Category Archives: Time Span

When to Add a CFO

From the Ask Tom mailbag –

Question:
Our company is thinking about adding a CFO to manage our accounting. We are growing. At what point do we need a CFO?

Response:
As companies grow, this is the normal maturation of the most important administrative function, keeping track of the money. (DROOM – Don’t ever run out of money).

When I look at levels of work in accounting, here are some of my guidelines.
S-I (1 day to 3 months timespan). This is all the transactional stuff, vouching invoices to be paid, creating invoices to customers, data entry of timecards, materials to work-in-process. This would also include reconciliation of transaction documents to transaction schedules (as entered).

S-II (3 months to 12 months timespan). These are higher order transaction functions, like payroll (especially payroll with a 401k plan). Also longer period reconciliation routines like monthly bank recs or monthly credit card reconciliations, routine journal entries. High S-II approaches that of a full charge bookkeeper.

S-III (1 year to 2 years). Emerging (low) S-III would be a full charge bookkeeper, where transaction activities have impact on the EOY (end of year) compiled financials (this requires a minimum 13 month timespan). This level also creates the transaction systems to record depreciation entries, simple inventory management, over and under billings to WIP. This would include job cost systems where project accounting likely survives a fiscal year. Hi-S-III would be a controller level.

S-IV (2 years to 5 years). This is an integration role (CFO) which would include software and accounting administration of more complex transaction activity, like bill of materials inventory management, complex work-in-process, enterprise software integration. S-IV would be accountable for modeling cash flow based on 36 month trailing stats overlaid to macro-economic trends to determine credit facilities (lines of credit, term loans) to cross periods of economic contraction. Analysis at this level would provide financial coaching to S-III department managers related to metrics of labor, materials, consumables, capital equipment, short and long term budgeting.

Is it a Personality Conflict?

“You would think at their age, they would know better,” Phil complained.

“What makes you think that?” I asked.

“The sales manager calls a meeting with the marketing manager, and the marketing manager refuses to attend. I ask why? And, all I get is how the sales manager is pushy, always with opinions about the way sales runs and it’s not even his department.”

“So, what is the sales manager to do?” I prompted.

“It’s annual budget time, and I told the two of them to get together,” Phil continued. “I need sales and marketing to coordinate. What I get is a big, fat personality conflict.”

“What would you say, if I told you, I didn’t think you had a personality conflict,” I replied. “But, rather an accountability and authority issue?”

“What do you mean?” Phil looked skeptical.

“Do each of them have an accountability to publish an annual budget coordinated with the other?”

“Yes,” Phil nodded.

“Is coordination something you would like, or is it a requirement?”

“It’s something I would like, but I don’t want to be pushy. They should be able to figure it out,” Phil defended.

“And, if they don’t coordinate, then they miss the accountability?”

“Well, yes,” Phil looked puzzled.

“I don’t think you have a personality conflict, I think you have an accountability and authority issue.”

Take Your Company to the Next Level – Industry Platform

As the organization becomes larger, it grows more complex and requires a higher level of organizational capability to compete.

  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

At S-V, Industry platform, the organization is now competing with other companies who ALL have become market responsive. How to win? Move to the Industry platform.

I always encourage my clients to join trade associations where we witness the first informal barriers to entry. Once a part of a trade association, I encourage them to become a member of the association board or an officer. Is it such a stretch to imagine that, to be a part of the association, its members should adhere to certain guidelines? The association board might well propose those guidelines, similar to specific standards created by my clients. Competitors may be market responsive, but to be a player, they must adopt and maintain performance standards equal to those of my client. Here is where we see the insistence on ISO standards or other continuous improvement platforms.

Companies at this level, because of their size, often find it difficult to adapt, hence, the barrier to entry. Tied to timespan, for a company to effectively compete at this level often requires more than five years of planning and foresight. Companies struggle to let go of processes and systems that served them well, to adopt a new level of standards that initially add to overhead with revenue opportunities that take years to build.

But if the spec says, ISO, an entire swath of companies may not compete.

