Category: Practical Advice

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  

“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.

Futurenomics of Higher Education


Item_3703People laugh at me when I talk about higher education in negative terms.  And I understand – it sounds hypocritical coming from someone with multiple academic degrees.  But times and environments change.  For my generation, higher education was far less expensive, more intellectually challenging and somewhat more rewarding than it is for young people today. 

Now colleges lower their educational values, so that the degrees seem more intellectually accessible.  The individual thinking is not cultivated anymore and slowly disappears together with independent studies.  It became all about mechanistic skills of test-taking instead of true intellectualism.   

Except for a few institutions still adhering to their academic values, most colleges' coursework does not require any reading beyond the textbooks.  This is how we end up with scores of degreed "professionals" who never read.  My famous pet peeve is having young subordinates with accounting degrees who don't understand the fundamental principles of double-entry bookkeeping. 

So, for $200,000 you get a low-grade minimal intellectual input and the promise of… What?  Nowadays, nothing.  Ok, so wealthy parents may be willing to pay this kind of money in order to delay their children's exposure to the doldrums of the adult life – as far as I am concerned, not a bad idea if you love your children and can afford to do so.  But other than that – it's really just nothing but a bad investment.  

Yet, more and more children continue entering colleges, ending up with unbearable debts.  Some are locked forever in terrible jobs, others are not capable of getting a job at all.   And people still insist that the degrees open some highly desirable doors?  Why is that? 

Because, of that stupid club mentality that pollutes every aspect of our lives.  Hiring managers and recruiters, themselves college graduates, will look down on those without the degrees, regardless of their abilities and knowledge.  This idiotic pattern has to change.  Not to boast or anything, but I always look for a spark of an intellect in a candidate's eyes before I look at the Education section on his resume.     

At the same time, we cannot deny the fact that having graduate and post-graduate degrees inhibits entrepreneurial potential of many bright and capable people.  I have been saying for years that the possibility of being paid good wages prevents people from entering the entrepreneurial route.  It's too scary to gamble on your business success if you have a steady job.   Thus, instead of building small and midsize businesses that could revive our economy, kids "all go to the university, and they all get put in boxes, little boxes, all the same." 

But this point becomes even less relevant now: those highly paid jobs opportunities will not be there in the near future.  Young people, please, you don't have to follow the rest of the sheep.  Think for yourself; let your creativity take you on the self-fulfilling journey.  And you don't have to strive to be rich and famous overnight either – not everyone is meant to be Gates or Zuckerman.  There is nothing wrong with building your own small business that will provide you with middle-class living, while creating jobs for other people on top of that. 

 

 

How to Read People Through Their Communication Styles


If you are a business executive, CFOs and Controllers included, you cannot avoid the necessity of being able to grasp people's motivations based on external behavioral indicators.  Every person we encounter has his own hidden agendas and incentives, which we must decipher in order to be successful.  I previously talked about the effect people's priorities have on their attitudes (see Priorities and Attitudes).  It is a proven fact that humans' motivations can be read from the way they move, talk, look at you, even from the poses they strike. 

Filmmakers frequently speak about the subtext.  One of the basic rules of screenwriting is "show, don't explain."  Some theorists attribute the importance of this aspect to the visual nature of cinematic art. But the truth is exactly opposite: the ability to read subtext is natural.  This is what makes a movie believable and real to the audience: people watch an actor perform (especially, if he is a good actor) and pick up on the little clues of the character's inner-workings, because this is what we do in real life too.  

Subconsciously, we are all capable of recognizing particular body movements and voice intonations as expressions of motivations and intents.  The trick is to find this innate ability in yourself, isolate it, bring it into the prefrontal cortex, perfect it and use it to your advantage.  Start by observing people's communication styles – the fastest way to identify their intentions, to read into their primary concerns.

When people speak in a staccato style and quickly move from one subject on to the next one, what can we tell about their intentions?  Wouldn't it be reasonable to assume that they are determined to minimize the time consumption of every task they undertake or direct, that they driven by desire of accomplishment?

On the other hand, someone who apologizes for expressing his opinion three times within the same sentence and asks to be corrected if he makes mistakes, obviously is striving for amicability.  The ones who wait for your cues or keep quiet all the time are obviously unsure of themselves and don't want to be noticed.  Yet, if someone doesn't say anything, but flares his nostrils and drums his fingers on the desk, don't mistake him for anything else but the passive-aggressive about to explode.  And so on, and so forth.

So, let's go back to the movie-making.  Of course, I had a good reason to bring it up.  Films provide us with an enormous cache of visual references familiar to millions of people.  I have chosen a trailer for Mike Nichols's "Regarding Henry" to illustrate this topic because the 24-year-old screenwriter J. J. Abrams (yes, that very same J. J. Abrams who screwed us out of a satisfying "Lost" ending) used a dramatic turn in the plot that fundamentally affects the protagonist (played by the great Harrison Ford).  His life, attitude, tastes communication style- everything changes within the same movie.  It's a stark example of how a person's inner life affects his behavioral traits.

 

Donna Ballman’s Great Article on Workplace Rights


Those who visit my blog consistently probably remember my post The Distortion of Bill of Rights in Small Business and know that I frequently come back to the issues of an employee's freedoms and rights even in the pieces not related to to those topics directly.  I would like to draw the readers' attention to this great article by Donna Ballman written for AOL Jobs 10 Workplace Rights You Think You Have, But Don't. 

Ms. Ballman is an employment attorney, so unlike my insider's point of view, her perspective is independent and supported by legal expertise – really a must-read for everyone who confused their workplace for a democracy.