Bossidy had opened the floor to the pros and cons of a potential acquisition. When he voiced his decision not to pursue it, he got considerable pushback from some managers in the room. After a few minutes, he said, “I get paid to make tough decisions and I just made one.” The room fell silent. Slowly, everyone gathered their stuff and left. I followed suit.
Before issuing his final edict on the matter, Bossidy shared the reasons he did not find the transaction appealing. These included how the strategy for the target company would be difficult to execute, as well as the less-than-optimal financial footprint the acquisition would leave.
So his decision was a tough one – but was it smart? This depends on your definition of smart. If, like Bossidy, you make important decisions based on simple truths, your answer might be yes. When it comes to strategy and execution, most companies get the strategy right. It is in the execution where simple but vital truths are often not understood or followed.
Know two things for strategy and execution: How much and when
Strategies leave a distinct financial footprint. A test I took while completing GE’s Financial Management Program presented a list of several company names, alongside unidentified balance sheets. My task was to match companies with balance sheets. I immediately aligned a bank and a fast food company with their financials based on telltale leverage and inventory turns. This observation drove home how industries and participating companies have operating models that leave revealing financial footprints.
When your metrics include both “how much” and “when”, you can monitor progress and set up early warning cash indicators that immediately reveal whether you’re on plan. If not, you have time to implement near-term corrective steps.
To be clear, what you measure will determine the early warning signs on positive progress or that something isn’t happening. If it is sales force productivity the “how much” may be new accounts and the “when” is obviously the date when this is supposed to be done. If it is a manufacturing productivity project it may be production level on the new piece of equipment by a certain date. In this first case, you would get an early warning by tracking billing to new customers, and in the second, you can track payment to suppliers that provide material for the new production.
Additional reading: The 6 Key Areas Where CFOs Fail the Board of Directors
The point is that every metric you are tracking should be quantified, have an expected date and leaves a cash financial footprint that is an early warning on whether it is happening.
Early indicators improve your execution and safeguard your cash position
I believe the best early indicator is cash, and today’s technology makes it easy to predict the cash footprint of your plan. For example, let’s say the new equipment you installed is supposed to reduce staffing levels and eliminate overtime, and these savings are critical to your longer term strategic goals. Why wait until the end of the month or quarter for labor ratios to see if your target metrics are being met? Technology makes it possible to get weekly payroll funding details and track them for early indicators or warnings. If you don’t see a reduction in the requested funding amount (how much) by your expected date (by when), you can know right away something is wrong and address it. For businesses with hourly payroll, payroll is funded weekly, giving you an early indication of savings achieved and timing.
Here is another example. Let’s say a new raw material productivity initiative has been implemented to simultaneously increase output while substantially lowering costs. The program allows your company to maximize a relationship with a new vendor offering better materials at a lower cost. Monitoring payments to the new vendor will tell you how much of the conversion has taken place and the associated timeline. Doing this manually is problematic, but if you have integrated treasury management, general ledger and business intelligence capabilities, it’s easy to monitor how much and when, signaling whether you’re on or off track in your metrics – long before end-of-month or end-of-quarter financials are in your hands.
Monitoring and early indicators give you the information you need to resolve issues before they have the chance to erode your cash position, and impact execution and strategic plans.
Cash measurement drives teamwork and more timely execution
As mentioned, most companies get the strategy right. It is the execution that is difficult to manage. When you start a project, creating and forecasting early cash indicators is the best way to align everyone as one team on executing the strategy within your targeted timeframe. What distinguishes top quartile players from median players is the ability to enhance and speed execution. This is achieved with the right talent, processes and information.
In today’s environment, the greatest enabler of all to consistent top performance is having early warning cash indicators via a treasury management system with integrated business intelligence reporting.
Cash is king and the best early warning indicator available to your organization.
Michael Dinkins is president and chief executive officer of Dinkins LLC, a financial services firm connecting business owners seeking capital with lenders seeking borrowers. Michael has spent more than 40 years in finance, including a distinguished 17-year career with General Electric and GE Capital, and CFO roles with five different publicly traded and privately held companies. Michael currently serves on the board of directors for Community Health Systems and the National Council on Compensation Insurance.