go much faster. Issues will inevitably arise – about contract language, intellectual property, financing, etc. – and experts know how to negotiate such thickets quickly and efficiently.

    · Third, you’ll walk away with more money in the end. Think about selling a house without a real estate agent. You can do it, but an agent’s connections, bargaining experience, and knowledge of the legal landscape almost always pay for themselves in the end.

    Who’s on the Team?

    At minimum, you should consider the following team of advisors:

    · Deal attorney (preferably one who has experience with M&A deals of your size and nature): Your deal attorney will get involved with more than just writing the Purchase & Sale Agreement, so they should have experience negotiating legal details and managing the legal aspects of due diligence and document flow leading up to closing. In many cases, the ideal attorney is a firm that can draw on experts in various aspects of business law: sales contracts, employee management, government relations, etc.

    · Financial advisor: A financial advisor is key to maximize your proceeds from this one-time transaction. They can advise you on capital gains taxes, estate taxes and personal matters such as philanthropy and gifting.

    · Accountant: You should also have your financial statements reviewed, at a minimum, by your CPA early in the planning process. This will add a level of confidence to the buyer, and just as importantly, their lenders and investors. In addition, you may also want to consider a Quality of Earnings report covering the most recent 2-3 years prior to a transition. Business transactions are also incredibly complex from a tax standpoint, so, you also need someone to structure deals so that your tax burden is minimized.

    · Investment banker: The investment banker, or M&A advisor, quarterbacks the selling process from initial valuation to closing and beyond. An investment banker who knows your industry can help find the right buyers (confidentially), maximize value by generating multiple offers, negotiate deal terms, and manage the due diligence and closing process. A good investment banker can also help you determine the right time to sell based on industry forecasts and your personal financial goals.

    Yes, You Should Like These People

    You should feel comfortable working with your advisors and have a good personality fit. Transitioning out of a business can be a very emotional process and can easily take 8-12 months to complete. During the many ups and downs, you’ll need advisors you can confide in and who put your interests first.

    When Should You Start?

    Begin assembling your team as much as 2-3 years in advance of your planned transition date. It takes time to find the right advisors and even more time for valuations, negotiations, and planning.

    Remember, you can only sell a business once, so make sure you do it right. Build a team, control the process, and let the experts help you meet all your post-business goals.

    You can find out more about CCA at or get in touch with John.

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    Are soft skills the elephant in the room?

    Soft skills are not fluffy or namby-pamby but, emerging as vital links to high-performance, growth mindset and future business success. This article explores why businesses can’t afford to ignore the ‘soft-stuff’ anymore.

    Despite the snappy-catchy header and graphic, this is a serious and wide-reaching blog. So, I’m delighted to have joined forces and co-write this blog with Aubrey Wall, director of content development at Engineering Leadership Institute – a talented young lady, of whom I’m sure we will all benefit so much from in the future. This article builds on Aubrey’s recently published blog, about the soft skills gap in Engineering.

    Let’s start with a definition of soft skills:

    Soft skills is an umbrella term for a cluster of productive personality and relationships traits that drive high performance. They are essential skills for leaders to master. In short, it’s a term for professional, social, and career skills. Soft skills include emotional intelligence, communication abilities, collaborative skills, personal habits, cognitive and emotional empathy, time management, teamwork and leadership traits.(Wikipedia - abridged)

    The elephant in the room

    In the 90’s so-called soft skills were seen as a fluffy set of nice-to-have qualities. I’ve even heard them termed, ‘namby-pamby’. Whereas traditionally, the big career prizes of one’s competence were mainly represented by hard-technical skills. This view is sadly still prevalent in our many businesses and workplaces today. Aubrey believes this is true particularly in engineering for example.

    But, all that’s old-hat now - it needs to change. Why? Read on.

    Yes, I know, KPI’s, hard-measures and scorecards and so on benchmark and drive efficient business processes. Yes! That will always be true. However, today they are at best marginal gains and just a given now - been-there-done-that. But, the real money is now on soft skills to make significant differences in high performance, profit growth and business success from now on.

    The reason for this is the shift in global economics, the technology and upcoming IA revolution as well as the new attitudes and expectations of the millennials generation now arriving in our workplaces. Things are rapidly changing - at a seemingly dizzy pace too.

    By 2030, for example, many of our day-to-day jobs will have already been superseded by technology.

    (See fast forward to 2030 by Sally Fuller – Director at Vodafone.

    Therefore, many experts are arguing that this will soon point to an exponential demand for people with well-developed soft skills. It follows too that there will be an increasing demand for businesses to invest in developing its people. We’ll cover these points in more detail later. For now, I believe, that the people-factor directly links to high-performance, which in turn, is a key to future business success.

    People with outstanding soft skills will matter more and more.

    Aubrey’s research has led her to conclude that over the past few decades alone, an increasingly large gap in soft skills competency has continued to emerge in the engineering sector. And I think that this is probably applicable to all business sectors today. There is indisputable evidence that endorses the need to urgently develop soft skills for careers success in today’s workplaces. Furthermore, as we’ve just touched upon, this is likely to grow in the future exponentially.

    So, we can’t keep ignoring the soft stuff – it’s the elephant in the room.

    Still not convinced?

    Here are some statistics on the growing demand for soft skills for today’s workforce:

    It’s all about the numbers – Duh!

    Aubrey’s research reinforces the importance of soft skills development:

    According to a Wall Street Journal survey of about 900 executives, 92% of respondents stated soft skills are as important as technical skills. However, 89% also stated they have trouble finding candidates with adequate professional skill competency.

    The global Talent Shortage Survey, conducted annually by the Manpower Group found that one in five employers globally cannot fill positions due to a lack of necessary soft skills.

    And, according to Pew Research, employment in jobs requiring soft skills has increased by 83% since 1980! And, when asked about the skills most relied on while on the job, employees placed soft skills, critical thinking, and communication at the top of their list.

    Also, a recent study conducted by a US economic research group - The Hamilton Projectpointed out that in the last 30 years the impact of social skills on success and high performance at work increased more than 15%, while the success associated with technical skills remained stable. The Future of Jobs Report points out that, in 2020, emotional intelligence, creativity and people management will be on the top of the listof the skills required. (found via a link from

    If an organization is merely a collection of people doing business together and, as companies adapt and evolve to survive, then surely, isn’t it evident that its people need to adjust as well to follow suit?

    Soft skills hey…why so serious?

    So, the research all points to an escalating demand for soft skills (also often referred to as work readiness or professional skills). That will continue to grow in significance in the future as business becomes steadily more diverse and dynamic.

    Furthermore, the global and technology-based economy, mentioned earlier, means that business will grow more and more complicated. Therefore, collaborative problem-solving approaches will be the way we will find innovate and create new solutions together. And, soft skills lay at the foundation of this approach.

    Moreover, as more technical jobs become automated, it means that soft skills will fast become essential qualities for career and business success. Crucially, it also follows that these professional skills will quickly supersede technical skills!

    From Aubrey’s involvement with the Engineering Leadership Institute she knows all too well that soft skills are complex and multifaceted to learn, as they include:

    Communication – both verbal and written, including to precisely and simply communicate complex subjects with others.

    Teamwork cohesion and Collaboration - to build trust and work with others, handle conflict and effectively give and receive positive and developmental feedback.

    Time Management and problem-solving - to prioritize and manage complex projects, issues and tasks completing them to agreed deadlines.

    Adaptability – to deal with change and flexibility to learn new skills and incorporate them into your daily routine.

    Emotional intelligence– self-awareness, self-regulation, motivation, empathy, social skills.

    Coaching - to listen and have guided conversations that encourage others to get the best from their unique strengths.

    Presenting and speaking - to engage and guide groups is fast becoming a staple of professional life.

    That isn’t an exhaustive list either. For example, a contributor mentioned a sense of humour as being a useful people skill as well to diffuse stressful situations.

    Growing the soft stuff in your business

    Firstly, a lot of Learning and Development professionals in my network state that merely sending people out to open external soft skills training courses is a distinct and easy solution - yes, it can tick the box in certain circumstances as a tactical solution. But, often, longer term, it’s a cop-out. That’s because learnings of this nature tend not to stick from one or two days training. So, to implement something more serious requires a strategic approach.

    An effective process is to develop a series of ongoing work-based soft skills programmes. The intention of which blends practical experience of working in teams, alongside tailor-made development to suit your companies nuanced needs. Lead by external (or internal) expert facilitators, such programmes include a mix of interactive team workshops, individual coaching and online training too (see the link to ELI at the end). Such development programmes may require a leadership commitment also to change company culture to more align with people-based values.

    Also, according to Peoplematters and their blog - 3 things to remember in soft skills training, the process should be continuous, interactive and based on active learning.

    Strategic planning and budgeting by the leadership team are vital to getting the best from such development programmes but, they are compelling ways to help organizations to embed such skills effectively.

    Show me the ROI dude!

    Importantly, significant returns on development investment (RODI) can be calculated concerning hard cash savings for well-designed programmes and these can be substantial numbers too! I bet that surprised you? Well, it’s true. So, this stuff is not woolly or fuzzy at all – far from it! Logically, it makes such investment compelling for leadership teams.

    Before I move on, in the future, many careers will be portfolio based, where people will move from project to project following the demand. Working collaboratively in teams will be the name-of-the-game. So, both individuals and businesses will need to invest in helping that team to cohere and work effectively together. That is where the need for bespoke soft-skills and development at the source, where it is needed will come into its own. The returns on investment (ROI) and pay-offs will be seen directly in the project success. I also believe, that in the future, people seeking recruitment will only select employees that actively invest in their ongoing development.

    Oi-oi! Ignoring the soft stuff equals troubles ahead

    Despite being well known that a lack of individual and team development ultimately leads to dysfunction, astonishingly, businesses still continue to ignore these sorts of massive issues.

    Here are a few examples:

    • distrust
    • toxic individuals with poor behaviors
    • low team morale
    • ego, manipulation, over-control
    • lack of commitment and accountability
    • internal conflict
    • resistance to improvement or change
    • lack of vision, and ruthless pursuit of profit without purpose

    Recognise any of those?

    These are just some typical symptoms of dysfunction that lead to low performance and resolving any of these isn’t trivial. But, so much time and effort and bottom-line profit is wasted through mediocracy and low performance. It’s also true that high performing people will leave companies because of toxic bosses and/or dysfunctional cultures. That’s a genuine waste of talent and money, not to mention the time, effort and cost of recruiting replacements.

    While these issues were absorbable in the past, we have already covered why they can’t in the future. There’s just no place for poor interpersonal skills.

    Developing peoples’ soft skills along-side high performance and growth mindset completely avoid these unnecessary pains.

    Tips and tools for you to consider

    It is hard enough to impart a lifetime of knowledge and experience to a recent graduate or a new hire. So, how do companies ensure all their people are not becoming just another statistic?

    Here are Aubrey’s and my top tips to help you think about an organizational culture that puts soft skill competencies uppermost among your people:

    1. Download this easy questionnaire and quickly check out your conversation skills. You could do it with your whole team too.
    2. Encourage an open and honest organizational culture in which employees can communicate and collaborate freely! Giving and taking feedback can be intimidating so, it is imperative your employees feel safe to communicate openly with both co-workers and supervisors. A no-blame culture creates a trusting, collaborative environment where everybody matters and contributes. An open working environment also boosts creativity and innovation and builds relationships.
    3. Provide tools and opportunities for employees to pursue continued education – even if it does not directly relate to their field! As technology pushes our economy forward at an exponential rate, prioritizing a strong learning and development orientation among your people will drive success. So, provide learning tools and resources to encourage people to pursue learning that interests them, both in and out of the workplace (see ELI link at end). When you make people accountable for their own learning, you ensure your organization is equipped with the skills to adapt to our dynamic economy.
    4. Talk the talk AND walk the walk! Bottom line – think about the benefits of creating a learning-based culture that is grounded in communication, collaboration, trust, and accountability that requires leadership that matches these qualities. Leaders must not only clearly communicate company values and vision but, they must also embody these qualities in every facet of their life too. If leaders don’t take these seriously then how can you expect everybody else too? Providing 1-2-1 coaching senior leaders is helpful here.
    5. Focus on success from the inside-out! An internal drive for personal and professional development, one that is not motivated by comparison with others, is fundamental to success. By adopting a career-enabling learning and development culture will nurture success in personal careers. For example, an intrinsic desire to excel, honest self-assessment of strengths and weaknesses, as well as to close personal skills gaps.
    6. Start developing your top teams to become high performing consider putting in place a budgeted strategy to implement a soft skills programme for your people.

    Final thoughts

    With technology moving forward at an exponential pace, so will the demand for soft skills in the workplace - is that the elephant in the room? You bet! (Randy Wall)

    For individuals, highly-developed soft skill competencies will become essential to career success.

    The more we develop our soft skills, the more our company cultures will need to adapt too, for long-term success.

    Get stuck into reading some great books on soft skills - you’ll learn a lot.

    As a good starting point, Aubrey invites you to check out The Engineering Leadership Institute (ELI) and their Performance Certification System (PCS).

    Read this and more from Andrew Jenkins.

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    Refine Your Metrics Into Gold

    To deliver the results you want, refine your metrics (KPIs) like you’d refine ore into gold. Your metrics must directly impact the most vital outcomes in your business; otherwise they are nothing more than an expensive toy, misdirecting your scarce resources.

    SPEED BUMP: Worker actions are the prime driver of results, good or bad.

    Your workers’ actions:

    • Are influenced by KPIs
    • Influence KPIs
    • Drive outcomes

    Since KPIs have a huge impact on worker behavior, it’s worth refining them. Here’s how:

    1. Use the top five outcomes of your business: customer satisfaction, quality, sales, margin, and expense.
    2. Profit is the result of the impact of each above.
    3. Choose one measure that has highest impact on each outcome.
    4. Measure daily if possible. If not, then weekly. (Hourly measures are best for focused process improvement, but not for not ongoing KPIs because of data flooding.)
    5. Reduce to three KPIs by finding measures that impact more than one outcome.
    6. Diagram the link of each KPI to each outcome.
    7. Confirm by discussion with all employees.

    Table of KPI Impact

    Once refined, KPIs are useless unless all employees (yes, ALL) know and understand them. The work that each employee does will impact at least one of your KPIs. If you doubt it, show an employee the list of KPIs, and ask them which is influenced by how they do their job.

    SPEED BUMP: Invest as much in teaching KPIs as you do in developing them.

