Friday, November 27, 2009

The Love-Hate Duality of Change

As we pass the 24th month of this turbulent economic climate, organizations have resorted to many different means to weather the storm. For some, the fare has been, slash and burn – the eradication of ‘unnecessary’ staff. For others, it is a complete retooling of business lines. Although the economic storm is weakening, the dawn of new economic vitality, according to some experts, won’t be seen until 2012. In one article I read, economic vitality won’t return until 2016. Regardless of the timeframe, organizations are doing what they can to survive.

Survival during these times demands more than sitting and waiting. For those organizations that have chosen this path, their chapter 11 filing is probably in the process. These are probably the most vibrant times for business consultants; where every snake oil salesman has ‘the’ remedy to fix the ailing business. Recently I had the opportunity to be part of one of these traveling road shows. I watched first hand how a major national law firm believed their huge investment in improvements would yield… change and ultimate survival.

I was contacted about 9 months ago to assist a national 800 attorney law firm retool its business for survival during these economic times. My contribution to this effort was very small; basically I had to revamp their current asset management processes (accounts receivable and work in progress). The general contractor equivalent of the project basically brokered all of the deals with the various contractors. The goal was, get the best of breed contractors to get the best practices possible in place and fast.

During the weeks and months of the engagement I watched as the broker racked up hundreds of hours in system upgrades and trainings. Through all of this I wondered when the business process of re-engineering would begin. Upgrading hardware, software and training people which button to press does not and never will generate positive bottom line results.

Unlike the training feeding frenzy, my contribution was to be based on some of the most cutting edge thought in the business community. At the onset and through the engagement I produced many documents demonstrating how organizations used current business intelligence tools to move their receivable and WIP management to a risk based model and in so doing, have had multi-million dollar gains.

The meeting took place in their mid-town Manhattan office. As the change broker ushered in her updates of all that has happened over the past several months. I was amazed that no one questioned the return on investment thus far. It seemed as if there was a fear to question her divine business wisdom. After the break and a brief introduction, I began my high level explanation of how the firm could reap huge savings by shifting their receivables management from an ad hoc approach to that of a risk based model.

The discussion focused around using their newly acquired Business Intelligence tools and their current receivables management system to educate their partners in making the most educated financial decisions about their clients. Empowered with hard facts, attorneys could make the decision whether to proceed with the engagement or cease. The model would remove the mystery about collections and look at the probability of default of certain clients and engagements.

After my presentation, the floor was open for questions and discussions. The concepts presented represented such new thinking that most everyone in the room cocooned themselves into their old lock step management style. With defendable figures I demonstrated that the firm could reduce their overall receivables by 30%, receive payment from clients much faster and reduce the interest on their operating line by $1M per year. Following what felt like hours, but was in fact minutes, the chief executive asked ‘How many AMLaw 100, firms are using this approach?’ Followed by a litigation partner who retorted ‘We cannot turn away work on the possibility of the client not paying?’ After fielding the questions, which were fired like arrows it became very clear that the firm who wanted change, wanted change only to the point where nothing would actually-change.

As I recounted the events of the past eight months while boarding my flight out of New York, I realized that the firm was sold onto the concept of change; a change that would not involve upsetting their current business practices. Change, and thereby survival, requires alterations be made that makes the organization more versatile. This firm had sought a means of survival in acquiring best practices, but instead it should have focussed reengineering their value to their community.

In a brilliant Harvard Business Review article by Susan Cramm ‘How are you defying Best Practice?’ Cramm clearly outlines that organizations should not be seeking the ‘best practice’ of others, but rather develop their own best practices. Best practices are developed by a specific organization within the realm of their culture at a specific time; therefore they are often not portable. Cramm also contends that sometimes the best simply isn’t feasible in terms of time, money or other constraints. For my client, having the best system and all the training, simply was not the best use of their resources at this time.

