In-spite of growing top line your financial performance scare you?

In a meeting with a Client CEO running a successful venture in Technology hardware space, whose business was growing at a good pace in terms of the Sales, Products offerings, customers, market share and people size but his financial performance didn’t reflect that; I asked, at with what frequency do you review your financial dashboard; and to my surprise he said every month. He said, I have the best accounts & finance team who present MIS every 5th of the month without fail. That was a great practice and as I looked at their MIS and almost burst into laughter (though didn’t showed that:) this was the same Profit & Loss Account, Balance Sheet that they used to submit to income tax department and other regulators for their compliance purpose. It showed Sales, Cost of Sales, Gross Profit, few expense head and net profit.

I mean, this MIS was good for Regulators to determine your profitability and tax but how does it give you any dope into how your business is moving. The business had 3 offerings – Sales of Materials, Sale of Equipments and Service division. I asked

– Does this MIS tell you which product offering is growing at what % ?

– Does this tell you the gross and net margins of each Product exactly ?

– Do you know the funds deployed in each of the product category ?

– Do you know the return on funds deployed from each product ? Say for example you had additional 50 million invested in working capital then in which product you would deploy to get maximum yield ?

– Do you know your cash flow cycle of each Product to determine cost of funds deployed for each Product category?

And, he was zapped and looked blank. Without the right financial dashboard how can you plan and measure your business performance? Like in the game of Soccer, while you keep measuring the total goals but can't be completely blind to who is producing those goals and which moves are yielding you results. In business think your players as your products and your moves as your strategy. Your Dashboard should tell you which product and moves are contributing to the ultimate financial goal. I have seen most entrepreneurs have an acute eye on top-line and gross margins but your financial performance is reflected in bottom-line and healthy cash flow as well. The efficiency in producing MIS on time is fine but what about competence? Is your Dashboard a mirror of your business strategies? That’s where a CFO differentiates from your Accounts Finance team or your CA.

Here is the Sharp 7 for your financial dashboard:

1. Product wise top-line and growth %

2. Expense allocation to each product and for joint costs such as administration, top management salaries, etc an ideal ratio of distribution over products/Services that you feel reasonable

3. Gross Profit and Net Profit from each product and services

4. Funds/Capital deployment in each of business products and service

5. Cash-flow cycle of each product/ Service category in days

6. Cost of capital Product and Service wise

7. Return on Investments on each product or services

Financial performance is not about the over all business growth but finding opportunities to enhance performance that’s hidden in the details. Who knows you'd be loosing money on delayed customer payments, non performing product lines, indiscipline in collections, inefficient cash-flow cycle, piling up inventory and increasing cost of capital. In details you will find a demon who’s eating your smart bucks to fund your struggling Products and unwanted Customers which drags down your financial performance.

I have seen that most Entrepreneurs are dashboard driven but big question that you should ask is does your dashboard drive decision-making? Does it tell you what you should do more and what you should cut down? Does it give you early warning signal or intimate you in advance before you are in the deep hole? If not then that MIS is just a piece of paper meant for your garbage box don’t waste any more time on that.

Healthy business performance may not be equal to healthy financial performance unless you have a Dashboard that pins the gap.

Organisational Performance in Gangnam Style

Saturday night not that I am a frequent club hopper but for a change went to one of the popular disc hangout. Reached at 10.45 pm and that’s early by Mumbai standards. Being among the first 10 patrons to witness the place in full lights before it went dim. Vibes were good with smart cheeks welcoming guests, light aroma in air, 4 DJs playing some warm up music and getting ready, big screens well placed, bartenders' counters greatly organized, tempting as usual DJ, tables well placed everywhere but with no chairs which I was just wondering……in no time the place was packed, music getting louder, spot lights beaming with perfection, beer, vodka, wines, red bulls flowing freely, every one letting their hair down and dancing to the great music.

As the night progressed DJs were playing their best ever and some fundu innovative mixers, some popular numbers. Bartenders doing their own bottle jugglery, fire stunts while they serve every single drink with such a joy and passion that it was a treat to watch, Spot light focusing on those cool dancers beaming to big screen making sure every one was getting in on high even those who were on red bulls & H2O seemed to be equally performing at their peak as if there was no tomorrow. And my goodness, then came that magical moment when DJ played that number “Gangnam Style”. Dance floor was on fire with every single person on the floor at their peak performance and it just didn’t matter whether floor was jam packed, not much space to move, no one cared about anything around them but were completely engrossed in their own act. By the time clock hit 1.30 am people were just not ready to hang up their boots asking for more….it was great Saturday night treat!

Next morning, it just got me into thinking how everything was beautifully orchestrated to enable this peak performance happen? How did that make sure that every one was at their best and at their peak in those 3 hours?

In most of my meetings with client CEOs almost everyone's concern is organizational performance and how do we make their team a great performing team. Most of the times we search answer in clarity in Job descriptions, setting performance expectations, clear communications, precise review mechanisms, etc..etc.. Yes all this is great. Keep it up! But where is the design to make this peak performance happen ? Where is that orchestra to enable people's best in them? What are the leaders doing to make this peak performance happen?

In most organizational Leaders expect people to come on or before dot time putting so much stress on people. Even they get delayed by few minutes here and there, they get served with those machine teas and coffees which no one likes (and most people would have given up their habit of having tea), they don’t even think of serving cold drinks, ice teas, coolers or chaas (butter milk) in summers, they conduct long hour meetings with no food or refreshments, they almost starve people. They want people to wear ties and suits when the folks are sweating in a hot country like India. Health, hygiene, clean rest rooms have no importance forget talking about aromas, diffusers, nicely painted walls, decors, lighting, seating arrangements, soothing music, etc which have not occupied their wallet of mind at all. Is there an engagement program where team is having enough fun? Is internal language encouraging enough like music to their ears? Does appreciation happen like spotlight beaming the performers? Can leaders play a role of cheer-leaders while their team performs? 

Now, without this orchestration in such a suffocating environment we expect peak performance from team just because we gave them a clearly defined single sided Job Description and communicated in exact language what is expected from them  with no commitments on providence from organisation side.

Leaders are designers and enablers of peak performance in the organization; they are the ones who should orchestrate everything within the organization to make it a rocking place. They are the ones who should invest in good People practices. Organizational performance is not a one-way delivery, it's more a cause and effect relationship. Let your finance team not fool you in seeing this as a cost, but as a great investment which could yield in multiples.

If you aren’t convinced, how about hitting a disc next sat night with me?