Commendable ambition or carefree folly…which do your goals sound like?

No sooner have we hung up the new year’s calendar on our office walls than all those magazine articles and social media posts come out exhorting us to set ambitious goals so that we “crush it” (ugh) during the course of the coming year.

Henry Ford famously said “Whether you think you can do it, or whether you think you can’t, you’re right.”

And he’s right. If you don’t think you can do something, odds are you never will.

Less often taken into account, though, is the flipside of Henry Ford’s famous quote – just thinking you can do it doesn’t mean you will.

That’s important for your business because you need to know the difference between ambition and delusion. One makes your business into a worldwide success, the other takes it to the bankruptcy courts.

That’s not to say ambition is a bad thing. Quite the contrary.

I’ve long been a big fan of setting what Jim Collins and Jerry Porras called Big Hairy Audacious Goals (or BHAGs) in their book “Built To Last”. Their idea was that businesses should break out of the year-by-year planning cycle and set a long term direction.

Maybe you want to be the biggest company by sales turnover in your industry. Maybe you want to get 100% 5-star ratings on TripAdvisor. Maybe you want to join the Fortune 500.

Unless you’re already there, or pretty close, these achievements are likely to be Big Hairy Audacious Goals which will take several years to play out, and when you start on your journey, whilst you’ve got the ambition, you don’t know every single step that will take you from where you are, all the way to your destination. (And if you do, it’s not a BHAG, it’s just a business plan for what you’re already capable of delivering. By definition, for it to be a BHAG, you can’t know exactly how to achieve it in advance.)

The system can work well. I spent several happy years as a non-executive director at a business which used BHAGs very effectively to grow their sales income over a number of years.

What this business did well was to have a set of more detailed plans underneath the Big Hairy Audacious Goal…even though they couldn’t map out everything in detail. But if they had a pretty good view of how the next 18 months would play out in the context of a 10 year goal, they had a detailed plan for that and didn’t worry too much about the eight-and-a-half years to follow.

But I also worked for a business which talked about BHAGs and the importance of ambitious goals, but didn’t think things through properly.

One ambitious goal they had was to grow thousands of new customers in a market they had no experience of, and where entirely new channels to market would need to be developed from a standing start.

This wasn’t the world’s craziest idea with a 3-5 year planning horizon. But to the general astonishment of everyone else in the business, the CEO set a 1 year target for this to be achieved.

The rationale was often stated as “we’ve always set ambitious goals around here, and we’re always achieved them, even when people said we couldn’t”.

This wasn’t completely untrue. Company folklore had many examples of “taking on the world and winning” in the past as a result of the CEO’s decision-making.

The Chief Executive had every ounce of the self-belief Henry Ford thought was important, but by remaining completely convinced their vision would unfailingly manifest itself into reality, all they were doing is what financial advertisements say you should never do (“past experience is no guide to the future”).

It won’t surprise you to know that this plan didn’t go well at all. Within 12 months, the Chief Executive abruptly disappeared after missing sales targets for the year by around 80%. Income dried up and, as a result of hiking the cost base on the back of the “certainty” all this new business would turn up, the business quickly got into trouble.

The CEO’s Achilles heel was believing their own publicity. They’d been, in the words of Nassim Nicholas Taleb, “Fooled By Randomness” (the title of one of his earlier books, inexplicably less well-known than his later mega-bestseller “The Black Swan”).

Just because things always had worked, doesn’t mean they always will.

Sometimes, due to random effects…such as sheer good luck in stumbling across a key customer at the right time, a news story that changes people’s perceptions overnight or a key competitor shutting down…even pretty audacious goals can be achieved without much in the way of planning or insight.

Enjoy those moments when they happen, because they can, and do, happen to us all.

But never make the mistake of thinking that just because you set an ambitious goal or a BHAG and it was miraculously achieved in pretty short order that there was a huge amount of causation between you wishing it to happen and it actually happening.

And certainly don’t build your entire business on the assumption that because you benefited from massive good luck in the past, largely outside your control or influence, that you’ll unfailingly benefit from it in the future every time you dream up a new ambitious goal you’d like to achieve.

