Chapter 10
Building the Financial
One way executives and leaders have conquered these mountains of measures is by developing tools to help them quickly collect key timely intelligence data, and interpret, understand, and respond with execution actions and adjustments. These tools are call dashboards, and those that help you under- stand real-time performance of your financial measures are called financial dashboards. Often, executives combine dashboard elements of all four of the Balanced Scorecard legs into a single tool, with a limited set of key indicators by which they set, steer, and adjust the course of their organization. In this section, we will cover the basics of financial dashboards, who owns them, and how they can help you in your leadership role as managers of your company.
Determining ownership and responsibility of the financials
So, who is responsible for the financials of an organization? Typically, when you ask this question, you are told that is the job of the finance officers, directors and staff. Occasionally, you are told, “Who knows?” (Not the best answer for those who hope to keep their jobs, by the way!) Truth be told, there is something to be said for ensuring that a company’s financials are accurate, timely and relevant. Often, this level of responsibility is seen as being the “owner and operator” of the financial data.
However, accuracy and timeliness, while important, do not a decision maker make. Ownership and responsibility will always rest with the managers and leaders that use this information in their daily task to lead and decide what actions are taken, what direction you go, and how you get there. This extends to all levels of management, and applies wherever decisions are made and actions are implemented.
The financial leg of your scorecard is different than the other three legs (cus- tomer, internal processes, learning and growth) because financial measures and indicators link directly to evaluated performance by the market, stockholders and owners. Having regular, updated visibility to these indicators, therefore, is vital for leaders to see not just how the company is doing, but also to link the four legs and their initiatives to these measures. This is because, as you might have guessed, you don’t want to wag the dog by making decisions from your financial measures alone, yet you need to know how your actions are indeed affecting these same measures. Financial dashboards can be extremely effective because they provide a real-time window into performance mea- sures, enabling you to adjust actions and respond to changes, hopefully before they become major problems.
But, and this is a bigbut, you will need to make sure that the right people are involved in selecting and designing your dashboard structures. Having only finance types take on this task may skew information towards financials, and away from key decision drivers found across all four legs. Similarly, having only business leaders select and design your dashboard structures may direct data toward decisions without clear financial justification. The best approach is a team approach, involving both financial advisors and business leaders, to ensure that the information provided in the dashboard is perti- nent, real time, and accurate.
An emphasis on real-time measurement and response
Several years ago, a large government contractor submitted numerous bids for several large defense weapon systems contracts. The contractor’s pro- gram office would monitor progress of these bids with monthly status reports and reviews, which would typically last about one day, and would usually require every program manager to fly in and report on their program (at no small expense, we might add!). The win rate was relatively low — about 15 percent — with this type of bid, so the contractor wanted to know what they could do to double the win rate to 30 percent or better. When we looked into the review process, we immediately noticed that it did not allow real-time feedback and adjustments to the bid process. We were in fact told that this inflexibility was a strength of the bid process, since the company was following strict, disciplined procedures, which discouraged and even punished deviation. Once we mapped the bid process, we were able to demonstrate that over 93 percent of the process added no value, and often delayed, misdirected, and imbedded additional errors into the bid itself, resulting in last-minute, crash timetables to meet deadlines. It took months to get the company to untangle its process. They did, however, and within two years the company’s win rate moved into the 25 to 27 percent levels, with very encouraging prospects for the future.
So what is the point of that little tale? The point is that the typical financial reporting and review structure involves monthly reports, where each depart- ment compares actual costs and expenditures to budget levels, and explains variations in terms of unexpected events, unforeseen circumstances, changes in priorities, projects, focus, or customer requirements. These are usually accompanied by plans and actions designed to rectify these situations or compensate to get back on track.