I have met and talked to hundreds of individuals who call themselves Chief Financial Officers.  Some work in the small to mid-market, some large cap all with varying degrees, certification, and experiences in different industries and sectors.  What an overwhelming number of these fine men and women say in their “elevator pitch” is they can come into your company and cut costs.

Anyone can cut costs!  To steal a slogan from Nancy Regan; “just say no” and you have reduced a cost. Experienced business people can cut costs, so we can change the statement to all CFO’s, Controllers, accountants and bookkeepers can cut costs.  Those CFO’s who claim in their elevator pitch that they can cut costs are tactical CFO’s. They fully involve themselves; immerse themselves; in this pursuit to the exclusion of most of the other aspects of being a CFO.

However, can you cut costs without damaging the business?  Just like a surgeon, cut too deep and you damage the underlying organs or tissues and while you may cure the patient today, tomorrow the patient may make a turn for the worse or never regain full mobility.

Nevertheless, we are moving away from my central thesis, “Why I never describe myself as a CFO that can cut costs”.  Yes, I can cut costs.  Yes, I can do it intelligently, and argue when cost cutting has exceeded the safe zone and the business will be damaged.  I am not alone here in this skillset.

However, if I convinced you to hire me; and my claim to fame is cost cutting; I am setting myself up for future issues.  Think about it; I come into your business, it may take a year or so, and I am able to save the business a significant amount of money.  I do it smartly and the business does not suffer much.  A job well done!

Then, what is my next trick?  Most of the time you can only cut costs once, sometimes twice.  Then what?  What else can I do?  I sold myself as a cost cutter.  I performed and now it is time the business hires that strategic CFO it needs.  I have indeed raised the bottom line, but how have I helped the organization grow?

What I sell

So what do I tell CEO’s?  I tell them that I am a strategic CFO.  I believe in cost mitigation.  Mitigation includes intelligently controlling costs; which includes evaluating the way we do business.  Evaluation requires a strategic vision of the business.  A mapping of all processes and an on-going GAP Analysis program to root out stovepipes, waste and non-performing aspects of the business.

While I do believe in cost mitigation, by using GAP Analysis and other tools (such as the development of metrics to assist in gauging effectiveness of business and programs) I also believe in empowering and growing top line revenues.

How?  By providing information that sales and marketing needs, based on their requirements.  Giving them access to the data in formats that they want, not what I like.  Teaching and encouraging their use of the tools provided to analyze the company data.  By spending time with sales and marketing during their sales cycle.  This means I go on sales calls.  I meet our customers.  I learn to understand the business from the revenue side.

I learn what roadblocks there are in selling our product or service.  I fully understand our value proposition.  I empower sales to close the deal, by giving them the full understanding of where our break-even position is, and where it may pay to make a sale a loss leader.

I also learn the business from the vendor side, by sitting in on the purchasing cycle.  I visit vendors, and where these vendors actually produce specific product for the company, I learn their process.  Now I am able to understand the practical issues that may be increasing our costs.  Higher costs may make our products more difficult to sell.

On the other hand, pricing may not be the reason we cannot increase revenue.  That is why I sit with the marketing department.  I want to understand the processes they use.  I want to know: How do they find new customers?  What methodology do the use to  decide what new products and services to bring to market.

I also want to provide them my point of view, from both the strategic and financial vantage, as well as diversity in businesses, markets, sectors and industries that I have acquired in business.

It is for these reasons I can never describe myself as a CFO that can cut costs because if I do, I have painted myself into a corner, locked the door to the room and will never be able to get out. No disrespect intended to Gaston Leroux’s literary masterpiece “The Mystery of the Yellow Room”.

GAP Analysis is a technique used by all strata within an organization to first gauge how they are doing today versus a future state as well as a basis for creating a template or plan for improvement.

A simple concept

Really a very simple concept; I’m on first base, because I can see the scoreboard and the referees agree.  I want to get to home plate, and along the way, I’ll need some help.  Whether that comes directly from the opposing team in the form of a balk, walk, an error, a player hit by a pitch or just bad pitching or from fellow teammates in exceptional hitting or base stealing.  In any event, where I have control, I need to work on those processes to make sure that if the opportunity arises, I can capitalize on it.