If you want to make substantial inroads into a completely new market in 12 months or less, involving several hundred thousand marketing touch-points, leading to tens of thousands of sales conversations, leading to a few thousand billable new customers without a specific plan to make that happen…together with suitably qualified, experienced and aligned staffing and resources…sooner or later your luck will run out.

As it did for this business. From headlining in the trade press one day, it ended up an economic basket case the next.

The tragedy was, this was all avoidable. The objective as a three to five year plan was probably achievable, as a one year plan it was suicidal.

If there had been some test marketing, perhaps some idea of how the metrics might work in this new marketplace, the business would have been able to model the resources it needed, and the marketing approach to deliver the ambition. (They still didn’t have enough cash to do it in 12 months, but at least they’d have realised why, on the basis of some reasonably sound information.)

If, rather than increasing the cost base to deal with the “certain” influx of new activity, the business had waited until significant inroads were being made in the customer sign-up process, that might have given the business some breathing room to realise their approach wasn’t working and regroup to start again before the ran out of cash.

In the end, the jacked-up cost base and the non-existent revenue increase was what did for the business…as it does for just about every business which tries this. It’s akin to putting everything the business has on a single spin of a roulette wheel, and there aren’t many people who think that’s much of a strategy for building value.

That said, don’t shy away from Big, Hairy, Audacious Goals, or BHAGs. I’ve seen them work really well.

But the bigger the goal, and the shorter timescale you’re trying to accomplish it in, the greater the risk it won’t happen. Just believing it will happen is no guarantee.

A BHAG for 10 years hence can afford to be a bit sketchy. You’ve got time to fine tune the details in light of experience. An ambitious target to be delivered in 12 months or less isn’t going to happen without a detailed plan, and the right resources in place.

The key for business leaders is to know the difference between commendable ambition and carefree folly. Get those mixed up and you may well not be around long enough to regret it.

(Picture credit: Heidi Sandstrom. on Unsplash )

We should fire him for not hitting his targets…or should we?

Being a Finance Director or CFO means you spend a lot of your time working out what people’s targets should be, tracking their performance against those targets, and reporting any under-performance.

While there are some intellectual challenges to the target setting process, those are generally within the control of the Finance Director or CFO as they are working on a model they built themselves.

What’s much harder to assess is what…if anything…it means when people don’t hit their targets and what…if anything…the business should do about it.

But wait, I hear you say, if someone doesn’t hit their targets, shouldn’t we send them on their way and find someone else who can deliver what we need instead?

If only life was that simple.

Firstly, there’s an underlying assumption here that the person you’ll bring in instead will do a better job than the person you get rid of. I’ve seen this hundreds, perhaps thousands, of times and all I can say is that in a significant number of those cases that assumption turns out to be wildly over-optimistic.

There’s also an assumption that the reason for under-performance is the fault of the individual. This is often overly simplistic. Yes, maybe you have other people who can hit their targets, which in your mind means it isn’t impossible for everyone to do so. But perhaps there are other factors which mean that in practice not everybody can.

In a surprising number of cases, a thorough investigation into the reasons for an apparent under-performance throws up some systems or process issues outside the control of the staff member which means they were never going to achieve the targets which had been set.

Of course, statistics cuts both ways, so just as there are people who vastly under-perform against some sort of average, there will be people who vastly out-perform. That, after all, is how calculating an average works – there will always be some people above the line as well as some people below the line.

So just not hitting a target (which is nearly always calculated as an average of some sort) doesn’t necessarily mean anything at all. I once heard a speaker say that at school he was in the 10% of the class that made the top 90% possible.

It was a matter of fact that he was below the class average, but statistics says that any time you measure the performance of a group of people, somewhere around 50% of them will probably be below the average of the group as a whole, and a broadly similar proportion will be above it.

The degree of variation is the key here.

W. Edwards Deming’s work on statistical control is the definitive manual on acceptable degrees of variation in work performance. I won’t go into the maths in detail here, but in Deming’s book “Out Of The Crisis” he shows how to calculate the level of acceptable variance in a stable system that’s operating under statistical process.

In our modern world full of “knowledge work” this is less obvious than when people are watching over car parts hurtling down a high-speed factory production line. But exactly the same principles apply.

