The Paradox of Performance Management
In a 2010 survey by CFO Magazine and Duke University, ‘maintaining margins’ and ‘the ability to forecast results’ were the Top 2 issues facing CFOs. In the 2010 Gartner FEI Study, the ability to measure customer and product profitability was the top concern for C-level executives. And yet, virtually every time I meet executives to discuss our ability to deliver customer, product, and every other dimension profitability, the most common response I get is “we’re already doing that”.
If there is a company on earth of any size not doing some sort of profit or cost analysis, I would be very surprised. AND this is where the paradox exists. While it is true that most companies do the analysis, they do not do a very good job. What we typically determine is that the analysis is rarely holistic (all dimensions in a single model in order to show not just who or what is unprofitable but to allow for determining WHY and making organizational buy-in easier and giving your company ONE measurement stick), the analysis is typically just a report and does not enable action, the analysis does not really address SG&A expenses with a focus on Gross Margin, the analysis is typically debated within the company and rarely used (although sometimes, we have found that companies have fired profitable customers or eliminated profitable products due to bad analysis).
This fragmented view of a company’s operations is the status quo in most companies. And the owner of the analysis is typically the person who is paid on the results of his organization OR finance, with little input from anyone else. What are your company’s performance management capabilities? Are they holistic or fragmented? Does your company have a systematic way of using the analysis to improve profitability in your business?
A seasoned and visionary leader, Leland Putterman sets the vision and strategy for Acorn and oversees its daily operations as Chief Executive Officer. He also sits on the board of Digital Consulting and Software Services and has served on several other software company boards. Leland received a B.A. in Economics from Princeton University.