The New Tech Career Reality Measuring Success PMI Silicon Valley January 2005 James D Warren Jr CMC

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The New Tech Career Reality Measuring
SuccessPMI Silicon ValleyJanuary 2005James
D Warren Jr CMCManaging PartnerSan
Francisco415-982-9900jwarren_at_jdwa.biz
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Overview

• Introductions / Objectives / Specific Goals
• The New Career Reality
• The View from the Corner Office
• The Language of Accounting
• New Approaches Value-added Framework
• The Crystal Ball

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BIO Jim Warren

• 29 years consulting Big 5 environment
• Partner / Managing Director responsibilities
• Successfully performed 150 projects globally in
  career
• Focus is Strategic Business Improvement with
  strong process, information technology and people
  framework
• Certified Management Consultant (CMC)
• A believer in excellence through innovation and
  execution
• The University of Michigan (Ann Arbor, MI)
• BSE Industrial and Operations Engineering, cum
  laude
• BA Music Literature and Organ Performance, with
  distinction
• MBA Finance and Information Technology

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SUGGESTED OBJECTIVE FOR TODAY

• To understand some new tool sets, or ways of
  looking at issues, that might allow you to stay
  ahead of the curve
• Perhaps, to take away one thing that will
  transform your career

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YOUR SPECIFIC OBJECTIVES / DESIRED BENEFITS /
INTRODUCTIONS

• Lets introduce one another

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GROUND RULES

• If you are here, be here
• No cell phones. Turn them off. Go outside to
  use.
• When in doubt, ask questions then.
• This is interactive. No one person can possibly
  be the expert on everything. We are here to
  learn from each other (JW included)
• Survival in todays times is about thinking new
  and acting SMART seeing possibilities and doing
  things well
• Lets have fun

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A journey of a thousand miles must begin with a
single step.Lao-tzu
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II. THE NEW CAREER REALITY
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II. THE NEW CAREER REALITY

• Over 104,000 IT jobs moved offshore between 2000
  and 2003 (Info Tech Assoc of America)
• 50 of Malaysias 250,000 college students are in
  the sciences (Austin American-Statesman)
• Singapore just opened a 300 million biotech
  research facility BIOPOLIS (Austin
  American-Statesman)

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II. THE NEW CAREER REALITY

• GEs largest research center outside of America
  is in Bangalore, India 1,800 engineers doing
  cutting-edge research (IEEE)
• In 2003, India produced 260,000 engineers.
  America produced 60,000 (Austin
  American-Statesman)
• Off shoring cost the American economy 37,000
  electrical engineering jobs in 2003 (IEEE)
• Santa Clara county had 1,047,000 jobs in July,
  2000. Presently, employment is around 850,000, a
  19 drop (San Jose Mercury News)

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II. THE NEW CAREER REALITY

• The job loss was the worst collapse of any
  metropolitan areas job base since the Great
  Depression, exceeding Detroits 13 decline in
  the 1980s. (New York Times)
• Venture capital is moving to Asia. Dixon Dolls
  Doll Capital Management has invested in China
  jobsite 51job and Chinas Apexone
  Microelectronics. Intel has invested 200
  million in Chinese start-ups. (FastCompany)

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II. THE NEW CAREER REALITY

• Mike Moritz of Sequoia Capital, The raw energy
  among Indian companies is just unmistakable. The
  extraordinary, educated, talent-driven workforce
  that constantly gushes from Indian institutes.
  It is like the Silicon Valley. As the Silicon
  Valley developed over time, it attracted more
  skilled people and then more good things
  happened. And the same thing will happen in
  India. (India Economic Times)

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II. THE NEW CAREER REALITY

• IT used to be a well-paid profession made up of
  hands-on problem solvers who were respected for
  their abilities. Anonymous data base expert If
  you want to be someone who is a doer, you pretty
  much have to be a contract worker. You can no
  longer be an employee. Theyre hiring employees
  to manage and supervise the process, not do the
  process. Management views the doers as a
  commodity. (Computerworld, Nov 2004)
• bolding emphasis added

