The Purpose of Numbers

I love to see long numbers on incoming checks but that’s about the extent of my interest in numbers.  I know people who live to measure things.  Their motto is “Give me data or give me death!”  This is the pocket protector crowd.  I don’t get it.  As long as there’s love in the room why do we need to measure anything?  By way of disclaimer, therefore, let me declare that I am not a numbers guy.  Not even close.  That is until recently.

So what’s your mind-set about “numbers” and how to measure success?  For a very long time the classic corporate mind-set has been expressed in terminology like: “What gets measured gets managed” or its variation “If you can’t measure it, you can’t manage it.”  And then there’s the bold “Numbers don’t lie.”  Well yes they do!  And if they don’t outright lie, they can sure trick you into a false reading of your enterprise.  And that’s what this column is all about.

In our current transformational work with senior executive teams ( www.TEEworldwide.com ) my team teaches leaders how to think differently – as distinct from what to think.  A good part of this is learning to see and understand what is actually happening in their organization from a totally different perspective.  And that, of course, involves a new look at how the success and profitability of the operation is being measured.

The products and services from most companies have pretty well become commodities.  Everyone is playing the price war game.  Margins are razor thin.  Shareholders are screaming for more value.  And in blind knee-jerk fashion a call to “Cut costs!” rings out from the parapets.  And this is where numbers start to trick you and lead you to a bad place.  Chances are you are either working in or consulting and speaking to a company in a cost cutting frenzy.  My intent is to help you help them see what they may actually be doing.

An organization is not simply a collection of parts.  It’s a living, breathing whole.  Or at least that’s the idea.  Unfortunately what we do is measure the functioning of parts.  This is like advertising an otherwise rusting junk heap of a car with a headline that reads “New tires!”  Measuring parts tells you virtually nothing about the whole.  It’s the total system that’s important.

A key word for us is flow.  The goal is to have your products and services flow easily and freely through your organization to your customer or client.  Each part of your organization either enables or disables that flow.  When executives look at a part or function as an isolated entity, they cannot tell if it’s actually an enabler or a disabler.  Only looking at the whole will tell you that.

Let me illustrate.

A few years ago, my colleague Bob Poulton, who is a corporate turn-around genius, was brought in to look at the logistics cost of a $40 billion company involved in both banking and retail merchandise.  Their numbers revealed huge multi-million dollar losses in each of their seven facilities – all caused by a flow blockage.  As most organizations do, they tried to remedy the situation through cutting costs at each step, in each silo and subsystem, without looking at flow through the total operation..
 
They were particularly proud of achieving an all-time low “optimized unit cost” of $0.13 for one particular component of their system.  Instead of the knee-jerk action of severely cutting costs even more, Bob had them increase cost in this one strategic area from $0.13 to $2.56 which enabled dramatically greater flow of products and services.  The result was $7,000,000 positive annualized revenue within 18 months.  Overall this turned out to be an astounding $55,000,000 revenue recovery per facility.

Let me put it another way.  Some manager probably got a bonus for getting costs to a record-breaking low – when in reality he or she had created a total system loss to the company of $55 million per facility.   

Incorrect numbers thinking and strategies like this are what create financial disasters.  The reason is they are based on the numbers driving effects, not results.  This may be new language for some.  An effect is what you have when you impact a part of the system – you find the cheapest hosting service for your website and save a bundle, for example.  A result is the impact on the total system – the links on your website rarely work causing potential customers to abandon you. 

Here’s the lesson to us all.  Look at the overall flow of what you do.  Draw it out from the very first moment you even come into a customer’s mind through to when you cash their check – and beyond to their next purchase.  Examine each part of this process and determine if it’s an enabler or a disabler to flow through your entire system.  If it’s a disabler what do you need to spend and/or do to make it into an enabler?  If it’s already an enabler what do you need to spend or do to strengthen it even further?  Everything is evaluated against the end result. Nothing else.

Look in the simplest places.  Your fancy automated phone answering system that you think makes you look like a big company could be a disabler.  You make people jump through hoops in the hope of actually talking to a human being.  No flow there!  If you make customers fill out forms, are those forms enablers or disablers?  If they are even necessary, would it be worth spending a little money to get them designed better?  If a customer just wants your address and can’t find it on your website that’s another disabler.  Is your bank an enabler or a disabler?  How about your marketing materials?  You could spend a fortune on marketing materials and have them be a disabler! 

The bottom line: measure everything against total system results – against whether or not your business flows!

Until next time, be purposeful!

Ian

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