Empower Your Team With Knowledge

Empowering your people in the discipline of financial performance management significantly enhances their ability to impact the quality of their decisions and actions.

It is estimated that more than half of mid to senior managers do not have a clear understanding of how the income statement, balance sheet and cash flow statement integrate. Managers make ongoing decisions that impact the income statement favorably but could cause a significant adverse impact on the balance sheet and cash flow. Alternatively cash favorable decisions can have the reverse effect on the income statement.

Consider the case where a senior management team implemented a scorecard measure of 98% on time delivery in full. The focus on this metric significantly improved customer satisfaction, however the improvement was most detrimental to the balance sheet. In a typical traffic light system, working capital requirement significantly increased with cash flow quality moving from dark green to bright red. We can share numerous famous and possibly some infamous real life examples of how financial statement understanding can highlight operational dysfunctions.

So why do the known conditions not automatically become common knowledge within the organization?

Forget the statistics: Are you winning or losing the game?

One of these key analytical tools that is often underused or misunderstood in business is the financial statement.  But, it is, in fact, the ultimate scorecard. Reportedly, 50% or more of mid- to senior managers do not have an appropriate understating of the integrated workings of a standard set of financial statements. Think about the significance of this finding—business failure can be directly linked to a company that doesn’t educate its employees on how to take an active role in maintaining financial health.  

The CFO and his or her finance department are typically considered by the rest of the company as living on their own island.  While they are regarded as having a specific and important expertise, even a dynamic CFO can be frustrated by not being able to get the rest of the company to understand and follow business fundamentals that bring forth good financial performance throughout the organization.

So where is the constraint?  Is it in the process or content?  The truth is, it is probably both.