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III. THE VIEW FROM THE CORNER OFFICE
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III. THE VIEW FROM THE CORNER OFFICE

• Its about strategy and execution
• Its about what and why not how
• how is just a detail
• Success is taken seriously, but not in the same
  way as you might think
• Golden parachutes
• Metrics
• Peer pressure
• Short term, not long term, especially in public
  companies
• At some point, who is the constituency?
  Shareholders, management? The CFO works for the
  CEO, but also has dotted lines to the Board and
  the SEC life is getting VERY complicated now
  more on that later

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III. THE VIEW FROM THE CORNER OFFICE
A BRIEF LOOK AT STRATEGY Michael Porter Source
Competitive Strategy, 1980, page 39
Uniqueness
Low-Cost
perceived by Customer
Position Industrywide 2. DIFFERENTIATION
1.OVERALL
COST
LEADERSHIP Particular
ltltltltltltltlt 3. FOCUS gtgtgtgtgtgtgtgtgtgtgt Segment only
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III. THE VIEW FROM THE CORNER OFFICE

• A BRIEF LOOK AT STRATEGY Michael Porter
• Source Competitive Strategy, 1980, page 40
• 1. OVERALL COST LEADERSHIP
• COMMONLY REQUIRED SKILLS AND RESOURCES
• Substantial capital investment and access to
  capital
• Process engineering skills
• Intense supervision of labor
• Products designed for ease in manufacture
• Low-cost distribution system
• COMMON ORGANIZATIONAL REQUIREMENTS
• Tight cost control
• Frequent, detailed control reports
• Structured organization and responsibilities
• Incentives based on meeting strict quantitative
  targets

QUESTION? WHO HAS THIS NOW?
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III. THE VIEW FROM THE CORNER OFFICE

• A BRIEF LOOK AT STRATEGY Michael Porter
• Source Competitive Strategy, 1980, page 41
• 2. DIFFERENTIATION
• COMMONLY REQUIRED SKILLS AND RESOURCES
• Strong marketing abilities
• Product engineering
• Creative flair
• Strong capability in basic research
• Corporate reputation for quality or technological
  leadersip
• Long tradition in the industry or unique
  combination of skills drawn from other businesses
• Strong cooperation from channels
• COMMON ORGANIZATIONAL REQUIREMENTS
• Strong coordination among functions in RD,
  product development and marketing
• Subjective measurement and incentives instead of
  quantitative measures
• Amenities to attract highly skilled labor,
  scientists or creative people

QUESTION? WHO HAS THIS NOW?
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III. THE VIEW FROM THE CORNER OFFICE

• A BRIEF LOOK AT STRATEGY Michael Porter
• Source Competitive Strategy, 1980, page 41
• 3. FOCUS
• COMMONLY REQUIRED SKILLS AND RESOURCES
• Combination of the Differentiation strategy
  directed at the particular strategic target
• COMMON ORGANIZATIONAL REQUIREMENTS
• Combination of the Differentiation strategy
  directed at the particular strategic target

QUESTION? WHO HAS THIS NOW?
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III. THE VIEW FROM THE CORNER OFFICE

• WHAT IS THE ROLE OF THE CFO?
• Earnings projections internal and external
• Cost reduction
• Cop for the CEO
• CEOs are looking for a trusted partner in their
  CFO to deliver against performance commitments.
  Accounting and business partnering alone are not
  enough the CFO needs to be an activist and help
  change the business. Booz Allen Hamilton, Jan,
  2005
• Sarbanes Oxley
• Financial reporting
• Life has gotten more complicated maybe its not
  as much fun as before

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III. THE VIEW FROM THE CORNER OFFICE

• THE FINANCIAL OVERSIGHT HAS CHANGED
• CFOs HAVE TO BE MUCH MORE CAREFUL
• SEE THE HAND-OUT FROM THE WALL STREET JOURNAL

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III. THE VIEW FROM THE CORNER OFFICE

• SOME SARBANES OXLEY REQUIREMENTS
• Statements about internal controls
• Personal attestations from CFO and CEO about the
  accuracy of the financial statements
• Ensure independence is maintained while working
  with outside auditors, tax compliance and
  consultants

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III. THE VIEW FROM THE CORNER OFFICE

• SO TO BE VALUED PUT YOURSELF IN THE MINDSET
  OF FINANCIAL PEOPLE, AND SERVE THEM
• BUT WHERE, WHY, HOW AND WITH WHOM?
• WHAT IS THE WAY TO STAY AHEAD OF THE CURVE?
• WHAT CURVE?

