Articles

The Mind of Mark
“Thoughts from Our Management Consultant” 

For the last 20 years, I have focused on designing, developing and implementing world-class finance, process and technology solutions for clients ranging from Mom & Pop Start-ups to Fortune 500 corporations. What I have recognized during this time is that regardless of the organizations size and focus, issues and opportunities seem to be pretty consistent. This blog focuses on the good, the bad, and the ugly of what our clients face on a day to day basis.

 How does your organization view technology?

 This is a relatively simple question; however, its answer may have profound impact to your organization!

An organization’s IT capability correlates to how its leadership perceives the importance of IT in achieving its long-term strategy. This perception may fluctuate dramatically across organizations. One organization may view IT as a “necessary evil” with no strategic value, while another organization may view their IT team as critical to maintaining or achieving a competitive edge in the marketplace. Each of these perceptions of IT carries with it an investment cost. Below are the levels normally associated with perceived IT value:

1. Strategy View: This view recognizes that IT is strategically important to developing and / or maintaining a competitive advantage in the marketplace. Expectations of the IT organization include innovation, establishing new business lines and driving into new markets.
   Major Focus: Strategic Goals                             IT Investment: High

    

2. Enabler View: This view recognizes IT as having mission critical dependencies with its functional business partners. Expectations of the IT organization include proactive business model support, anticipation of business needs, understanding of the business environment, and prevention of IT threats.
   Major Focus Area: Business Requirements        IT Investment: Medium – High

    

3. Commodity View: This view sees IT as a basic support mechanism to the business. Expectations of the IT organization is that it is cost efficient, leverages standard processes and practices, provides a measurable / auditable environment, and takes direction from the business owners.
   Major Focus Area: Customer Requirements       IT Investment: Medium

    

4. Scattered View: This view sees the IT environment as a series of per-function applications. The expectations of the IT organization include the installation and support of off the shelf software, project based / functional focused enhancements, and standard operations and support.
   Major Focus Area: Product Support                   IT Investment: Low – Med

    

5.  No Strategic View: This view sees IT as a basic requirement. The expectations of the IT organization include just-in-time support, minimal enhancements / upgrades, and a small footprint / resource requirements.
   Major Focus Area: Basic Technology                 IT Investment: Low
   

So, how do YOU view your IT resources and have you made the necessary investment for success? Do YOUR expectations match YOUR investment? If not, the resulting expectations / investment gap may result in an inefficient / ineffective IT operations environment.

It is now time to take a deep breath, outline your expectations, look at your investment to date, and determine if your level of investment is aligned with your IT goals and objectives! If you find that it is not, it is time to take action!

Best Regards,

Mark T. Warren, M.S.
Director of Business Consulting
Gorfine, Schiller & Gardyn, PA
443-632-5149

Mark Warren has over 20 years experience in business consulting, including business performance management, contract management and strategic sourcing. He works with clients of all sizes in greater Baltimore, Maryland and throughout the Mid-Atlantic.  

DOES THE CEO HAVE A ROLE IN PROCESS IMPROVMENT?

After reading a recent Harvard Business Review article written by Brad Power entitled “The Conversation[1]”, I would answer with a solid: MAYBE!  I am not saying that we should have the CEO sit in cubicles interviewing staff and developing use case scenario templates or process / data flow diagrams; however, I am saying that the process improvement initiative may require CEO participation to breakdown organizational barriers to ensure that the goals of the initiative are met.

However, to get the CEO to lend his or her support, you must first sell the value of the initiative in terms that they deem near and dear: increased profitability, increased customer satisfaction, increased shareholder / investor value, or to meet regulatory / statutory requirements. You will not get their attention (nor should you take up their time) without articulating a direct identifiable / quantifiable benefit to the organization.

In his article, Brad sites the following three reasons that CEO’s “Tune-Out” to process improvement programs:

1. No one has “shown them the money” or how does this help the organization.
2. They do not care to be “remembered for process improvements”
3. They believe that process improvement “is not their job”

From my perspective, I believe there is one pervasive reason missing! The missing reason coming in at #4 is:

      4.   The CEO has no idea that the process improvement program is taking place!

Read the article and think about how you (as an existing CEO or future CEO) would want to be engaged in process improvement initiatives. From my perspective, the CEO needs to be involved if the process improvement initiative meets ANY of the following criteria:

• Will have or could have a substantial financial impact to the organization.
• Will have or could have a substantial quality / service impact to clients.
• Will have or could have a substantial regulatory or statutory impact to the organization or on of its reporting agencies.
• Will have or could have a substantial impact to shareholders or investors (perceived or real).
• Will require or could require the support of cross organizational or divisional executives.

Hmmm, looks to me like the test of CEO involvement is met by a potential substantial impact to any of the Balanced Scorecard quadrants! What is the Balanced Scorecard? We will discuss that next week!

