HMR, on the other hand, does business three ways. It invests between $25,000 and $30,000 to open new clinics that it runs within existing medical facilities. The clinics belong to HMR, and the hospitals take a percentage of the gross revenues. Of the more than 600 HMR weight-loss clinics, only 26 operate under this arrangement. With the others, HMR trainers show hospital personnel how to open and operate their own clinics, and the company provides regular, off-site training sessions for the doctors and clinicians assigned there. The cost of the training is included in the price of the liquid-diet supplement and other products that HMR sells these clinics. The company also makes supplement-only sales to hospitals or other weight-loss companies that run their own, non-HMR affiliated clinics. HMR is now the second-largest medically supervised VLCD plan in the country, and Stifler predicts that by the end of this year it will be number one. The irony is that the managers of IHM were the profit-driven businesspeople; Stifler, the behavioral psychologist, was not. "Larry," says one of his chief lieutenants, "has a commitment to health. He lives it. He's not in business just to make money. But he believes in capitalism, too. There's no conflict between profitability and running a good program. Profitability and clinical effectiveness go hand in hand."
A lot of companies say that sort of thing. Stifler's got a model that demonstrates it and a company that confirms that it's true.
Stifler was ill on the first of the three days we had agreed to spend delving into what people had told me was his unusual, by-the-numbers management style. His staff could tell he was sick because he had ridden, not walked, the three miles from his house in Brookline, Mass., to his office in downtown Boston and because he had alighted from the elevator on seven instead of taking the steps. (He had calculated, Stifler explained later, that calories expended on the stairs meant eight pounds that he didn't have to worry about gaining every year.) Anyway, not long after we got started I came to hope that he was sick and would feel better soon because he was showing precious little patience with me or my questions.
"So," I had begun after the pleasantries, "I understand that you have this interesting financial reporting system that lets you track the company's performance just by watching a few numbers. Want to tell me about it?"
No, it seemed, he didn't. He talked about a lot of things -- obesity statistics, liquid-diet supplement formulation, employee motivation and compensation -- that were not high up on my agenda. I could ask whatever I liked, but no matter what the question, Stifler was going to answer with what was on his mind.
"But what about this financial reporting system?" I'd insist.
"It's not just a financial reporting system," he'd say.
"OK, this management accounting system?"
"You're missing the point," Stifler insisted. "There's more to it than that." And he'd tell me about something else I didn't think I had come to hear.
Maybe, I speculated, it's the fever that's making him incoherent.
But you know, Stifler turned out to be right. It would have been missing the point to have insisted upon learning only about a novel financial reporting system and clever ways of tracking costs and revenues. Stifler has those, to be sure, and some other novel and elegant management control systems as well, all of which he eventually got around to describing. But what gradually became clear was that all of these techniques proceeded from a way of looking at the world and at business in particular that is decidedly iconoclastic. "I do everything by the numbers," Stifler said, time and time again. He does not, however, mean by that that he is a CPA-like bean counter. Not even close.
When most numbers-oriented people look at a company, they see dollar flows. Cash comes in and goes out. If more goes out than comes in, they start looking at costs: how much does labor cost, as well as materials, real estate, telephone systems, electricity, and so forth. Now, what expenses can we cut to get costs below income so that we wind up with a profit instead of a loss? If phone costs look high, we cut them, but we don't necessarily cut personnel costs. Telephone expense comes to so many dollars; payroll costs are another, separate item.
The nice thing about looking at a business as a series of budget line items is that you can move from shoe manufacture to computer making, and the cost accounting system looks pretty much the same. Accountants, after all, can't create a whole new system of counting every time they move their audit team from one client's business to another's. Also, investors want to compare opportunities with different companies in the same industry and in different industries, too. If you've got two apples in one hand and a banana and a grape in the other, you need to be able to talk in terms of fruit. Maybe the standard financial and management accounting systems do not fit perfectly every kind of company. Standard accounting rules, for instance, require radio and TV station owners to amortize goodwill as if it were an actual expense, when in fact it's an asset -- usually the station's most valuable asset -- that declines in value only if the station is poorly managed. Stations take the write-down nonetheless and so may look as if they're losing money while the real profit dollars pile up. Or maybe they aren't profitable. The point is that you can't tell by looking at the net income line on the stations' financials. And one other thing: by the time the accountants collect their numbers, do their calculations, and arrange them on the page, you're looking at the results of what happened quite some time ago, which may not be what's happening now.
