Month: July 2011

CFO Folklore: Segmental Performance Analysis


SegRep #1 Regardless of whether your company is large or small, rich in cash or eke out its survival on a tight cash flow, operate with the most sophisticated custom-designed ERP fitted with Cognos or makes do with QuickBooks/Excel combo, if I ask you to pinpoint the exact segments where you lose or make money, most likely the answer is too broad, or intuitive, or incorrect.

Based on my experience, segmental performance is one of the most deficient areas of business analysis.  Ok, the larger are probably doing better than the small ones.  The latter, unfortunately, are clueless 99% of the time.

Then again, what is your segment?  Do we need the Large Hadron Collider to break the business matter into invisible particles?  Of course not, but a sensible breakdown can give an invaluable insight and bring about organizational changes.  And let me clarify that when I talk about "performance," I don't mean revenues, which are easy to track, I am talking about EBITDA – my favorite indicator.     

Familiar to everyone example – CBS Corporation.  Its portfolio consists of 23 separate brands (subsidiaries), including CBS Television, CBS News, CW, Showtime, Simon & Schuster, etc.  Of course, there are separate P&L's for each of these sub-entities. I am positive, Showtime Networks knows who does better Showtime or The Movie Channel.  I am pretty sure they are aware of how much "Dexter," or "Nurse Jackie" contribute to the bottom line.  Moreover, thanks to digital counting of viewers tuned in, they know for a fact how much Gross Revenue each episode generates.  As I said, that's easy – they know how much they get paid for each subscriber.  (Side Note: it's just as easy for the network television, where the revenue is calculated based on the commercial time).

But do they know how much profit (or loss) they make from each episode?  ALL costs allocated, including CBS Corporation CEO's salary?  What, it is not required by financial statements?  We are not talking about  them.  We are talking about magerial understanding of the business.  Is it important?  It's fundamentally important.  Each episode is written by different writers, directed by different directors, some use more effects and extras than others, etc., etc.  This is BUSINESS INTELLIGENCE and those are factors impacting this particular business.   

Here is promised CFO Folklore.  At some point in my career, I accepted a position in a company with national exposure – 14 operational facilities in different states.  They needed me because they couldn't understand why they experienced cash flow shoratges.  The first thing I did was the profitability analysis for each of the locations.  I uncovered that 9 out of 14, have been consistently loosing money for the past 18 months.  

There are, however, inherent difficulties that prevent most financial executives with limited human resources from undertaking this exercise.  First of all, it is not easy to properly define your segments.  It is pretty much a game of optimization between the level of details you would like to have and the resouces you need to achieve it.  The most intense part of the analysis, however, is the selection of proper principles of allocation for all shared costs and the allocation process itself.     

The spreadsheet image is courtersy of E&D CC, Inc.  If you are looking for help with segmental analysis, I recommend  contacting E&D CC – they specialize in assessing reporting needs and designing specific analytical tools related to profitability and costs, as well as budgetary, treasury, viability, forecasting and planning instruments: mzosya.edcc@gmai.com  

Quotes of the Day


"I'm going to speak my mind because I have nothing to lose."    

                                                                    S.I. Hayakawa

"You can only speak your mind when you have nothing to lose."

                                                                    MJZ

“The King’s Speech” Illustrates The Frustrated CFO’s (and Mark Twain’s) Point


11154473_detThose who have been reading this blog since its start, hopefully remember this early post about my personal tools of frustration release.  The first method on the list advised to go into an isolated place and let your frustration out with the worst curses you know.

More recently, I posted this Quote from Mark Twain,  emphasizing the same notion.  The great writer, who found humor even in the rumors about his death, also found solace in profanity.

Whether consciously or subconsciously, everyone recognizes the power of cursing.   We use it far more frequently as an expression of physical pain, anguish, anger, and frustration, than as a deriding instrument.  People curse at themselves, at their lives' circumstances, at the damned table corner always in the way.  Most of the time they do it when they are completely alone and nobody can hear them.  They do it because it is an intuitive tension-release mechanism.