    Soon after developing solid KPIs at a company where I worked, I met the production manager in the hall, looking up at the board reporting KPIs for yesterday and the week. Excited, I asked, “What do you think?” “I don’t know,” he said. “That’s for them” (pointing to the executive conference room). “It doesn’t affect me.” He was replaced within months, and the company went on to boost earnings significantly. (I had nothing to do with his replacement; it was already in the works.)

    ACCELERANT: Who will you ask about their impact on KPIs?

    A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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    How to Ration Capital in an Idea Rich Environment

    One of the most critical decisions executive teams make is how to allocate resources. This includes both tangible (physical and financial) and intangible (human and intellectual) resources. In this article we’ll focus on developing the inputs, processes and a tool to help your leadership team in the following ways:

    1. Generate a common understanding of the expected outcomes when making significant resource allocation decisions.

    2. Develop a common framework to approach the allocation decision.

    3. Create a roadmap to help capital requestors know what is expected of them when presenting a new project for approval.

    4. Produce a financial model to aid in the approval process.

    5. Generate benchmarking and decision improvement capabilities by comparing the financial model to actual results.

    In addition, a key responsibility of the Board of Directors is to work with management to develop acceptable investment criteria. Here are some examples of what the Board and Management might agree on:

    - Each project undertaken helps achieve our strategic goals
    - Each project is safe and legal
    - Each project is submitted on an approved corporate form
    - Approval levels
    - Return Criteria

    • Net Present Value: Expected cash flows discounted at the companies weighted average Cost of Capital
    • Internal Rate of Return: Investment return rate where NPV = 0
    • Payback: Time it takes to recover the cash invested in the project

    We’ll use a new capital project to illustrate the steps in the capital allocation process, starting with a project idea.

    The first step is to explain what the project is:

    • A description of the project
    • How it fits into the company’s strategic goals
    • The project’s critical risk factors
    • A time line including the development/implementation period and expected useful life

    The second step is to prepare the financial details:

    Capital Needs Calculation (Total Funds Requested):

    1. Direct Project Expenditures: These are the capital costs spent on acquiring project assets (land, buildings, equipment, IP and intangibles).

    • Asset lives should be assigned to buildings and equipment.

    2. Working Capital: This is the incremental capital required to fund the increased activity resulting from the Project.

    Expected Improvements from the Investment:

    1. Volume:

    • If the project increases production capacity determine how many more units will be sold each year due to the capital spend. Note: some capital projects save on operating costs or allow for a higher selling price without any change in volume.

    2. Gross Margin:

    • When the project increases volume the increase in gross margin must be calculated to determine the improved cash flow impact on the business.
    • If the project increases per unit prices but not volume, the incremental earnings must be included.

    3. Other Income:

    • If the project results in other income being earned, that also must be estimated.

    4. Other Operating Costs

    • Extra volume may result in larger operating costs.
    • New plants may require additional operating costs.
    • Operating cost savings from the projects should also be included in the analysis.

    5. Tax Rate: The company’s marginal tax rate should be used to calculate the net income and cash flow.

    The third step is to summarize the financial results from the investment over a foreseeable period of time:

    - The capital required
    - The expected financial improvements from the project
    - Cash flow changes from the investment

    • Increased Volume
    • Increased Margins
    • Other Income Sources
    • Additional Operating Expenses
    • Reduced Operating Expenses

    The fourth step is to determine your Cost of Capital:

    This is an important step because capital is not free. Investors (debt or equity) have return expectations that will be imposed on you. Lenders expect to be paid interest and have their principal returned. Equity investors expect stock appreciation and dividends. It’s also important because the cost of capital will be used to discount cash flows and help determine which projects are chosen. Using a cost of capital that is too high could result in good projects being rejected, while using a cost of capital that is too low could result in poor projects being accepted. The cost of capital is expressed as %. When the anticipated project returns exceed the cost of capital the project is expected to be accretive to the company’s value.

    Calculating your cost of capital is normally done at the corporate level. It must be consistent across the business to be an effective variable in the decision-making process.

    Cost of Capital: The company’s cost of capital is determined by first calculating the cost of equity and the after tax cost of debt. These variables are then weight-averaged to arrive at the Cost of Capital.

    The formula is noted below.

    [E/(D+E)* CoE ]+[ D/(D+E)* CoD *(1-TR)] = Weighted Average Cost of Capital


    • E = Equity
    • D = Debt
    • CoE = Cost of Equity (expected return on equity)
    • CoD = Cost of Debt (average interest rate on debt)
    • TR = Effective Tax Rate

    Different industries and geographies have different equity return expectations. Expected performance (the market’s, not management’s) will also impact return expectations. Likewise, leverage will affect the cost of debt. The higher leverage the greater you can expect the interest rate to be.

    Going through the exercise to determine your Cost of Capital has all kinds of learning experience for the CFO as well as the broader management team. Share the logic and results with the team to prevent unnecessary discourse when projects competing for Capital are reviewed in the future.

    Once these steps have been taken you are prepared to use the Capital Investment Analysis Model (see Tools below). This tool was developed to help you realize the 5 goals noted in the first paragraph and to simplify and summarize the key points the project sponsors must cover before the Leadership team and, if necessary, the Board will consider approving the project.

    Approved capital investments should be benchmarked annually to the actual project results with the intention to improve the capital allocation process and enhance your investment outcomes.

    Please comment freely on the tools functionality and its value as a Capital Planning and Allocation aid for your company.

    The tool is available to our Member-Scholars. Please login or register to view.

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    Your Trigger Alert

    Trigger alerts are a fashionable, if questionable, attempt by colleges to warn students of potentially unsettling material in an upcoming lecture or book. (Yes, I know. Just move on. That’s a different topic.)

    If you’re a leader, your biggest challenge to success isn’t competition, poor execution, weak product design, or (insert other concern here). It is, says Joth Ricci, disruption. Disruption that can be either good or bad. (Joth is the successful head of three companies, one at a time).

    SPEED BUMP: Disruption is an interruption that diverts from your plan.

    I stipulate that the most successful companies build an annual plan and follow it as well as they can. It’s often a struggle to follow it, for many reasons. Strangely, many of those reasons are self-inflicted diversions.

    Here’s how it looks:

    Good disruptions come in forms like these:

    • Better ideas

    • Potential new customers

    • Product line extensions that can be “easily” produced

    • Software upgrades

    • Bright ideas from good customers.

    After you observe that these all look good, remember how full your days are, how reluctant your team is to take on a new challenge, and how much you’ve committed to deliver this year’s results.

    SPEED BUMP: If your plan is good enough, stick with it.

    Yes, there are also interruptions that can be problems, such as customer complaints, quality gaps, ballooning overtime, and so forth. The worst are Cerberus interruptions—complex, interesting, appealing—that are tough to prioritize and worse to fix. Step away from them if possible. (Cerberus is the mythical dog with three heads who couldn’t decide which plate of food to eat first.)

    For those, stop being like Cerberus, and choose none of the interruptions if possible. If you must attend to them, quickly prioritize, accelerate repair of those with highest impact, and ignore or outrun the rest. Intense focus on executing your plan beats the small repairs reaching for your attention along the way.

    What does trigger alert have to do with it? Create your own, to snap you out of reflexively chasing everything that’s misfiring. It’s a decision, best made in the flush of launching this year’s plan, which feels good. Task yourself with watching for trigger alerts every day. Even better, make it a topic with your management team.

    Definition of Trigger Alert: A brusque warning that we’re being pulled from our plan by the next shiny thing (or ugly thing). It’s not how shiny, it’s the strength of its diversion.

    Why bother? Why not exploit opportunities as they arise? If opportunities fit within the plan, treat them like all opportunities: evaluate benefit, allocate minimum resources, measure results, and so forth. If opportunities don’t fit, push them to next year. If they won’t last, they likely aren’t worth the disruption now.

    If your plan or your measures are weak, shore them up. Use the adrenaline of the new opportunity to drive to clearer plans (probably simpler) or sharper measures.

    If your example to your team is that you chase the next thing, they’ll let up on the plan and chase their shiny object.

    SPEED BUMP: More measures are seldom better. Instead, sharpen your top three.

    Here’s the cycle:

    ACCELERANT: When today did you miss your trigger alert?

    A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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    Cyber Insurance Protects Company and Client Information from Attacks

    Gregor Hodgson | Vice President, Account Executive

    Every week we hear of a new virus, hack or ransomware that threatens our business operations or employee or client information. Many business owners have been hearing about, and are now considering, cyber insurance. But what exactly is cyber insurance? What does it cover and, is it a good fit for my business?

    In order to understand what cyber insurance covers, we first must understand what constitutes a cyber incident. A good definition of a cyber incident is, “The failure to prevent the theft, loss, or disclosure of personally identifiable, non-public information (or corporate information, which you have written obligation to protect) that is in the care, custody or control of your organization or a third party, for whom you are legally liable.”

    Read More

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    Wellness Runs in Manufacturing Industry

    Kramer Aspiri | Vice President, Employee Benefits Account Executive


    Each segment of the manufacturing industry has a major issue forefront in their budget process: the rising costs of healthcare. These increasing healthcare costs are the number one concern right in front of unfavorable business conditions, according to the most recent survey from the National Association of Manufacturers (NAM). Below is some data from the latest NAM Outlook Survey; the concern is justified, and the issues appear to be escalating each year:

    • Respondents anticipate premiums to increase by 7.9 percent on average over the next 12 months, with nearly one-third reporting gains of at least 10 percent.
    • If health insurance premiums continue to increase at the rate of the past 15 years, manufacturers’ premiums could potentially rise to $17,845 per family under their plan, an increase of more than $1,300 per policy in a single year.
    • The employee benefits tax (i.e. Cadillac tax) will go into effect in 2018, imposing a 40 percent surcharge on benefits exceeding $10,200 for an individual and $27,500 for a family.
    • If costs continue to increase at the historically average rate, the standard plan for a manufacturing sector employee would fall under the Cadillac tax by 2024. If the tax is left in place, then it will affect nearly every manufacturing employee benefits package within the next decade.


    Wellness programs have become the number one driver to help curb the rising costs of healthcare and help manufacturers attract talent. These programs concentrate on improving the well being & health of working populations. Many programs offer exercise, stretching goals, dietary plans, & social/gaming aspects. Wellness programs not only create a healthy lifestyle, but also provide a healthy working environment, which can help retention and employment recruitment. This role of creating a healthy working environment falls on leadership; employees recognize and appreciate the value, which in turn makes healthier and happier employees.

    A recent case study done by myinertia showed that, after working with a manufacturing company for three years, they see better results from manufacturers with wellness programs. By implementing healthier food onsite, providing stretching rotations, setting aside time for walks, etc., they reduced their high-risk population (individuals with health concerns or older demographics) from 30 percent to 14 percent. Wellness is the new popular strategy in the blue-collar work environment and is effectively decreasing claims and retaining talent. Wellness programs have grown astronomically over the recent years; companies are now spending $6 billion a year on wellness programs according to a study by the RAND Corporation.

    While the manufacturing industry is facing some serious challenges in the coming years, there are wellness opportunities that will help you regain control of your total healthcare spend. When applied mindfully in an appropriate culture, these wellness strategies can mitigate the future increases and help attract talent. To get started exploring which options are available to your organization, Parker, Smith & Feek would welcome the opportunity to assist. Please reach out to your Parker, Smith & Feek account team for more information!

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    Common Gaps in Disability Insurance

    Janae Sorenson | Employee Benefits Account Executive


    Disability insurance can be even more important for manufacturing companies than other employers. Manufacturing organizations typically have an older population with long tenure and employees historically suffer with chronic conditions. Employees usually experience higher than average musculoskeletal incidence and absenteeism due to the nature and repetitive motion of their jobs. Many manufacturing employees have only worked in their trade, which may result in difficulty finding other employment if he/she becomes permanently disabled from their occupation. Finding the right disability insurance carrier partner can help manufacturing companies develop a stay at work and return to work program that can assist with decreasing incidence of disability and increasing productivity. Disability carriers can help employers develop a rehabilitation and return to work assistance plan that may include, but is not limited to, the following benefits:

    • Adaptive equipment or job accommodations to allow employees to work
    • Vocational evaluation to determine how disability may impact employment options
    • Job placement services
    • Resume preparation
    • Job seeking skills training
    • Education and retraining expenses for a new occupation

    Despite current job growth in the U.S., manufacturing positions are no longer part of the job recovery (as opposed to two years ago), according to U.S. News. [1] Manufacturing employers continue to reduce number of workers as they struggle to maintain their payroll balance. As manufacturing companies struggle, it is critically important to ensure that employees have the necessary resources and programs offered to them to improve their overall well-being. By offering effective wellness and return to work programs and education and training, manufacturing companies would likely reduce disability-related injuries/illnesses that directly impact productivity, quality of products, and costly medical expenses.

    Employers in every industry that provide long term disability insurance for their employees are helping set a good foundation for protecting income and assets in the event of an accident or illness.

    Unfortunately, employers and consultants often check the box that the coverage is provided without taking a critical look at determining if key employees are well served by the protection offered.

    When audits are performed, results often show surprising gaps between employee needs and the available group benefits. Manufacturers can unknowingly have plans that provide insufficient coverage for most employees and result in reverse discrimination for highly compensated employees.

    Several contractual provisions can prevent long term disability benefits from providing the desired replacement of income. including the following:

    Taxability of Benefits: Many manufacturers like to offer free benefits, but disability insurance is a benefit that can be more advantageous if the employee pays the premium with after-tax dollars, because it results in a tax-free benefit. If premiums are paid by the employer, benefits received by the employee are generally taxable income.

    Consultants can work with manufacturers to design a plan that results in a higher replacement of income. Areas to be reviewed can include increasing plan maximums, modifying contribution methods, and supplementing group coverage with individual disability insurance.

    Definition of Covered Earnings: Basic long term disability policies generally cover base salary only. For many high earners, a large portion of their total compensation comes in the form of bonuses, commissions, or other incentive pay. Other employees may rely on over-time pay as a crucial part of their compensation. These employees would face a substantial income gap if they became disabled and couldn’t work.

    Plan designs can be modified to cover total compensation and supplemented with individual disability insurance. The goal should always be to get employees closer to their regular take-home pay. Disability can negatively impact other important benefits, such as retirement plans.

    Provisions that should be considered include

    retirement contributions. Retirement plans are one of the most valued benefits a manufacturer can provide. Few people realize that if an employee becomes too sick or injured to work, neither the employer nor employee can make contributions to their retirement plan because the employee is not actively at work. When contributions stop, retirement security ends.