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III. THE VIEW FROM THE CORNER OFFICE

• THE CURVE IS ALWAYS
• ADD VALUE THAT CAN BE MEASURED IN FINANCIAL WAYS
• UNDERSTAND IMPLICITLY HOW YOUR ROLE AND TASKS
  GENERATE VALUE, AND SAY IT.
• UNDERSTAND THE LANGUAGE OF BUSINESS AND FINANCIAL
  REPORTING AND ACCOUNTING, AND COMMUNICATE IN
  THOSE TERMS.

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III. THE VIEW FROM THE CORNER OFFICE
OK GREAT WORDS BLAH, BLAH, BLAH BUT HOW DO WE
DO THAT? WELL, LETS EXAMINE THIS, SHALL WE?
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IV.THE LANGUAGE OF ACCOUNTING
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A little inaccuracy sometimes saves tons of
explanation.Anon.
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IV. THE LANGUAGE OF ACCOUNTING

• THE LANGUAGE OF ACCOUNTING
• Financial Accounting
• Managerial Cost Accounting
• Budgeting
• Break-Even Analysis
• Activity-Based Costing
• Non-Financial Data
• Project Discounted Cash Flow, NPV and IRR

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IV. THE LANGUAGE OF ACCOUNTING

• A. FINANCIAL ACCOUNTING
• What is our context for today?
• What are the things we can do?
• Increase revenue
• Decrease costs
• Increase comfort
• Decrease pain
• Thats it!

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IV. THE LANGUAGE OF ACCOUNTING

• A. FINANCIAL ACCOUNTING
• The context is really
• What does the financial community look for, and
  why?
• What do we look at, and not?
• What are the root causes?
• Is there anything we really can do?
• Is it worth the effort?
• So what? That is what today is really about.

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IV. THE LANGUAGE OF ACCOUNTING

• A. FINANCIAL ACCOUNTING
• In business, we can only look at
• Profits
• Growth
• Cash flow
• Assets
• And, there are only three documents of data
• Balance sheets (beginning and ending of the
  period)
• Profit and Loss accounts (for the period)
• Cash flow statement (for the period)

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IV. THE LANGUAGE OF ACCOUNTING
A. FINANCIAL ACCOUNTING Balance Sheet
Income Statement Cash Flow
Statement Assets
Revenue Sources of funds
Liabilities Expenses
Uses of funds
Owners Equity Net Income
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IV. THE LANGUAGE OF ACCOUNTING

• FINANCIAL ACCOUNTING
• This is not about creative accounting
• It is about looking at the data of REVENUE,
  EXPENSE and CASH FLOWS for the purpose of
  changing the ways we do business, which will
  reduce these items in ABSOLUTE and RELATIVE
  terms, and improve the bottom-line.
• Absolute the net dollars are up in direct
  comparison, and that is good
• Relative the net dollars are up, and if
  something else changes, the net effect is good

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The important thing is to never stop
questioning.Albert Einstein
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IV. THE LANGUAGE OF ACCOUNTING

• MANAGERIAL ACCOUNTING
• What is managerial accounting?
• Preparing data useful for decision-making
• Planning
• Controlling
• In economic terms, maximizing the expected value
  of choices (JDW)

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IV. THE LANGUAGE OF ACCOUNTING

• MANAGERIAL ACCOUNTING
• Managerial accounting quickly can become cost
  accounting
• A cost, as it becomes attached to a business
  activity, quickly becomes a metaphor for a cash
  flow
• Cash, and by using a detailed picture of how and
  where it goes, gives a very insightful picture
  into the future of the business. Cash is king
  today, and accountants are today much more
  focusing on the cash flow statement.
• Cash flow analysis becomes a very useful tool to
  answer why? When in doubt, follow the cash.

