Can your company get and analyze good data? Do you have an effective way of disseminating anything you might learn? If not, your information systems are likely back in the Dark Ages, which means that management is running the business by the seat of its collective pants.
An information system is not just a bunch of computers hooked together. Computers are an effective tool for gathering, processing, and disseminating data. But they're just one tool among many. A company's real information system includes all the methods -- human, mechanical, and electronic -- by which data is produced, analyzed, and communicated.
Is your information system up to the demands of fast growth? Check it against this list:
|Benchmark question: What are your company's key operational indicators? Do you know exactly where they are now, and why?|
Financial statements. Operational numbers are then translated into financial data. (In fact, we deal so often in dollars that we sometimes forget about the operational realities underlying the dollars.) Growth companies need so-called CAT financials -- complete, accurate, and timely.
"Complete" means that they include a full income statement, two balance sheets (last period and this period), and a cash-flow statement. Without analyzing your cash flow, as Chuck Kremer of Educational Discoveries Inc. is fond of pointing out, you don't know how good a job you're doing of turning profit into cash. (P.S., with thanks to Kremer: this should be a direct cash-flow statement, not an indirect one.)
"Accurate" means that the numbers don't need too much later adjustment; also, that they fairly capture and apportion costs.
"Timely" means timely. You need the numbers now, not in three weeks. Many companies these days can close their books in five or six days. Still others, such as Foldcraft Co., actually close the books weekly, and know the figures by Tuesday or Wednesday of the following week.
Since any financial statements can seem overwhelming to people without training in accounting, we also like to see "cheat sheets" -- simplified financials that capture and highlight the key results in easy-to-understand format. In most companies nobody but the financial staff needs to worry about interest expense or the amortization of leasehold improvements. Better to distribute six-or-eight-line statements focusing on the numbers that really matter.
|Benchmark question: Pick a financial number that's important to your company, such as gross margin. How many people in your company understand it? When do they see it?|
|Benchmark question: How many people in your business track a performance measure week in and week out?|
And moving on to the "communications" side of the information system:
|"There are certain numbers that department managers have to send to us on a weekly basis. They're required to have them in the administrative offices by 8:00 Monday morning. And we're committed to having our scoreboard faxed back to the branches by noon. Some of the numbers it tracks: sales, COGS, expenses, and our critical number, which is profitability less a charge for inventory and a charge for accounts receivable. With the exception of payroll, which is pretty exact, we use a six-month rolling average, because there's no way we can get most of the expenses on a weekly basis. People also see the bonus calculation: it's at the bottom, and it tells them the projected quarterly critical number based on actual data to date. That's what determines their bonus."|
|Benchmark question: Take a look at your company's latest scoreboard: is it dated last week, or (at worst) last month? Would the lowest-paid employee in your organization understand it?|
|Benchmark question: Do you have regular weekly or monthly meetings without fail? Do a variety of people get a chance to attend, and to take part?|
|Benchmark question: Can most people in your office identify (say) your top five customers -- or your major strategic goal for this year?|
|Benchmark question: When was the last time you ran a business-literacy training program?|
Good information systems make for good growth. Tune yours up today.
Copyright 1998 Open-Book Management Inc.