    Plans can be designed to replace contributions made to a defined contribution plan during a disability. While eligible for benefits, a monthly benefit insuring up to 100 percent of retirement contributions, including any employer matching contributions, can be paid into a trust established by the employee, thus helping mitigate the risk of lost retirement earnings.

    Brokers, consultants, and employers tend to spend most of their time and energy on strategies to reduce an employer’s medical costs because the expense is such a big part of a company’s budget. Working with an experienced benefits consultant to identify creative solutions, an employer can provide a benefit that makes a real difference to employees if disability strikes.

    By considering strategies similar to the items outlined above, employees can focus on how to get back to work instead of how to provide for their family, and manufacturers can rest assured that their workforce is as productive as possible. Peace of mind is a win-win for everyone.

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    Interview With Cyber Security Expert Nick Casillas

    Tim Schmidt | Account Executive

    We all remember the first email we received from a “foreign dignitary” offering us a ridiculous sum of money in exchange for paying a small amount of taxes, claiming the funds had come from an unknown distant relative. Needless to say, the online threat landscape has evolved into a much more sophisticated, global issue, affecting people and companies of all shapes and sizes. If you are a client of Parker, Smith, & Feek, then you have likely heard us speak on the importance of cyber and social engineering coverage to help indemnify you after an attack. Today, I’d like to give you more guidance on prevention and the current threats that may affect you.

    After hearing my clients’ common questions and concerns regarding the increasingly sophisticated threat landscape, I thought it would be beneficial to get answers directly from a cyber security professional. Nick Casillas is a territory account manager for Barracuda Networks, a global leader in security and data protection solutions for more than 150,000 customers worldwide. He lives and breathes content security, networking application delivery, and data storage/disaster relief response.

    TIM: What is the top cyber threat a business owner faces today?

    NICK: The threat landscape is sophisticated and ever changing. New headlines pop up daily about the latest security breach or data theft. These attacks leave business owners scrambling to determine the best way to cost effectively keep their users, networks, and data safe.

    Ransomware is top of mind with everyone today, with ransomware profits expected to reach $1 billion in 2017. Innovative, entrepreneurial criminals who look to profit from infecting a victim are fueling this activity, using media such as email links, email attachments, website exploits, social media campaigns, compromised business applications, and USB drives for offline infection. Additionally, spear phishing and cyber fraud are rapidly becoming significant security threats. Countless individuals and organizations have unwittingly wired money, sent tax information, and emailed credentials to criminals who were impersonating their boss, colleague, or a trusted customer. These attacks are highly targeted and personalized. They work because they are built on trust and typically do not contain any malicious links or attachments that might get stopped with existing email security solutions. This latest type of attack takes an equally novel approach in order to effectively protect an organization.

    TIM: Could you walk us through a recent real life scenario and how the business was affected?

    NICK: In May of 2017, the world experienced a well-coordinated ransomware attack known as WannaCry. This attack infected hundreds of thousands of individuals and businesses alike, including hospitals, government entities, and everyday users in more than 100 countries across the globe. In a period of 48 hours, attackers managed to encrypt all the data stored on victims’ hard drives with the promise of decrypting the data upon the receipt of a monetary payment via the e-currency platform Bitcoin. This attack targeted aging computer operating systems and exposed the vulnerabilities of using outdated software.

    We’re also seeing a sharp increase in the number of attacks on Office 365. One in particular is an Office 365 account compromise, or account takeover attacks, where attackers attempt to steal login credentials and ultimately gain access to launch attacks from within an organization. If the spear phishing attack is successful and the attacker is able to get control of the account, we’ve seen a few different scenarios for what happens next. First, the attackers can set up forwarding rules to observe the user’s communications patterns to use as leverage in future attacks such as ransomware. Another common scenario is where attackers use the compromised account to send messages to other employees inside the organization in an attempt to collect additional credentials or other sensitive information, or attempt to get a fake wire transfer sent to a fraudulent account.

    TIM: Do smaller businesses face the same risks today as the larger companies we are seeing being hacked in the headlines?

    NICK: Absolutely, smaller businesses face the same security risks as large enterprises, and often do so with fewer people and technology resources to appropriately handle. The recent WannaCry ransomware attack is a great example, where hundreds of thousands of businesses, large and small, were impacted. While the use of cloud applications and the internet as a whole has tremendously benefitted businesses looking to efficiently scale, it’s also leveled the playing field and created much easier access to business infrastructure through a multitude of threat vectors. The amount of information we make available online combined with the readily available exploitation kits sold on the dark web (complete with dedicated sales and support), promise that anyone can instantly launch an attack without sophisticated coding.

    TIM: What are best practices for today and how can businesses avoid cyber threats such as ransomware, phishing attacks, etc.?

    NICK: At Barracuda, we recommend a layered approach in stopping advanced threats from reaching your users and data – across every threat vector.


    Email remains the top business communications tool and, thus, one of the most easily exploitable areas. With ransomware and spear phishing on the rise, businesses must take steps to keep email secured. This includes a comprehensive security strategy designed to prevent ransomware attacks from infiltrating your network. Any effective strategy will include a plan for data protection and backup – particularly important with today’s rampant ransomware attacks and making sure you can easily and quickly recover without having to pay the ransom.

    For the more targeted and personalized spear phishing attacks, businesses should look to solutions that leverage advanced technologies like artificial intelligence rather than rules-based detections. Barracuda Sentinel’s artificial intelligence engine learns organizations’ unique communications patterns to predict future attacks. Using AI, we’re able to identify and block real-time spear phishing attempts, offer domain fraud visibility and protection, and provide simulation training to high-risk individuals within the organization to protect against monetary and data fraud. We also offer free powerful detection tools to run scans across customer networks looking for vulnerabilities already lurking on your systems. Upon diagnosis, remediation tools are available to secure the network and clean up the expressed threats.


    We advise implementing a cloud-ready next-generation firewall, designed to secure on-premises, cloud-hosted, SaaS-based, and mobile elements, as well as third-party applications. They enable secure network connections for your remote workers, improve site-to- site connectivity, and ensure secure, uninterrupted access to cloud-hosted applications.


    Web traffic requires web security gateways leveraging advanced threat protection to let you safely use online applications and tools without exposure to web-borne ransomware and other threats. Granular access policies give you maximum control, and powerful reporting tools provide total visibility.


    Web applications secured via a web application firewall continuously monitor your outward-facing websites and applications. By automating security audit procedures, it can dramatically accelerate your application development cycles while removing risks.

    Barracuda’s global threat intelligence network includes massive amounts of diverse threat information – across every threat vector – from more than 50 million collection points around the world, giving us the most comprehensive view of the global threat landscape in the world. We’re able to leverage this intelligence to create actionable data that protects more than 150,000 organizations from the most sophisticated security threats.

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    Builder’s Risk vs. CGL Policies – Which Policy Responds for Damages on a Project?

    Jim Sorte | Vice President, Claims Executive

    From Seattle to Charleston, tower cranes are dominating the skylines. New construction projects seem to be on every street corner in most metropolitan cities these days. With all of this activity, the possibility that damage may occur on one of those projects; insurance may be needed to pay for the damage; and the owner, developer, and contractors may be confused as to which policy should respond is foremost on the minds of claims professionals.

    A builder’s risk policy (also known as a course of construction) insures against accidental loss or damage to contractors’ work and property during the period of construction. Also, the policy usually insures equipment, materials, and supplies to be used and incorporated into the project.

    The project contract identifies the party who must procure the builder’s risk policy for the project: the owner, developer, or general contractor. The industry’s standard contract, “General Conditions of the Contract for Construction (American Institute of Architects’ AIA Document A-201 [1997, 2007 or 2017])”, says the owner must procure the policy, but that condition is occasionally amended to require one of the other parties to procure the policy. The AIA contract also states that the builder’s risk policy is to cover the interests of the owner, general contractor, and subcontractors of all tiers, and there must be a waiver of subrogation in favor of all of those parties.

    Still, when damage occurs, it is common for the party who purchased the builder’s risk policy to expect the responsible contractor to use their own commercial general liability (CGL) policy to pay for the damage. The contractor may not want to jeopardize their business relationships with the other parties on the project, so they will agree to initiate a claim with their CGL insurer. That’s when the confusion arises.

    Claims professionals understand the “business relationships” pressure on the responsible contractor, but there are several reasons why builder’s risk, and not the CGL, should be the first line of insurance to respond to damage on a project involving new construction.

    First and foremost, builder’s risk insurance pays without regard to who was responsible for the damage. Therefore, the initial and primary focus of the builder’s risk insurer is to see that the damage is repaired in a timely manner, so there is as little disruption as possible to the original construction schedule. The initial focus of a CGL insurer is to determine who is responsible for the damage, which can lead to “finger pointing” between contractors and delays while everyone waits for the insurer’s determination.

    Secondly, the responsible contractor will likely encounter a coverage issue when they initiate a claim with their CGL insurer.

    The CGL policy includes the standard “other insurance” condition, which states:

    “This insurance is excess over: Any of the other insurance, whether primary, excess, contingent or on any other basis: That is … Builder’s Risk, …”

    This condition also includes the following statement:

    “When this insurance is excess over other insurance, we will pay only our share of the amount of the loss, if any, that exceeds the sum of: The total amount that all such insurance would pay for the loss in the absence of this insurance; and the total of all deductible and self-insured amounts under all that other insurance.”

    Simply put, the CGL policy will not pay for damage when there is a builder’s risk policy that may pay, and the CGL policy will not pay the deductible under the builder’s risk policy.

    Another reason that the builder’s risk policy should be the first line of insurance is because the waiver of subrogation in the project contract precludes the builder’s risk insurer from subrogating against, or seeking reimbursement from, the responsible contractor.

    Additionally, the builder’s risk policy is usually a project-specific policy, so payments under that policy should not have an adverse effect on an annual insurance program. In contrast, payments under a CGL policy do negatively influence a contractor’s loss history, and could result in higher annual premiums.

    Lastly, and possibly most importantly, the party who agreed to procure the builder’s risk insurance did so willingly when the project contract was negotiated, so they have a contractual obligation to initiate a claim after damage occurs. A party refusing to initiate a claim is contrary to the intended purpose of builder’s risk insurance, and can amount to a breach of contract.

    It is difficult to predict how long the current construction boom will last, but if damage occurs on a project, initiating a builder’s risk claim immediately will help get the repairs started, the project back on track as soon as possible, and maintain a cooperative spirit among all parties involved in the project.

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    Critical Update Needed - Cybersecurity Expertise in the Boardroom

    As part of its oversight responsibilities, the board of directors is expected to ensure that management has identified and developed processes to mitigate risks facing the organization, including rises arising from data theft and the loss of proprietary of customer information. Unfortunately, general observation suggests companies are not doing a sufficient job of securing data. Data theft has grown considerably over the last decade.

    Read More

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    Mirror Mirror on the Wall

    ​Talking to yourself - healthy or bad? Here’s how to give yourself the medicine and use purposeful language to achieve personal success and lead others.

    You? Yes, you! Do you talk to yourself too?

    An article in The Daily Mail caught my eye recently. The article, headlined “Why talking to yourself is NOT a sign of a mental illness”, reflected on a psychologist Paloma Mari-Beffa’s view that both inner self-talk and talking out loud can have very positive effects.

    The article highlights that inner self-talk (and yes we ALL talk to ourselves in our heads) is a key part of how our minds work to manage the way we function. Talking out loud can amplify the self-instruction element of our internal conversation to increase control over a task and improve performance.

    I can vouch for the positive impact of self-talk based on my experience of coaching leaders and working with teams.

    Interestingly the starting point is often not so much about improving performance as it is about taking control of the nature of inner self-talk and use of verbal language. This is important for all leaders.

    In contrast, negative self-talk can be a significant factor in compounding feelings of low confidence, self-doubt, insecurity or poor motivation. I have worked with many, otherwise highly intelligent, competent and capable people who have quite literally talked themselves out solving personal or business problems.

    How about you? Yes, you! Do you find that you talk to yourself using negative and limiting language too?

    Fortunately, if you do (and many people do), there are a variety of ways in which we can take control of what’s happening.

    Oi! Mind your language

    One very useful tool is to reframe your negative emotions by introducing language that promotes a positive or growth mindset instead. At the very least it is helpful to soften your emotive and negative language.

    For example, instead of telling yourself, ‘the last project was a complete failure.’ Instead, how about saying ‘we learned a lot of valuable lessons from the last project.’

    Here are some further examples from my upcoming book (details at end of article) about using purposeful language:

    I’ll come back to some of these again shortly.

    Becoming self-aware of your self-talk and verbal language is a major step towards gaining strong emotional intelligence skills. In this way, you quickly become aware of how easy it is to replace highly emotive words that have a negative impact on you and others, with softer and more positive words.

    For example, ‘concerned’ to ‘aware’, ‘insecure’ to ‘unsure’ or ‘furious’ to ‘passionate.’

    (For more details to practise this, head over to my website and download - use purposeful language worksheets. It’s a practical resource that helps you to master positive growth-based language for yourself. Better still try them with your team).

    What if?

    Another reframing tool is to pose ‘What if?’ questions to yourself. For instance:

    ‘What if the Board likes our marketing strategy’ or, ‘What if my experience is just right for the new job.’ These sorts of questions stimulate your brain into thinking and presupposing positively instead about your situations and activities that you are considering. It’s a nice way to conjure up some attractive scenarios that will naturally introduce you to more resourceful ways to talk to yourself and to others too.

    (Click on this image to access a short inspiring video of empowering purposeful leadership language patterns.)

    That leads me to a third idea (and of course there are lots more), which is the use of affirmations.

    This quite simply uses the language you have uncovered in your reframing to make positive statements to yourself. Back to the Daily Mail article, you can even follow Paloma Mari-Beffa’s advice and say them out loud for added performance:

    Stand in front of the mirror and practise, tell yourself that ‘I am an effective leader’ or ‘the presentation will be a success’. Remember to match your language with open and empowered body postures too (see my mini blog - strike a pose for more information on this subject). Top tip - best to do this alone - otherwise you’ll look a right ‘turkey.’

    You’ll be amazed how quickly your mind will work to make those statements come true.

    Don’t hit the ball in the water

    Every golf player quickly learns not to say or think: ‘Don’t hit the ball in the water.’ Or ‘Don’t muff this shot up.’ That’s because these phrases will predispose them to do exactly that – so the ball ends up in the water, and the shot gets muffed up.