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IV. THE LANGUAGE OF ACCOUNTING

• MANAGERIAL ACCOUNTING
• An exercise for us to contemplate
• Price per unit 5 Cost of Production
• Regular schedule
  Accelerated
• Units produced 25,000
  30,000
• Variable costs 25,000
  40,000
• Fixed and step costs 75,000
  85,100
• Total costs 100,000
  125,100
• Cost per unit 4.00
  4.17
• The decision was made to accept the accelerated
  orders.
• Do you agree or not?
• In what ways could you approach the decision?

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IV. THE LANGUAGE OF ACCOUNTING

• MANAGERIAL ACCOUNTING
• An exercise for us to contemplate
• Price per unit 5 Cost of Production
• Regular schedule
  Accelerated
• Units produced 25,000
  30,000
• Variable costs 25,000
  40,000
• Fixed and step costs 75,000
  85,100
• Total costs 100,000
  125,100
• Cost per unit 4.00
  4.17
• --------------------------------------------------
  ---------------------------------
• Revenue 125,000
  150,000
• Less cost lt100,000gt
  lt125,100gt
• Profit 25,000
  24,900

Does this analysis reflect ALL the factors?
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Ive come loaded with statistics, for Ive
noticed that a man cant prove anything without
statistics.Mark Twain
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IV. THE LANGUAGE OF ACCOUNTING
C. BUDGETING A significant waste of time and
energy by people, processes and technology,
necessary so that some accounting system can spit
out a report called actual to budget, which is
produced about one month too late to be
meaningful for anything. This report is deemed
necessary by someone(s) who have not a clue about
future events and no vested interest in whether
future events work or not. Most budgeting
exercises are a blatant example of Ready, Fire,
Aim. Budgeting is considered mission critical.
(JDW)
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IV. THE LANGUAGE OF ACCOUNTING
D. BREAK-EVEN ANALYSIS AN EXAMPLE Break-even
point Fixed costs / contribution margin

Products A
B C Est sales (units)
50,000 40,000
10,000 Sales price / unit 50
45 6 Var cost / unit
47 43
6 Contribution margin 3
2 0 Total fixed costs
120,000 Avg contribution margin .5(3) .4(2)
.1(0) 2.30 What is the break-even in units?
What is the danger in this type of analysis?
Are there other statistical techniques that
might be considered?
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IV. THE LANGUAGE OF ACCOUNTING
Not all dishonest accounting is illegal. Anon.
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IV. THE LANGUAGE OF ACCOUNTING
E. ACTIVITY-BASED COSTING You and three friends
go to a bistro. You have a toasted cheese
sandwich and tap water, and they have patè, beef
tartar and a Filet Mignon, with a lovely Bordeaux
wine. They tell you that the group will split the
check evenly. Is this accurate? Is this fair?
Does it impact behavior? How else, and why,
might you divide the check?
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IV. THE LANGUAGE OF ACCOUNTING

• F. NON-FINANCIAL DATA
• Consider probability factors in decision-making
• NEW PLANT ANALYSIS Outcome 1
  Outcome 2 Outcome 3
• Sales 1,000 100
  833 100 666 100
• Net Income 250 25
  167 20 100 15
• Probability 30
  40 30
• 
  (250x.3) (167x.4) (100x.3)
• Expected Value of Net Income 180
• If the minimum required is 170, do you open the
  plant?
• If yes, what else should you do going-forward?

