110 – Gary Cokins – Financial Transparency

110-Gary-Cokins-audio-episode-needs-segment-added-from-BSI-reco.mp3

Larry: [00:00:00] Welcome to episode 110. This is the 10th episode first season of the What the Risk podcast. We're going to be talking about financial transparency and risk management. Our guest today is Gary Cokins. He is the internationally recognized expert speaker and author on enterprise and corporate risk performance management. He talks about improvement methods and business analytics. He's the founder of analytics based performance management company. With that welcome, Gary.

Gary: [00:00:26] Well, thank you very much, Larry, for inviting me.

Larry: [00:00:29] I appreciate you being here. So can you take a moment and just tell people kind of what you do?

Gary: [00:00:38] Well, first, I'm 74, but I feel like I'm 44. Um, um, I would say my career is over. It's now a vocation. There's a difference. Careers. Like many you're listening to this salary increases, job promotions, vocation. It's a calling. I want to make a difference. I've had a successful career. Maybe we'll go over my bio a little bit later. I like basically helping others, but I primarily like helping people in the finance and accounting space, because they're probably going to get offended when I say this. Many CFOs and accountants are in the 1970s. We got to get them into the 21st century. We'll talk a little bit what that's all about.

Larry: [00:01:15] Well that's terrific. And and you're a prolific author. How many books are you up to now?

Gary: [00:01:21] Oh, gee, probably over a dozen, although some of them are co-authored. But and there's a whole story about how I even got into write your first book and you realize, hey, I can write a book, and the journey continues.

Larry: [00:01:32] Well, we appreciate that. And hopefully we'll give you the shout out and people can find the books later. So what do you tell us about what you're currently working on and kind of what really excites you?

Gary: [00:01:44] Well, what I, you know, my career. I started a first decade in industry, large manufacturing conglomerate FMC Link-belt, but then 30 some years in consulting with Deloitte, KPMG, then Electronic Data Systems, that is now part of Hewlett-Packard. And then I was 16 years with SAS, SAS, the large, large, privately owned software vendor, and analytics 15,000 employees. And you know, what I basically was doing all those years was implementing these various corporate performance management methods. And we can talk about them later. And I have techniques to do it that are based on speed to results as rapid prototyping with iterations and, you know, kind of like start small, think big. So you can actually implement an activity based costing system or a balanced scorecard. And in a couple of weeks. So what I'm doing though is training other consultants, including CPA firm Advisory arms, how to do and implement these methods. The way I've already been doing it, I don't really need to spend six weeks or a couple of months. I don't mind doing a little consulting work, but I just call it knowledge transfer training others to do what I've been doing the last 40 years of my life.

Larry: [00:03:05] Well, we're glad to have your calling here to help the people that listen to the What the Risk podcast. So tell me what the biggest inspiration in your life has been in terms of your career?

Gary: [00:03:16] When I think about inspiration, I think about a mentor. I worked at Deloitte way back for a man named Bob Bonsack. He passed away over a decade ago, but he was my mentor. He was just a senior manager then. I was in Detroit. I'm a Chicago native. Go, Cubs, go bears, go White Sox. But he really took the time to sit with me and train me more. And I don't know if you would call that an inspiration when it comes to authors, it's Mark Twain. I'm inspired by Mark Twain, but when it comes to a mentor, it was Bob Bonsack. Just a wonderful, wonderful man.

Larry: [00:03:51] Well, terrific. So now and.

Gary: [00:03:53] All of my books in the first pages are, you know, In Memoriam. They're all to Bob.