    We often hear ‘Don’t worry about…’ this or that, or ‘don’t get this wrong’. However, this type of language results in you focussing on this or that worry and getting things wrong.

    The saying ‘Be careful what you wish for’ certainly holds true.

    Thinking about what you don’t want sets up your attention to think about the very thing you don’t want. Ultimately this can lead to low performance. So instead, a more successful strategy is to think about what you do want, rather than what you don’t want.

    I have seen some fast and fantastic results spring from leaders and teams learning how to use purposeful language in powerful ways in one-to-one coaching sessions as well as group workshops. It’s often one of the first steps towards unblocking the obstacles that are preventing peoples’ potential to be realised.

    Over the years I have become skilled at helping people to use purposeful language to persuade, influence and engage others. I know it works. So, if this article has struck a chord with you, or the idea of creating success through language resonates with you and for your organisation, then why not get in touch today. Let’s discuss how we can make your language work for you and your team.

    Read this and more from Andrew Jenkins.

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    10 Unique Ideas for Onboarding New Employees

    Onboarding is a critical time for new employees. Not only does it set the tone and stage for their time with your company, but it can also have long-reaching effects on employee performance and morale.

    Here are some fun ways you can spice up your employee onboarding program to ensure new employees feel connected and welcomed right off the bat.

    1. Provide multiple initial contacts and resources.

    Be sure to identify specific key contacts for the new employee. Ensure they understand who they report to, who is on their team, who they can go to with questions or concerns, and who the internal HR representative is. Establishing these contacts early on helps new employees know who to talk to whenever they run into trouble or have a question about a task.

    2. Consider desk geography.

    Be thoughtful when you assign desk space to a new employee. If they are in a collaborative role, or if there are people within the company whose expertise they could benefit from, try to seat them near those individuals. If they are part of a team, make sure they are sitting alongside their team members so they feel included and so they can easily lean across the aisle to ask quick questions.

    3. Encourage social connections.

    On one of their first days, have the employee shadow people in different roles across the company. Down the line, find a way to circle back and reconnect them. Initiating these connections early on helps bridge separations between departments.

    4. Volunteer at events.

    Every time you hire a new employee, arrange an offsite volunteer event so your team can get to know each other while also giving back to the community. This gets the team socializing away from the office, and volunteering for a worthy cause can be a great culture statement.

    5. Introduce every new hire to senior leadership.

    The possibility of this will, of course, depend on the size of your organization, but if your company is small enough, consider arranging a lunch–perhaps one per quarter, or whatever timeline is feasible–with new hires and the leadership team so they can get to know each other. It helps new hires feel valued and connected to the bigger picture.

    6. Prepare their workspace.

    Provide a warm welcome by having everything ready for your new employee when they show up for their first day. This includes their business cards, nametag, and computer workstation. Add a few fun items, too, like candy or other treats and items with your company logo on them.

    7. Create a scavenger hunt.

    Make a list of tasks for the new employee to complete on their first day. The goal of this exercise is to get them familiar with the office building and the people in your company. Examples of tasks could include getting signatures that show they’ve met three managers and learning how to submit an expense report.

    Alternatively (or additionally), have the employee complete an online scavenger hunt to learn important information and tasks, such as how to navigate the company intranet and reserve a room to schedule a meeting.

    8. Bring back picture day!

    Take every new employee’s photo and display these pictures in a shared space, like a reception area, break room, or elevator, to help everyone remember names. This could be particularly helpful at large companies that hire new people frequently.

    9. Provide company materials and welcome letters.

    Provide new employees with welcome letters and information about the company’s goals, values, and mission to help frame expectations for the company culture. Feel free to have fun with this one! Include an “insider’s guide” to the company, an internal handbook with helpful tips you could source from other recent hires. Additionally, include a “welcome to the team!” card and have all department members sign it.

    10. Ask them to fill out a new employee questionnaire.

    Create a “get to know you” worksheet for new hires where they can provide information about themselves. These questionnaires could ask about their favorite restaurants, places to shop, and favorite colors. (We have one you can download for free!)

    More Resources – we recommend checking out a great book called The First 90 Days that contains more onboarding tips, such as creating a learning agenda for your new hires.

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    Why Give More than We Take?

    ​We work our whole life to acquire things. Yet, when our physical being perishes we go empty handed. I guess that is what drives many of us to believe in an afterlife. When we die, our legacy in this life becomes the yardstick we are measured by.

    Most of us hope our legacy includes being remembered as a giving person. My concept of a giving person is one who contributes more to society than they take. Undoubtedly, this is an imprecise definition, open to interpretation. “She was a giving person”, “He gave all of himself to the cause” or similar phrases are frequently used when people are being eulogized. To give something implies, we acquired or control whatever it is we are giving. Acquiring is pretty close to taking even if there is some type of exchange for it. Is “giving and taking” simply a zero-sum game?

    This month I was reading an article from The Economist, “Why the 20%, and Not the 1% are the Real Problem”. The story outlines how the wealthiest upper 20% of Americans are looking out for themselves and their families, not the rest of our citizens. The author claims the meritocracy that defines capitalism in the United States is creating two tiers, the haves and have nots. The word meritocracy implies “I worked hard to get it, I earned it and I deserve it.” I am not sure the writer intended this, but one key idea that comes through in the article is that the upper 20% are takers not givers.

    Let’s explore two questions:

    1) What do we own that we can give?

    2) What do we take that enables us to give?

    What do we own that we can give? While growing up I learned that our gifts are our time, talent and treasures. Let’s look at them one at a time and redefine what our gifts are.

    Time: Time is an interesting “gift”. Like all gifts it is finite. In Time’s case, it’s a “gift” we can only give as long as we live. But is Time itself really a gift? I argue, it is not. It is the dimension that enables the other gifts to become gifts, especially talents. I would replace Time as a gift with Presence, the act of being somewhere for someone or some group.

    Talent: the word Talent conjures up some special power we have that many others may not. In terms of gifting, talent is much less lofty. It’s simply the action we agree to undertake on behalf of our beneficiary. For example, the rocket scientist taking tickets for entry into the local fundraiser is using her Talent to take tickets, not her Talent to get us to Mars.

    Treasures: Treasures are possessions we control the disposition of. They include tangible assets that have a monetary value: money, stocks and other assets that can be converted (sold) for cash or used directly by the beneficiary. Treasures also include intangible things we can give. The intangibles are our talents, which have already been described above. Using this definition of treasures, I would use Possessions as our third gift to give.

    That was easy. Now, What do we take that enables us to give?

    Presence: We can only be present in one place at any given time. That makes our Presence very valuable. We are honoring the people, organizations, community etc. with whom we are present. What are we taking when we are present? We are taking from the people, organizations, and communities we are absent from. Our challenge in gifting as it relates to Presence is determining where our Presence can create the most impactful gift. Where do you think your presence has the most impact?

    Talent: Much of the “Take” in Talent comes from past investments made by our parents and those who help raise us. These investments take Presence and Possessions from these givers and make takers out of the receivers. This builds future giving capacity for the takers. It’s a swap from one generation to the next; Typically, the younger taking from the older. Why does the older generation accept this? If we lived forever, maybe we wouldn’t – if we want to survive as a species we must.

    A second example of Talent taking is when an individual uses their treasure to invest in a Talent, say a post-graduate degree. An alternative for the money paid for tuition could have been donating to the local foodbank. Have you ever looked at the money you paid to acquire a talent (through college courses, for example) as taking from the poor and hungry?

    Possessions: Possessions give us interesting choices. We can use our possessions to invest in our selves (taking, as in the tuition example above) or use them to invest in society (giving). Investing in oneself can create a greater capacity to give in the future. At what point do we stop reinvesting our possessions in ourselves (taking) to invest in our society (giving)?

    I need to call in some help from someone much smarter than me (with luck, one of you reading this article) to help establish the optimum equation for giving.

    My good friend, Albrecht Enders, of the endersgroup, teaches the art and science of innovation. He defines Innovation as change that increases the value of the product or service while decreasing the cost to deliver the product or service – he calls this the Value/Cost Ratio. Innovation is an activity that creates a step function increase in the Value/Cost Ratio.

    By replacing Value with Giving and Cost with Taking in Albrecht’s algorithm we can measure how changes in Presence, Talent and Possessions impact the benefits to society (giving). This is where I need some help:

    1. Developing the formula for the Giving/Taking ratio.

    2. Creating Innovations that grow the ratio by increasing giving and decreasing taking.

    The end game to 1 & 2 above is Utopia.

    Then, the big question to reach Utopia becomes:

    How can we increase the value of giving and reduce the cost of taking in each of our three gifting areas?

    I am open to all suggestions because I think the answers can provide a roadmap of how to live.

    This leads me back to the title question, Why Give More than We Take? The three gifts we have before death leave our control when we die; We can no longer be Present, our Talent is gone, and we no longer have ownership of our Possessions. The question isn’t meant to conjure up despair or pessimism. The question is meant to get us thinking about how to maximize our net Gifts (increase the Giving/Taking ratio) while we are living in this life.

    How does this make me feel about The Economist article on the wealthiest 20%? I think The Economist should do a lot more work to help us understand if the upper 20%, including the upper 1%, are net givers or net takers before claiming “…the 20%, and Not the 1% are the Real Problem.” Frankly, they were lazy in their reporting. Their conclusion may be correct, but in the absence of any scholarship on how this group gives or takes, statements like “efforts to protect their status amount to opportunity hoarding” are eye catching and emotion stirring but could also be quite misleading.

    Here is my take. When I die my Presence and Talents will expire with me, while my Possessions will leave my control. Why wait? Give them generously now. Live with a high Giving/Taking ratio and don’t let it be a zero-sum game.

    What is your take?

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    The Bonus Myth

    ​This issue looks at one of your most powerful competitive advantages.

    The headline in the Wall Street Journal page one article reads: “Wells Fargo Bankers, Chasing Bonuses, Overcharged Clients.” Ignore for a moment whether they did it, and did it for the reason in the headline. Consider the scale of damage to any business, let alone one that has a trust reputation headed for the basement. Despite our best logic, our emotions scream, “If they did it to those people, they’ll do it to me, and I won’t know until it’s too late.” Do you want your customers spiraling that way about you and your business?

    Worse, your employees know what happened, and it erodes their faith and commitment to the company, often beyond repair. The WSJ article subhead: “Employees say foreign-currency staff ignored 265 pricing agreements.”*

    SPEED BUMP: The hope and faith of your employees may be your most powerful competitive advantage.

    One of the standing facts for every CEO I’ve met is this: “Our employees know everything that’s going on.” Though not literally true, they likely know all the gossip and some of the company objectives, despite relentless management effort otherwise.

    Here is a lesson provided free, by Wells Fargo: Your culture matters. Your employees can describe it, so check periodically about what matters, which is trust and “doing the right thing.” On top of the annual employee survey, watch closely for behaviors that don’t fit, and insist that your managers do the same. Instead of discarding strange actions as a “one off,” dig into them to get the facts. Then provide the necessary discipline or guidance; this will communicate what you stand for to your other employees. They will know what action you took-always.

    Create a framework so it’s easy to do the right thing, especially for actions that impact bonuses or commissions. What does that framework look like? Some examples:

    1. Check with customers about their experience of a specific transaction.

    2. Audit the paperwork.

    3. Ask your direct reports what happened. Make it clear that you expect the full story immediately. Do your own checking occasionally.

    When I worked in a supermarket I was horrified to learn that the assistant manager had been fired by the district manager. The assistant manager seemed like an excellent leader with a great future, so I dared to ask the DM what happened. He replied frankly that the AM had borrowed a few dollars from the employee pop machine. It wasn’t the money, it was the example. I’ve never forgotten it.

    SPEED BUMP: It’s seldom the specifics of the bonus plan. It’s usually the culture.

    Leaders tie themselves in knots trying to devise the perfect incentive pay plan. Some effort to match pay to results is worthwhile to avoid the appearance of favoritism. The perfect plan, like the perfect anything else, is scarce to nonexistent. Instead, turn your focus on the framework around it, both ethics and audits.

    ACCELERANT: What needs improvement in your ethical frame around bonuses?

    A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

    * Wall Street Journal, 11/28/17, P A1

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    A Great Lesson for CFOs from the Sporting World

    Here is a short lesson for Chief Financial Officers from athletes. In most sports, like business, success is measured in degrees and is often the culmination of many small victories and small failures. For example, in American football, the cornerback – a player whose main job is to defend against the forward pass by the opposing team – fails over 60% of the time, the percentage of forward passes completed in Professional Football. How do cornerbacks thrive – the best make over USD 15 million/year – when their success rate is less than 40%?

    A.J. Green, a college cornerback at Oklahoma State University, points out resiliency is a required trait for cornerbacks. “Just play the next play,” he said. “Just keep playing. Nothing lasts forever and live in the moment.” In sports they refer to this as having a short memory. Dwelling on the past can create a distraction that leads to failure on the next play and the play after that.

    This makes sense in business too. If things don’t turn out as we expect, it’s unproductive to dwell on the failure. Sure, it’s important to understand what caused us not to be successful but if we don’t move forward quickly the opportunity to leverage the experience fades and nothing is gained. The points of this article are summarized very well by two quotes from icons in the sporting world.

    “What do you do with a mistake? Recognize it, admit it, learn from it, forget it.” – Dean Smith, basketball coaching legend.

    “Procrastination is one of the most common and deadliest of diseases and its toll on success and happiness is heavy.” – Wayne Gretzky, hockey great.

    When confronted with failure - Identify, Diagnose and Advance.

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    Developing Greater Self-Awareness

    Developing self-awareness is important work. It is not easy. Most work to better understand ourselves and become better leaders isn’t easy. This is what makes it significantly important.

    We all have good character traits and abilities with the level of self-awareness we bring to the world as we find it. We also have opportunities to grow our self-awareness.

    There is an inner-critic in all of us. The inner-critic has been well trained through family of origin, hard life experiences, social environments, moments of success, moments of failure and more. Identifying the negative “tapes” and messages we tell ourselves is the first step to face the critic! To face ourselves. To look in the mirror. To put down the personal “bat” we beat ourselves up with. If we don’t make time to identify the negative messages and behaviors we live out, both consciously and subconsciously, we get in our own way through self-sabotage.