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IV. THE LANGUAGE OF ACCOUNTING

• G. DISCOUNTED CASH FLOW, NPV AND IRR
• 60 years academic and professional credibility
• Used by all large organizations today
• Takes into account the time-value of money
• Accurately maps project returns (e.g. CASH flows)
  to a go / no go decision for all financial
  decisions
• Nothing is of more importance to business health
  than having a reliable estimate of the results of
  our management choices. (JDW)

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IV. THE LANGUAGE OF ACCOUNTING
G. DISCOUNTED CASH FLOW, NPV AND IRR Payback
method (non DCF) Two projects, each costing
1,000 investment Companys cost of capital
10 Year project 1
project 2 1 500
100 2
400 200 3
300 300
4 100
400 5
500 6
600 Total
Return 1300 2100 Payback
2.33 years 4.0 years
WHCH PROJECT, IF ANY, WOULD YOU DO?
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IV. THE LANGUAGE OF ACCOUNTING
G. DISCOUNTED CASH FLOW, NPV AND IRR Payback
method (non DCF) Two projects, each costing
300 investment Companys cost of capital 10
Year project 1
project 2 1 200
100 2
100 200 3
100 100
Total Return 400 400
Payback 2 years 2 years
WHICH PROJECT, IF ANY, WOULD YOU DO?
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IV. THE LANGUAGE OF ACCOUNTING
G. DISCOUNTED CASH FLOW, NPV AND IRR Two
projects, each costing 1,000 investment cost of
capital 10 Year
project 1 project
2 net cash flow int
fct PV net cash flow int fct PV
1 500 .91
455 100 .91 91
2 400
.83 332 200 .83
166 3 300
.75 225 300 .75
225 4 100
.68 68 400 .68
272 5
500
.62 310 6
600
.56 336 Totals
1080
1400 less project cost
lt1000gt
lt1000gt NPV
80
400 IRR
APPROX 15
APPROX 20
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It has been said that figures rule the world.
Maybe. But I am sure that figures show us
whether it is being ruled well or badly.J. P.
Eckermann
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How much easier it is to be criticalthan
correct.Benjamin Disraeli
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V. NEW APPROACHES VALUE-ADDED FRAMEWORK
A. VALUE-ADDED PERSPECTIVE You see what you
look for, you know (JDW) How do we look?
Consider one framework
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V. NEW APPROACHES VALUE-ADDED FRAMEWORK
A. VALUE-ADDED PERSPECTIVE
Direct
Provide
ltltltltlt gtgtgtgt
Management
Content

• It is important to know where you are on this
  continuum.
• Ask why, not how first how is just a detail

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If you ask why five times, you will obtain
the explanation to any question. Most American
companies ask how. We ask why?Ancient
Japanese proverb applied to manufacturing
techniques in Japan
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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• A. VALUE-ADDED PERSPECTIVE
• Do not ask Content questions too soon
• How should this process begin?
• How can we make this work?
• How can we produce more?
• Ask the Management questions first
• Why are we doing this?
• Why are we in trouble?
• Why are we not getting the desired results?

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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• A. VALUE ADDED PERSPECTIVE
• Asking why five times will get you to the
  answer about anything (source Demming)
• Why are the analysts being a problem?
• Because the projections are not dependable.
• Why are the projections not dependable?
• Because the variances are not correct.
• Why are the variances not correct?
• Because we cannot manufacture consistently.
• Why cant we manufacture consistently?
• Because .
• NOW WE ARE AT THE BEGINNING OF UNDERSTANDING THE
  ROOT CAUSE

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In action, be primitive in foresight, a
strategist Rene Char
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V. NEW APPROACHES- VALUE-ADDED FRAMEWORK

• B. LATERAL BUSINESS ANALYSIS
• What is our context for today?
• What are the things we can do?
• Increase revenue
• Decrease costs
• Increase comfort
• Decrease pain
• Thats it!