And, We’re Back

Some of you may have noticed a service interruption for Management Blog last month. There was a problem between our RSS feed (syndication) and our SSL (socket security) configuration. Fixed now. Well, if you are reading this, as an email, it’s fixed. We published throughout the duration, so if you missed some posts, they are all available at managementblog.org all the way back to Nov 2004.

From the Ask Tom mailbag –

Question:
I want to grow my company, but a bit overwhelmed at what I need to focus on. I see so much opportunity in nearby markets within a six hour drive. I think I can go into those markets without a huge initial investment, and organically grow as the business matures. Of the thousand things I need to pay attention to, what’s the focus?

Response:
I am often asked, what are the biggest constraints to growth. There are lots of them, geography, capital, market characteristics, economic cycles. The biggest, I think, is people.

We can purchase lots of things, equipment, office space, advertising. But, you can’t purchase talent. You have to find it. You have to seek it out.

We often only hire people when we have an opening, when we need to always be recruiting. You can have the brightest office space, brilliant marketing, pristine equipment, but with the wrong (not-right) people, you will still fail. Yet, with the right people, you can still be successful with Class B office space, used but serviceable equipment in a struggling economy. The biggest constraint to growth, even in otherwise challenging times, is people.

Supernatural Powers

“Who is responsible for the team?” I asked again. “Who is responsible for the performance of the team, and all the things that affect performance?”

Melanie started looking around her office, as if someone was going to appear. One of her team just quit.

I continued. “If it’s not you, as the department manager, if it’s not your accountability, then who?”

Melanie’s eyes stopped skirting the room. There was no hero that appeared. One last time, she floated her excuse, “But how am I responsible for one of my supervisors quitting?”

“That’s a very good question. How are you, as the manager, responsible for one of your supervisors quitting?”

“What, am I supposed to be clairvoyant?” Melanie snapped.

“That would be helpful,” I nodded. “But let’s say you don’t have supernatural powers. How could you, as the manager, know enough about your supervisors, to have predicted this departure?”

Cross Department Committees

From the Ask Tom mailbag –

Question:
Many times when there is an issue that affects more than one department in the company, we assign committees involving members from each department to solve them. While this seems nice from a cultural standpoint, it seems strange that we would ask people in an S-II or S-III role, to solve issues that span multiple departments, typically an S-IV function. I recently experienced this myself where I established a committee, set a clear direction (I thought), and checked in occasionally. The end result was I now had a group who had reached a consensus, but it was the wrong one! We are still able to move forward and correct it slowly, but it feels like we wasted effort. What’s the right answer to this? Be more involved? Assign another committee leader with level 4 capabilities? Provide better direction? Make a larger committee?

Response:
Quick review on general accountabilities at levels of work.

  • S-I – Production
  • S-II – Making sure production gets done, coordination and implementation.
  • S-III – System work, designing, creating, monitoring and improving a single serial system (critical path)
  • S-IV – Multi-system integration

So, your intuition is correct that, where multiple departments are involved with either output or impact, department integration is appropriate.

Your question – Be more involved? Assign someone with S-IV capability? Provide better direction?
Answer – Yes.

In any managerial role, with team members one level of work below, the manager cannot simply call the meeting and then not show up. Undirected, the team will make the decision or solve the problem at their level of context. Each level of work understands its decisions and problems from their level of context. That context is measured in timespan.

Problems or decisions involving multiple departments generally require looking at longer timespan outputs, more correctly, longer timespan throughputs. A single department is usually heads-down, internally focused on efficient output. Multiple department throughput typically looks at two things. Does the efficient output of one department provide the correct input for the next department as work moves sideways through the organization?

  • Does the output of marketing (leads) provide the correct input for sales?
  • Does the output of sales include all the data necessary agreements for proper project management?
  • Does the output of project management provide all the accurate data necessary for operations?
  • Does the output of operations provide all the necessary checkpoints for quality control?