    According to Shirzad Chamine, expert on Positive Intelligence, our inner-critic shows up as a “judge”. The “judge” works its way through saboteurs. Some of the saboteurs that show up are the stickler, pleaser, restless, controller, avoider, hyper-achiever and victim. Shirzad says that, “The Judge uses one or more ‘accomplice’ Saboteurs to hijack your mind…The Judge is the universal Saboteur that afflicts everyone…your Judge is your greatest internal enemy, activates your other top Saboteurs, causes you much of your stress and unhappiness, and reduces your effectiveness.” The Judge is the master. Utilizing tools like Shirzads Positive Intelligence assessment, helps one to become increasingly aware of self tendencies, both good and not so good.

    The gaps that negatively impact individuals presence in the world must be determined and prioritized for what creates the most personal “pain” and obstruction. This focus gets to the greatest leverage point, that when addressed, will help one to grow into a healthier version of themselves. To grow a deeper self-awareness. When the areas of our lives lacking self-awareness are identified; the reframing, rewiring and behavior change can begin. This important work decreases the negative impact of the inner-critic. When this hard work is embraced, it often results in increased self-confidence and positive leadership influence.

    Good character traits and abilities:
    In one’s self-awareness process, there are many things that have great impact in one’s areas of influence (professional and personal). A common thought regarding strengths and abilities is to focus attention on them. To grow them towards better.

    The person that has healthy self-awareness exudes humility, healthy self-regard, empathy, well developed self-actualization, stress tolerance abilities, healthy relationships and ease with problem solving. This person also knows their triggers. When “triggered,” they focus on responding rather than reacting. Their self-control muscle is strong. A great example of this type of person is found in New York Giant’s quarterback, Eli Manning. In November of 2017, he had been the Giant’s starting quarterback for 13 years. Manning was one of only 12 quarterbacks who won multiple Super Bowls. In the fall of 2017, the Giants were having one of their worst seasons ever with a 2-9 record. They announced that they wanted to give more playing time to Manning’s younger backups, Geno Smith and Davis Webb. This is where Manning’s well developed self-awareness enters the story. In an interview with Jordan Raanan (ESPN - November 2017), Eli said the following:

    “Coach McAdoo told me I could continue to start while Geno and Davis are given an opportunity to play,” Manning said. “My feeling is that if you are going to play the other guys, play them. Starting just to keep the streak going and knowing you won’t finish the game and have a chance to win it is pointless to me, and it tarnishes the streak. Like I always have, I will be ready to play if and when I am needed. I will help Geno and Davis prepare to play as well as they possibly can.”

    Eli Manning knew who he was. He lived with self-respect that allowed him to respect others and support their talent, even when it required “sacrificing” his own accolades. His humility and well developed understanding of what he brought to the world, and the world of football, gave him the ability to be aware of others and their needs. He was/is a leader with vision, clarity, purpose, humility and empathy…with great self-awareness. He found great satisfaction and joy regardless of the circumstances. Regardless of significant change. His active awareness gave him the ability to negotiate change and manage relationships towards the greater good.

    The individual that is self-aware is someone who has a healthy self-respect. They trust themselves. They trust others. They recognize the areas of their lives that diminish their leadership influence. They listen with skills that build trust. They seek to be interested rather than interesting. They embrace the hard work of getting better…every day! They influence their world for good wherever they show up. Our world needs more leaders who have healthy self-awareness. Imagine a world where this exists. Don’t just imagine. Choose to live, grow and lead with a well-developed self-awareness.

    Learn more in Self Awareness II: Intermediate Self Awareness

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    Straight Talk is Tough…but the Only Way

    Since the beginning of the new millennium, it seems that at least once a week something appears in the news that another person or organization has been found to have lied about their credentials, the finances of their company, or committed a crime that resulted from some type of dishonest behavior. It makes you wonder why we do not see more examples of people stepping up and exposing the crimes or dishonest behavior while the acts are being committed and not waiting until after the behavior is discovered. But very quickly I remember why prevention does not happen!

    As a person who has worked for more then 30 years with people in a variety of situations, I have found that most of us are risk-adverse, don’t want to be involved in others’ issues, or have a personal fear that something will happen if we speak up, give our honest opinion or become a whistleblower. If there was a simple answer to why this behavior happens, it would be easy to fix; but each of us has a different set of experiences, values and levels of confidence in confronting issues that require honesty and straight talk.

    We discovered when we were talking to individuals while preparing to write our book, Absolute Honesty; Building a Corporate Culture That Values Straight Talk and Rewards Integrity (AMACOM June 2003), that most people would rather “go along to get along” when faced with difficult situations that they perceive will have a negative impact on them either personally or in their career. Most of us, when faced with a situation that requires us to step up and be directly honest with another person, will back off and take the route of least resistance.

    See the full article

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    Communication That Can Change a Culture

    Co-Author David Gebler

    I. Why the need for “Straight Talk”?

    Building an ethical corporate culture requires more than admonishing employees to do the right thing. Companies need to focus on the specific skills that create a positive and open work environment. From our experience, in most organizations it is poor communication that poses the greatest risk to integrity, while cultures in which employees feel free to raise issues issues tend to be ones that maintain higher levels of integrity. A lack of open communication in an organization can have serious consequences. Confusion and lack of awareness, employee isolation, a drop in productivity, a perceived lack of fairness or potential harassment issues, and fear of retaliation all can result when leaders and managers fail to take appropriate measures to promote transparency and openness in the workplace.

    In order to understand how an environment of open communication can motivate employees to comply with organizational values, we need to look at the attitudes underlying ethical conduct. Compliance is usually perceived as obedience to the company code of business conduct, its policies and guidelines. But the degree of an employee’s compliance may depend on many factors.

    Studies that have looked at the characteristics of ethical cultures are noting that key behaviors by managers can have a greater impact than merely deploying program elements such as a code of conduct or a helpline.

    For example, the Ethics Resource Center’s National Business Ethics Survey has identifi ed types of “ethics related actions” that have an especially great impact on outcomes expected of an ethics program. Actions such as setting a good example, keeping promises and commitments, and supporting others in adhering to ethics standards can have a powerful influence on building an ethical culture.

    However, these actions will be difficult to instill in the organization if people do not feel comfortable communicating openly and honestly with each other.

    See the full article

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    Problem Solving in a Complex Organization Requires Two-Way Communication

    Many of us work in organizations that require multiple points of communication

    Successful relationships in complex organizations must begin with:

    • Common understanding of goals
    • Clear understanding of individual roles
    • Commitment to accomplishment of objectives

    The key to a successful relationship is effective two-way communication. One-way communication takes considerably less time; however, two-way communication is considerably more accurate.

    As a speaker in the communication process, make your message as clear as possible. Avoid overgeneralizations or excessively firm statements – this might force a defensive response from your listener. Don’t threaten your listener(s) by using unknown jargon or fifty dollar words. Check for understanding from your listeners. Our words are always subject to misinterpretation, watch for indicators (verbal and nonverbal) of misinterpretation and respond to them. Ask for feedback on clarity. Restate and summarize when needed.

    As the receiver of a message listen carefully to the person speaking. That sounds simple, but it takes a lot of effort to listen well. Demonstrate that you value others’ opinions by not interrupting or responding prematurely. Never jump to conclusions before you have all the facts. Listen and ask questions! As you are listening, be careful to distinguish facts from opinions. Paraphrase the message back to the speaker to check for clarity when necessary.

    The effectiveness of an organization is in large part dependent on the effectiveness of communication within the organization; lateral communication and vertical communication increase the need for accurate and open communication. Good communication skills require attention and practice. We need to continually work on and hone these skills.

    The characteristic elements of relationships in complex organizations are:

    • Multiple points of input and direction
    • Shared responsibilities / ownership
    • Increased participation
    • Decision making by peers
    • Organizational lateral information flow
    • Minimal hierarchy congestion
    • Coordination of people with relevant, timely knowledge
    • Vertical and lateral processes and decision making input

    Of these characteristics, probably the two most critical are: two or more bosses (dual reporting) and decision making by peers.

    Two or More Bosses

    Although business organizations have traditionally evolved as one-boss hierarchies, we are all familiar with dual reporting relationships. The most common example of dual reporting is the family structure: we all had a mother and a father. As children we were responsible to both of them, and they both had authority over us. Conflicts a child may encounter are rarely due to the existence of a second parent. In fact, one parent often helps ease the difficulties a child might encounter with the other parent.

    Decision Making in Matrices

    The second critical characteristic of complex organizations is decision making by peers. Decisions are made every day. They may range from fairly simple decisions, such as what to eat for lunch to as complex a decision as where to put the next manufacturing plant.

    In traditional hierarchies, a clearly defined chain of command dictates that a certain kind of decision can be made by a person occupying a certain position in the organization chart. In a complex organization, however, this is no longer true. Decision making is moved down to where information is generated and authority to make decisions exists. Moving decision making down in the organization allows for decisions to be made by a mix of people with knowledge power (power derived from intimate familiarity with the technology of the day) and people with position power (power attained from years of experience with the organization). In an information industry where success depends on what we know, the inclusion of knowledge-power people in the decision-making process is crucial.

    The increase in the number of decisions made at lower levels in an organization increases the organization’s dependence on the quality of decisions made. The decision-making process we use, therefore, is critical. Understanding of the process is essential to making timely, effective decisions.

    Here is an example of a 7-step methodology to help the team decision-making process work effectively in complex organization.

    1. Build the team to define the problem and set the objectives.

    Generally, the decision-making process starts with some information or data that a problem exists. The first step is to put together a team to examine the problem indicators in order to get a clear definition of the issues. This problem-definition team should include a mix of the people who are closest to the situations, who know the most about it and the “owners” of the problem. This team will not necessarily include the “solvers” of the problem during this step.

    It is imperative that the real problem(s) be clearly defined. Too often we find ourselves working on solutions to the symptoms of problems, not the real problem. In defining the problem, ask a lot of “who, what and when” type of questions. For example: What are the symptoms? Where does the problem occur? What departments are involved? What shifts? What influence, if any, does time of day, day of the week, etc., have on the problem?

    Now is not the time to ask “why.” Why implies cause and solution issues. Remember, this is the problem definition step. Never jump to solutions until the problem(s) are clearly identified. Once the problem is clear, the team must establish commonly agreed-on objectives. In other words, what are you trying to get done? Well thought-out objectives will not only help you define the problem, but will help you decide whether it is a problem worth solving. It is important to start with objectives, so you know where you are going and have some basis with which to measure the decision. Your objectives will become the focus of all discussions, data gathering and related considerations from this point on.

    Objectives should be written in terms of the specific goal(s) to be reached. (E.g., the purpose of this decision is….). Supplement objectives with realistic milestones. That is, the things that must be completed to accomplish the objective(s). Often a decision is not reached because clear milestones and deadlines have not been set.

    2. Build the team to solve the problem.

    Once the problem has been clearly defined and the objectives and milestones set, the emphasis of the team players shift to making the decisions which will solve the problem.

    The problem-solving team may or may not be the same team that worked on problem definition. Clarity of the problem may indicate that different team members with different expertise and authority are needed for solving the problem. Decisions should be made at the lowest competent level. This means that the team should include a mix of technical expertise (knowledge-power people) and members capable of implementing the decision (position-power people).

    This team should be kept small but it is essential that all pertinent areas are represented. For example, the team for a decision about a product shipment should include representation from manufacturing, engineering and marketing. The team for a feature decision on a processor should include chip designers, architects and marketing personnel.

    3. Define the causes and alternative solutions to the problem.

    The goal of this step is to identify the true cause(s) of the problem. Causes of a problem, unlike symptoms, are seldom readily apparent. Start this step by hypothesizing possible causes of the problem. To do this you need to analyze all the tangible evidence that is available. Occasionally it will be necessary to collect additional data during this step.

    Now is the time to start asking “why”. For example, why has the reject rate risen to 30 percent? Or, why is the current hardware no longer able to process information that the development group is generating.

    Once the causes of the problem are identified, the team should generate alternative solutions. Alternatives need to be stated as clearly as possible. Each alternative should be accurately described so there can be no misunderstanding as to the possibilities from which you are making your selection. As a team, discuss the alternatives looking at the advantages, disadvantages, costs and expected results of each. Narrow the list of alternatives down to the two or three most viable solutions.

    It is has not been done already, the team should also establish the criterion (or criteria) that must be met by the solution. You can’t recognize the best solution without some “ideal” to compare it against. Establishing criteria is a natural extension of the objective(s) set in Step 1. For example, if money is an objective, specify the monetary cost target. If quality control is an objective, specify the acceptable error rate target.

    Generally, some criteria are more important than others. And, some will be absolute in their importance. Look at your list of criteria and identify any which are “musts” – the ones that cannot be compromised in any way. Once you have identified all the musts, prioritize any remaining criteria in order of their relative importance.

    At all times in the decision-making process, open discussion should be encouraged. All facts, opinions and points of view should be heard in an atmosphere of openness and candor. All team members need to participate in proposing and evaluating suggestions. Each member serves as a sounding board for others’ ideas.

    4. Gain commitment to the decision process.

    Before the decision is actually made be sure all team members are committed to the decision-making process. This is critical. Each member of the team must agree to support whatever decision is reached. Agree to disagree and commit - agreement with the decision is not necessary, but commitment to back the decision is a must! Avoid “lipotage” – the act of giving lip service to an agreement and then sabotaging it later. It is what happens when people say they commit and only keep that commitment until they are out of the door.

    Why people don’t commit or renege after seeming to commit:

    • Perception of dishonorable intent
    • Perception of unfairness
    • Perception of a sham
    • Perception of stupidity
    • Perception of being powerless

    Some suggestions to make sure you never commit lipotage again:

    • Set ground rules for disagreement
    • Create a signal
    • Get in the habit of disagreeing – have courage!
    • Practice positive cantankerousness
    • Take a risk a day
    • Express your feelings off-line

    5. Make decision and obtain ratification when required.

    Now is the time to make the decision. By now you have developed some viable alternative solutions and a detailed list of criteria. You have also identified which criteria are musts and which allow some flexibility. Now you need to combine all of these elements to determine how good the alternatives are. They must be evaluated against the criteria and against one another.

    Apply the criteria established in Step 3 to each alternative solution. Look first at your “must” criteria. Any solutions which don’t meet these can be eliminated immediately. Look at both the positive and negative consequences of each solution in terms of the team objective. Also consider the future consequence each solution might have. Ask: What trouble might it create? Who else would it affect? What effect will it have on other activities? What opportunities might it open up?

