Bold Exec

Smart Data: Keep it Simple

When you set an objective of becoming data-based smart, keep it simple by picking the right horses to ride --these four categories of hard information related to the operation of the company and its competitors. Dont' lose focus, concentrate your efforts; keep it simple.You may want more later, but start here:

The first, actual cost information by product, must be accurate. The term actual is used here to emphasize that the data must be real; many if not most cost systems are not. Before relying on the information generated by your system, check it out in detail. Strip away all the history of overhead allocations; who knows the agenda of the  person making those decisions. If you take your cost accounting accuracy for granted, your decisions might turn out to be as effective as sprinkling fairy dust on your quarterly reports. Armed with accurate cost information you can attack clear targets, like low margin sku’s and slow moving sku’s; almost always many of these hang around in the product line and suck up working capital and administrative costs.

Pavlov's Dog

  Pavlov's experiments related a single event, a stimuli, to a dog's reactions. The ringing bell, when implemented during feeding events, eventually was of itself sufficient to initiate the dog's salivary reactions.

Humans are a little more complex and can process multiple incentives, multiple stimuli, and multiple reactions. But sometimes we're not more intelligent. I hate to keep picking on yesterday's General Motors: I wouldn't if their atrocious management practices were isolated rather than just being more-publicized examples of broad practice.

Doctors and Data

  Intelligent and extensively trained U.S. doctors make thousands of smart and highly experienced decisions concerning individual medical and health situations every day. Yet (a) the costs are the highest in the world, (b) the results are mediocre, and (c) the costs vs. outcomes in different regions vary substantially. A recent business week article stated that UCLA's costs were over twice that per patient in the same medical category as those at Duke, with about the same outcome; that the region around the Mayo clinic had about half the costs per patient as other comparable demographics. When you see a business situation that is out-of-control but with pockets of good performance; you study those pockets to find an overall solution.

CEO Greed: the downfall of our entrepreneurial society

It seemed to work so well, our system, until it didn't. But then--without controls, regulations, boundaries, and especially without any self-discipline and balance from self-serving CEO's, the system came totally off the tracks. The excesses, corruption, greed, mis-leading positions, posturing, and general political and politicizing bullshit, have led to a condition that crushes people's lives--all generated by an environment that says "anything goes", until it doesn't.

Hey, to some degree i'm theoretically a member of the group that caused this immaculate crises; a CEO who benefitted when companies that i operated did well. But not! Fixing companies to actually perform, to make better products, to have better margins, to provide excellent customer service, to contribute to the economic welfare of their customer community, to increase share holder value in a meaningful and lasting way: that's the American (old) way.

Getting extraordinary bonuses even when performance doesn't merit, taking undue risks in leverage and asset-protection, taking giant fees for financial maneuvering, creating artificial short-term performance at the (and knowing you're doing it) expense of long term performance, negotiating golden parachutes and receiving giant payoffs even when fired for mangling a company: man what are these boards thinking about??????

I've just published a book called "The Plague of Good Intentions" (check out www.plagueofgoodintentions.com) which dissects the problems the western world has imposed upon and into the countries of sub Saharan Africa. One tiny element of that book discusses the corruption of African leaders. Yes it exists; in bountiful amounts. But (a) we caused it, (b) our corporate executives--especially in the banking and insurance industries--have just as much corruption and greed, (c) the arrangement between political individuals and donations (bribes) is a principal ingredient, and (d) in my humble opinion, without all the corporate governance rules in place, our greedy CEO's would prevail and we would have a worse corruption history than these countries of Africa (maybe we already do even despite our "rules").

Exploring the Revenue Creation Process

Your business is simple; right? Do some market research, design a product, send out sales people, take orders, make it, ship it, invoice and collect. Everyone in the company of course knows how this works. Not! Into every company I have entered, upon researching this flow and laying it out we found some or all of:

•duplicate procedures: people, paper, and data following two separate tracks
•information flow disconnects: dropped data requiring reconstruction elsewhere
•dropped data; valuable information permanently discarded
•changing product designations from one department to the next: unbelievable, but departmental myopia prevails
•laborious procedures open to simple automation: web-based or off-the-shelf solutions readily available
•automations of relatively simple procedures complicated beyond belief: an IT person creates a life-long project maintaining a self-developed system
•critical parameters in the process ignored or treated carelessly: conversion of design wins to sales forecast done by guesswork
•unimportant parameters in the process amplified: immaculate details of trivia
•shipped product designations don't match internet designation: lost re-orders
•the list is endless

No matter how mature the company, don't assume this life-blood system is in order. By researching it from scratch, you'll always find significant opportunities for reducing costs, reducing errors, improving revenues, tightening up the process from beginning to cash collection, and making you and your organization smarter.