In Deming’s world, the acceptable degree of performance around an average, or arithmetic mean if we’re being statistical about it, was +/- 3 times the square root of the average actual performance. (Please note that whatever you had set as a target isn’t relevant for this purpose as there may be factors affecting the group as a whole, either positively or negatively, which could make any target either too easy or too difficult to achieve.)

When you work through the maths, you’ll realise that the boundaries for acceptable performance are much wider than businesses typically allow in their performance management systems where amounts somewhere between 0% and 5% tend to be arbitrarily used to determine an acceptable degree of shortfall, if any, in meeting targets.

Deming’s view, as one of the foremost management thinkers of all time, is that the responsibility for under-performance is more often down to management’s poor understanding of the laws of statistics and unwillingness to improve the systems and processes used in the business which would raise the standards of everyone working in it.

And if you don’t think that’s possible, have a chat with your front line staff and your customers. I can guarantee they’ve got a long list of things that would help the business run more smoothly, even if you can’t immediately think of anything.

That’s not your fault. If you’re not working on the front line you’ve no way of knowing what that experience is like.

But it is your fault if you never ask the people who do work there how to make things better for them, and, in the long run, for the business too.

So next time someone isn’t meeting their targets what should you do?

Apply a bit of Deming’s thinking, even if just in concept without getting too deep into the statistical modelling, to work out whether the problem is really with the member of staff or with the systems and processes instead, even if other people are somehow able to achieve the targets.

Perhaps without realising it you just got lucky in the employee lottery and ended up hiring a bunch of people who happened to be unusually good performers who somehow managed to get the results you were hoping for in your initial planning assumptions.

More often than not firing people is a very expensive way of trying to solve a problem. Studies have shown that the cost of recruiting and training a new person to replace someone who’s left can equate to between six and twelve months’ salary.

And if all you end up with is someone the same or only slightly better…which statistically is a likely outcome…all you’re doing is loading cost into the business for no meaningful return.

So next time you’re wondering whether to fire someone who isn’t meeting their target, pause for breath. It’s probably not going to help solve whatever you think the problem is.

For sure, it’s harder work getting stuck into the issues and unpicking whatever is getting in the way of people hitting their targets. But it’s the only way to fix the problem for good.

Maybe a few exceptional performers can hit the targets anyway, even with less-than-perfect systems and processes to support them, Building your business model on the basis that every person you hire will turn out to be an exceptional performer is an assumption I’ve seen many business make, explicitly or implicitly. Although I’ve yet to see one where that superficially reasonable-sounding objective was ever their experience in reality.

Mostly those businesses were on a perpetual “hire ’em and fire ’em” cycle which led to enormous hidden costs within the business…bloated HR departments to handle all the hiring and firing, costs for advertising vacancies, reductions in customer loyalty and lifetime value as a result of putting rafts of under-trained, less-experienced new hires on the customer service front line and many other costs that dragged the business down, although they never appeared explicitly on anyone’s budget report. (If they had, someone would have done something about it long before now.)

Don’t be that business. Next time someone appears to be performing poorly, break out a calculator and see how the numbers stack up first. The staff member may well be doing their best in a difficult situation…the problem may, in reality, be something else.

I can’t claim statistics is always fun. But, done properly, I can claim that it helps prevent making the same mistake over and over again without realising it…which has got to be a good move for your business.

(Photo by Annie Spratt on Unsplash )

How not to screw things up like a politician

Grouch Marx once said “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies”.

At the moment, there’s no finer example of this phenomenon than the UK’s Transport Secretary, Chris Grayling. .

On top of a less-than-impressive few months in this role, yesterday he blamed the wage demands by rail unions for this year’s annual price rise in train tickets (BBC News report here).

Yet what the UK rail industry calls “regulated fares”, such as the season tickets which were at the heart of many of yesterday’s protests, are set according to a government formula agreed back in 2003 which has no connection whatsoever to wage rises in the railway industry (more details on the rail fare formula here).

This is important because once you’ve diagnosed the problem, rail unions in this case, that tends to be the problem you’ll set out to “fix”.