    Once the pros and cons of each viable solution have been analyzed, choose the alternative which best fits the need. Remember, consensus (agreement on an alternative whether or not all parties to the decision prefer it) must be reached on all decisions made. Ratification of the decision must be obtained when the team doesn’t have the power of implementation of the decision.

    6. Prepare, communicate and execute implementation plan.

    Prepare an implementation plan. List the action steps that need to be taken to implement the solution and identify responsibilities and completion dates for each. Be sure that everyone involved or affected by the decision has not only been informed of the decision, but has had an opportunity to discuss the decision and its implementation with you. Clear communication is vital.

    The implementation plan should also specify how to evaluate the success of the solution. Go back to the objectives generated in Step 1 and the criteria established in Step 3. These will point to the appropriate evaluation mechanisms. If you have established criteria such as a monetary goal or a reject rate percentage goal, be sure you have a way to collect the data necessary to determine if you have met those goals.

    Don’t reopen debate or overturn a decision without good reason. However, don’t be inflexible. If a decision is failing to gain the support necessary for implementation, maybe it was the wrong decision. Don’t be afraid to revisit, but be sure there is significant new data which indicates the need.

    7. Review progress and abolish team when the objective(s) is accomplished.

    The importance of this follow-up step cannot be stressed enough. Always check the results of the evaluation set up in Step 6 to determine if the problem has already been solved. If the results show the problem still exists, you probably need to go back to Step 1 and redefine the problem. If, however, the implemented solution is achieving the desired results, check to see if the team needs to continue. If you have accomplished the objectives, abolish the team.

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    The Trust Buster…..Lipotage!

    Watching the 2016 edition of the Chicago Cubs reminded me of some of the most enjoyable work experiences I have had in my life. Those experiences centered on working in groups or on teams that were striving to achieve a common goal where the individual success was always second to the success of the team or organization. The focus on a common goal and approach is so critical to the success in team sports that you can almost feel the personal commitment each of the players have to support other members of the team even when it impacts their own personal ability to be the “star” on a world stage. The trust that exists between each of the group members is so strong that no one would ever question that a team member would not deliver what they had committed to do.

    But then I asked myself why is it that so many teams and workgroups lose that ability to function as a high performing group? I then thought about teams that I had participated in that went from high performing to ones that stopped working together and could no longer trust the other team members to the point where it froze the ability and potential of that team. What was the one event or a number of small issues that changed the dynamics of those teams from high performing to not trusting others to accomplish the team goals?

    As trust broke down between the members, the commitment to the team took a backseat to the success of the individual. There must have been an event or behavior change that caused the team to lose the high level of commitment to the team. Then it hit me that it had to be LIPOTAGE!

    So what is LIPOTAGE? We call it the act of giving lip service to an agreement or course of action in a group or team setting and then sabotaging that agreement or course of action later. How many times have any of us been in a meeting where the group agreed to a course of action and then once you left the room one or more of the participants began to undermine that decision? How many of us have been the recipient of those situations or have been the person that created LIPOTAGE within the group. So why is that behavior such a trust buster?

    Let me tell you a story that happened at one of my clients where LIPOTAGE ended the career of a manager who had previously been on a “high potential” career growth with her company.

    The manager in question had for the past two years lead her staff with efficiency and excellence in every assignment that she had been given. She was able to do this by always discussing assignments, getting the team to discuss any issues that would impact their ability to accomplish the task and ensure that all members of the team were in agreement with the set course of action. The team never hesitated to raise issues prior to leaving the planning meetings when they were not in agreement but once the issues were discussed all members walked out of the meeting and were committed to a course of action.

    When one of the key individuals left her organization she decided to replace that person with an internal person from another organization who had a reputation of being an outstanding performer but was not always a team player. It was a tough decision for her but the pressure to drive more output from her staff caused her to put aside the importance of team work.

    Within the first 60 days the new employee had demonstrated excellent skill in doing their job but had demonstrated to the team that they could not be trusted and showed a lack of integrity in meeting commitments to the manager and the team.

    It was at the first staff meeting that the team was discussing a major project that was scheduled to start in a month. It was critical to the company’s success for the next fiscal year.

    As the team began to plan the project and at the same time try to integrate the new person into the organization, they ran into some major issues with how the new person worked with them and his ability to deliver what he had stated he would be able to provide.

    What the team became aware of was that the new person agreed in project meetings with the approach and deliverables, but once they left the meeting he would tell others that the project was failing and he was not going to agree to meet the project requirements. He blamed the manager for poor leadership, the project team for not working together and stated that the only way the project would be successful was because he was doing what was right for the project.

    His behavior in not delivering to his teammates, talking to others to undermine the project and not supporting his manager led to many delays in the project timeline and that put the success of the project at risk.

    Although the manager recognized what was happening she failed to hold the new employee accountable for his behavior and his deliverables. As a result, the project was 90 days late and put the company at risk for the coming fiscal year.

    The sad part is the manager lost her job and her team went from high performing to not being able to produce the results that they had become known for in the company. The new employee, due to his “Lipotage”, was not held responsible for the failure of the team.

    This was a simple but painful experience of what happens when “Lipotage” infects your team. Managers and team members are all responsible for stopping that from happening.

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    Workplace Relationships Matter. Here’s How to Improve Them.

    Most of the time, we don’t get to choose who we work with every day. But our coworkers’ and our relationships are crucial to our day-to-day work. Not only can poor workplace relationships be real personal downers, they can also hinder productivity and bring down office morale.

    To understand the necessity of positive relationships in the modern workplace, we spoke with Todd Davis, chief people officer and executive vice president at FranklinCovey. Davis’s new book, “Get Better: 15 Proven Practices to Build Effective Relationships at Work,” is a crash course in building relationships of value across organizations. On this week’s episode, Davis explains why we need to mitigate our emotional responses, how listening instead of talking can be a better way to contribute, and how establishing your own credibility with your coworkers can lead to relationships built on trust.

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    What is the First Step on the Road to CFO Success? And How Do We Get There?

    We all know the answer to the first question. Believe in yourself.

    So, the follow-up question is how do you come to believe in yourself?

    I am a firm believer that preparation to perform a task or role is what builds the belief in our ability to successfully accomplish the task or role. I’ll bet you believe that too.

    Ok, how can you plan the preparation and execute the plan to ensure you feel prepared?

    Bingo! This is where the rubber meets the road.

    • Fundamentals.
    • Practice, Practice, Practice.
    • Go a little farther and/or a little faster down your path each day.

    Oh, I almost forgot. Yellow Caution sign. Make sure you are on the right path.

    For CFO’s, the path is made up of 4 superhighways. These are Accounting, Finance, Treasury and Leadership. For most of us the path has also included pretty sizable roadways that don’t neatly fit onto the CFO’s superhighway map. Examples include; Human Resources, Information Technology, Legal, Procurement, even Plant Operations. These are equally important functions for an organization - superhighways in their own right – but not superhighways on the CFO’s roadmap. If that has your blood boiling please let me hear from you.

    The CFO’s Superhighways. (Those who are familiar with me know I normally refer to these as Pillars but let’s call this the horizontal, rather than vertical, version of CFO Success.)

    Each Superhighway is made up of 3 critical arterial roadways as defined below.


    1. Governance: Setting up and administering the legal and operating structure of an entity is a key responsibility of the CFO role. Creating a sound foundation for internal controls to protect corporate assets and reduce the risk of incurring unanticipated liabilities is also part of this Core Competency.
    2. Recording: Record keeping and closing the books are the foundation for creating useful internal and compliance information about your business. The architecture behind excellent recording systems and processes prevents errors, minimizes inputs and is time sensitive.
    3. Reporting: Financial and managerial reporting must result in information you can trust and create transparency into business operations. It must also help you make great choices. Efficient, timely and accurate reporting systems lead to better and quicker decisions. This clarity is crucial for each of your stakeholders – shareholders, creditors, customers and employees. This artery includes tax and regulatory reporting.


    1. Business Planning: Business planning, which includes strategy development and budgeting, is a main responsibility of the finance function. The development, communication and execution of plans requires discipline and processes that provide measures.
    2. Financial Forecasting: As important as the budgeting process is to bringing the team to a common focus, the financial forecast helps the team course correct as the environment changes. It helps leaders bridge the day to day company needs with longer term decisions. The forecast is our “canary in the coal mine” and our “make hay while the sun shines” all wrapped up in one. It’s a powerful tool to keep you in tune with what is changing in your business environment.
    3. Investment Analysis: This discipline guides the company in where to invest and divest its resources. Corporate culture and finance principles applied to well-designed models assist companies in determining where to invest their capital and human resources.


    1. Cash Management: How can something so obvious create so many headaches. Cash management is all about, well, you guessed it, managing cash: bank balances, receipts and disbursements. Effective cash management is aggressive and mindful of risk at the same time. It involves having the people, processes and systems in place to prevent cash shortages while highlighting cash excesses that can be reinvested or returned to shareholders.
    2. Funding: Know your options. Funding can come in many different forms; operating cash flows, terms with suppliers or customers, loans or lines of credit, and raising equity. Each form has different costs and risks but the objective is the same – provide the company with enough liquidity to execute your plan with some cushion for variability. Having cash, either on hand or available, will not only help to avoid bankruptcy, but also position your business with adequate resources to capitalize on growth opportunities as they come about.
    3. Risk Management: The importance of capital and readily available cash drives companies to implement risk mitigation measures to protect their capital base. This is why the risk management function is a natural fit for the Treasury Pillar. Many internal controls are designed to protect against cash shortfalls. These controls include; preventing cash from being misappropriated, monitoring bank covenant compliance to preserve liquidity and executing an effective capital policy to maintain a reasonable cost of capital. The demands and rigor associated with effective cash management are a natural extension to solid risk management practices.


    1. Self-Awareness: The way we see ourselves is going to be different than the way others view us. Narrowing that gap is a huge step to improving relationships and expanding your influence. Think about all the time that could be saved resolving issues if we could perfectly describe them, have all parties perfectly understand them and resolve them in perfect harmony. We are individuals seeing the world and ourselves through our lens. If we aren’t capable of seeing part of it through the lens of others, we are going to live in a pretty small space.
    2. Team Building: Building trust and creating a safe space for members of a group to practice and refine their discipline is foundational to developing a well-functioning team. That doesn’t mean all is harmonious. In fact, contention is a requirement for real learning and growth. An effective leader helps the team debate and learn in a respectful, benign atmosphere.
    3. Strategy & Culture: Corporate executives have many ways to motivate their workforce. To truly inspire an organization requires a vision and communication that rallies folks behind a common cause. We may not be called on to be the leader of creating the cause at the companies and organization we serve but to reach the Strategic level of leadership, we must understand our purpose and champion it. Know why your company exists. And use that knowledge to lead.

    Having enough exposure to each of these Superhighways and Arteries is what prepares a professional to get behind the wheel of the CFO role and navigate along the CFO map.

    To take the CFO challenge and identify your path to a CFO role take our CFO Readiness Assessmentᵀᴹ.

    If you are embarking on a new CFO role you may find The First 100 Days of a Successful CFO especially useful. It includes a tool to help you assess where your energy needs to be focused.

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    Why Every Business Should Build Weekly Cash Flow Forecasts

    Executive Summary

    What are weekly cash flow forecasts?

    • Weekly cash forecasts are used to project a company’s liquidity over the medium term, estimating the timing and amounts of cash inflows and outflows.

    • Companies big and small, early and mature, should utilize this tool. The weekly cash flow forecast can even be tailored to businesses in all industries and with varying business models.

    • Breaking the business down on a weekly basis captures the granular movements that can be overlooked if using a month, quarterly, or yearly interval.

    • The optimal forecasting period is 13 weeks, the total weeks in a fiscal quarter. The optimal time period should extend far enough into the future to give your team time to react, but not so far out that the degree of certainty becomes nil.

    How are weekly cash flow forecasts useful?

    Forces discipline through “cash is king” mentality: While GAAP can help conceal business issues, it is hard to cover problems when focusing on cash.

    Enhances understanding of customers and suppliers: The customer and supplier stratification process provides insights into key customers and suppliers, including whether certain customers are slow to pay or if suppliers offer early pay discounts.

    Helps businesses understand the cost of growth: Understanding near-term liquidity needs enables a company to plan for growth and raise the appropriate financing.

    Reduces cost of capital: By understanding liquidity, a company can minimize borrowing on credit to fund interim payments like payroll and rent.

    Increases communication with other departments: In order to complete the cash flow forecast, the finance team must communicate with colleagues across departments.

    How to construct a weekly cash flow forecast (Here is a Template you can use)

    Step 1: Set up the spreadsheet. Add week-ending dates across the top, and down the left-hand column, create rows for cash receipts and disbursements. Fill in 3-4 weeks of actual data to draw a trend, and then project from there.

    Step 2: Understand how the business makes sales and collects cash, choosing between four general business models: contractual, recurring, one-time lump sum, and hybrid.

    Step 3: Focus on cash payments, scheduling out fixed payments and what dates they must be made on. Then stratify vendors into critical and non-critical vendors, paying critical vendors first. Lastly, subtract disbursements from cash receipts for net cash flow. If there is a deficit in the week end cash balance, either draw on the credit facility or figure out how to increase receipts or decrease disbursements. Be sure to flag it with key managers.

    Why Every Business Should Build Weekly Cash Flow Forecasts

    “The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.” – Chris Chocola

    When most finance professionals hear the term “13 week cash forecast,” they view it as a burden—one more task to appease an overbearing lender. Most finance professionals do not get nearly as excited about building it as they do about building a projection model for an acquisition or investment. It doesn’t help that companies generally tend not to focus on their liquidity needs until they are forced to do so. Therefore, people often only prioritize the weekly cash forecasts in distressed situations, when it is too late to take corrective actions. And even still, the analysis is often hastily executed and inaccurate.

    Through my time in private equity and consulting, I have witnessed how beneficial the compilation of weekly cash forecasts can be, in industries ranging from distribution and manufacturing, to fitness and services. In almost all cases, the involved companies wished that they had conducted the analysis sooner. Therefore, it’s my strong belief that weekly cash forecasts are crucial for businesses large and small, healthy or distressed, and across all sectors.

    What Are Weekly Cash Flow Forecasts?

    Weekly cash forecasts are used to project a company’s liquidity over the medium term, estimating the timing and amounts of cash inflows and outflows. The weekly interval forces companies to understand the details of their business at a more granular level. For example, cash inflows could be large one week if a large amount of receivables are collected, but outflows could be huge the next if payroll and rent are due. Breaking the business down on a weekly basis captures the granular movements that can be overlooked if using a month, quarterly, or yearly interval. Why not do a daily forecast, then? In my experience, it can be excessive since it introduces seven times the variables as a weekly forecast, and may not improve the accuracy of the forecast. Therefore, the weekly interval provides a happy medium in achieving granularity without overwhelming detail.