Best Regards,

Mark T. Warren, MS

Director of Business Consulting

Gorfine, Schiller & Gardyn, PA

443-632-5149 

Mark Warren has over 20 years experience in business consulting, including business performance management, contract management and strategic sourcing. He works with clients of all sizes in greater Baltimore, Maryland and throughout the Mid-Atlantic.  

For the last 20 years, I have focused on designing, developing and implementing world-class finance, process and technology solutions for clients ranging from Mom & Pop Start-ups to Fortune 500 corporations. What I have recognized during this time is that regardless of the organizations size and focus, issues and opportunities seem to be pretty consistent. This blog focuses on the good, the bad, and the ugly of what our clients face on a day to day basis.

GOING FOR ZERO (BASED BUDGETING THAT IS)!

Ah, the planning season is upon us! I can just sense all of the excel spreadsheets being developed, transmitted, updated, returned, consolidated, reviewed, and adjusted!!! It is the annual tug of war played out at most organizations around the world (albeit the start time and duration of the planning season will depend upon your fiscal calendar as well as the size and complexity of your organization).

Many organizations will use the tried and true “run-rate” methodology to support their annual planning process. In a nutshell, this run-rate methodology consists of the following:

• Headquarters develops some high-level planning assumptions (e.g. at a very high level: sales growth factors, cost of sales factors, sales allowance factors, headcount run-rate, salary increases, other operating expense factors, capital purchases, cost of capital assumptions, and effective tax rates).
• Headquarters uses these high-level planning assumptions to develop both company and divisional operating targets.
• Headquarters distributes these targets to field personnel and asks for a budget submission to be returned hitting these pre-defined targets.
• Field personnel typically pull their budgets together and come up with a much different number than the target they received.
• Field personnel think about how best to justify not hitting their targets, tweak the numbers a bit and submit them.
• Headquarters receives the bloated budgets and arbitrarily cuts them at a line level to get back to the original target communicated.
• Though it is published, no one takes ownership of the final budget that is loaded to the general ledger for reporting purposes.

While it is an easy form of planning, this run-rate method leaves a lot to be desired. There are typically business events that take place during the year that skew an organizations run-rate. While the field staff is aware of these, headquarters may not have visibility into these fluctuations and may set and artificially high (or low) target as a result. Field personnel will leverage this to their advantage accepting a net income target that may be too low (in hopes of exceeding it and being compensated in a significant manner) or rejecting a target that is too high by explaining the details of the issues with the run-rate used to set the target.

OK, so we have no hope of establishing a meaningful target that is understood and accepted by both headquarters and the field? Not so fast. You may want to consider migrating from a run-rate to a zero based budgeting basis. While zero based budgeting requires a more detailed involvement from the field, it is an environment based upon establishing the value of every dollar spent. It fosters a healthy discussion of, “just because you needed 10 people / contract staff last year, why do you need 10 people / contract staff this year?” If deployed properly, it establishes a detailed cause and effect relationship between an organization’s sales / revenue volumes and the people / technology resources required to support those sales / revenue volumes. If a field manager can not justify the spending of specific dollars, then maybe it should not be spent!

In a nutshell, if your organization is four levels deep (e.g. consolidated company, division, region, and department) and each level included a cushion or 1% on their run-rate, then you will end up with an expense budget that is at a minimum 4% too high. To make the point a little better, if your Selling, General & Administrative expenses (SG&A) were $10MM per year, you would have $400K in budget bloat. From my experience, this budget bloat will not be returned to headquarters, it will be spent!

So, when you think about it, committing to ZERO could have a pretty large positive impact to your organization’s bottom line!

OK, now make the commitment to challenge yourself to challenge your people! Go forth and be a ZERO (based budgeter that is)!

Best Regards,

Mark T. Warren, MS

Director of Business Consulting

Gorfine, Schiller & Gardyn, PA

443-632-5149

Mark Warren has over 20 years experience in business consulting, including business performance management, contract management and strategic sourcing. He works with clients of all sizes in Baltimore, Maryland and throughout the Mid-Atlantic.

For the last 20 years, I have focused on designing, developing and implementing world-class finance, process and technology solutions for clients ranging from Mom & Pop Start-ups to Fortune 500 corporations. What I have recognized during this time is that regardless of the organizations size and focus, issues and opportunities seem to be pretty consistent. This blog focuses on the good, the bad, and the ugly of what our clients face on a day to day basis.

ARE YOU LOOKING FOR GOLD IN THE RIGHT PLACES?

Isn’t it ironic that most organizations will tout that their “people are their biggest, most precious assets” yet as soon as times get tough, those “people assets” are the first to go. While in some cases this may be absolutely necessary for survival, it should not be the first place you turn.

