$10,500,000 -- that's how much one company was providing its customers in interest-free, open-ended, no-strings attached loans. Despite being cash strapped this company provided over $10 million dollars of its cash to clients each month.
Generosity? No. Lack of awareness? Absolutely!
This company did not intend to give away its cash flow. It simply had no idea of its unintended generosity. Here was the problem: the company maintained over $10 million dollars a month in accounts receivable over 60 days. That means every dollar, every day past the normal 30-day terms was a loan. Worse, it was a big bite from this company's cash flow.
This example is repeated over and over in businesses everywhere, and chances are it is repeated in your company. Maybe accounts receivable is not the issue, but based on our experience we know there is an iceberg of financial waste lurking below the surface of your financial systems. The reason: lack of business acumen at all levels throughout the organization.
Here is a second example: one company lost 5 days in its payment cycle simply because it mailed bills once a week. This was compounded by losing 10 days to getting billing questions answered by two separate departments. In addition, it lost 15-20 days because a billing clerk was uncomfortable calling clients about overdue bills. If the clerk would have understood the impact of his hesitance on company cash flow he undoubtedly would have been less hesitant much sooner. All those lost days added up to a sizeable bottom-line impact.
People do not conspire to waste money, cut profits, or create competitive weakness in your company. They do it because they do not understand the basics of how business works. They don't understand the relationships between their work and company profitability.
If employees made the connections, not only would they minimize the negative impact of their actions, but they would be able to proactively cut costs, improve quality and strengthen your competitive position.
- 95% of company employees have no idea how their daily efforts affect cash flow
- 98% do not realize that it takes $1.00 of revenue to equal 5¢ of cost savings in most companies
- 100% think their company's poor business performance is a function of inept management
Sound familiar? Probably so, because employees in most companies are financially unaware. The often surprising fact to CFOs, Controllers, and CEOs is that gaps in business acumen are substantial, even among middle and senior managers. If they do not understand the strategic and financial connection, what will motivate and enable employees to become key contributors to an organization's growth and success?
What are the stakes for your company? How much is your staff's lack of business acumen costing you? $5,000,000? $10,000,000? More?
The Challenge. Haworth is the second largest manufacturer and distributor of office furniture in the country, with about 250 dealers nationwide. The distributor in question ended 2000 with a 4.8% net loss, clearly a trend it could not continue.
Results. In less than a year, the distributor was able to reduce:
- Install expense by increasing labor efficiency and reducing the cost of outsourcing
- Sales expense by reducing travel expenditures
- Interest expense by improving cash flow through collections and keeping their line of credit to a minimum
- Warehouse expense by getting rid of obsolete inventory
- Damaged goods expense be identifying concealed damage
- Expenses related to errors by creating a mini-game to reduce errors throughout their operation
At the same time, the distributor was able to increase its revenues by 30% in 2001, and end 2001 with a 7% Profit-Before-Tax (PBT), far surpassing any results in the history of the company. The industry standard for Haworth dealers is roughly 3.5% PBT. This dealer is now in the top 5% of Haworth distributors.
The Solution. The dealer became a Measurement-ManagedTM organization! All employees were taught the basics of business and finance using an approach that increases Ownership ThinkingTM by increasing their business acumen, and were taught a performance improvement process that enabled them to target key performance gaps based on their increased business acumen. This process taught them how to select the most important and most costly performance gaps, how to use simple forecasting techniques to improve the accuracy of their projections, and how to manage short huddles, or problem-solving sessions on a weekly basis until the gaps were closed.
An incentive plan was created that was tied to Profit-Before-Tax, with bonuses being paid out on a quarterly basis. Process improvement Mini-gamesTM were launched focused on cost areas like collection days, errors, inventory turns and forecasting accuracy. Regular feedback and review allowed everyone in the organization to track improvements and adjust quickly when the improvement efforts began to get off-track.
Raise the level of basic business understanding -- and profit impact -- of your people.
Your staff is not incompetent. In fact, your employees are probably very bright. They just don't understand how their activities, roles, and accountabilities tie to key financial, market, and operating activities.
Metrus Group's proven process can increase every employee's level of understanding and channel their energies into actions that truly add value to the organization and its customers. We can build knowledge, focus, and most of all -- action oriented business savvy -- at all levels.
- Business Acumen Workshop
- Huddling Workshop
- Measurement Acumen Workshop
- Public Seminars and Conferences
- Development of strategic metrics
- Strategic Surveys to identify the gaps
- Facilitated consultation on key business gaps
- Business Mini-Games
Metrus Group offers a broad range of products and services designed to put you and your staff in control of your business results. From strategy to organizational change to operational metrics, we can help. Why not start by building business acumen!
- Empowering employees to effectively identify cost-saving solutions
- Increasing profitability by driving costly inefficiencies out of your system
- Improving customer relationships by helping employees better understand their impact with customers
- Reducing cycle time -- putting your cash in the bank and not in the hands of customers, suppliers, or in the clutches of the bureaucracy
- Building morale. People who understand their contribution are more highly motivated
- Finding the cash. Identifying how to better manage liquidity