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Discipline #5: CFO as the Master of Measurement

July 13th, 2009

            In the last segment on “Reinventing the CFO”, I covered the CFO role as the Warrior of Waste.  The 5th  discipline in Jeremy Hope’s book is CFO; Master of Measurement. This is perhaps one of my favorite sections of the book, and the one area I so rigorously incorporate into my day-to-day operations. Not only in a financial perspective, but in an operational perspective. Without measurement, there is no assessing the progress the company is making, not to mention the accountability that measurement can bring into the development of management goals.  The latter being one of the more important areas, which ultimately will drive the operational results.

 

     In Jeremy Hope’s book, he notes that the CFO has a key role to play in changing the measurement culture.”  Hope suggests that in order to efficiently fill the role of Master of Measurement, the CFO needs to:

  • Measure to learn and improve
  • Choose the right measures
  • See measurement as patterns, trends, and abnormalities
  • Provide external reality checks
  • Use a range of measures to inform a dialogue about management performance

 However, before any senior Finance manager can start implementing new methods of measurement, the source data needs to be thoroughly understood and its accuracy confirmed. Depending on the size of the project, this might take weeks, or it could very well take multiple quarters if the data sources is a new one and needs to be implemented throughout the organization.  I would cite a new labor reporting platform for North America as a perfect example of a new data source contributing to a new source of labor productivity measurements.

 

For one company I worked at, we had a field service organization that was comprised of 150 field engineers, generated almost 350k paid hours annually, and was responsible for approximately 30% of our revenues. Yet there was no reporting structure in place that reported our productivity levels, hourly cost rates, or the distribution of hours by activity. In an effort that spanned the better part of a year, we implemented a new payroll reporting process that had our engineers reporting their field hours by activity. We rolled this platform out by region, and as we did so, we reviewed the data monthly with our Regional Service Directors to confirm the information. Once we had consecutive quarters of data, we initiated the process of publishing the results and then implementing monthly & quarterly goals for labor productivity and specific improvement plans for non-productive areas where hours were lost.

 

It was not an easy process and it took an open and collaborative approach with the field organization since there was an inherent distrust of anything previously published and there was no confirmed data source that anyone trusted. As a result, we realized a full 10-point increase in productivity levels, which effectively meant the avoidance of hiring an additional 15 field service positions.

 

My reliance on implementing measurement tools is very high, but only those tools that I can trust, since ultimately, those tools will result in implementing levels of accountability for the team, as well as other levels of management in the organization. In the end, accuracy is key. While it’s quite easy to be excessive in assembling a toolbox of measurement tools, brevity is key so that you have the proper tools to drive increased performance with your staff, and ultimately for the organization. Do you have an effective set of tools and do you trust them?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

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