Tuesday, February 19, 2008

Actions, Not Expectations, Determine Results

Whether we choose to believe it or not, everything in this world is driven by cause and effect. The effect is in essence the result of the cause, which in turn drives other causes. We cannot view the effect or the result as the termination of an event or series of events. The result is simply a snapshot in time. As effects lead to causes which precipitate other effects and the continuum continues ad infinitum. The concept of viewing results, as a snapshot in time was first documented by Erwin Schrödinger in 1935. Although Schrödinger’s experiments related to superposition of subatomic particles, his theory on a macro scale basically indicated that causes and effects are synonymous and it is only at the time of observation that we can assign result versus cause.

This cause effect continuum is in every aspect of the world. For the most part, nature has in itself scripted a series of events that culminates in a series of results or effects that in turn lead to new effects. Take for instance precipitation; the occurrence of precipitation is a continuum of precipitation, absorption, percolation, absorption, transpiration, evaporation and precipitation. At any point, a snapshot, the preceding events are termed the causes and the item under investigation is the effect.

Another example that is probably closer to home is the management of receivables. The management of receivables is the ‘result’ of prospecting, undertaking the engagement, billing and waiting. The ‘result’ of managing receivables brings possible outcomes: getting paid or writing off the balance or in the case of professional services, allowing it to steep like tea. The outcome, whatever it may be, is the cause for future events and causes. This continuum of cause and effect has continued and will continue ad infinitum.

The cause effect continuum of the universe, for the most part, cannot be altered. There are certain things for which we can manage toward a given result. We can create arable land through the redirection of rivers. The effect is arable land and the cause is introduction of water. Then the new cause is arable land and the new effect is climatic changes; and a new cycle begins.

This management, or redirection of a continuum, is also attempted in business. In many cases, the ‘result’ isn’t what was expected and therefore another ‘cause’ must be instituted. For one to have a desired ‘effect’ one must institute more than a single stimulus or cause. There must be several changes operating in unison to bring about an irrevocable change. Using our arable land example, one simply cannot remove the trees and hope the river will jump the lower banks. In similar fashion, one simply cannot cut an arm from the existing river that will lead to the land. It is a series of changes that must be made.

Probably one of the best articles I have read on the many changes that must be made as part of better receivables management is by Susan Rausch, Best Practices: Collections, in the January 2008 issue of Business Credit. In last week’s entry, I expounded on the importance of the pre-engagement side of receivables management. This week, we will look at Rausch’s second most important aspect “Training or Re-training Your Customers”.

The concept of training, according to Webster, is to bring about an event or effect through a series of consequences. As we already know, the event or effect is the seed to more consequences that will lead to more events or effects. In Rausch’s address of the training issue, she makes the most powerful statement in a single sentence. “By never calling your customers on a consistent basis we actually train our customer to pay consistently beyond terms”. I believe it goes much further than this in the professional services world. By having an annual collections budget and tying it to partner compensation, we ‘train’ our partners into a lackadaisical mindset about collections throughout the year and to create the year end pandemonium. Rauch goes on to set out how we, as collection professionals, must go about training our new clients and re-training our existing clients. This is a process that has to happen both at the client level and at the partner level, in my opinion For without significant change or retraining, the process is self-perpetuating; as in the year-end ‘push’.

The training and retraining process is to arrive at the desired effect, by altering all the proceeding events. Rausch professes calling customers early and frequent so as to stay on top of receivables. The consequences or causes are being altered to derive the given effect: better receivables management. This is, however, is contrary to what occur in most professional services firms. The event or effect is determined, a certain cash budget, while the causes or consequences leading up to the event don’t change. Without the training, how do firms reach the desired result? They don’t! Firms simply go from year to year expecting a different effect, even though they didn’t make any significant changes to the causes. Swaying away from Webster and drawing on the urban vernacular: Insanity is the result of doing the same thing but expecting different results!

Today’s firm must STOP and recognize that they are part of an economic continuum where every event seeds future events, where every engagement can lead to payment and referrals or to antique accounts receivable. Whatever the outcome, more events are seeded. The process continues to either be a wildly successful cash rich organization or a train wreck. As I see it, firms have really only two choices: alter the cause and effect continuum to a desired outcome through training and retraining the clients, associates and partners or bask in the delusional insanity of greater cash flows while not changing anything. Luckily, the choice is yours!

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