The good news is I have a son who is a Professor of Finance at the University of Melbourne. Of course, the down side of this is, I am old enough to have a son who is a Professor of Finance. Thanks to Skype, we talk or exchange text messages frequently. He recently asked for my view on why mergers fail or succeed. Maybe not the normal father and son chat.
The conversation tipping point came after discussing common place themes … realistic objectives, strategy, cost synergy, customer revenue protection and growth, market reaction, management capabilities … when he asked me a simple/very complex question. ‘How do you know if a company is well managed?’.
Just a little background that has shaped my view of a well managed organization–I have been involved in or led the integration of at least twenty acquisitions ranging from $10M to $400M. I have had numerous engagements where it was my job to ‘fix’ departments or companies as quickly as possible. I have also built shared services organizations creating common platforms and processes across independent, and sometimes competing, divisions. I have a lot of battle scars.
For discussion, I won’t start with the overall measurements of a ‘well managed’ company. These measurements include the normal performance and financial metrics for the overall company. To see if a company is well managed you have to go deeper, down to the department level. There are indicators I have found in my work that you can quickly assess the health of the organization by observing key departments. As examples, I will use Finance, Operations, IT and leadership or governance. This is by no means a thorough list – just examples for a few departments.
Finance
How many people perform routine processing tasks? How many paper checks are issued/received? How many invoices are entered manually? Are ACH and lock boxes used for payment processing?
Is the financial system used to resolve issues or do you have to go to files, spreadsheets or backtrack through people? Are policies for requisitions and purchase orders followed and are they automated? Is there a person responsible for end-to-end resolution of issues such as invoice reconciliation?
How are financial statements produced? Directly from the financial system or downloaded to Excel? Are sub ledgers reconciled? Are sub ledger transactions duplicated / stored in the GL at the summary level?
Is the CFO an Operational or Financial CFO? What does the company need? Is there a strong Controller position? Does the CFO or controller know how to take advantage of ERP processing? How often do the CFO or Controller sign on to the ERP system? Do other department managers get financial information measuring their performance, or do they maintain their own metrics? Is finance involved in the entire business?
Information Technology
Is there a budget and has the company spent what was planned? What percent of revenue does the IT budget represent? How heavily weighted is the application set to internally developed vs commercial applications?
Is there roadmap? Does it tie to business objectives? Are there project plans? Do the plans relate to the staff’s available work hours? Are change management practices followed?
Is there a tested, disaster recovery plan? Is hardware physically safe – from the environment and people? Are logical security practices in place and audited? Are external auditors involved? Are asset management practices in place and standards followed?
Are contract requirements, SLA, and renewals documented? Are key technology providers actively engaged?
Leadership
Do executive team meetings have agendas and action items? Are people held accountable at a future meeting? Does everyone show up for executive team meetings? Is there any obvious disrespect (as opposed to differing opinions) occurring in the meeting? Does the CEO run the meeting?
Are there revenue forecasting and cash flow models? Is there a business strategy documented with actions and anticipated revenue / costs?
These seem like basic, necessary components of running a business. But I have been surprised to find organizations routinely attempt to implement significant, costly, business critical projects without a budget or a clear project plan that defines each required resources, such as staff time. Plans which allocate the same staff person to work 20 hours/week on three or four different projects suffer delays.
Bad or ineffective management is easier to spot than good management. If a CFO does not know his or her user id to log into the financial accounting system (this is not a joke), I would be concerned. When only one person on the management team seems to understand the interworkings of the company – and becomes overloaded with projects or putting out fires – I would be concerned.
But working through the questions I offered above, will show a pattern of professional management that leads to effective decision-making, clean project execution, and good working processes which surface problems early so that the company can resolve them.
Management and technology consultant and former CIO in Fortune 300 companies. Currently leading the consulting practice focused on support of Private Equity organizations and their portfolio companies to allow realization of the full value of the investment.
