Gary Cokins, CPIM
Gary Cokins (Cornell University BS industrial engineering/operations research) 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.
All of my books are at:
22. Who Are the Animals of Corporate Performance Management (CPM)?
21. The Many FP&A Rooms of the Organization Mansion
20. The Long Arc Bends Toward Justice
19. A Primer Lecture on Activity-Based Costing (ABC)
18. CFOs – Are They Vanguards or Villains?
17. Profitability Analytics as a 'West Side Story'
16. Beethoven’s ‘Eroica Effect’ and Corporate Performance Management (CPM)
15. The Strategic Cost of Quality
14. Measuring and managing patient profitability
13. Are Accountants Homo Accounticus?
12. Management Accounting 101, 102 and 103 Courses
11. Identifying and Measuring the Cost of Error and Waste
10. Why Use ABC
9. Movie Sequel – “Accountant Pirates of the Caribbean”
8. Some Accountants are the Blind Leading the Blind
7. The CFO’s Expanding Role – Reality or Delusion?
6. How Many Types of Key Performance Indicators (KPIs) are There?
5. Does Accounting Undermine Managers' Ability to Make Good Decisions?
4. A Passionate Appeal for Activity-Based Costing (ABC)
3. Put Your Money Where Your Strategy Is
2. How Marketing and Finance Think differently
1. Measuring and managing customer profitability
22. Who Are the Animals of Corporate Performance Management (CPM)?
Ever notice how the personalities and dispositions of animals often resemble humans? An organization’s pursuit of adopting corporate performance management (CPM) methods involve personalities of all types. How are they like the creatures that populate our planet? Here is a zoology of analogous types of employees that you might recognize.
Lions – These are the managers whom co-workers respect. They are bold and lead their pride. With analytics-based enterprise performance management, their boldness enables them to have the will to try emerging managerial concepts. These include strategy maps and their companion, the balanced scorecard; activity-based costing to measure product and customer profitability; and driver-based budgeting with rolling financial forecast updates. In the wild, males seldom live long due to injuries sustained from continuous fighting with rivals. In business, lion-like managers will encounter conflicts in their pursuit and support of these managerial concepts.
Peacocks – These are those employees who like to look good to everyone. Peacocks cannot fly; this type of employee’s contribution to implementing corporate performance management (CPM) methods is limited. They like to take credit and display their plumage, but they have not earned the credit they presume to claim.
Owls – These are those wise sages who truly understand what corporate performance management (CPM) methods are all about. They tend to be quiet and are careful observers. An owl’s survival strategy depends on stealth and surprise. It would be nice if the owl-like employee would speak up more and tell the lions what is really happening. Who is on board, and who are the naysayer obstacles to applying progressive methods that can result in better decisions – like applying business analytics?
Rabbits – These are those ready-fire-aim project managers who are impatient with slow progress. Sometimes their sense of urgency is needed to quickly move things along. They endorse techniques like rapid prototyping with iterative remodeling to get sufficient results with speed so that others understand what benefits the methodology can bring. But sometimes, their haste can land the project in a ditch.
Tortoises – Like the owls, these are very smart workers. They move slowly, but they know where the project should go. Most everyone knows the tortoise and the hare fable. The tortoise won the race because it figured out that having perseverance and a sense of direction is best in the long term.
Skunks – These employees are bad news for corporate performance management (CPM) methods projects. Just when there is some traction with getting organizational buy-in from others, they stink up the project with unsubstantiated fears that the project has little or no payoff. They need to be kept distant from the project.
Armadillos – These are thick-skinned employees whose egos are near impenetrable, just like an armadillo’s armor. They can handle attacks from naysayers who fear change. Armadillos are prolific diggers with sharp claws. Similarly, their analogous employees are heads-down hard workers who want to see the job done.
Crocodiles – These employees wait ever so quietly until they see an opportunity. Then, when the moment is right, they snap into a debate about whether the project is valid and will lead to improvements. They believe in the project and rarely lose.
