Who%20has%20the%20Profit%20and%20Loss%20Responsibility%20in%20Your%20Company? - PowerPoint PPT Presentation

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Who%20has%20the%20Profit%20and%20Loss%20Responsibility%20in%20Your%20Company?

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Owners and senior managers are powerless to drive needed improvement in ... It must be about compensation and equity, not just recognition and games. ... – PowerPoint PPT presentation

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Title: Who%20has%20the%20Profit%20and%20Loss%20Responsibility%20in%20Your%20Company?


1
Who has the Profit and Loss Responsibility in
Your Company?
  • Presented by
  • Fletcher L. Groves, III
  • Vice President
  • SAI Consulting

2
Whats behind the Question?
  • The inescapable conclusion that a lot of what we
    do doesnt work.
  • Business Performance Improvement initiatives as
    just one example.
  • Whats missing?
  • We are missing a context a business context
    in which everything we are trying to do makes
    more sense.

3
The Human Dimension
  • . . . The human dimension of business the
    wanting, the caring, the enthusiasm, the
    problem-solving, the initiative-taking is where
    more and more of the competitive battles are
    being won and lost . . . the only way for a
    company to boost performance consistently over
    the long haul is to have employees who work
    enthusiastically and effectively, and . . . take
    responsibility for their own work.
  • - John Case, The Open-Book Experience

4
What is the greatest managerial challenge facing
your company today? - SAIs 1997 Reference
Point survey
Complexity, Financing, Government Regulation,
Systems, Product Design, Competition
Employee Selection, Training, and Motivation
5
What is the greatest managerial challenge facing
your company today? - SAIs 1996 and 1997
Reference Point survey
6
Managements Perspective
  • The only people that need to be concerned with
    financial performance are owners and senior
    managers.
  • Employees can perform their jobs without
    understanding the way they impact profitability
    and economic return.
  • Companies are the sum of their individual parts.

7
Employees Perspective
  • Thats your job. Dont hold me accountable for
    profitability or anything related to
    business performance if you wont . . .
  • let me see the numbers,
  • let me make decisions, and
  • give me a stake in the outcome

8
The Frustration and the Fear
  • Owners and senior managers are powerless to drive
    needed improvement in operating and financial
    performance.
  • Employees look out for their self-interests, but
    they dont have the power to insure their own job
    or financial security.
  • The walls of mistrust and self-interest are built.

9
The Real Failure
  1. We have failed to build a connection between
    better business performance, and the interests of
    those who must make it happen.
  2. We have spent too much time on the what and the
    how-to, and ignored the why and the want-to.

10
Making the Case
  • Companies perform better when employees see
    themselves as the partners in the business,
    instead of its hired hands.
  • Everything else the strategies, the performance
    initiatives, the decision-making makes more
    sense within this new business context.

11
When you are a Company ofBusiness-people
  1. Everyone sees and learns to understand the
    operating and financial numbers.
  2. Everyone has the responsibility and authority for
    moving the right numbers in the right direction.
  3. Everyone has a financial stake in the outcome.

12
What does it do?
  • Teaching them the business and being transparent
    with the numbers makes your employees savvy.
  • Handing them responsibility and authority makes
    your employees mutually-accountable.
  • Giving them a stake in the outcome motivates your
    employees and gives them a future.

13
You probably dont wantto go there if . . .
  • . . . losing what you never had bothers you.
  • . . . you dont like living in a fish bowl.
  • . . . you have all the answers.
  • . . . you want to make all the decisions.
  • . . . you are smarter than your employees.
  • . . . you like carrying people on your back.
  • . . . you really dont like having fun.

14
When you are a Company ofBusiness-people
  1. Everyone sees and learns to understand the
    operating and financial numbers.
  2. Everyone has the responsibility and authority for
    moving the right numbers in the right direction.
  3. Everyone has a financial stake in the outcome.

15
Creating Transparency
  • Everyone has to see and learn to understand
    the real operating and financial numbers of the
    business.
  • Everyone has to be able to connect their
    day-to-day jobs and decision-making to the
    companys overall financial goals.

16
How often do you discuss the details of the
companys financial performance with your
employees? - SAIs 1997 Reference Point
survey
17
Our employees understand how the work they
perform relates to the companys financial
performance. - SAIs 1997 Reference Point
survey
18
Understanding the Numbers
  • Generic to Industry-specific
  • Financial Statements
  • Income Statement
  • Balance Sheet
  • Cash Flow Statement
  • Business Plans and Budgets
  • Compensation
  • Learn by DOING and make it FUN!!

19
Connecting Operating Drivers to Financial Outcomes
  • Understanding from an operational standpoint
    what happens to money in a homebuilding company.
  • Understanding the impact the operational
    perspective of money has on financial measures,
    like Net Profit and Return on Investment.

20
What happens to money?
  • Throughput (T) the rate at which a builder
    generates money through sales.
  • Inventory (I) all the money a builder invests
    in things it intends to sell.
  • Operating Expense (OE) all the money a builder
    spends turning Inventory into Throughput.