Our experience is that most firms have not tapped into their non-human capital purchasing power with their vendor / supplier base. We typically find that there is between 10% – 25% savings opportunities for most of the commodities you purchase to support your business. Determining if there are saving opportunities is pretty simple. All you need to do is to take our quick high-level purchasing fitness test by answering the following questions:

• Do you have an existing contract for the high volume commodities that you currently purchase?
• Were these contracts competitively bid?
• Have these contracts been negotiated within the last year (do not include auto-renewals as negotiations – they are not)?
• Do your suppliers meet with you on a periodic basis to help identify ways to cut costs (preferably quarterly)?
• Do you have a good understanding of the commodities you purchase at a detailed SKU or Manufacturer Part Number level?
• Do you understand industry trends or benchmarks for these commodity groups?

If you answered “No” to ANY of these questions, you have an opportunity to drive savings through the use of best practice, time tested, strategic sourcing methods. So, what is strategic sourcing?

The Procurement Management Leaders Network defines strategic sourcing as a series of processes focused on getting the best products and services at the best value. Sounds easy right? Wrong! Most organizations can easily identify the best products and services to meet their requirements; however, ensuring that they have obtained the lowest total cost of ownership, couple with the best service level agreements is not as easy as you would think.

So, how do you ensure that you get the best product or service at the best total cost from your suppliers? By moving forward with strategic sourcing! At a high level, a successful strategic sourcing initiative should include the following activities:

• Plan the Initiative
• Analyze the Data
• Select the Commodity Groups
• Develop Commodity Teams
• Develop and Issue RFx Documents
• Analyze Responses
• Award & Execute Contracts
• Drive Compliance
• Monitor and Report Savings & Performance

In simpler terms, identify the savings opportunities, drive the savings on a commodity by commodity basis, and perpetually sustain / enhance the savings. Also, you need to remember that it is not just consolidating your spend to drive better pricing. You should also look at organizational purchasing patterns to see if there are opportunities to standardize without giving up quality!  

Cost savings driven by a strategic sourcing initiative drop straight to the organization’s bottom line and may reduce the need to take action against your most precious assets: Your People!

So, go forth and find your gold!

Best Regards,

Mark T. Warren, MS

Director of Business Consulting

Gorfine, Schiller & Gardyn, PA

443-632-5149

Mark Warren has over 20 years experience in business consulting, including business performance management, contract management and strategic sourcing. He works with clients of all sizes in Baltimore, Maryland and throughout the Mid-Atlantic.

For the last 20 years, I have focused on designing, developing and implementing world-class finance, process and technology solutions for clients ranging from Mom & Pop Start-ups to Fortune 500 corporations. What I have recognized during this time is that regardless of the organizations size and focus, issues and opportunities seem to be pretty consistent. This blog focuses on the good, the bad, and the ugly of what our clients face on a day to day basis.

IS YOUR HEAD IN THE CLOUDS?

As the economy remains sluggish, many of our clients are looking for ways to cut costs. In recent months, I have been asked on more than one occasion to give my thoughts on the virtues of Cloud Computing. Software vendors are making the rounds presenting “Value Added” cloud-based computing solutions that they maintain will drive significant savings. The first question though is, “What is Cloud Computing?” This is a great question as you may receive different answers depending upon whom you ask! I side with Gartner. Gartner takes the position that Cloud Computing as “a style of computing in which massively scalable IT-related capabilities are provided “as a service” using Internet technologies to multiple external customers.”

Hmmm, let’s think about this for a second. The opportunity to transfer all of the day to day IT support problems and cost sounds enticing. The idea of reducing the need for hardware also sounds great. The idea of reducing internal IT headcount (while difficult) also provides some bottom line pick-up. However, I say to you: “Measure Twice, Cut Once!”

In certain cases, Cloud Computing offers some significant advantages. However, it is critical that you fully understand what the new environment entails from a people, process and technology perspective. To gain this understanding, you should ask many questions and check several references to make sure that Cloud Computing (and the firm providing it) meets or exceeds your requirements.

At a minimum, you should get a detailed understanding of the following:

• Does the functionality meet or exceed your core / critical requirements?
• Is the cost structure truly lower than what you have today?
• Are the savings presented by the vendor realistic?
• What is the commitment to application availability (uptime) and system response time?
• Are there Service Level Agreements (SLA’s) outlining the vendors support requirements? Is there financial consideration should the vendor not meet these SLA’s?
• Are the application, data tables, and hardware secure?
• Is the vendor financially solvent?
• Does the vendor have a feasible disaster recovery / business continuity program?
• Is the vendor willing to allow for configuration changes / customization to support your business requirements? If so, at what cost?

I do believe that there is a time, place and use for Cloud Computing; however, make sure that you fully understand the specifics of the environment prior to moving forward. Again, measure twice, cut once!

Best Regards,

Mark T. Warren, MS

Director of Business Consulting

Gorfine, Schiller & Gardyn, PA

443-632-5149

Mark Warren has over 20 years experience in business consulting, including business performance management, contract management and strategic sourcing. He works with clients of all sizes in Baltimore, Maryland and throughout the Mid-Atlantic.