Larry: [00:03:58] Well, I'm sure his family is really excited to see that. So thank you for sharing that. So as we start talking about financial management and being able to see what the true financial transparency of what's going on in your business, how to manage it, I want to make sure that we level set from our audience perspective, because we have people across all industries, everything from entertainment to retail to manufacturing. And I want to make sure that we kind of give examples for each of those so that they understand in the context. So if we can do that. So with that, oh, and we also have a number of bankers and investors that tend to listen because as they are evaluating the people that they're going to invest in and evaluating people that are going to loan money to, they want to understand how to better do the due diligence. So all of this is insightful for them as well, not just the business leaders. So with that, there are seem to be a number of different accounting methods that are out there that people use. And it's almost like the Mark Twain statement, there's lies, damn lies and statistics. It feels like that way when it comes to accounting methods. So as we talk about that, can you kind of give a little bit of insight as to the difference between kind of the standard PNL and some of the more important methods to manage and understand accounting from a transparency perspective?

Gary: [00:05:23] Yeah, sure. And just an observation quickly. The methods are universal for service organizations, manufacturers, product making. I recently learned that in the United States, only eight out of every 100 jobs make tangible products. The other 92 are services banks, insurance companies, travel agencies. So but these methods are universal. So they can be applied in service organizations. So a lot of people service. Oh this is a manufacturing thing. I created a document for the International Federation of Accountants. It's called ifac.org. There in New York City. They're like the United Nations of Global accounting institutes. And I created for them what I call a taxonomy of the big world of accounting, which is what you're talking about. And the three, you know, just like in biology, plant kingdoms, animal kingdoms, you know, so the three kingdoms are tax accounting, external financial, statutory accounting, which you refer to as the standard PNL. And then internal management accounting. Here's the differences. First, tax accounting I don't even want to talk about it. It's got all those crazy things that they do. External financial statutory reporting for government regulatory agencies like the SEC and the United States. The accountants can actually get a little lazy. They follow what's called generally accepted accounting principles GAAP, commonly known as GAAP and with GAAP, like for example, if it is a product costing company, they're doing product costing when it comes to overhead.

Gary: [00:06:58] And that's really the issue. They can just spread the indirect expense. Overhead is more properly called indirect expense to the products like spreading butter across bread. They'll use these cost allocation factors like number of labor hours, number of units produced, sales dollars, headcount, square feet, square meters. But none of those reflect the unique consumption that the products or diverse service service lines consume on the end to end processes and the expenses that are consumed by them. This is where activity based costing comes in. And so internal management accounting doesn't have to follow those GAAP rules. It's modeling. It uses its own more logical, more cause and effect relationship causality principles real key. And the net result is you get much more accuracy doesn't have to be precise, but you get far more accuracy. So the three things tax accounting, external statutory reporting that's really for, if you will, valuation inventory value, internal management accounting is about creating value for owners and shareholders through, you know, increasing their wealth by having better information for more insights and better decisions. In the end, this is all about decision making.

Larry: [00:08:15] Well, it sounds like that's the key to why people would go down this path. So they have better decisions, they have better information, and they make better overall choices and can have a conversation internally going, your department's costing us more because is that a fair statement?

Gary: [00:08:34] Of very fair. You know, with management accounting, you get a lot more visibility. You see more and transparency and reasonable accuracy. You notice I used reasonable I didn't say perfection. You know, that's part of the problem with the CFOs and the accountants. You know, they worry like in manufacturing about having it. Exactly. You know, to the decimal point. They have what I'll call burden rates for machines. You know, they worry about five digits to the right of the decimal point. The error may be two digits to the left. With management accounting we have a phrase it's better to be approximately correct than precisely inaccurate. In other words, better to be roughly right than exactly wrong. And so you can get to 9,598% accuracy. It's, you know, it's good enough.

Larry: [00:09:25] Well that's good. So as we go down that path, let's talk about some of the misconceptions about how people use accounting tools and how they look at their business, whether that be from one of the kind of standard panels, the kind of a gap. Give us some insight as to misconceptions and how to approach those. How to set this straight.