Multiple department integration also requires a look at the output capacity of each department as they sit next to their neighbor department. Is is possible for sales to sell so many contracts that it outstrips the capacity of operations to produce? A lower timespan focus might say we just need to communicate better. A longer timespan focus (throughput) will realize that no communication solution will fix a capacity issue.

So, yes, the manager has to be more involved, include another team member at S-IV, provide better direction on the requirements of any solution. A larger committee might actually be counter-productive if it contains team members at the wrong level of the problem. I offer these same guidelines as those of a couple of days ago.

  • What is the problem?
  • What is the cause of the problem?
  • What are the alternative solutions?
  • What is the best solution?
  • How will we test the solution to make sure it solves the problem?

Hard to Get Good People (These Days)

From the Ask Tom mailbag-

Question:
I am just not getting quality candidates from our referral agency. I have two positions I need to fill. I call and explain what kind of person we need, but they take two weeks to get back to me. And the people they send are just not qualified.

Response:
My first question, how do you source candidates other than a referral agency?

Most of the time, the response I get is, we really don’t have time. We’re just so busy around here. It’s really hard to get good people these days.

Here is my observation. You are not seeing quality candidates because you are not focusing your efforts. If your referral agency is not doing the job, then your company has to take responsibility and source your own candidates. You need to be actively recruiting and networking all the time. You are in the business. You should have a better network than the referral agency. You don’t, because you see recruiting as a distraction. Your expense last year for head hunters was $45,000. And what do you have to show for it. Three positions filled, but two didn’t work out, so you are waiting for the replacement guarantee.

If your company is having difficulty sourcing candidates, what are you doing about it? What ideas have you used to get more and better people into the interview room?

Who Will Be Accountable?

We sat around the table discussing the new team member scheduled to show up for work the next morning.

“Who’s she going to report to?” came the question from Raphael.

“What do you mean report to?” I asked.

“Well, the new person has to report to someone,” Raphael replied.

“When, you say report, you mean report for duty? If that is the case, she can report to reception and reception can properly note the new team member has reported (for duty).”

“No, I mean the new person has to have a manager to report to,” Raphael pushed back.

“So, you think you are a manager so people can report to you?” I pressed.

“I suppose so, that’s what managers do, have people report to them.”

“Let me ask a question. Who around this table will be accountable for the output of this new team member?”

“Accountable, what’s accountability got to do with it?” Raphael looked slightly annoyed.

“If a ship runs aground at night, because the night watchman falls asleep, who do we fire?” I asked.

Raphael had to stop, briefly, “Well, we fire the captain.”

“Oh, really,” I smiled. “Why?”

“Why? The captain is accountable for whatever happens on the ship,” Raphael knew the answer, but did not like the direction of the conversation.

“So, if the manager is accountable for the output of the team, the question is not who this new team member will report to, but which manager around this table will be accountable for this new team member’s output.”

Effective Or Not?

From the Ask Tom mailbag –

Question:
I was fortunate enough to attend one of your in-person sessions. I have a specific supervisor not able to effectively complete some parts in her role description, so we followed your assessment exercise. She and I had pretty similar views and she saw that the higher levels of work was where she was struggling. She has asked for 60 days to make some improvements. In your experience have you found that improvements are possible, and that people are able to stretch to perform higher level functions?

Response:
First, I congratulate you on taking the time to have this difficult conversation with your team member. A sixty day period is certainly a reasonable request, however, it’s not hands-off. I would recommend a weekly thirty-minute coaching session between the two of you. You have already identified the areas of struggle, that’s your agenda (written agenda). Pick a Friday or a Monday.

Specifically, your discussion should revolve around the work. I define work as problem solving and decision making. Your questions should be “what decisions were a challenge this week?” and “what problems were a challenge this week?” Pay close attention to how your team member responds.

Your question is centered around the issue of capability. Is your team member capable of making the decisions and solving the problems embedded in the work? Your discussions about the struggle will give you clarity. Over a six-week period, you should have six clear data points that will reveal a pattern. Then the decision is pretty simple – effective? or not?