How do you do it? Send a smart young person on a walk-through tour from the beginning to the end, following manually every flow and node in the process, logging in how data is handled, procedures used, time lags, changes in nomenclature, dropped data, error possibilities, etc. etc. Also, call or internet back to test those external-connection processes. Place orders on line by untrained people: See what problems occur.  Then build a very detailed and specific map on a whiteboard. This whole process isn't that hard, doesn't take too long, but the result will be powerful. Look for the problems listed above. There will be several, at a minimum, moments of "I can't believe we do that". Take it from there and get meaningful, lasting results for a small investment. Following are examples; the list could be hundreds from my experience but i've just selected a few:

Competitive Analysis

Last week i described four top priority "mind your data" topics. cost information by product, the revenue creation process, competitive analysis, and results of investments. These areas can be attacked with minimal investment, and usually give giant returns in terms of knowledge, operating efficiencies, and information for key decisions. Competitive analysis is frequently ignored, yet can provide immensely useful calibration information. I've seen so many managers say: "their accounting is different", "their detail is obscured", "comparisons are meaningless because.........". In some cases these comments are valid but not relevent: if you work on it, keep a competitive data bible, continue to upgrade it as you get further insights and bits and pieces of information, you'll become much smarter and make much better decisions. My management career was launched exclusively on the back of a competitive analysis regarding my first general management assignment, the Bolen snowmobile subsidiary of FMC Corporation. Let me tell you how career-changing this competitive analysis was:

A. It was my first general management assignment; be the general manager of the FMC's Bolens snowmobile business, which manufactured and sold 3000 snowmobiles in the prior year, generating $6M in revenues and a reasonable operating profit. The FMC board felt this was a great growth opportunity; the snowmobile market was booming, growing well over 50% per year.

B. After six months of arduous work, i presented to the board a plan that (a) would radically change this snowmobile line's image--via design, acquisition and performance--to fit the marketplace and put us in the top tier, (b) generated extraordinary excitement and interest in the existing and prospective dealers resulting in a "signed into" three year sales plan for 6000, 9000, and 12000 units, and (c) via acquisition and vertical integration reduced the unit manufacturing cost by 43% exclusive of further improvements from overhead absorption based on the enhanced volumes. The plan was solid and was created in immaculate detail; FMC's board scrubbed the inputs and totally bought in, giving full approval for the substantial cash outlays for the acquisition, the manufacturing investment, and the working capital investment.

C. Regardless of my comfort level with the plan, i had nagging competitive concerns. We launched an analysis of our two major competitors' current operating costs (from public information), and projected where their unit costs would be (using log based unit volume cost theory) over this same period. I then made the assumption that at sometime during this planning horizon the market would crash (it couldn't keep up this extraordinary growth) and that in those years these two top competitors would cut their prices to have only a 15% margin. We laid those selling prices against our cost projections and deduced that we would be under water: our costs would be higher than selling prices and we would have tons of unsold inventory.

D. I returned to the board and presented my second set of findings,  recommending we sell the business and the business plan now while the market was still hot. We got quite a premium for the business plan and made a deal. I didn't predict the downturn or the timing of it, but only what would happen when/if. Two years later the market did crash and every competitor, even including one of the top two, was in bankruptcy. Our company would have experienced a $20M bloodbath.

FMC's board and executive remembered my first and then second  presentations, and my star shined brightly; all due to a strong dedication to data driven competitive analyses, and also a willingness to take the personal risk of obliterating my job.

Getting Started on Smart Data

Most every company in trouble has poor data and information systems, is run in a highly inefficient way, and most importantly makes decisions without a meaningful information basis. Even many companies that aren’t yet in trouble have serious problems with their information systems and data. So regardless of the state of your own company, pay attention! When you have a substantive, well structured, data gathering and assembling system, smart decisions become much more easy.

’s giant success was largely due to a immaculately sophisticated and detailed system that sifted all their inventories sales patterns, by the smallest sku and by location.

scrapped 800 isolated data bases for one companywide data warehouse, and will know exactly “how we’re doing in Chicago on a given day”.

is utilizing cockpit-like displays of real-time business data and virtual reality of product configurations and usages.

For these big, well managed companies that approach is imperative. But that’s not this story. This story relates to small or medium sized companies, struggling to stay even or get ahead, in trouble or about to be in trouble, and without unlimited IT budgets. Follow these three simple rules:

#1. Pick a person as a surrogate IT system to walk through (acting like an order) and codify the information flow in your business, from order entry to production release to shipment to invoice to collection (or in whatever way your process works). I guarantee you’ll learn so much, without 1$ of IT investment, on how to save money, tighten up your processes, and eliminate unnecessary energies. From day 1, with minimal expense and risk, you will have taken a very substantial step toward eventually having a low-risk, effective, powerful, and integrated dada-minding system.

#2. Then as a second step, have all the key information managing departments do manual information gathering, reports and analyses on the basis of the work in step #1. If you start this way, you’ll get some benefit in managing your business, and also set the stage for a smooth transition to a more automated system. Remember, you cannot change operating habits and customs by injecting a system; do it manually first. Would the horrendously mangled FBI data flow system have worked if the processes and procedures had been worked in manually first? You bet.

#3. Your business is not so unique. When you’re ready to begin automation, never, ever, modify a piece of packaged software or internet-based solution; change your practices to suit.  Not only will you save on ongoing IT support expenses, you will expose historic operating practices that are most likely steeped in personal quirks and habits than in efficient operations. Is this in conflict with point #2? On the surface yes but………..Make sure you change those existing procedures that must change manually first, and then the system saves people work and doesn’t become the “enemy”.

Don’t fall into the trap of being consumed by the day-to-day operating decisions and issues; get this process started asap and a year from now you’ll thank your stars, or whomever you thank, for the now accessible and improving information with which to better manage your business. You will now be one level smarter!

Smart Decisions with Smart Data Summary

It is imperative that any organization get smarter as it progresses, and the one systemic way to do that is by investing early on the time and thought processes to grow in the data of the business.  This is nothing to do with data-mining, using market and customer date to create assts; but rather the internal data of the company and its operations.  Major benefits will come downstream from this approach. Topics: The Power of Information; The Minimum; Integrate What the Data Reveals; The CEO’s Guide to Smart Decisions with Smart Data. To be published 3Q07.