Published March 2012
March means college basketball. Millions of fans will monitor daily scores enthusiastically as they track the progress of their tourney bracket predictions. Those closer to the game – serious fans of competing teams, coaches, and even NBA scouts – will delve into box scores and statistics to gain a closer insight into specific games, teams, and players.
The unsung heroes behind all of this data are the scorekeepers, religiously documenting each steal, rebound, and point scored. Regardless of whether the game occurs on a partisan or a neutral court, the official head scorekeeper and his crew are charged with providing accurate, unbiased statistics to the universe of basketball junkies.
In the business world the job of keeping the financial score falls on the organization’s accounting department. Depending on the type of organization, the head official scorekeeper may be called the Chief Financial Officer (CFO), City Clerk, Budget Director or any number of other titles.
Like the scorekeeper, the CFO’s ethics must be beyond question. Their data provided to the external world must be a clear and accurate summary of the situation within the organization.
Unlike the sports world, however, where the scorekeeping crew’s responsibilities end with simply supplying the numbers, the CFO’s responsibilities are just beginning. Listed below are some key attributes for successful CFOs:
First, it’s important to understand that the core of today’s manufacturing cost accounting system is approaching 100 years old. It was developed primarily to track the value of inventory in a labor-intensive manufacturing environment. For many types of businesses today, technology has completely flip flopped the relative importance of labor and machinery to the cost structure. Lean methods have dramatically reduced the amount of inventory. Thus mindlessly following the same tired costing techniques can lead to very misleading information.
Great CFOs therefore ensure that their organizations are measuring the right stuff. Returning to our sports analogy, statistical analysis by some sharp baseball executives over the past couple of decades revealed that a hitter’s on-base percentage correlates better to his team’s scoring runs (and thus winning games) than the traditionally used batting average. They changed to the former in evaluating players, noting that the only reason traditional baseball statistics ignored walks was because baseball stats evolved from the sport of cricket which doesn’t include that option. Continuing to measure batting average simply because “that’s the way we’ve always done it” wasn’t an option for their organizations.
The successful CFO therefore understands the organization’s products and services as well as its customers and what they value. They appreciate that the processes used for delivering products and service must be constantly improving, driving the need for changes in how those processes are measured. Hence, they stay abreast of changes, both within their organization and within the accounting field.
Valuable CFOs understand that they are a service provider to the main business of the organization and not the reason for the organization. They strive to put accurate information into managers’ hands that is in the language of the organization rather than financial language (how many Supervisors really understand how to react to variances?). The best do it in real time.
Pay attention to the scorer’s table at a basketball game and you’ll note that the best crews get data into the halftime locker room almost before the players arrive. Likewise in business, month old information is as useless as last month’s newspaper.
That strong internal customer focus means that the best CFOs are expert at collaborating with fellow managers to ensure a clear understanding of the information and how to effectively use it in managing their areas. They promote a focus on cost management rather than cost accounting, ensuring that their organizations spend significantly more time managing expenses than budgeting exercises. During the budgeting process, they place emphasis on responsibility for controlling various overhead accounts (i.e., “Who’s responsible for monitoring our utilities expenses?”) rather than arguing over how to allocate overhead among departments.
Finally, the best CFOs understand that they are responsible for the financial employees reporting to them. They must instill all of the aforementioned values in their employees to create a service-minded organization that is continually striving to provide more useful, accurate and timely information to the organization.
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