Horses –Workhorses are invaluable. They work long hours making sure that correct and clean data is ready for input to drive the corporate performance management (CPM) methods projects to yield the insights and actions the projects are designed to deliver. Horses can sleep standing on their legs. This is good for late-hour efforts. Thoroughbred racehorse-type employees are a special breed. They not only work hard but also fast.
Ostriches – Everyone immediately thinks the analogy for an ostrich might be employees who stick their head in the ground to hide and avoid confrontations. But that is a misconception. Ostriches can run 70 miles per hour and can viciously kick with their legs in conflict. They are nomadic. Ostrich-like managers are strong and also nomadic because they like to move from one functional area to another after they have made their mark. They make an impact at a crucial time in the corporate performance management (CPM) methods project and then secure a new job elsewhere.
Snakes – Beware of these types of managers. Snakes can swallow prey much larger than their heads due to the flexibility of their jaws. Some have deathly venom to poison their prey. Analogous managers have similar traits but use office politics in place of venom. They are not interested in the success of the project and are self-centered with no hesitancy to derail a co-worker’s career.
Beavers – We like beavers. They love to construct dams. Corporate performance management (CPM) methods are all about model building. For example, a managerial accounting system using activity-based costing principles is a model for measuring how an organization consumes resource expenses into calculated costs of outputs, products, services, channels and customers. A strategy map is a model of the executive team’s strategic objectives and how they causally link the behavior of employees with measures aligned with the strategy. You get what you measure. And beavers are busy workers.
Eagles – These are the true leaders. Eagles have extremely keen eyesight. Unlike managers who cope with complexity, eagle-like leaders cope with change and must exhibit vision and inspiration. The best leaders for corporate performance management (CPM) methods have that vision to inform their organization with knowing the direction they want to go. The other managers and employees then determine the best ways to get there.
Lemmings – The myth of lemmings is that they commit mass suicide when they migrate and mindlessly fall off cliffs. You might think my metaphor of them is the type of employee who goes along unquestionably with their co-workers’ opinions. But the truth is that lemmings are solitary animals who are good at focusing on primary tasks, like burrowing for food. Corporate performance management (CPM) methods projects need this type of intensity in lemming-like employees.
Sheep – These are employees who are too timid to speak up when the project really needs their help. They are smart enough to differentiate good from bad, but when the project team really needs their support, they are unreliable. Sheep have good hearing. Sheep-like employees are sensitive to noise from the naysayers. Sheep have poor eyesight and tend move from darkness to lighted areas. If sheep-like employees cannot see the value in corporate performance management (CPM) methods, they move to a comfortable area – the status quo.
Elephants – Elephants are a symbol of wisdom and are famed for their memory and intelligence. Adult elephants have no natural predators (except humans). Elephant-like employees are important for analytics-based projects because their sharp memories can recall what works and what does not. They are typically veteran workers whose opinions are widely valued. If they buy in, the project has a good chance to succeed.
So, what animal-like types of employees do you work with? Probably all of the types above. The promise for the continued adoption of corporate performance management (CPM) methods is that animals have prospered for thousands of centuries. They survive because there is some balance to how they coexist.
The same prosperity will apply to the increasing adoption rate of corporate performance management (CPM) methods and the software systems that support the methodologies. Hundreds of types of animals coexist in the wild (mankind willing). Their generations continue. Organizations that maintain balanced and rational thinking will continuously learn and improve the same way that animal offspring learn from their elders.
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21. The Many FP&A Rooms of the Organization Mansion
The organization mansion has many rooms.
Business schools tend to divide their curriculum between hard quantitative-oriented courses, such as operations management and finance; and soft behavioral courses, such as change management, ethics and leadership. The former relies on a run-by-the-numbers MBA-like management approach. The latter recognizes that people and human behavior matter most. This separation of the curriculum is like chambers in a mansion.
