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:
- Operational data. The first layer of information that any business needs is detailed information about what it does. Number of units out the door. Number of customers served. Number of hours billed. On-time delivery percentage. Things and actions have to be counted, then the counts have to be recorded and tracked. You know you don't have good operational numbers if you're forever asking questions such as "I wonder how long it really takes us to fill an order" or "Our sales are up, but I wonder whether we're really shipping more. Maybe it's just those price increases we passed along."
|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?|
- Nitty-gritty financial data and ratios. Financial statements show the big picture. But what people on the shop or office floor often need to know is detailed financial information about what they themselves do. Professional-service companies track billable-hour ratios. Job shops track performance-to-budget. "We look at and track cost per unit, average order size, sales per employee," says CEO Joe Natcher of Southern Foods, a distributor to the food-service industry. "We also want to bring quality into the equation. What's the average cost of issuing a return? How many returns can we afford? How do we measure the percentage of perfect orders?"
|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:
- Scoreboards. Scoreboards come in a variety of forms: charts, graphs, handouts, spreadsheets transmitted on e-mail. But good scoreboards have certain features in common. They're easy to understand. They highlight key numbers, both operational and financial. They're kept up to date. They compromise when necessary -- for example, by using estimates and averages when the real numbers aren't available. Here's how Dale Fraaza of Cargo Heavy Duty describes his company's scoreboarding process:
|"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?|
- Meetings. Regular get-togethers to review and project the numbers are another great form of communicating information for one simple reason: they're two-way. People can ask questions. They can find out why particular numbers are headed one direction or the other, and they learn from the interaction. At North American Signs, controller Mike Major asks for volunteers to lead the monthly "numbers talk" -- and gets them, often from nonmanagement ranks. Typically, Major sits down with the presenter the day before to make sure he or she understands the numbers and to highlight any particular concerns that are likely to come up. Also typically, presenters practice the night before, often in front of spouses or children. "It's a way to build involvement," says Major, adding that most of the presenters take the task very seriously and make sure they understand all the details. "I'd say we've had about 25% of the organization do a numbers talk."
|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?|
- E-mail, newsletters, etc. Information isn't all numerical, of course, and a good information system conveys all sorts of nonquantitative data. Who was that prospective customer taking a tour of the shop the other day? What's the status of the Federated job? Is the warehouse still looking for new people? In an open-book company, people are rightly interested in all the goings and comings -- and it's management's job to see they're kept up to date. Companies in which most employees have computers can distribute this information on e-mail or through groupware such as Lotus Notes. Others must rely on printed newsletters, announcements, and so forth, or on regular talks. A few companies use broadcast voicemail for this purpose. Whatever the technology, it shouldn't be forgotten.
|Benchmark question: Can most people in your office identify (say) your top five customers -- or your major strategic goal for this year?|
- Ongoing education and training. Finally, remember an information system only works if people understand what they're seeing. If some people don't speak English, arrange for ESL classes or ask a coworker to do some translating. If they aren't familiar with financials, create a training program. In small companies, the training doesn't have to be anything elaborate. Use Junior Achievement materials or basics-of-business workbooks; create your own curriculum; or invite local community-college professors in to teach. Larger companies with training departments typically set up formal classes or buy packaged training programs. The two keys to success: keep it interesting, and make sure it isn't a one-shot deal. The more you repeat, the more likely people are to learn.
|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.