So in GAP Analysis, we have the extant company and the company in the future, let’s say company 2.0.  Am I at the ideal?  That is a simple yes or no.  Moreover, that may work fine for some GAP Analysis projects.  It can be a great bubble sort of your issues.  For those who never took a programming course, a method compares two items and sorts them based on a criteria.  The sort goes through the entire data set until you have those that match the criteria and those that don’t.  It is considered slow and inefiectint, but it does work.   We can call this type of GAP Analysis a binary GAP Analysis as a quick GAP Analysis.

A little more complicated

For a deeper more efficient and informational GAP Analysis I like to modify the binary aspect and remove, the “Yes” and “No” feature and use the integer scale of 0 to 10.  There are only two ways to get a zero, you don’t do a specific process, and this zero really should be scored as a not applicable (N/A) or you failed to do a process that you should.  In comparison, very few processes get a 10, because nothing is truly perfect.

So why would I give a 10?  The reason would be the antithesis of a zero, in that there are only two results, it’s done or it’s not.  An example is that you need to file a tax document by the 25^th of a given month.  You don’t get extra credit if it’s early, however you do get a penalty if it’s late.  Therefore, if you file by the 25^th, you’d get a 10, after the 25^th, a zero.  Actually in this case, the scale has a “Y”/”N” attribute to clarify the methodology.

Therefore, our scale should be 0 to 10 plus “Y” and “N”.  So why bother?  Because now you can see where on a linear scale your processes are doing.  It is much easier to tackle and see improvement when the score is low, than when the score is high.  From both a percentage basis and the sheer amount of what can get fixed, the low scorers will probably provide both quicker roads to productivity increases, lower costs and better internal PR.

Remember, in order to properly do any GAP Analysis you have to have a known where are we today (business process mapping) and where you want to be in the future (business strategy, planning and functional requirements).  GAP Analysis can be done successfully without a thoughtful and compressive determination of these two aspects.

Why constantly?

If you were indeed executing plans at improving processes, how else would you know whether the plans were successful?  Using GAP Analysis to gauge progress of a project is another use of GAP Analysis.

I have created an on-demand course for Proformative.com on both business process mapping and GAP analysis.  Proformative charges $99 for one year of unlimited courses.  Currently there are over 275 courses with more being added every day.

My courses can be found here:

https://www.proformative.com/sitesearch?type=Courses&op=Search&keywords=wayne+spivak

So when was the last time you did GAP Analysis (either a quick one or the more complex version)?

Business Process Mapping, a simple yet time-consuming chore that seems never to get done due to lack of enthusiasm of both management and staff.  A strange phenomenon where both employers and employees are in perfect synergy and both terribly short sighted.

For those who have never been involved in business process mapping: it is the systematic collation of every action that is done by an employee for a given result.  An example, I think, would be easier to understand.

Cash Receipts:  Procedure 1: via Mail.  Mail is delivered to the receptionist who then does a rough sort, mail made out to individuals and general or non-specific mail.  This mail (general or non-specific) goes to the office manager who then sorts the mail by department and gives accounting all invoices, notices, legal items and checks.

The A/R clerk opens the obvious checks and runs a manual total on the checks. [snip]

Process

The process of business mapping, as stated, is time-consuming and what is of extreme importance is it should be done separately by everyone who is empowered to perform the process.  This is done up and down the process chain, that is those who feed the process and those who receive the results of the process.  So in our example, the Receptionist, the Office Manager, the A/R Clerk and the Controller.  Let us clarify the term “empowered to perform”.  This term is meant to apply to anyone who is cross-trained or performs the process.

Why?  Have you ever played telephone as a kid?  The first person says a sentence and the last person usually says something else.  In business, we want standardization on all processes.  It helps find and eliminate stovepipes and increase productivity.

The end-result should be a standard process document with a graphical diagram (see picture above) detailing the key steps or decisions that need to be made.  This helps keep the process orderly.

There are two other reasons for business process mapping, and periodically updating those maps.  First is training or cross-training of new or existing staff.  In all businesses, people come and go, get transfers within the organization or promotions and like our telephone analogy, bad habits or personalization end up creeping into the process.  A business map will keep those modifications at bay.

Secondly, without a business process map, GAP Analysis cannot be done effectively.  How can you compare what is being done today with what you want to see in the future when you don’t have a handle on what’s going on now? The concept is basic, but so many people start a GAP Analysis on what they believe is the extant systems, not the actual systems.