    With regards to an optimal forecasting period, the industry standard is 13 weeks, the number of weeks in a fiscal quarter. Ideally, a company should understand how revenues and costs will be incurred in this time frame. If you only project out four to eight weeks, it will be difficult to effectively react to liquidity issues. The optimal time period should extend far enough into the future to give your team time to react, but not so far out that the degree of certainty becomes nil.

    Arguments Against Weekly Forecasts Are Short-sighted

    I’ve heard, and some of you may have even used, one or more of the following reasons to not do the forecast:

    • “That’s great, but these were all distressed situations. My business is healthy, so this is a waste of time.”

    • “I have a small team (or no team) and I don’t have time to put together another forecast”

    • “My company is growing well, and there is nothing on the horizon to lead me to believe otherwise”

    • “My business is different than the ones you described, so cash forecasting doesn’t apply to my company”

    • “My shareholders/lenders/parent company believes in us and has deep pockets. Even if we have a problem, they will fund any cash shortfall we might have”

    While relatable, these are all short-sighted. Every company, no matter how strong, will inevitably face difficult times. Let’s not forget The Great Recession, when blue chip companies on top of the world (e.g., Goldman Sachs, Morgan Stanley, Lehman Brothers, Bear Stearns, etc.) were brought to their knees. Now, would a weekly cash forecast have prevented the disaster? Perhaps not. But, what I can say with certainty, is that none of these companies had a good handle on their liquidity needs, something which could have mitigated the eventual damage. There are always limits on liquidity and it behooves an operator to know those limits.

    Why Are Weekly Cash Flow Forecasts Useful?

    Forces discipline through “cash is king” mentality

    Operators cannot hide behind accounting tricks to hide underperformance. GAAP can help conceal business issues, but it is hard to cover problems when focusing on cash. Focusing on the near and medium term time frames can uncover potential issues quickly and can help businesses subject to seasonality get through off-seasons.

    Enhances understanding of customers and suppliers

    The customer and supplier stratification process provides insights into key customers and suppliers, depending on the situation:

    • If a customer is paying slowly: It can be used as an excuse to call a customer. Instead of simply demanding payment, it can be another revenue generating opportunity—assuming your company still wants business from this customer

    • If certain suppliers offer early pay discounts: Having a handle on cash flow can enable a company to take advantage of these discounts and increase profitability

    • If certain vendors are relaxed on the enforcement of their terms: A company can stretch some of their flexible suppliers to decrease net working capital and increase cash

    Helps businesses understand the cost of growth

    Growing companies are often cash-constrained because capital expenditures and inventory investments must be made ahead of the revenue associated with the growth. Understanding near-term liquidity needs enables a company to plan for this growth and raise the appropriate financing. It thus also helps a company avoid failure to deliver or worse, major financial distress.

    Reduces cost of capital

    By understanding liquidity, a company can minimize borrowing on credit to fund interim payments like payroll and rent. In other cases, a company can reduce the amount of cash kept on hand and instead deploy the capital through re-investment into the business, debt reduction or dividends.

    Increases communication with other departments

    In order to properly complete the cash flow forecast, the finance team must communicate with colleagues in sales, purchasing, accounts payable, accounts receivable, human resources, etc. It forces the finance forecasting experts to gain a fuller understanding of the business and how it operates.

    When and for What Types of Businesses Is It Appropriate?

    In many cases, financial stress can be avoided by understanding incoming and outgoing cash flow, and taking appropriate corresponding action. In all cases, a business can benefit from cash forecasting. Remember, CASH IS KING! It’s my strong belief that companies big and small, early and mature, should utilize this tool. The weekly cash flow forecast can even be tailored to every type of business.

    Invaluable for companies in dire situations

    When I saw my first weekly cash forecast in the fall of 2008, I admit that I was skeptical of its value. At the time, I was working for a distribution business that served companies in the transportation and construction industries. However, with the forecast, we were able to glean insights into when people were coming into our stores, and when cash was actually hitting our bank account. Despite the tough economic environment, basic “blocking and tackling” business performance improved as did cash flow. We realized that sales spiked on certain days of the month (the 1st, 10th, 20th) due to certain buying patterns. The company capitalized on this trend by running promotions those days to increase the average dollars per order. I quickly became a believer.

    In another situation with a services business, we averted disaster because the weekly cash forecast accurately projected that we would run out of cash in the following month if the bank forced a mandatory repayment. The business did over $100 million a year in sales, but we were going to have a $1 million hole due to the major seasonality of the company. We used the forecast to convince the bank to reduce the amount of debt repayment they were requiring and let us get through the seasonal cash crunch to more profitable times. In addition to helping us avoid a crisis, the accurate insights into the business built our credibility with the bank when we presented a re-forecast to renegotiate our covenant package.

    The exercise is also useful for healthy companies

    Though counter intuitive, when business is great, it could make sense to get in the habit of weekly forecasting. Continue testing and honing the forecast so that when an issue eventually presents itself, the company can take the appropriate action to cut costs, hoard cash, and survive the rough patch.

    For example, a company I worked with was performing well and had ample liquidity, but prudently still chose to pursue the exercise. It ended up being the right decision. Many suppliers in the industry offered early pay discounts, which the company had not leveraged in the past because it prioritized working capital. However, after running some sensitivities, we concluded that the uptick in profitability would be more valuable than the near-term drain from paying some costs sooner. In this scenario, the weekly cash forecast helped us achieve increased profitability, stronger relationships with suppliers, and higher operational efficiency.

    How to Construct a Weekly Cash Flow Forecast

    Weekly cash forecasts are not nearly as difficult as they are often made out to be. (Use this Template as starting point.) Here are a couple items to keep in mind:

    The model includes two major components. One side of the equation is cash receipts (revenue), and the other is cash disbursements (cash payments). We’ll address both.

    Garbage in, garbage out. Your analysis is only as good as the numbers and data you are inputting. Do your best to obtain accurate information before inputting into your model.

    Use “shoe box accounting.” The most difficult part for finance professionals is changing their mentality from a GAAP accrual method to cash accounting. Think of your business as a shoe box, and the only concern is the cash that goes in and goes out—hence “shoe box accounting.” Forget GAAP items like revenue and COGS recognition,GAAP rent expense, bonus accruals, PIK interest and goodwill impairment—they mean nothing in this analysis. Sometimes the GAAP complexities and attributions shroud the true financial state of a company. Instead, focus on cold, hard cash: cash receipts, payments for inventory or services, cash interest payments, cash rent, mandatory debt principal repayments, etc.

    This is particularly important if your business has a large deferred revenue component and collects cash payments in advance of recognizing revenue. In a school I was involved with in the past, tuition was paid in advance of the school year. Therefore, July had a major influx of cash, but no revenue. The subsequent months recognized revenue, but no cash came in.

    Parting Thoughts

    In closing, weekly cash forecasting can significantly improve discipline and operational control. While it will not solve all problems for a fundamentally challenged business, it can improve business processes and functionality. Weekly forecasting leads to insights into the company as to where the business can save money, potentially increase revenues and increase cash flow. Even more importantly, if done properly with critical thinking and proper insight, it can help managers get ahead of any potential problems and plan appropriately. After all, Richard Branson puts it best: “Never take your eyes off the cash flow because it’s the lifeblood of business.”

    Marty Mooney

    Principal with Muirlands Capital


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    Using the Business Value of IT Calculator

    The Business Value of IT Calculator (BVIT) is a very simple and intuitive approach that any executive team can use to understand where the company stands on its utilization of IT. Almost all business functions use IT to some degree. Therefore all functional business executives should have a view of how well IT is serving their needs as well the overall business needs. The BVIT uses a very intuitive survey approach to ask 10 questions of the executive team and aggregates results to get an aggregated composite rating of value from IT.

    The dimensions of the BVIT include many different elements of the types of value that IT should deliver in any organization. Though this tool can be further customized for any business, the basic elements of IT value included in the tool are:

    1. Innovation – a measure of how well technology is being leveraged to drive business innovation and prepare for the future.

    2. Marketing value - a measure of how IT enables marketing efforts in the organization including the company web site, use of social media, tools used for brand development and marketing spend analytics tools.

    3. Product/Service value - a measure of how IT is assisting in new product design, customer feedback, innovation and new ways to provide value.

    4. Customer Oriented value - a measure of how well IT is leveraging technology to serve basic customer needs - product/service info, service requests, customer service automation, fully support and delight our customers.

    5. Revenue Oriented value - a measure of how well IT helping to generate revenue through E-commerce, payment and collection systems? For managing the sales pipeline.

    6. Decision making value - a measure of how well technology provides analytics information to make daily/monthly/quarterly/annual business decisions in various areas of the business.

    7. Employee collaboration value - a measure of how well technology is be used by employees, including: PCs, Laptops, mobile devices and basic applications such as e-mail and Word processing.

    8. Business Process Automation - a measure of how effective IT is at automating internal business processes such as sales, manufacturing, distribution, Finance and HR.

    9. Information Security - a measure of how well IT is securing information assets.

    10. Compliance - a measure of how well IT is complying with the relevant standards and regulations for our industry and practices.

    The BVIT is a survey tool taken by the executive suite. Each of the dimensions is rated on a scale of 1-10. The tool provides suitable and intuitive language for what a 1 or 5 or 10 rating would feel like. Once rating data is gathered and aggregated across executives, the results provide key insight into the value of IT.

    A composite rating between 1 - 4 indicates that your organization is not leveraging IT well. A rating between 4 - 6 indicates average value from IT. A rating between 7 - 10 indicates that you are in the top 30% of IT savvy firms who take advantage of IT to win in the marketplace.

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    The Secret to Successful ERP Implementations is Not Putting the Cart Before the Horse

    In today’s challenging economy, there is more pressure than ever on small to mid-size firms from their banks, their CPAs, investors and the SEC (if they are public) to produce accurate and timely financial reports. In many firms this task, painful and slow if not automated, falls on the shoulders of the firm’s Accounting Team, usually the Controller.

    Thus, it is no surprise when, at some point, the Controller’s voice becomes the loudest in the room, appealing for a new or improved ERP system to ease the pain. Moreover, such an urgent need might also be precipitated by the discovery of an audit or control issue – in which case the Auditor’s voice adds even more volume to the urgency of the need.

    If the CEO/Owner of the firm agrees to an ERP initiative, the Controller may be assigned to take the lead. Thus, the squeaky wheel gets both the grease AND the tough assignment.

    While the decision to install or upgrade an ERP system in these circumstances may be wise, the decision regarding who should lead the project may not be.

    Enterprise Resource Planning (ERP)

    An ERP system is an integrated suite of software programs (modules) that both facilitate and automate a firm’s business processes and transactions. While performing these functions, the system collects, processes and stores all the data associated with those processes and transactions.

    There are three primary processes integral to all businesses:

    1. Order to Cash: This process typically comprises the accepting and recording of a customer order, shipping to a customer, invoicing a customer and collecting cash payment.

    2. Procure to Pay: This process comprises the ordering of goods and materials, receiving goods and materials, inventory transactions (raw material to work-in-process to finished goods), inventory valuation, matching receipts and invoices for goods received, payment for goods received and control over cash disbursements.

    3. Financial Reporting: This process comprises the compilation and reporting of the financial results of the other two processes.

    The typical ERP system architecture centralizes all business data into master data files and integrates and synchronizes co-dependent functions. (You can read more about master data files here in a great post by Rick Koski, President of Lighthouse.)

    An ERP system typically has many different “modules” or “software functions” that correspond to the many primary and secondary business processes of the firm. These modules are usually focused around Order Management, Manufacturing and Accounting activities.

    Some ERP system architectures and designs are better suited to manufacturing, others to distribution and yet others to services firms.

    Accounting-Managed ERP Installations:

    If the Controller consults his external Accounting firm for ERP advice, the feedback may over-emphasize and prioritize Accounting’s pain-relief needs, while missing critical requirements of the rest of the business.

    The problem created with this approach is that Accounting and Financial Reporting are backward-looking functions. They record what has happened. They do not facilitate, automate or improve performance of core business processes quickly – in real time.

    Here are some common “tells” that your current ERP system implementation may have been an Accounting-driven project:

    1. The production or operations people hate the ERP system because it just doesn’t do what they need. Finance is blamed.

    2. Driven by continued frustration with the current ERP implementation, the rest of the business has bought or built parallel tools. Finance is blamed.

    3. There are expense overruns. Finance is blamed.

    4. Executives are not able to get meaningful reports to help them manage the business. Finance is blamed.

    These symptoms can also hide manufacturing problems.

    Manufacturing people are typically resourceful and quickly find work-arounds to dysfunctional systems to accomplish their goals. The trap is that what may appear to be good customer delivery performance, for example, may be hiding horrendous inventory and cost variances beneath.

    If you are still unsure about the consequences associated with an Accounting-driven ERP installation, ask yourself this question:

    Which is more likely to create meaningful business outcomes in terms of revenue, profit, cash and corporate value: a) automating the score keeping or b) improving and automating the Order-to-Cash and Procure-to-Pay processes?

    An ERP deployment cannot, in any way, be considered complete by only deploying Accounting and Financial Reporting modules.

    “Successful ERP deployments are about improving the playing of the game first, before improving the score-keeping – not the other way around.”

    To further make this point, a McKinsey Global Institute and London School of Economics study of 100 companies in the United States, France, the UK and Germany came to these conclusions: ⁽¹⁾

    1. Improving management practices (process improvements) increases company productivity by 8%

    2. Increasing the intensity of IT deployment (tools) increases company productivity 2%

    3. Doing both increases productivity 20%

    That is synergy at its best.

    A company can buy all the enterprise software they want, but unless the company’s core business processes are optimized before they are automated, that software isn’t going to help a whole lot.

    Assuring your ERP system delivers an ROI

    Sadly, too many ERP Investments never actually yield a measurable ROI. More than 50% of companies in the U.S. upgrade their ERP software every three years. With investment cycles this short, an ERP cannot generate any meaningful ROI.

    You must fix your organization and processes before you automate. If you have inefficient business processes, all computer systems will report the same automated mess.

    The first thing to recognize is most contemporary ERP systems typically come with all the functionality necessary to run your business. In our experience, 90% of the challenges with ERP deployment revolve around poor process optimization and ineffective module implementation, while only 10% of the time will the problem be related to an ERP system’s available core functionality.