In one set of chambers are managers who apply the quantitative approach of Newtonian mechanical thinking. They see the world and everything in it as a big machine. This approach speaks in terms of production, power, efficiency and control, where employees are hired to be used and periodically replaced, somewhat as if they were disposable robots. Some “data scientists” work in these rooms.
In contrast, in another set of chambers are managers who apply the behavioral approach. They view an organization as a living organism that is ever-changing and responding to its environment. This Darwinian way of thinking speaks in terms of evolution, continuous learning, natural responding and adapting to changing conditions.
Different rooms for different functions
Regardless of the use of the Newtonian or Darwinian managerial style, specific rooms in the mansion are dedicated to functions such as developing new products, marketing to acquire new customers, or fulfilling customer orders by delivering products and services. We often refer to these functional rooms as silos. Sub-optimization typically exists among the rooms. Managers operate their rooms to their own liking. In the old days, each room had its own fireplace, so the room’s comfort level was individually controlled. When the mansion was refitted with central heating and air conditioning, the managers were increasingly forced to compromise and agree. Most managers were not happy with the new arrangement.
In today’s organization mansion, there is an increasing need to understand how one’s room affects another. For example, managers in the production room have grown to like a minimalist décor with low inventory clutter so that they can quickly assemble parts or documents or creates apps in reaction to widely varying tastes of customers. In a neighboring room, sales managers like tall stacks of products so that they never miss a sales opportunity due to a shortage. A growing problem in the mansion is that these managers’ methods, goals, and incentives increasingly affect each other.
Teamwork and collaboration is the ideal way to live in the organization mansion. But despite all the encouragement from scholars and media, good teamwork is tricky to attain. Success comes only to those teams of people who place their own self-serving interests below the more important needs of their organization. The mansion is more important than its rooms.
As Patrick Lencioni describes in his book The Five Dysfunctions of a Team, one problem in team behavior cascades into another that collectively escalates to degrade any organization’s performance. For example, when different managers secretly tamper with the mansion’s central thermostat, they are exhibiting an absence of trust in each other. Rather than confront one another, managers typically prefer to avoid conflict. Instead of debating what will work best for all, they resort to secret discussions with a few other “room” managers. Once someone, often an executive, inserts authority and resets the thermostat, the adverse consequence is a lack of commitment to it by others because no one listened to their opinions.
The breakdown in teamwork then gets worse. Because of the lack of commitment and buy-in to choices made by others, room managers avoid accepting accountability for the conditions (i.e., their performance) of their own rooms. They begin locally adjusting things to offset what they don’t like, and they pay less attention to the mansion as a whole. They revert to putting their individual needs above the collective goals of the functional team they work with and of the organization as a whole. Total enterprise performance does not improve and may possibly decline.
The FP&A chambers
My belief is there are some rooms, perhaps just closets, where managers see usefulness in blending the characteristics of the Newtonian and Darwinian styles. They also believe in teamwork and collaboration. The trick to general management is integrating and balancing the quantitative and behavioral approaches – and truly behaving as a team. These managers of the closet rooms are the ones who understand the full vision of FP&A that I frequently write about to be the seamless integration of multiple managerial methods.
FP&A methods include strategy execution with a strategy map and its companion balanced scorecard (KPIs) and operational dashboards (PIs); enterprise risk management (ERM); driver-based budgets and rolling financial forecasts; product / service / channel / customer profitability analysis (using activity-based costing [ABC] principles); lean and Six Sigma quality management for operational improvement; and resource capacity planning.
An FP&A mansion empowers executives, managers, and employees
Command-and-control style managers who prefer to leverage their workers’ muscles but not their brains run into trouble. Ultimately, things get done through people, not via the computers or machines that are simply conduits for arriving at results. Most employees are not thrilled by being micro-managed. The good performers are people and teams who manage themselves and positively collaborate with others, as long as they are given some direction and timely feedback. The C-suite executive team creates value by communicating their strategic direction by answering, “Where do we want to go?” They produce results by leveraging people who focus on identifying projects or processes to improve follow the path from the executives answering “How will we get there?” The potential capabilities of people may arguably be the most wasted asset of an organization.