21
The Impact on Profitability and Economic Return
  • Productivity Throughput Expense
  • Inventory Turns Throughput Inventory
  • Net Profit Throughput - Expense
  • ROA (Throughput - Expense) Inventory

22
Seeing the Real Numbers
  • The operating and financial numbers need to be
    presented and discussed
  • Currently
  • Collaboratively and Collectively
  • Concisely and Comprehensively
  • Consistently
  • Format
  • Frequency
  • Conspicuously and Creatively

23
When you are Company ofBusiness-people
  1. Everyone sees and learns to understand the
    operating and financial numbers.
  2. Everyone has the responsibility and authority for
    moving the right numbers in the right direction.
  3. Everyone has a financial stake in the outcome.

24
Developing Accountabilityand Responsibility
  • Mutual Accountability and Responsibility.
  • Accountability and Responsibility cannot exist
    without Ownership.
  • Ownership requires Involvement (in the planning
    process) and Authority (to make decisions).
  • The will to get involved, to exercise Authority,
    and to assume Responsibility requires
    Transparency and Freedom.

25
We expect a higher level of job performance
(solutions and decision-making) from our senior
managers . . . - SAIs 1997 Reference Point
survey
26
Our employees believe that their job security is
based on individual job performance. - SAIs
1997 Reference Point survey
27
Our employees view their job responsibilities in
terms of their job descriptions. - SAIs
1997 Reference Point survey
28
Moving the Right Numbers in the Right Direction
  • Involvement starts with planning employees
    wont take ownership of OPB (Other Peoples
    Budgets).
  • Sales and Marketing Plan
  • Operating Plan and Budget
  • Employees wont take ownership of OPD (Other
    Peoples Decisions).

29
  • There must be a structure for presenting,
    discussing, and challenging numbers that allows
    bottom-up decision-making to take place.
  • Employees wont take ownership of OPN (Other
    Peoples Numbers) they have to have
    line-of-sight responsibility for their numbers.
  • The numbers that reflect expenses are important
    but the numbers that drive the rate of revenue
    generation are critical.

30
When you are a Company ofBusiness-people
  1. Everyone sees and learns to understand the
    operating and financial numbers.
  2. Everyone has the responsibility and authority for
    moving the right numbers in the right direction.
  3. Everyone has a financial stake in the outcome.

31
Performance-based compensation for all of our
employees . . . exceeds 20 of total
compensation. - SAIs 1997 Reference Point
survey
32
Our employees know . . . bonuses and
profit-sharing before the numbers come in at the
end of the year. - SAIs 1997 Reference
Point survey
33
We believe employee stock ownership is a
relevant issue for our company. - SAIs 1997
Reference Point survey
34
Rewarding the Outcome
  • It must place a bounty on the financial
    performance you want to achieve.
  • It must be about compensation and equity, not
    just recognition and games.
  • It must define performance as the achievement of
    commonly-held goals.
  • It must change peoples behavior.

35
Eliminating Unproductive Compensation
  • Eliminating performance compensation paid
    regardless of performance.
  • Eliminating divisive and discriminatory
    compensation.
  • Compensation based on individual job performance.
  • Bonuses for specific positions.
  • Bonuses exclusive to management (the exceptions
    are equity or deferred comp).

36
Designing Bonus Plans
  • Focused (critical numbers).
  • Simple, straightforward, and equitable
  • Self-funding.
  • Uncompromising (100).
  • Non-discretionary.
  • Visible.
  • Significant (10 - 20 of total comp).
  • Progressive (weighted payouts).

37
Real Ownership
  • Equity Crossing the Rubicon.
  • Mentality (the end of short-term thinking).
  • Walls (the end of us versus them).
  • Equity Is it important?
  • Stock ownership vehicles
  • Employee Stock Ownership Plans (ESOP)
  • Stock Options
  • 401-K

38
Becoming a Company of Business-people
  • If you start now, 2003 is realistic.
  • In every company, the process starts somewhere
    it might as well start with you.
  • Find out more.
  • Start asking others What if . . .?
  • Get a realistic picture of where you stand and
    the problems you will encounter.

39
  • Start teaching business.
  • Make it part of the landscape.
  • Formal doesnt mean boring.
  • Mandatory doesnt mean onerous.
  • Start simple and generic.
  • Move to detailed and industry-specific.
  • People learn by doing use games.
  • Start sharing the real numbers.
  • Make it part of the landscape.
  • Focus on the critical numbers.
  • Connect the drivers to the outcomes.

40
  • Get rid of the constraints and problems.
  • Policies
  • Compensation
  • People
  • Push Involvement put your freshly minted
    business-people in charge of producing the 2003
    Business Plan.
  • Develop a regular, consistent structure for
    presenting, discussing, and challenging the
    numbers.

41
  • For 2003, find a new bonus plan.
  • My recommendation? Go with a pool plan in lieu
    of a fixed payment plan.
  • 6-8 gross profit buckets per year
  • funded 100 by the increase in net profit
  • progressive weighting
  • 100 participation
  • salary no commissions
  • blended allocation (50-50)
  • paid within one week, not tied to the calendar

42
Did you get it?
  • RULE I
  • Everyone sees and understands the numbers.
  • RULE II
  • Everyone has the authority and responsibility for
    improving performance.
  • RULE III
  • Everyone has a stake in the outcome.

43
Questions and Information
  • Fletcher Groves is a Vice President and Senior
    Consultant with SAI Consulting, LLC. He can be
    reached at (904) 273-9840, or by e-mail at
    flgroves_at_saiconsulting.com.
  • A download version of this PowerPoint
    presentation will be available on the SAI website
    at www.saiconsulting.com.
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