    Here are ways to optimize ROI from an ERP, either a new installation or one that isn’t delivering what it should.

    1. Create a clear understanding of what it is you need to accomplish with your ERP. What processes need to be optimized, then automated to make the business generate cash? What information will be required to sustain the business at high performance?

    2. Consider, strongly, bringing in an independent third party expert to diagnose and fix the processes – then use them to implement the appropriate system modules.Everyone in your firm is most likely already busy, so the addition of a knowledgeable and objective resource should be valued. In addition, bringing in an experienced, objective resource assures that current flawed processes are identified and corrected, not immortalized by automating them.The external resource should be a business person that understands Finance, yet has a strong operations perspective. It must be someone that looks at the business as a whole – managing the cross-functional team and understanding the requirements of the entire business, not just Finance.Listen to the person you hire. You’re spending a lot of money for an expert guide. It doesn’t help if you don’t listen.

    3. Attack and optimize the core processes first. Don’t reinvent the wheel. Force yourself to evaluate why your core processes are different before immortalizing them in custom systems implementations.

    4. Implement and optimize the core business process ERP modules you already have before tackling additions.

    5. Subsume spreadsheet financial processes into the system – eliminating the use of excel files.

    Sarbanes Oxley compliance is very demanding on proving, testing and auditing excel based financial reporting process steps. Public companies, no matter their size, borrow more trouble than they save by using spreadsheets in their financial reporting processes. Even if you don’t have to be SOX compliant, there are other audit standards that need to be satisfied.

    A Final Word

    What we have been attempting to tell you throughout this post is simply that two most common traps associated with ineffective ERP systems implementation initiatives are: a) moving to implement an ERP without understanding and considering the needs of the entire business, not just Accounting, and b) automating (bad) processes before they have been fixed and optimized.

    If you are patient, thorough and implement in the proper order – process optimization first, systems implementation second, scorekeeping third – success is within your grasp.


    ⁽¹⁾“ERP Lessons from Rich People Who Stink at Golf,” Tony Friscia, CEO Eduventures.

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    Making Smart IT Investment Decisions

    By Rick Koski, President, Lighthouse IS, Inc.

    The following scenario is all too common. A CEO/CFO is inundated with chronic business problems: on-time delivery, customer service responsiveness, inventory inaccuracies or any of a handful of other afflictions. The management team blames a host of demons, most notorious amongst them, obsolete or dysfunctional systems.

    What to do?

    Call the IT guru, of course. Have them look at the problems and make recommendations.

    What’s the IT guru going to recommend?

    Probably a technology and systems solution. That’s what he has in his doctor’s bag. Perhaps a combination of upgraded application software, hardware, servers, data security and, most popular these days, a transition to the Cloud.

    What’s Wrong with That Approach?

    It’s misguided. It’s overkill and it misses the real issue. The real need is to resolve the core business problem – not simply reinforce the technology. IT systems are accelerators and “automators” of process solutions, not solutions themselves.

    Investments in IT betterment must have as their primary purpose making a business process more effective, efficient and robust – not just deploying technology. Solutions, therefore, must always be developing from a fundamental understanding of the root business problem that needs solving. Then, once a repeatable process solution to that problem is found, appropriate technology to automate and lock in the solution can be implemented.

    As an example, a client engaged us to solve a troublesome, complex work-in-process inventory management problem. Sub-assemblies kept getting mixed, making it impossible to know at any time how many of each were on the shop floor. The client’s team was confident they had already found a good solution to the problem, i.e. new software and associated hardware.

    The best solution turned out to be a simple label applicator (less than $100) that could be used to color code sub-assemblies as they were routed through the manufacturing process. Visually obvious, simple, inexpensive. No confusion. Problem solved.

    A technology-based, knee-jerk reaction model for dealing with business process challenges will rarely achieve longer-term ROI, nor adequately and quickly alleviate the short-term pain. Such an approach will only use cash, waste valuable time in implementation, and create frustration about the little real impact it produces in achievement of business objectives.

    A more sinister consequence of the “quick tech fix” approach is the hidden threat that a competitor might implement a more efficient and effective fundamental business process than you, while you are distracted with elaborate technology schemes to automate fundamentally inefficient process.

    Brash as it may sound, business problems are commonly misdiagnosed as technology problems, when in fact, they are management and process problems that technology will not only not fix, but exacerbate by automating them.

    Building the Foundations for Business Success

    Why will one company achieve great success with a particular brand of software while another struggles?

    The answer is in the implementation.

    We once witnessed a business buy flashy and expensive software because their competitors were using it. Unfortunately, they could not achieve the same success because the competitors understood that software was only valuable in the context of sound business and process decisions.

    Today we see a similar mindset with the cloud. The cloud is touted to make everything less expensive and better. In software or cloud implementations it is important, first, to understand what the business is trying to achieve. This implies understanding what the business sees as its immediate need in the context of its vision of the future – say 5 to 10 years – and keeping that in mind as the context for any current solution implementation.

    “It is not “now” that is key, but rather it’s how “now” fits into our future.”

    The Apparently Slower Path Gets You Farther

    Let me be more prescriptive in suggesting how to really achieve success with business process issues and any subsequent software and systems implementations.

    Step 1: Lock the technology guys out of the room. Achieve consensus on objectives and outcomes first. This provides a benchmark against which to test any solution, namely, does it meaningfully forward the achievement of the business objectives.

    Step 2: Identify root causes of the business challenge – based on hard evidence and data.

    Step 3: Model and test the solution.

    Step 4: Let the technology guys into the room to systematize it.

    While it may at first seem too methodical a route to meet urgent challenges, it is universally preferable to begin with some sort of understanding of the objectives and challenges facing the business, instead of focusing on the symptomatic dysfunctions and diagnostic assessment. That’s Step 2.

    Savvy IT shops recognize this fundamental principle and are now responding to such CEO/CFO calls for help by sending in business analysts in the first wave, then driving solutions to meet the business challenges and objectives with the appropriate mix of process and technology. Keep in mind, fundamentally innovative processes and business models create breakthrough outcomes – not technology, first.

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    Lessons from the Equifax Breach

    The recent Equifax breach, (one of the three major national credit reporting agencies), was the result of pathetically weak IT disciplines. Two months after an industry group discovered the coding flaw in their data systems and shared a fix, hackers took advantage of that flaw at Equifax.

    This raises questions about why Equifax didn’t update its software successfully when the danger became apparent. But don’t think that the blame for these kinds of massive problems rests solely, or even mostly, on inadequate technology – even with its flaws. In this case, the Equifax breach was created by a combination of poor password discipline and inadequate software maintenance. These are procedural and process issues. While procedural and process issues hover over technology – technology is not to blame, per se.

    Important Lessons from the Equifax Breach

    This compound root cause underscores the value of a holistic, disciplined approach to information security – an approach which combines and integrates internal process discipline, uncompromising standards, and maintenance rigor.

    The deficiencies at Equifax could have been revealed with even the most basic security and procedural compliance audits.

    “The Equifax data compromise was due to (Equifax’s) failure to install the security updates provided in a timely manner,” said the Apache Foundation, which oversees the widely-used open source software.

    If that weren’t enough evidence of lack of discipline and rigor, according to security blogger Brian Krebs and quoted by the BBC, Equifax’s online employee tool used in Argentina could be accessed by typing “admin” as both a login and password!

    Information Capitalism

    While Equifax is one of the largest consumer information repositories, there are between 3,000 and 4,000 other data brokers that are collecting, saving, and selling information about you. It’s probably safe to guess that half of them are companies you’ve never heard of and have no business relationship with.

    Information today is commerce. It’s like the old Faberge shampoo commercial from the 80s, “…she tells two friends, and then she tells two friends…” The companies that collect and sell your data don’t need to keep it secure in order to maintain market share.

    Global Footprints Make Things Worse. It’s important to remember that a weakness in one location can affects all others. By not having standards, discipline and rigor, negligence can reach the criminal level.

    If we look at Security & Compliance breaches from 2016 to this year, reported data breaches increased by 40%. Yahoo’s was the largest in history – 1 Billion accounts hacked in 2013 and then another wave in 2014. Equifax seems small in comparison (143 million users), but the data was more impactful. Both incidents could have been avoided.

    To Err is Human…

    The list of potential human error risk factors is long, including not updating systems security or patches timely or appropriately, not managing system patches, lost or misplaced devices, and the use of common default passwords and user IDs. Why would using “admin” for either ever be a good idea?

    So, what are the consequences of these security breaches?

    • Enormous brand damage – typically reflected in share process
    • Forced shut downs
    • Lost jobs
    • Lost market share
    • Lawsuits
    • Heightened regulatory scrutiny
    • Unanticipated extraordinary costs
    • Damaged and devalued brand identity
    • Irreparable damage to victimized customers

    The Security and Compliance Audit is Essential

    The Equifax vulnerabilities that led to the breach (delayed updates and poor passwords) would have been captured in any reasonably rigorous Security and Compliance audit, or assessment.

    A sound assessment comprises:

    1. A review of the firm’s security policies and procedures.

    Does the firm HAVE a sensible information security policy? Is it current for both the specific software and systems you’re using? Is everyone accountable for and on-board with it?

    2. Are periodic audits of the policies and procedures performed.

    Annually (at minimum) corporate data and what level of security is required for each type of data must be assessed, expired passwords must be ferreted out and updated – and software patches and updates must be applied. By auditing your systems and employee behaviors, you can find the small vulnerabilities that can lead to significantly larger ones.

    3. Be highly sensitive to the human behavioral component.

    The human factor is usually a major problem.

    Employees can be sloppy. With Equifax, it was a human problem, NOT a technical problem. Above all else, assure policies are in place, adhered to, trained and ingrained into everyone’s daily behaviors.

    4. Put in place a remediation plan.

    The moment you realize your organization’s information has been compromised, and that doesn’t always happen immediately, the whole team must spring into action and know what to do. That doesn’t happen without training and re-training.

    In the Equifax case, as in many others, poor process disciplines, poor policy, and poor administration of the policy are at fault. A lack of audits are what enable human error that goes off track. Managing cyber-risk is a multi-faceted, whole-organization effort that requires strong policies, procedures and buy in.

    BE PREPARED is as appropriate and meaningful to commerce as to the Boy Scouts.

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    Are GPOs the right option for you?

    Group Purchasing Organization Plans (GPOs) have gained a lot of popularity lately. Most organizations have joined a GPO to combine their purchasing spend with other GPO members to get better pricing and streamline supplier spending. In many cases, GPOs deliver a valuable service. Not all GPOs are created equal and it is important to find right fit for your organization. In some cases, direct supplier negotiation is a viable alternative to GPO.

    Here are a few considerations for evaluating a GPO:

    1. Membership Costs: Though some GPOs are free, most GPOs charge an annual fee to cover the cost of employees and management. Check the fees of the GPO vs. actual savings. You may find that the savings don’t justify the fees, especially if you are buying limited number of items.

    2. Qualitative Requirements: To provide a better price, GPOs often select a single supplier for each category. Make sure your qualitative requirements, such as product quality, delivery schedule, service etc. are met by the GPO’s supplier. Lower purchasing costs may not translate into the lowest total cost.

    3. Supplier Access: When irregularities in supplier invoicing occur, GPOs are often not geared to provide verification and credits. Be sure you know GPO’s resolution process meets your needs in the event of poor service or delivery issues.

    These considerations will help you select the right GPO. In our experience with hundreds of customers, going direct to supplier provided 10+% additional cost savings and better terms than GPO.

    Are GPOs always the most cost-effective option?

    In many cases, GPO members have received better pricing and contract terms than they would have on their own. However, many companies, especially with large spends, achieve better pricing & service through direct negotiation with supplier.

    How could going direct deliver better results than pooled resources?

    1. GPO supplier must support all its members. Members with large spends subsidize fixed costs of smaller members.

    2. The suppliers who are not part of the GPO know that only way to win GPO customers, especially those with large category volumes, is to offer superior price and service.

    3. GPOs have better prices and terms in certain expense categories but don’t excel in all the expense categories. It is worth comparing direct supplier terms again GPO.

    In summary, if you have sizable volume in certain categories, explore competitive direct options in addition to the GPO.

    This is an area with diverse opinions and experiences. I would love to hear your thoughts and experiences on this topic.

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    A Professional Community of Member-Scholars, Companies and Trusted Advisors committed to the development of Chief Financial Officers.

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    The First 101 Days of a Successful CFO

    You just accepted your first role as a Chief Financial Officer. Congratulations! You have made it to the top of your profession. There is a good chance you have a post graduate degree or two, professional certifications that give you expert status in specific disciplines and more than one non-profit or professional association has benefited from your presence. It’s been hard work getting qualified for this new job. You deserve it.

    Even with all that preparation, we imagine you have a few butterflies fluttering wildly in your stomach. Our wish for you is great success. Maybe we can even help settle the butterflies and get you off to a great start in your new job.

    We are calling this revised post The First 101 Days of a Successful CFO. It’s a road map to assess where your efforts in the accounting, finance and treasury functions should be focused in your first 101 days.

    We divided the assessment part of this process into 9 components. With good time management the assessments should take about 2 weeks of your time. Don’t let that worry you. The components are areas you will become familiar with early on in your new role anyway. This formal process not only prevents you from overlooking key areas, it will save you time in the long run. These components are foundational to becoming a great CFO. Once these components are assessed you will have enough information to develop and execute a plan to get your operations in order.

    The 9 components to be assessed are:

    1. Review the Corporate Strategy: This should be done with the CEO and Board Chair. Look for completeness, consistency, communication and evidence that all parts of the strategy (or business plan) are being implemented. Take this opportunity to learn how they describe why the company exists and what they believe is important.

    2. Review Corporate Documents: In this component make sure all formation documents are current and their requirements being followed. Review minutes from Board Meetings and the most recent audit for the same reason. After your review schedule time with each executive to follow up on questions that came up during your review and learn what their expectations of your role and department are.

    3. Review the List of Compliance Requirements: This might be a long list that includes regulatory (i.e. tax, labor, environmental, safety) and commercial (i.e. banks, insurance, financial audits) requirements. The key issues when reviewing these include: a.) are they filed timely, b.) are you comfortable they are accurate. When your review is complete meet with your key advisors (outside accounting firm, banker, insurance broker, legal firm, etc to obtain their input on how things are going.)

    4. Conduct a Balance Sheet Analysis<