Gary: [00:09:50] Well, there are several. One key misconception is with the standard costing the external statutory you know, people believe the numbers. Oh the CFO, he's got a C or he or she's got a CPA. You know, the numbers must be right. However, there are many managers inside who are suspicious that in fact, they're more, that they don't trust the numbers. They know those cost allocations are flawed and misleading. You know, they're saying, hey, you know, there's other departments causing all the indirect expense, not me, but my product's basically being charged, you know, with it. So it's wrong. So misconception is that the standard costing is usable for insights and decision. Another misconception is, okay, well let's move to a more progressive internal management accounting system. Oh, it'll be too hard. It'll be too complicated. Every employer will have to fill out a timesheet, an employee timesheets. And I could go on and on. Oh, and oh, it'll be huge. There'll be a monstrous system. We won't know how to maintain it. No one's going to understand it. And so another misconception is, well, let's not bother to do it, even though we know it'd be better because it's worth the effort. And I have techniques to dispel that misconception.

Larry: [00:11:06] So let's start sharing some real life examples so people can understand kind of how it can be applied and and how it can be used to solve some of the problems. I know you use a lot of different examples in your presentations.

Gary: [00:11:22] Um, well, I'm reluctant to name clients just because, you know, sort of protect the innocent. Um, but while there are so many, there's two types of, um, approaches to using these progressive methods. And, you know, Larry. Activity based costing is essential. Can I just before I go to the examples, can I give a quick definition or explain it? Please do.

Larry: [00:11:45] I want to make sure people understand the example.

Gary: [00:11:47] Yeah. Yeah okay. Um the simple way I say is imagine you go to a restaurant with three other friends. You ordered a little salad, the other three ordered the most expensive item on the menu. And at the end of the meal, when the waiter or waitress brings the bill, the other three say, hey, let's split this check evenly. How do you feel? Not fair, not equitable. Well, that's how products and standard service lines and service organization also feel when the accountants do take that large amount of indirect expense. And typically the indirect expense is almost more or maybe even more than the direct expense. So we're not talking something slow here. And they will spread it like butter across bread using those cost allocation factors that I mentioned earlier. But what activity based costing does is it will decompose all of that overhead, the indirect into what we call cost pools, and then trace and assign them with a cause and effect relationship. So if it's like number of material moves in a factory, you know, that would be the driver which products move. If it's a hospital number of blood tests I'm quite involved with the Hfma. That's the Healthcare Financial Management Association in Chicago. Patient profitability. So the simple definition of activity based costing is as if the waiter waitress brings four individual checks.

Gary: [00:13:10] You only pay for the salad. You're not going to subsidize the other three. That's how you get substantially more accuracy. Because with the butter spreading, in reality, what's happening is some of the products and services are way over costed. The others must be way under costed because it's a zero sum error game. Now activity based costing can be applied in a strategic way and in an operational productivity process improvement way. Let's first start with the strategic way you get what is called profit margin analysis. One of my clients actually was brought in by a large consulting firm. I'm not going to name them, but they're basically a delivery service. So you can imagine there's only three, 4 or 5 of them in the United States, and they did not know the true costs per route, per truck type, per package, per whether it's on a rural or it's a city speed. That's where all the diversity and variation comes in. So they really needed to know what's the true cost of delivering a package under all these different conditions. Rural highway weekend, because they were pricing, but they didn't know if with that pricing, did that give us a profit or was it giving us a loss. So they really needed, if you will think of they needed to know the profit profit margins of all of the things that they deliver.

Gary: [00:14:40] So that's that's an example of of a strategic profitability. Another one though I did for it's called Blue Diamond All-Mountain them. It's an almond grower in the San Jose California. And they they also wanted to know the cost per acre of because you're processing different machines. But they really wanted to know how to improve the productivity. So you can use the activity based costing data, the cost. So they're called activity costs. And you can sequence them like pearls on a necklace to see a process view. So things like order to cash. And then there's a add additional method called lean accounting where each of those activities that are now being strung like pearls on the neck necklace can be tagged like value added Non-value added. How important less important attributes is. What are those examples you can tag or score? It's like the color of money on the activities, and some of the people listening will be familiar with value stream maps. Or you've heard about value stream maps, and they're really about helping focus. Where are the opportunities for cycle time reduction, quality improvement, you know, and the like. So there's two clients I work with as examples.