That’s not to say rail unions are blameless, or that they are tireless champions of anything other than their own members’ interests…it’s just to recognise that the Department of Transport’s ticket price formula can be in no way related to the wage rates of people working in the railway industry, as it’s not even part of the publicly-available formula for calculating ticket prices.

It’s hard to imagine that the interests of the UK’s long-suffering rail travellers would be improved by the Transport Secretary picking a fight with rail unions due to his lack of understanding of the pricing mechanism put in place by his own department.

Unless Chris Grayling was just playing politics to enhance his own standing within the Conservative Party, of course, which is probably several orders of magnitude worse than just being ignorant about pricing mechanisms for which he is the responsible cabinet minister.

By now, even if you weren’t sure before, I think we can probably agree that if you want something screwing up far more comprehensively than any mere mortal could hope for, the thing to do is to get a politician involved.

The question is how can business people like you and me you avoid screwing things up quite as badly as the average politician?

Groucho Marx was right – the diagnosis of a problem is key. Once you’ve decided what the problem is, that’s probably what you’ll do your best to solve. Get that wrong and the likelihood is that not only won’t you solve your original problem, you’ll probably have created another problem you didn’t have before in the process.

Albert Einstein said that if he was given an hour to save the plant, he’d spend 59 minutes defining the problem and one minute resolving it.

That may be a little extreme, but you can’t hope to find a good solution unless you’re solving the right problem. That’s where most politicians get it wrong – they’re taken in by their own political philosophies and see everything through those distorting lenses.

And, I’m sorry to say, business leaders, including myself, have distorting lenses of our own. Having a preferred view of the world distort our own perception of reality is a natural human characteristic. Everybody has it to at least some extent.

But there are things you can do to find better solutions. And that starts by how well you define the problem, as Albert Einstein said.

That depends in turn on how good you are at asking questions, and that’s a skill you can work on and improve, however good or bad you are at it now.

Research published in the Harvard Business Review set out a four-stage process for learning to ask better questions. In summary, this involves:

  • Establish the problem in as simple terms as possible – “We are looking for X in order to achieve Z as measured by W” is the format the article uses.
  • Secondly, you need to be clear how solving the problem contributes towards achieving a strategic organisational objective. You might think this was self-evident, but I’ve sat in plenty of meeting rooms where people thrashed out how to “solve” problems that, even if they were solved, would be unlikely to have any major impact on the organisation one way or the other.
  • Next, take a look at what your organisation has tried in the past and, if relevant, how other people in your industry have attempted to solve the same, or a similar, problem.
  • Finally, write a problem statement which defines the problem, its proposed solution and the requirements you’re trying to achieve, taking account of everything you’ve learned through the earlier stages in the process.

For the UK rail industry, it seems we haven’t even got past the first stage of defining the problem terribly well yet, but you can do better within your own business quite easily.

The HBR article has some great questions to ask during each stage of the process, but the key to solving any problem is always to cast your net as widely as possible when looking for answers.

If all important decisions are only made by senior executives in a conference room, I can guarantee a substantial proportion of those decisions will turn out to be wrong, or at least sub-optimal.

That’s not the executives’ fault – generally they come up with the best solutions that make sense to them, based on their qualifications and experience.

But usually they don’t have current experience of being a front-line sales person trying to sell whatever the company’s new business model is to a potential customer, or someone in the factory trying to produce against a revised product spec with tools that haven’t been properly designed for the purpose, or a call centre operator who handles the irate customers that call in when the revised product or service doesn’t work properly.

Of course, if it’s a strategic decision involving a large financial investment, senior executives have to make the final decision. To do otherwise would be to abdicate their responsibilities to the business.

But during the problem solving process, and especially the question-asking parts of it, involving as many people as possible, especially from the front-line can make a huge difference to the quality of the eventual solution and the cost-effectiveness with which it’s implemented.

If you want to screw things up like a politician, by all means sit in your conference room and make all the decisions amongst the senior executive team.

But I can guarantee that if your business learns to ask better questions, and involves a wider cross-section of staff than just your senior management team in solving them, even quite big issues for your business can be solved quickly and cost-effectively.

Let’s just hope that one day this might be the way we run our railways too.

