I don’t know if you recall the tale of Emperor Nero standing on the hillside playing the fiddle as he watched Rome burn, but it is a picture that frequently comes to my mind when I witness companies spending more time worrying about meetings than dealing with issues. Many years ago I worked (oh so briefly) for a company that was dealing with major production issues and a less than 30% on-time delivery rate. The young (and inexperienced) management team was more concerned that managers be in a company-wide meeting, than dealing with getting product out the door and to the customer.

Many inexperienced (and even some experienced) managers and executives become caught up in the “management” of internal issues and forget that first and foremost is serving the customer! Whatever is going on internally should be addressed—but not when you have thrown your customers into crisis by not getting them their orders on time and in full!

The internal focus versus the customer priority is a symptom of larger issues. In the example I mentioned above, the internal issues were far greater than simply not prioritizing customer needs. The bigger issue was that the business was not being run to produce and sell product, but was instead being “managed” to get the numbers where they were expected to be—in the short term—to get bonuses. They weren’t worried about the customer or next year; all they wanted was that “numbers look good.” The CFO actually stated in one of those mandatory meetings, “I am not being paid to run the company but to manipulate the numbers.”

The best way to achieve desired financial results is to serve the customer. When you are delivering quality products and services at price that reflects the value to the customer, then you will be making those bonuses consistently AND you won’t be damaging the company’s future prospects.

The need (whether real or perceived) to “manipulate the numbers” is a result of an inability or an unwillingness to do the hard work of serving the customer. An organization must willing to do what is necessary to make their operations successful: investing in infrastructure to support operational efficiency and effectiveness; training and educating employees, managers, and executives on financial results and how they are generated; setting results-oriented performance metrics for individuals and the entity that are balanced between short and long term objectives; and holding everyone accountable for serving the customer with requirements for on-time delivery and quality.

Financial results reflect the activities undertaken and the success of those activities; ultimately these results will also reflect the things not done or that were not successful due to the lack of financial results. The alignment of performance metrics with incentives and overall compensation is mandatory in today’s environment. Results equal rewards. The numbers (financial statements) can lie IF someone in your organization has the incentive (and the lack of ethics) to manipulate those numbers. Smaller entities are especially vulnerable to the impact of financial statement manipulation. Many small businesses (Mom and Pops, small privately-held companies) put their trust in a single person to oversee and manage the financial reporting process.

The reliance on a single person to oversee the results and a hands-off or cursory involvement by owners and executives concerning not only the review of financial results but also the who, what, when, and how they were generated (e.g., activities, customers, internal processes) can lead to catastrophe when that person is found to be incompetent, deliberately misleading, or criminally engaged in financial misconduct (e.g., embezzlement, fraud, kick-backs).

The best operational, financial, and preventive method for keeping your organization on track for performance and reporting is to be savvy, involved and able to understand the financial results and reporting process of your organization. Also, be sure that your performance incentives are set so that individuals and the organization as a whole are aligned to reach the company objectives, both strategic and financial. Make those objectives and performance metrics include both short-term and long-term components. We all have to get through the short term to get to the long term, which is obvious, right? Well, it is also obvious that the long term is a result of the near term (the next 4 – 6 weeks) (not short term, within the next year) decisions. Sometimes we have to fight fires. Sometimes we have to deal with external factors (e.g., a bad economy). But whatever the circumstances or challenges, no decision made today should prevent you from being successful in the future.

Author: Lea A. Strickland, MBA CMA CFM CBM GMC

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