I have created an on-demand course for Proformative.com on both business process mapping and GAP analysis.  Proformative charges $99 for one year of unlimited courses.  Currently there are over 275 courses with more being added every day.

My courses can be found here:

https://www.proformative.com/sitesearch?type=Courses&op=Search&keywords=wayne+spivak

So when was the last time you did a process map?

I have been involved in the start-ups to the $100M business segment for most of my career.  What is almost universal is that most business owners, whether first-timers or serial entrepreneur’s or professional management of start-ups to companies running about $40M in revenue just don’t understand, yet even appreciate what the back-office does for the organization.  More importantly, they fail to realize what benefits can be gained from the back-office if funded correctly and lead effectively.

A few of years ago, in 2011, I went to the New York Times Small Business Summit in New York City.  It was a collection of about 600 men and women who were small business people, entrepreneurs, either working start-ups ventures or the traditional small businesses; all seeking additional insight.  At the plenary session, the guest speaker, Jay Goltz, a very successful businessperson who after 7 tries finally hit the mother lode, an extremely successful company, spoke.  He was at that time and until Dec 2014 wrote the “You’re the Boss” small business blog for the NY Times.

What made that session unique was not what he said, but the indifference shown by the attendees to anything but sales and marketing. I’ll clarify this later as to not degrade those who sole focus is sales and marketing.  But without the back office, they couldn’t do their jobs.

Food for thought: what is your definition of the back office?

The Back Office

Well the back office isn’t made up of little drone bees toiling in the dimly lit, drab back of the building within dingy cubicles; well maybe there are a few of them.  You actually have all levels of employees that make your company succeed, livable and alive.  From the janitors who keep it clean and mechanically operational to the shipping department, from accountants and bookkeepers to HR, as well as receptionists, information technologists and strategic planners.

To many in management it’s anyone not producing direct revenue; a somewhat myopic viewpoint, but a popular one.  It is just this viewpoint that damages many a company.  Damage in reduced productivity, reduced sales and exorbitant expenses.

So back to my story…  Mr. Goltz held a “town hall” type of session.  The members of the audience asked all sorts of questions.  I’d say 95% of those questions were about sales and marketing, 4% were about hiring employees (sales and marketing) and the last 1% other queries. These questions went on for about 45 minutes until I asked my question and follow-up (part of that 1%).

My question was why no one was interested in the financial health or business processes that ran their companies.  Why was it that no one asked about what type of bookkeeper or accountant they should hire internally?  Did they need a CPA firm, and what could a CPA firm provide?  What was the difference between a CPA firm and a CFO?

Forget about business strategic or tactical planning.  FinTech, was not even an issue (even though that term wasn’t in vogue then, the concept was still being practiced).  Measuring success or other factors of the business through metrics or key performance indicators (KPI’s) – never mentioned.

How about more mundane issues such as what’s more important, an income statement, the balance sheet or statement of cash flows?  Are orders not shipped counted in those numbers?  What’s the best way to source our product?  And the list goes on; questions never asked or answered.

The lack of focus on these vital issues went absent from the other tracts that I attended.  One track was co-chaired by Carol Roth, author and TV financial commentator whose book “The Entrepreneur Equation” was a New York Times Bestseller.  Speaking to her at a break, she too wondered why these issues were never raised (except by yours humble blog writer). In fact, a portion of her book spoke about this very issue.  Her book sat prominently in my bookshelf until Superstorm Sandy destroyed it and the rest of my office in the great flood.

So does the Back Office matter?

Granted, I am biased, for I could be considered the titular head of the back office.  I am a Chief Financial Officer.  However, my role is so much more than debits and credits which was the central point of the job in an era gone by.  In fact, some of the best of breed CFO’s are not even accountants or finance people.  They are strategic thinkers, leaders, big picture people who know they right questions to ask of the subject matter experts to create the basis for what hopefully is a correct decision.

Nevertheless, all those professionals (and even that janitor can be considered a professional, because it is a demeanor that is taken in the performance of duties) do make a difference.  They enable the company to grow.  There are more people in the military providing support functions to the warriors than warriors themselves.  Why, because tools, products, weapons don’t materialize by themselves; they are purchased, catalogued, shipped, quantified, reported by the back office.

So next time you think about the back office or investing in back office systems, understand that the investment may not make revenue directly, but that return on investment will enable the company to increase the top line and the bottom line as well.

What do  you think?