menu SIGN IN
Gary Cokins
Gary Cokins
Founder and CEO - Analytics-Based Performance Management LLC

Analytics-Based Performance Managent LLC
Manager, Performance Management Solutions

Websites:

Rules for Assuring Poor Performance

Posted over 8 years ago

In 1773 Benjamin Franklin, one of the USA’s founding fathers, wrote a pamphlet aimed at the royalty of England titled Rules by Which a Great Empire May Be Reduced to a Small One. Satire is one way to get your point across. I apply my own style of satire here to appeal to organizations to cease their hesitation and skepticism and embrace the benefits of applying business analytics and enterprise performance management. I apologize in advance if I offend anyone, but sometimes there is truth in humor.

Imagine I took over the management of a poorly performing organization and wanted to keep it that way. For example, I might not want it to grow so quickly that it would leave me less time to pursue my hobbies and golf. What steps would I take?

First, I would ensure that all of the managers and employees are totally ignorant of the executive team’s strategy. That way no one will understand how the work they do each week or each month contributes to successfully achieving the strategy. Next, I would figure out ways to insure that managers and employees don’t trust one another. I would discourage dissent and debate. It would be tricky to preserve some level of harmony by not allowing healthy conflict among managers that are already distrustful of each other, but I think I could do it.

I have recently heard about this new trend of “business analytics.” I will stop any employee trying to use software for analysis. My IT department should have some sort of software to detect it.

Next, I would avoid holding anyone accountable. That would be fairly easy because I would disallow reporting of performance measures. Anyone mentioning the phrase “the balanced scorecard” would be summarily fired. I would try to disallow setting of targets, but some managers have a nasty habit of liking them. I think those managers believe that if they could make it appear that they are better performers than others, that I would then reward them with a “pay for performance” bonus system. If I allow people to be motivated this way, performance might improve. I’m not going to fall for that trick.

I would freeze our managerial accounting system to remain in its archaic state. It was probably designed in the 1950s, but our external financial auditors would always be giving us an OK grade. I’d allow managers to hire more support overhead to manage the resulting complexity, but I’d preserve the primitive overhead cost allocations to processes, products and customers using those distorting and misleading broad averages, like product sales volume or number of units produced. Using activity-based costing (ABC) would be forbidden. Most employees would already know that these cost allocations cause big cost errors, but I would want to keep them guessing about which products and customers make or lose money and what it actually costs to perform our key business processes. I don’t think my financial controller will correct this, but I need to keep a watchful eye because my accountants are getting much smarter about how to improve operations and serve as strategic advisors to me.

We would need to be careful about how much information we collect and report about our customers. Obviously we’d report their sales volume data, but I would not segment our customers into any groupings. I’d keep sales reporting at a lump sum level. I don’t want anyone asking questions like, “Which types of customers should we retain, grow, acquire or win back from competitors?” To keep our company from tanking, I would encourage sales growth by putting big signs in the marketing department saying, “More sales at any cost!” I’d prevent the CFO from any thoughts of measuring customer profitability. But that would be easy because our arcane cost accounting system wouldn’t be capable of calculating that information. The marketing people typically spend their budget with a “spray and pray” approach, anyway. Targeting specific types of customers and getting a high-yield payback from our marketing spend would be outside their level of thinking. I’d maintain our advertising spending as the “black hole” that no one understands.

I would, of course, implement an enterprise resource planning (ERP) system. I wouldn’t want to be at a cocktail party with other executives and admit I don’t have one. That would be too embarrassing, like a teenager without an iPod. Luckily, ERP systems alone won’t improve performance; they produce mountains of transactional data for daily control but not meaningful information from which anyone could make wise judgments or good decisions.

Our budgeting system would be another way to assure our poor performance. Since the budget numbers are obsolete a couple of months after we begin the fiscal year, assembling the budget for six months during the prior year would provide a great distraction and prevent anyone from working on more important things. Plus I love sending the budget back down a few times to be redone to lower the budgeted costs. Everyone moans – more assurance for poor performance.