The difference between a good accountant and a great Finance Director / CFO

Working out the cost or delivering value? Accountant adding up the cost of a bundle of invoices.
Working out the cost, or delivering value?
Photo by rawpixel on Unsplash

In his play ‘Lady Windermere’s Fan’, Oscar Wilde described a cynic as someone who knows the price of everything, but the value of nothing.

That’s pretty much the difference between a good accountant and a great Finance Director or CFO….a good accountant can tell you what you’ve spent, a great Finance Director or CFO should be building value for your business.

Let me give you an example.

Some years ago I worked for a business which gave all its employees, after a qualifying period of, I think, a year or two, one day’s paid time every month to volunteer for a local community project of their choice.

Out of approximately 20 working days in a month, you might say this initiative “cost” the business around 5% of the salary bill for eligible employees.

The volunteering initiative was in place before I arrived at the business, so I can’t take any credit for it, but in reality it didn’t cost the business a penny. It made much more money than it cost…alongside doing a lot of sterling service for our local community. Here’s just a few of the more obvious benefits…

  • People who volunteer for community projects tend to be naturally enthusiastic, high-energy people who are dedicated to making the world a better place. Their presence lifted our whole business and their continued enthusiasm in the face of adversity brought incalculable benefits when our backs were against the wall.
  • They did their jobs, on average, much better than the rest of the workforce – typically by 10-20%. Nearly all of our high performers were also community volunteers, so they covered the cost of the scheme just through their own natural positive energy and their desire to do a great job for a company that let them volunteer on company time to support their passions.
  • You might be wondering whether those naturally enthusiastic people would have done a better-than-average job anyway, even without the volunteering scheme, and at some level they probably would. But even then, there’s a difference between doing a pretty good job and striving to do the best job humanly possible. The difference between those two levels of contribution is easily worth 5-10% on productivity, output and quality in my experience. By offering a volunteering scheme, we unlocked the “striving” level of commitment.
  • Not only that, but when skills were scarce our very best employees tended to stay with us, even for more money with another local business, because they couldn’t get their volunteering time paid anywhere else. Were people occasionally tempted by a few grand a year extra in their pay packet…sometimes yes, but they tended not to last in their new job and often came back because they missed the opportunity to volunteer in their local community.
  • The cost of recruiting and training a new member of staff is somewhere between £20-30,000 a time, according to ACAS statistics. So every person who stayed with us saved the business that amount of money. This easily covered the cost of the scheme on its own in a high-turnover industry. It also mitigated against the risk that when we recruited a replacement for a top performer, we didn’t get an average (or worse) performer in their place which would have diluted the quality of our workforce as a whole.
  • Without us having to put on an expensive training and development programme, many of our volunteers ended up in management roles with the business a few years down the line. They were, without exception, great managers. The skills they learned while volunteering – how to deal with people, managing tight-to-non-existent budgets, developing their creative thinking and many other talents that were picked up and honed on their volunteering assignments – made them first-rate managers who we “recruited” without an executive search fee and without the risk that someone who was “good on paper”, or a seasoned interview performer, but who weren’t that good in practice, would manage to sneak through our hiring processes and cause more problems than they solved.

I could go on, but you get the idea. The community volunteering scheme wasn’t a cost at all. It generated significant value for the business which more than covered any costs it incurred.

A good accountant could tell you this scheme cost approximately 5% of the salary for eligible employees.

A great Finance Director or CFO could tell you that the community volunteering scheme generated so much value for the business, in both obvious and less-obvious ways, that spending whatever it cost with a smile on our faces was by far the most sensible, and economically valuable, option.

At the very least, any costs were covered by the greater productivity our community volunteers tended to display in their “day jobs”. More likely there was a significant upside to the business as a result of having unwittingly developed one of the smartest staff retention, productivity enhancement and management training schemes we could ever have hoped for.

Oscar Wilde would have been proud.

Why I hate meetings…and why you should too…

Although I’m an accountant, contrary to popular belief, I’m not anti-social. I have no objection to spending time with other people.

But because I’m an accountant, I’m always wondering if we can do something better, or more efficiently. So despite the superficial benefits of “getting everyone together”, the way most meetings are run in practice makes them an appallingly ineffective way of communicating just about anything.