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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS
• SEEK VALUE-ADD BY LOOKING AT THE INCOME STATEMENT
  SYSTEMICALLY
• When the family grows and needs a larger house,
  but likes the schools and the big trees in the
  existing yard.
• If we just renovate the house, we can stay and it
  will meet out objectives. And it will cost less.
• So, lets figure out what we need going-forward
  and why? (JDW)

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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS FRAMEWORK
• Ask what is not working well
• Ask what are the desired results
• Investigate financials
• - Perform analytical tests
• - Seek proven patterns even in other
  industries
• - Find opportunities to improve
• Investigate structure for gaps
• Develop targeted areas for improvement
• Develop business case
• Discuss with management
• Implement

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B. LATERAL BUSINESS ANALYSIS LOOK DIFFERENTLY
V. NEW APPROACHES VALUE-ADDED FRAMEWORK
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B. LATERAL BUSINESS ANALYSIS BUSINESS DRIVERS

• Identify the Key Metrics critical for
  profitability
• Identify patterns, trends, and missed
  opportunities
• Optimizing room rate on more frequent basis
• Renegotiating leases or other fixed costs
• Integrating IT systems to replace or retool
  headcount
• Build action items of how each can be addressed
• Tie each item to how it will positively impact
  Net Oper Income

Can you quantify it? How well? How often? What
other metrics?
V. NEW APPROACHES VALUE-ADDED FRAMEWORK
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B. LATERAL BUSINESS ANALYSIS - EXAMPLE
HOSPITALITY
Analyzing a business begins with dissecting the
PL

• What to Look For?
• Actuals, budgets, history
• Patterns of spending
• Ratios of income expenses
• Bottom-line trends
• Ways to optimize costs
• Example What was Found
• Increase in sales did not fall to the bottom line
• Adj. Op. Exp increased
• Net income decreased
• Next Step drill down into each of the green
  boxes- ASK WHY?

V. NEW APPROACHES VALUE-ADDED FRAMEWORK
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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS SAMPLE BUSINESS
  ISSUES
• People
• Employees inability to understand business
  drivers
• No one can answer the CEOs questions
• Processes
• Duplicate, redundant processes
• Delays in products and services to market not
  fast enough
• Technology
• Operating costs of technology is too high
• Little to no integration among systems
• Computing a faster mess

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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS REDUCE ADJUSTMENTS
• Project cost - 100K cash out
• People 20K
• Communicate importance of the issue
• Training in new procedures
• Processes 30K
• Inform guest of add-on processes
• Add process to check for adjustments prior to
  check-out
• Technology 50K
• Add different general ledger account structure
  for reconciliation
• Integrate non-room systems to main guest system

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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS REDUCE ADJUSTMENTS
• Potential Savings - 285 K cash per year
• Reduce spa and golf adjustments
• 90 K per year
• Bill customers for other non-room services
• 120K per year
• Reconcile accounts sooner and better
• 75 K per year

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B. LATERAL BUSINESS ANALYSIS -
2. An IRR Model quantifies the PROBLEM and
justifies the SOLUTION in dollars using
Discounted Cash Flow analysis the most reliable
economic tool available.
V. NEW APPROACHES VALUE-ADDED FRAMEWORK
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B. LATERAL BUSINESS ANALYSIS -

• Benefits
• Return on project is 280 per year over 3 years
• Successful project results in real and tangible
  NPV cost reduction of 676K cash
• Priority of project based upon financials rather
  than political or personal agendas

V. NEW APPROACHES VALUE-ADDED FRAMEWORK
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V. NEW APPROACHES VALUE-ADDED FRAMEWORK

• LATERAL BUSINESS ANALYSIS
• Look for Patterns other industries,
  processes, markets, countries
• Much of business is a good enough solution
  implemented well, and at the right time
• Remember, it is about cash flows, which are
  created from multiple touch points of activities
• Look at things SYSTEMICALLY PEOPLE, PROCESS and
  TECHNOLOGY based on business drivers

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Logic is the art of going wrong with
confidence. Isaac Isamov.
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Only marketing and innovation produce results.
All the rest are costs. Only opportunities
produce results and growth. Peter F. Drucker
71
The best way to predict the future is to create
it. We have the tools, and we will find the
opportunities. Jim Warren
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Go confidently in the direction of your
dreams. Live the life you have imagined. Henry
David Thoreau
THANK YOU