We’d squeeze our suppliers. We could talk about partnering and collaboration, but any attempt to actually do so would be squashed immediately. Never trust a supplier. If you drive one out of business, you can always find another.

I don’t think I could stop employees from using spreadsheets. They are contagious. But since every department would have their own spreadsheets, it would be like a Tower of Babel. Employees would waste a lot of time trying to make their numbers match. Those employees with secret spreadsheets might want to use them for forecasting and planning. I’d put a stop to that by calling it gambling and promote our company as being conservative. Gambling is for fools, so I’d set a policy forbidding risk taking.

I know that operating a poorly performing business is an extremely difficult job, but I think I’d be up to the task. Suppressing the efforts of all those employees and managers who want to think, analyze, contribute and make the business successful requires constant vigilance. The business world is full of subversive ideas that could hamstring my efforts to keep the business floundering aimlessly.

I am particularly concerned about this new concept called “enterprise performance management.” Whatever it is, I will stop it from happening. I believe that with hard work and dedication, I could keep any company from reaching its profit-making potential.

Comments (4)

A “RAPP” standard could be created based on these “Rules for Assuring Poor Performance”. This standard would immediately be widely used.

Posted over 8 years ago | permalink
Gary Cokins
Gary Cokins
Founder and CEO - Analytics-Based Performance Management LLC

Vesa,

I love your idea ! What fun that would be.

If you would like to look at a “stages of maturity” framework for managerial accounting for which “standards” could be used to certify an organization’s costing (like for quality in ISO 9000), download my article I wrote from this website titled “Evaluating the Costing Journey”:

http://web.ifac.org/publications/professional-accountants-in-business-committee#evaluating-the-costing-jour

Gary

Gary Cokins, SAS

Posted over 8 years ago | permalink

Thanks for the interesting link; had not noted this earlier. (Continuing the RAPP satire a bit based on your levels: a company would get RAPP level 1 certificate automatically and would need to work hard to get rid of it. Would be a tool for the owners to see how well their companies are managed.)

I guess that with the maturity levels the key is to recognize the level your organization really is on; not always easy (to admit). I find that when a low level of maturity is recognized, a common and kind of dangerous approach is management by percentages (MBP) of costs and productivity.

MBP of Costs, of for example R&D or IT: We see from statistics that the average IT spending is for example 1,9% of the revenue. We then decide that in our company IT costs must from now on be 1,8%. (or decide to save 20% of IT costs). Unfortunately the statistics rarely tell what the content of the IT services is or how successful the companies with different percentages are. We may end up cutting necessary resources to keep things running, but our percentage look good. This would be the same as cutting logistics costs by buying less fuel for trucks: money is saved, but unfortunately we cannot anymore take our products all the way to the customers.

MBP of Productivity: Productivity should be improved, so we decide that every factory must improve productivity by 5%! Unfortunately factories are seldom on the same performance (and maturity) level at the moment. For a factory with bad performance 5% improvement may be easy, but for an extremely well managed factory further productivity improvement could be difficult. As a result the bad factory looks good, and the good factory learns to “gather fat” so it has something to cut from in the next MBP round.

So, applying business analytics and enterprise performance management would be useful in order to avoid the traps of MBP also. Like you write in your book (Performance management: finding the missing pieces, 2004) companies need to identify the right things to do and do those right, early enough.

Vesa

Posted over 8 years ago | permalink
Gary Cokins
Gary Cokins
Founder and CEO - Analytics-Based Performance Management LLC

Vesa,

I fully agree with your description of how “management by percentages (MBP)” is a misleading relative measure tied to one’s starting base. In some cases, benchmarking data can also be misleading if comparable inputs (i.e., what is included and excluded) is not present.

Thanks for referencing my 2004 “Performance Management” book. My 2009 subsequent one (www.wiley.com) on the same subject is less technical and might be a more fun read.

Have you and I met in Helsinki or Tampere? I would enjoy directly communicating with you. I believe you can locate my e-mail address.

Gary

Gary Cokins, SAS

Posted over 8 years ago | permalink

Log in to post comments.