Here I’m not referring just to the proportion of information that people can recall at the end of the meeting…although that tends to be pretty poor too. I’m talking about the cost of the meeting…and more importantly the opportunity cost of the meeting.

As far as the cost of the meeting is concerned, I’m sure we’ve all done that thing in the middle of a long and particularly boring meeting, where we estimate the hourly rate of everyone sat round the table and note frustratingly that it’s costing £2,000 per hour, or whatever, just for the privilege of being bored out of our skulls.

That’s significant, but usually the direct cost in salary time is by far the smallest part of the total cost of holding a meeting. The opportunity cost tends to be much more significant.

Opportunity cost just refers to what you could be doing instead of whatever you’re doing now. Think of it like this – if you’re currently doing a task that earns £50 per hour, and you could be doing a task worth £100 per hour, you’re not making £50 per hour, you’re losing £50 per hour (the £100 you could earning, less the £50 you actually do earn).

With very rare exceptions, meetings aren’t about earning anything. Just about all of them represent a cost to the business. So straight away, almost anything else you could be doing, even if it only earned £1 for the business, would be a better use of your time.

Now, there are some meetings required by law or which are at least a reasonable idea and probably just needs to be accepted as a cost of doing business. Paying taxes or adhering to minimum wage legislation, for example, represent costs that the business just needs to take on the chin.

Under Company Law in the UK, businesses are required to have an annual shareholder meeting to approve the accounts and conduct a number of other statutory tasks. Irrespective of the cost of those meetings, you are legally required to have one in return for the benefits that limited liability status confers. So just accept that, book the cost, and don’t spend too much time worrying about it.

I can also accept that a monthly review meeting where key managers, or team members, get together to go over what happened in the last month and what’s in the plan for next month is probably a good idea. It keeps people on track and fully informed about activities that they might not come across often in their day-to-day roles.

Spending a couple of hours once a month to do that is probably advisable, and just a cost of doing business that any reputable organisation will see some benefit to doing.

With that in mind, take a look through your diary for the last month. Quickly tot up the number of meetings you had which fitted into either of those two categories – the legally required or the monthly review categories.

If you’re like most people, that will be a tiny proportion of your month’s diary hours. But your diary will be full of all sorts of other things, many of them questionable at best in terms of their positive impact on your ability to achieve the objectives of your role.

And this is where the biggest element of opportunity cost in terms of meetings comes along.

Let me illustrate with an example.

I used to work at a university. Universities are fabulous places in many ways, but they chase reasons to have meetings as eagerly as a drug addict chases another high. There was a never-ending clamour to hold another meeting about some topic or another.

My whole diary Monday to Friday, 9 to 5, was filled with this sort of activity. Culturally you had to attend, but progress on any topic was non-existent to slow and only rarely did anything have a positive impact on my ability to achieve my personal objectives. In effect I was paid a salary to achieve absolutely nothing but sit in meetings 8 hours a day, 5 days a week.

Now, in practice I put in the hours outside the 9-5 to make at least some progress on my personal objectives. Most days I worked at least a 10-hour day, of which 8 hours were taken up with meetings which were largely non-value-adding in terms of my own objectives…or, to the best of my knowledge, anybody else’s.

In other words, I spent only about 20% of my time doing the value-adding things I was in theory paid to do…almost none of it within the confines of the theoretical 40-hour week I was contracted to work.

This is where the opportunity cost really kicks in.

You see, an hour spent in a meeting instead of doing some value-adding activity wasn’t worth an hour of my time based on a straight proportion of my salary. For most of my working week, the only thing I’d have been doing instead was sit in another non-value adding meeting instead. The opportunity cost between two similarly non-value adding meetings is pretty close to zero.

But if I’m only spending 20% of my time on value-adding activities, let’s say 5 hours a week based on a minimum 50 hour week, every hour I can convert from non-value adding meetings into added value activity is worth, as a minimum 5x my hourly rate. And it could be worth a lot more – some of the tasks I was engaged with could bring in 100x or more the cost of an hour of my time.