Case in point – Oscar-nominated The King's Speech, based on a true story.  Prince Albert (always fantastic Colin Firth), had a speech impediment caused by multiple childhood psychological traumas.  Because of his position, the future King George VI was in the public view and, through the popularization of the radio, in the public ear – stammering and all.  It made him an object of ridicule even before the abdication of his older brother David pushed him into the throne of British Empire.  

For many years he sought help of different doctors and linguistic practitioners.  Finally, he meets Lionel Logue (even more fantastic Geoffrey Rush).  This unorthodox, way-ahead-of-his-time speech therapist worked with post-traumatic WWI veterans and understood that acquired defects are psychological in their roots and have to do with fear and tension. 

Mr. Logue takes on the Royal patient.   His methods are designed to remove the stress that causes his charge to stumble over the words.  He has a lot of tricks up his sleeve: breathing, exercising, singing and, of course, cursing are all used as means of frustration release.  The movie wonderfully shows how the speech center in His Majesty's brain has much easier time dealing with difficult sentences after the fear rides out on those few "dirty" words.   Thus, it illustrates my point that if you find yourself chocking with anxiety, profanity helps.

Sadly and ridiculously those few oaths caused the movie to be rated R.   I mean, 13-year-olds, can hear more curse words on their way to school.  Now, the entertainment media talks about the Weinstein brothers deciding to cut those therapeutic outbursts out in order to "re-introduce" The Kings Speech with PG-13 rating.  I have no clue why they want to do that.  The movie has already grossed nearly 900% of its budget.  Some people say that it will not take anything away from the story, but I strongly disagree.  It is an integral part of keeping yourself functional in this stressful life – for a king, a writer, or a CFO.

CFO Folklore: When Your Boss’s Secretary Becomes His Girlfriend


Here is a sensitive and complex topic – it involves people's personal lives and therefore should not be anybody else's business.  Yet it affects our work environment and impacts employees morale.  Always!  There are no exceptions.  

It is not a rare occurrence either.  In the past I had a boss who was seduced by his secretary and ended up leaving his family.  In another company I had to fire a general manger to avoid a possibility of sexual harassment law suit, while the company's owner was on his second marriage to a woman who was his former secretary.  And the list of stories I've heard from my colleagues, associates, subordinates and just friends is endless.

The nature of the boss/secretary professional relationship by itself has a somewhat intimate connotation.   They are near each other in the office space.  All day long the secretary attends to the boss's needs, frequently takes care of his personal matters, stays by his side when he works late.  Add to that the fact that most secretaries nowadays are younger women, as the class of "career personal assistant" is disappearing.   Plus, there is the appeal of power and a possibility of material benefits.  All this together creates an undeniably fruitful environment for trysts.  Hell, we have wonderful independent movies about it.



      

Unfortunately, it is not as much fun when you actually have to work with this in your face.

I frequently repeat in these posts that private businesses are absolute monarchies.  Historically, every single Royal figure had his or hers favorite,  i.e. an "intimate companion of a ruler," or, as OED defines it "one who stands unduly high in the favour of a prince."  The contemporary "rulers" are just upholding this "fine" historical tradition.

The key here is the unduly power bestowed on the favorite.  Again, I don't care about people's personal lives.  I really don't!  Moreover, if favorites were working ten times harder and their attitudes were twenty times nicer, I would consider that an improvement. 

However, that is not what usually happens.  In reality boss's secretarial lover stops working altogether.  I witnessed a hiring of an "assistant to personal assistant" to patch the hole in the workflow.  They become arrogant and acquire nasty disposition towards other people in the office.  Frequently they get promoted to managerial jobs they are not qualified to perform with salaries they didn't deserve.

In a small business, even with 500 employees, that's hard to hide.  Well, as a CFO or a Controller, you have your own powers and you don't really need to bother yourself with this unless she starts infringing on your scope of command (sadly, that happens too).  And yet your position exposes you to the unfairness of the situation in the most explicit way: you are the one who has to sign off her 50% raise; you are the one who has to approve her 12 weeks a year vacation time; those are your direct reports that get mistreated by her.  

Talking about terrible frustration!