Larry: [00:16:06] Well, those are great. So when we think about kind of learning opportunities to learn the lessons learned, kind of we always learn better from other people's mistakes because we'd rather learn from them than make it ourselves. Can you give us insight? And maybe it's not your client, but maybe it's another client. That or public case study of where? Activity, costing or accounting was just wrong and how it might have led to different conclusions. Had they done it right.

Gary: [00:16:38] Well, this leads to. Not to what? Measuring customer profitability. Most accountants will measure. I'm happy to talk a little accounting ese here, but they'll just include, you know, direct material, direct labor and the over they draw the line product gross profit margin. And then they can. And when you do ABC you you discover, oh these products or service standard service lines were way over cost and way under cost. And we corrected it. But the real issue is below the product gross profit margin line. It's customers. And a lot of them think. And here's a lesson. Oh, our largest customer in sales must be our most profitable. No not really, because customers can really vary in how they place demands on a company. You have good customers, bad customers. There's actually a book by some Columbia University faculty called Angel Customers and Demon Customers. So example of a demon customer. High maintenance, always changing delivery schedule, always calling helpdesk, always returning goods. You know, the angels, the low maintenance. We like them because never call helpdesk never change the delivery schedule. Never always by standard not special. If those two types of customers bought the same volume, same mix, same price, at the extreme, they're not equally profitable. The high maintenance one. So here's the point. Activity based costing will go below the product gross profit margin line to trace and assign channel distribution expenses.

Gary: [00:18:14] Marketing expenses. Selling expenses. Cost to serve. The result is a PNL, a profit and loss statement for each customer. And the shock. This is to the misconception you're talking about of oh, our biggest customers and sales may be must be our most profitable. No, they can discover that at the extreme, your biggest customer is actually unprofitable by the time you've given them price discounts and do all those extra services to please them, you're not making money on them. So, you know, Larry, what this is really all about is having fact based information reasonably. And this is a phrase I often use. I'll say it here. In the absence of facts, anybody's opinion is a good one. In the absence of facts, anybody's opinion is a good one. But usually the biggest opinion wins, which is the opinion of the boss or the boss of the boss. So to the degree those higher up executives are making decisions on intuition, or gut feel, or office politics, or the flawed and misleading information, and the error can be 20, 30, 40%. This is not insignificant. Then the organization is going to be at risk. So you really need you need the facts. Give me the facts. Yeah.

Larry: [00:19:33] The fact based database data, data based decisioning are critical. And I've seen that when I'm doing due diligence for lending, it's like we don't know whether that customer is profitable because to your point, they have demon customers that use a lot more resources as opposed to the simple ones that are kind of on autopilot. And those are really the the profitable ones, because you're not you're not expending all these resources to support them because it's kind of a it's going on its own. And I think that that's a really key and important point to drive home, both for the the company leaders, because they don't think about it that way. They're like, okay, it's the best customer. Let's give them some additional discounts. Well, do they deserve those discounts or are they kind of kind of the winner's curse. Give them to another competitor so they can deal with that business loss. And and you might have the lower sales, but your margins are going to greatly improve. And so you really have to think through that. And is it just the allocation of overhead that you need is the only reason you're keeping them.

Gary: [00:20:50] Yeah. So you don't you don't just it isn't just adjust the overhead. You reform it. You just do it a much better way.

Larry: [00:20:58] You have to. So as you've worked with clients or as you've seen other people work with clients, as you've gone through your trainings, tell us about some of the aha moments that you've seen clients or other companies recognize, when they kind of uncovered and looked at numbers differently and had better transparency on what was really happening.