For many firms, consultants have all the answers. The need for change is at odds with the desire to change. These organizations need to have an introspective moment and build their own best practices based on their culture. They need to stop comparing themselves to others and define for their clients the best balance of quality service they are going to provide. But above all, change comes through experienced people who understand the fundamentals and know how to think critically, strategically, and creatively.

Sunday, November 08, 2009

Perspective, Outside of the Box

Several months ago I contributed a perspective on reporting with So What, Now What¸ At that time I made a call to action oriented reporting, where the users of management reports are motivated to taking some type of positive action. Since then I have extolled the virtues of different types of reporting to unearth the true dynamics of the organization. For most organizations this is an aspiration far beyond their comprehension.

For many organizations their reality finds itself in a certain ‘comfort zone’. This zone is steeped in traditional reporting where the reasons have been lost in the annals of time. As I left one such company, a biomedical device manufacturer in North Carolina, headed for the Credit Research Foundation (CRF) conference in Pittsburg, I had 7 hours of windshield time to ponder this dilemma.

Miramiller (not their real name) has been producing molded biomedical devices for almost twenty years. The last eight years of business was under the ownership of a European parent company. My engagement with the organization was an assessment of their current asset management policies. During the engagement the company migrated to a new financial management system, which was driven by the need for consolidated reporting across all of the business lines. As I watched this project unfold, one startling thing screamed to be acknowledged. Miramiller was building their new $2M system to be like their old system. The reporting of the existing system was ‘ported’ into the new system. Then through all of this the organization spent thousands on software training. This was synonymous with buying a new car, but investing thousands to make it drive like your old truck. With that said, why even move to a new system? The motivation was ‘better reporting’. For the firm, better reporting was the same old reports from a new system. This exercise in futility was essentially a $2M economic stimulus package to the software company!

How can organizations be so blind as to seek a new competitive advantage, but at the same time fall into old business practices? The seed to this behavior is a fear of change – a deltaphobia of sorts. Organizations get so imbued in process which is steeped in history that no one has the confidence in trying something new. It is for this reason; organizations replace or retool old systems and continue to dice and slice old reports. All under the auspices of change, when in fact they have remained stagnant and the world is changing.

The CRF conference was much of the same of what I have been hearing for the past year, the application of old solutions on today’s problems. How can someone reasonably believe that the exercising of ordinary solutions will move organizations through extraordinary times – they can’t it is a false sense of security. The reality is that current times are extraordinary and require a different approach for success.

Although I have professed a new prospective for quite some time I have yet to find many organizations espousing that mantra. It wasn’t until I attended a lecture series put on by a regional CFO group that I had the pleasure of listening to a comrade of change. The key speaker, David Saxon, explained the nature of the changing world order. His mantra of new management reporting was emphasized in every aspect of his lecture. During his lecture he destroyed the concept of budgeting and forecasting. Realistically he demonstrated that any type of organizational plan beyond 90-days is like throwing pennies in a wishing well.

David closed his presentation with a case study, an examination of a large bulk recycling company. This company, ABC, watched as its gross margins dwindled between 60-90% from 2007 to summer of 2009. With margins hemorrhaging away, the corporate leaders realized that the same old methods would not work. Acting expeditiously the organization migrated to new technology and completely changed their types of reporting. The new reports, now produced within hours rather than weeks, examined new metrics that the company never examined before. With this act of executive responsibility ABC not only survived but is now positioned for strategic growth.

Saxon in his book, Best Practices in Planning and Performance Management, extols the need for organizations to drive their reporting and performance analysis based on business focused metrics and not on historical general ledger classifications. It is only through this fresh start that I feel; organizations have a chance of surviving these extraordinary times.
Perspective, a new look at current circumstances, requires open-mindedness and knowledge. Organizations will be better equipped for tomorrow’s challenges by redirecting training dollars to education activities where staff and leaders a-like can dialogue about a new perspective for their organization’s survival and growth.