The value I added by bringing in multi-million pound contracts in the course of a few external meetings and presentations was many multiples of my hourly rate.

But even if we just go with the 5x multiple based on the time I spent on value-adding activities each week, you can see that the “cost” of the meeting in terms of people’s hourly rates is a small fraction of the total cost of that meeting.

Unless there are people around the meeting table who do so little value-adding activity that they might as well spend their time in non-value adding meetings as anywhere else (and if there are, you might want to think about a business restructuring of some sort), odds are the real cost of that meeting is some multiple of everyone’s salary cost.

It’s likely that multiple is at least 2-3x, but when, for example, you’ve got the sales team off the road for the day, the cost of that meeting is easily 100x the mathematical hourly rate of the attendees as each meeting with a potential client should bring in a substantial amount of new business over time.

That’s why, with a limited number of exceptions noted above, I don’t like meetings.

If we started reckoning the cost, and opportunity cost, of our meetings and input that information into our decision-making process, most businesses would have a lot fewer meetings.

In my time at the university, 30 senior managers sat together for an afternoon probably cost about £5,000 in straight salary cost, perhaps £15-20,000 in opportunity cost.

The question businesses should always ask themselves, once they understand the calculations, is whether the activity they’re trying to carry out within the meeting is going to generate £5,000 to cover the cost of holding the meeting, or £20,000 to cover the opportunity costs of the meeting.

Once you start to think like this, you’ll quickly work out that it’s rarely a good idea to spend somewhere between £5,000 and £20,000 to “solve” a problem which only costs the business, say £1,000 per year…if indeed it ever solves anything. My own experience is that meetings only rarely “solve” anything anyway.

So think carefully next time someone says “let’s have a meeting to discuss x”. Unless “x” is worth many times the hourly rate of the attendees, including opportunity costs, the economically correct answer is to find something better to do with your time.

Albert Einstein on financial reporting

Financial reporting – not always one of the wonders of the universe
(Photo by Greg Rakozy on Unsplash)

Albert Einstein was one of the smartest people who ever lived, responsible for the mathematical equation more people on the planet can recite than any other, even if they don’t always know what the science behind it means…

E=mc2

If you were perhaps expecting the secrets of the universe to be a little more complicated than that, you wouldn’t be alone. But it turns out that the workings of the unimaginably massive, scientifically complex, and still largely undiscovered universe we inhabit is, at its heart, governed by a pretty simple equation with just four terms.

It takes a massive amount of brainpower to understand the workings of the scientific world, and if Einstein’s formula for how the universe works had extended to several hundred closely-typed pages, none of us would have begrudged him that.

But however clever you need to be to understand the universe in all its glory, you need to be an order of magnitude more insightful to summarise everything you’ve learned into a formula with only four terms in it.

What separates an outstanding Finance Director or CFO from a perfectly competent one isn’t their ability to run the numbers. Most of us are perfectly capable of doing that. The difference is in the level of insight they bring to the analysis of the business.

Firstly, an outstanding Finance Director or CFO can bring down a highly complex business to just a small number of variables.

Secondly, they’re wise enough to know that numbers alone will never be enough to run the business. Some things are just unknowable…or, at least, to the extent they are knowable, financial numbers and KPIs are probably the least effective way to measure them.

Albert Einstein put this much more eloquently…

Not everything that can be counted, counts. And not everything that counts, can be counted.

He wasn’t writing about financial reporting specifically, but if he had been, I feel sure he wouldn’t have been too impressed by the ever-thicker monthly reporting packs and ever-lengthening lists of KPIs managers have to report against each month.

I’ve yet to see a business which has become twice as successful by doubling the length of its monthly reporting pack, and doubling the number of KPIs managers are expected to track.

Until you can be sure that any increase in tracking and reporting is going to add to the bottom line you might want to think twice about adding another element to your monthly reporting pack. That way your managers can concentrate on running the business instead of chasing around for weeks on end just to get some often fairly meaningless KPIs into shape before month-end rolls around.

Obviously I never had a chance to discuss this with Albert Einstein in person, but I feel sure he’d agree. Measure what matters, but don’t fool yourself that the monthly reporting pack represent all the important things that go on in your business.