Gary: [00:21:25] So, you know, I hate to be repetitive, but the customer profitability is usually a big aha moment when they do. And we've already just gone through this the last five minutes. You know, when they see that our large sales customers are much less profitable, you know, you know than, than than we we realized. From the process view. They also sometimes get surprised when they actually see what what's called cost equality though, or these attributes I mentioned value added, Non-value added. And they look at the various steps in the value stream map and they start seeing, wow, I didn't realize how much waste we have here. We've got excess inventory, we've got people that are taking longer lunch breaks and so forth. We call that unused capacity or idle capacity. So it's sort of coming back to the same thing. You need visibility and transparency to see things. And traditional statutory accounting quite frankly, is it's it blocks it. It doesn't provide the visibility. I have a phrase get this in the land of the blind, the one eyed man is king. I'll repeat that in the land of the blind, the one eyed man is king, you know. So if you're competing and the others are still using flawed information, but you've got the visibility, you'll compete better with them. You'll price differently. You'll steal market share from them who don't know what's going on. You may give them, as you mentioned, you may give them some. Have them take your products. Don't sell them anymore because you know they're really unprofitable. Let them lose money on it. So typical ways to to approach being competitive.

Larry: [00:23:10] Sure. So what are some tips and tricks that people that business leaders need to think about? And without going back through the same accounting pieces, what should they what are the first steps they need to think about? How should they look at their standard panels and start parsing them, if you will? If there's a business manager that's not in the executive leadership, how how should they be thinking about this? What are the tips and tricks to for them to look at and think about this?

Gary: [00:23:43] Let me talk about tips and tricks for the managers who report to the executives, and then we'll get to the executives. Okay. Because something I'm sure we'll talk about a little bit later is the slow adoption rate of all these methods. I just I find it amazing. I was lucky I got trained by Professor Robert S Kaplan of the Harvard Business School. Some of the people listening will recognize his name, but they're going to recognize his name from the work he did with Dr. David Norton, creating the balanced scorecard and strategy maps. He did their early pioneering work on activity based costing. In the 70s. I got recruited from Deloitte to KPMG, you know, to get trained on that. What we found was and that's actually what led to writing more and more of these, of these books. And now I'm going to be embarrassed. I lost my train of thought. What was your question? Okay.

Larry: [00:24:39] Ow ow.

Gary: [00:24:40] Ow ow. Tips and tricks. So, managers. I tell them you need to ask Payne questions, you know, because there is resistance. Resistance is human nature. Mean people like the status quo. You know, only babies like change. You know, diapers. You've got to overcome their resistance. And. What what's required. The ingredients to overcome resistance in antibody are really three things. Discomfort with the current state. To a vision of what better looks like and three first practical steps. You ask, how do you start? You start with pain question. You start with the discomfort with the current state. So, you know, managers should be asking their bosses and executives, are we measuring the right things? Do we know which product and service lines are more or less profitable? Do we know which customers are more or less profitable? Does everybody all the employees, understand your strategy? That's a strategy map, balanced scorecard. And on and on and on. I actually have a document with, I think, 20 pain questions. The purpose of the pain questions is to create discomfort. You know, we call it FUD fear uncertainty and doubt in the executives. So they so they like yeah. Does everybody are we measuring the right things I don't know. Does everybody understand our strategy in the company maybe. Oh. Oh you think they do. I'll just go out in the hallway for about a half hour. I'll interview ten employees, ask them, can you define and articulate the executive team's strategy? I'll come back with you. What they've got. Oh, they're going to like, because they know most employees don't.

Gary: [00:26:21] So these are those pain questions that once they feel discomfort, they're going to like, well, how do I fix it? And that's where the corporate performance management methods come in. Can I briefly describe I'm going to what corporate performance manager. Because there's a lot of confusion and lack of consensus. People think, you know, it's a process or a system. It's not what it is. It's the integration. Look at I'm like gears in a machine of about five or 6 or 7 methodologies. One profitability reporting using activity based costing, two strategy management KPIs, key performance using balanced scorecard, strategy map and some similar tools, three driver based budgeting and then rolling financial forecasts. The reason I add that is because the budget's out of date in a couple of months after it's published, so what you want to do is keep refreshing it, but it needs to be driver based. Another one, enterprise risk management, which we're going to talk about. That's your show. Another one process improvement productivity. The lean accounting. All these moving parts fit together seamlessly, which is what corporate performance management, you know, is now. The misconception of the executives above them is they're too complicated or they don't even understand that all these moving parts are actually part of a kind of like a system of sort of don't like to refer to corporate performance management as a system. And you mentioned about books, I think I've written three books on on corporate performance management explaining what I just explained briefly to you.