In an FP&A mansion, each chamber is furnished strategy maps that set the direction from the executive team. Each room is further provided information and analysis tools, heavy with predictive analysis, so its employees can determine ways to achieve the executive’s strategy. Balanced scorecard dashboards are in each room for feedback so that everyone knows how they are doing on what is important. The mansion has a single enterprise-wide information platform rather than many disparate out-of-sync data sources. People are empowered with near real-time information to quickly make decisions because they increasingly lack time to seek answers from higher-level executives. By behaving as a good team and collectively collaborating, managers in this mansion don’t just manage performance – they improve performance.
The FP&A mansion has many IT-enabled rooms, but its managers are all on the same team.
20. The Long Arc Bends Toward Justice
Many of the PACE Forum blogs and articles have a recurring message. It is to nudge, and more strongly push, CFOs and accountants to get out of the 1960s and into the 21st century by applying and using progressive management accounting methods.
Martin Luther King, Jr. said that "the arc of history is long, but it bends toward justice." The origin of this sentence can be traced to Theodore Parker who was a Unitarian minister and prominent American Transcendentalist born in 1810. Parker called for the abolition of slavery in the USA in an 1853 collection of “Ten Sermons of Religion”.
So, what does this have to do with mission of the Profitability Center of Excellence (PACE)? Plenty.
The problem begins with the imbalance of emphasis of external statutory and compliance financial reporting for government regulatory agencies (e.g., the USA’s SEC) dominating over internal management accounting.
The purpose of the former is for “valuation” (e.g., inventories, cost of goods sold) whereas the latter’s purpose is for “creating financial value” for shareholders and owners by providing insights for better decisions. Most CFOs and accountants place their emphasis on the former rather than the latter.
Justice and Management Accounting
The word “justice” is in the quote above and the title of this article. Synonyms for justice are fairness, honesty, and righteousness.
My message here is that an organizations executives and line managers (e.g., sales, marketing, operations, supply chain) deserve much better financial information from their accountants. The accountants typically provide flawed and misleading management accounting information. The accountants are underserving their managers. It is borderline irresponsible.
For example, many CFOs and accountants take the convenient route when allocating indirect expenses (commonly called “overhead”) to calculate product or standard service-lines costs.
They allocate expenses (e.g., salaries, purchases) into costs like “spreading butter across bread”. They use broadly averaged cost allocation factors that violate costing’s universal causality principle. Examples of these cost allocation factors are sales volume, number of employees, square feet, or number of direct labor input hours.
There is no cause-and-effect relationship! The result is their calculated costs are substantially inaccurate compared to reality. Yes, they reconcile exactly for the external financial accounting, but they are wrong with the parts. (Activity-based costing [ABC] resolves this problem.)
Hope versus Optimism
Advocates of PACE’s mission distinguish a difference between hope and optimism.
Optimism is being confident of the future. It is the belief that things will eventually be alright, satisfactory, and positive. Hope, on the other hand, is the feeling that something wanted and desirable might happen. Hope is an aspiration of a good outcome that overcomes barriers and obstacles.
So, what are those barriers and obstacles?
A major one is human behavior’s natural resistance to change. Most people like the status quo – the current state. Another barrier is the belief that the benefits from applying progressive management accounting will not exceed the extra administrative effort to calculate the costs. That is, it is just not worth the trouble.
Sadly, this barrier is due to the misunderstanding and misperception by accountants that applying progressive management accounting methods is too complex and complicated. It is not. (To learn why is not, search for the term “rapid prototyping implementation”.)
The advocates of PACE have optimism. We know that the arc is long but it will bend towards justice. Executives and managers will eventually receive the valid and reliable information that they deserve from their CFO and accountants.
Remember this. In the land of the blind, the one-eyed man is king.
“This article was originally published in PACE Forum by the nonprofit Profitability Center of Excellence at Profitability Analytics Center of Excellence (profitability-analytics.org ”