Larry: [00:27:58] So one of the things you mentioned I want to pick up on is budgeting. Because if you budget to sell a thousand widgets over the year and you have certain amount of costing and then the delivery costs and what have you. Well, if you are way above that, you're 20%. You're selling 1200 widgets. One of the things that a lot of managers do is, well, you're over budget on your delivery costs. Well, they don't necessarily think about well, I'm also 20% over on my sales. I have to be beyond that in my cost to deliver. And so people tend to get caught up in the budget, not necessarily the activity to deliver the product within an increasing revenue stream. And so can you talk about that? Because I think it's a misnomer to always stick to the budget when you have variables that are beyond your control that you're trying to keep up with.

Gary: [00:29:00] Well, many of the people can go into their attic or basement and dig out their cost accounting or textbook because it's price, volume, cost. There's there's a chart that kind of brings in the variability. But I want to start with the first thing you said, budgeting. There's so many problems with the budget I already mentioned. It's out of date. A couple of months after it's published, it caves into the loudest voice and strongest muscle. Some of the real veteran sandbaggers, you know, bald, gray hairs. They've been in the budget every year. They know what they're doing. They know how to basically, you know, pad it. Um, it it incorporates last year's inefficiencies into this year's budget. So if you had an inefficient process last year, you know, we're replicating it now. Um, the padding really bothers me where they, you know, add more than they really need. Um, and then there's use it or lose it behavior when a manager is like 2 to 3 months on a glide path from the end of the fiscal year, and it's clear to them they're not going to have spent all that, the budget that was approved for them and allotted the previous what do they start doing? They start spending needlessly, foolishly, you know, on anything. Why? Because they know that this sort of like spreadsheet mentality, that next year's budget is going to be pegged to the baseline of how much they spent this year.

Gary: [00:30:24] Okay. Let me describe how typical companies do their budgeting. And then I'll tell you a solution to it. They give every manager a spreadsheet. They fill it out January to December. Every line item of expense, including paper clips and rubber bands. Someone consolidates it in the accounting department. They bring in the sales forecast from the sales department gives a PNL. They give it to the executives say so. That's okay. Not good enough. Have them change the numbers. All the managers redo some of their spending of their ledger accounts, consolidate back, back to the executives. That's a little bit better, but not good enough. Up down up down up. Down. Up. Down. You almost want the executives. What number did you want in the first place? But that would. So it'll save us all this spreadsheet stuff. But that's aspirational. That's what they want. What what driver based, capacity sensitive driver based budgeting does briefly is it takes all the operational expenses. And it uses with an activity based costing system that precedes it, what's called unit level consumption rates. And I think I learned this equation, which I'm about to say my. Sophomore or second semester of freshman year. Cornell University is where I got my industrial engineering and operations research.

Gary: [00:31:44] Then I got my MBA at Northwestern Kellogg. But the equation was volume and mix times. Unit level consumption rate equals the capacity required, how many employees types and salary wages. So now now I'm really modeling what the level of spending is going to be. None of this spreadsheet stuff. And then I also got to bring in some project things like strategy projects. You know, one of the problems is with the accountants is the budgets disconnected from the strategy. If we if you use the Kaplan and Norton strategy of Balanced scorecard with the perspective, you got to fund the objectives, you get that in risk enterprise risk management, which we should talk about, risk mitigation. All of the various risk mitigation. Those are projects, capital projects which everybody is familiar with. So if you do this unit level, consumption rate, mathematics solving for the level of capacity. Notice you got to think like an engineer. Keep telling the accountant, you got to think like an engineer. Don't be a bean counter. You want to be a bean grower. And then I combine it with the three types of projects capital projects, strategy projects, risk mitigation projects. Now, when I get at the end and give that to the executives, that is a far more reliable, useful number than up down, up down with spreadsheets.

Larry: [00:33:04] Well very good. So as you keep talking about this is a risk based program. And so why don't we talk about some of the enterprise risk impacts of not having the right financial visibility. So I'm going to turn it over to you. Let's see what your what's your most frequent observations of that are.

Gary: [00:33:25] Well, let's just start with Best Buy, toys R us and a whole bunch of others that are bankrupt. Let's just start.

Larry: [00:33:32] There. Okay.

Gary: [00:33:33] And there are some other statistics that I don't remember, but people can search. If you look at the original Standard and Poor's 500, the number of companies that were in the original 500 today is a fraction. If you look at the Forbes 100, the number of companies that were in the original Forbes 100 that are alive today. Gone. So and I think the problem is when an organization is profitable and successful. It breeds adversity to taking risks. But each new week month is a new month and competitors are changing. Technologies are changing. So it's kind of being asleep at the switch or just not recognizing, you know, that these changes can. I mean, look at the most recent said toys R us. Bed. Bed. Bath and beyond. You know they're under you know, if you look at the older people are going to remember the book by called In Search of Excellence by Tom Peters. What was in the 1970s? They were McKinsey consultants. They had this formula. Equation. They went through, you know, and here were I can't remember the number of the best companies for the In Search of Excellence. You look at that list now there's about ten on that list. Bankrupt and gone. So, you know, if you're too comfortable with where you're at, you're exposed to the risk of basically being outsmarted. And that's kind of where analytics comes into play. If we're going to talk about, you know, business analytics and the like.

Larry: [00:00:00] So, Gary, real quickly tell me what has caused the interest in CPM, the corporate performance management programs.

Gary: [00:00:10] Well, there's there's quite a few. The first one is just executive frustration with strategy failure. Executives are quite good at formulating strategy. Their big frustration is lack of success or not enough success implementing it with their managers and employees. And there's some empirical evidence on this. There's an executive recruiting firm in Chicago, monitors the involuntary turnover of CEOs in North America. The firing of CEOs, it's increasing every year. And I believe it's because governance boards, board of directors, post-enron take their governance job far more seriously. So if the CEO and the team isn't executing the strategy, they're gone. Carly Fiorina at Hewlett-Packard being an example. Another one, increased accountability. Today, there is no place to hide. Managers and employees will be monitored. They will be measured. It doesn't necessarily mean their jobs are at risk, but it could basically adversely affect their salary increases. Job promotions. Another one more rapid decision making. Unlike a few months years ago, you could test and learn and have meetings and conference rooms. Today people are on the phone, go or no? Go, yes or no. They need to make a decision in near real time. They almost wish an executive was sitting next to them saying, you know, how does this align with your strategy for mistrust of the management accounting system? We already talked that we know it's flawed. It's misleading. Most managers, they know it's wrong, but they don't have any control.

Gary: [00:01:37] They don't know how to basically, if you will influence the CFO and the accounting department, get it more right, you know, consider activity based costing five poor customer management. We already also talked about that. You really need to customer. You need to measure customer profitability a PNL by customer. And incidentally, one of the early embryonic trends happening right now with customer profitability, when people do report it is changing the incentive commission program for the sales force to not just be 100% sales, but like a blend, like 60% sales, 40% profit for each customer. So when the sales director has the account planning meeting, they're actually giving them two metrics. And that way the sales person has to start thinking about, oh, what do I do to make the customer profitability profitable? Because here's the reality. Customers are the source of value creation for owners and shareholders. So we've got to connect them. Six contentious budgeting we already talked to. You know the budget's broken. It's out of date. It caves into the loudest voice strongest muscle. We want to move to driver based, capacity sensitive driver based rolling financial forecast supply chain. Not everybody listening to me may be in supply chain. They may have consumers in B to C business to consumer. But those that are in B2B business to business.

Gary: [00:03:00] The issue there is most suppliers, most customers excuse me. Most customers treat their suppliers like the enemy, you know. Oh let's just pound on them. Let's negotiate lower prices. We put them out of business. So what? We'll get another supplier that's got to stop. It's got to be a marriage. Supply chains are competing against other supply chains. And finally, unfulfilled return on investment promises from large IT software vendors like ERP enterprise resource planning centers. I'm not going to name names, but there's a whole bunch of them. And the issue there is, if you ask the IT director, how well do you believe now that you've completed implementing your ERP system, that the return on investment met or exceeded? With the salesperson. The salesperson sold you one two years ago, and a lot of the items I'm not sure. We've just spent two years putting this in. I'm not sure we got the payback. The problem is the ERP tools produce a lot of data, but not information. You convert data into information. So to make a long story short, all these corporate performance management methods, the gears profitability analysis strategy, you know, they they take the information like seeds from the ground. And the ROI actually comes from the corporate performance management methods. Those are, I think, eight reasons why there is increasing interest in corporate performance management.

Larry: [00:04:25] Well. Great. That helps. Thank you.

Larry: [00:35:10] Well that's going to have to hold up for another episode. But what I do want to transition now to our BSI segment, our business Blind Spot Insider segment.

Now we're moving on to the Blind Spot Insider segment of the show. This is where our guests answer questions that have been submitted by our listeners. This allows the listeners to submit questions, get different insights specifically to questions that they had that may not otherwise be covered in our episode. If you're not a blind spot insider, please go and register at risk blindspots.com plural because we all have them risk blind spots.com to be able to submit questions for our guests, to listen to the responses, and to get exclusive content. So with that, here's our first question.

So, Gary, the knowledge you provided today has been really terrific. Very insightful. I think people that are not accounting experts will understand that. Bottom line, you can't always rely on the standard numbers, the standard panels, when you're trying to run and manage a business. And the blind Spot insiders got a bit of an insight as to how to think about the cost accounting and the ABCs in their situations, so I want to thank you for that. So can you tell our audience where to find you?

Gary: [00:36:36] Okay. Well, I do have a website. It's w w Gary cocoons.com Gary C as in Clark. Okay I guess maybe you can see my name in the zoom little corner there. Um, and across the tabs are there are tabs. Under them are many articles that I've written all for free. There's nothing you have to buy in my website. You're more than welcome to invite me to connect in LinkedIn. It'd be nice if you did the optional message and said, listen. Listen to Larry Gordon's, you know, heard you on that. So I kind of like, know who are you? But my website would be a good start. W-w-w dot Gary coggins.com. All of my books are published by Wiley John Wiley and Sons. So that's W-w-w dot wiley.com. Oh, and don't want to be accused now Larry by people. Oh, this guy's pushing his books. Get rid of it. No, you don't need to buy my books. But if you go to Wiley, each book typically chapter one, is a free PDF download or, you know, so you can kind of get a quick, you know, cliff notes of what's the book all about? And then you don't need to go buy the book. And then many of those PDFs are also below the tabs in my website. Can I leave on just one final remark? Absolutely, yeah.

Gary: [00:37:58] This may disturb some people, but I believe in the past the best executives and the best leaders had the best answers. Today. I don't think that's the case today. I think the best leaders and best executives have the best questions. There's too much volatility. There's too much uncertainty. There's too much complexity for them to rely on their, you know, gut feel or sixth sense or the types of answers they had earlier in their career that got them promoted to the high levels they need to create a culture of investigation and discovery and exploration and tolerance for making mistakes, as long as you learn from your mistakes. So I'm just really and that's a leaving a lesson I learned in my life earlier in my consulting career, kind of like, oh, you know, I got these degrees. I must be a pretty smart guy. I'll, I'll keep lecturing to people. Knew I did a 180 people will respect you by the types of questions. Look at the questions you asked me. They were all excellent. So it's key to ask good questions. The questions then lead to the conversations needed. Conversations, you know, like why is our biggest customer unprofitable kind of thing. So I took a couple of minutes at the end, but now you can. Now you can end it.

Larry: [00:39:18] So with that, I want to thank you, Gary. This has been a great episode. We appreciate your time and energy and we look forward to seeing you again soon.