Activity Based
Management Information
for Business Turnaround
The Fifth Annual AICPA/CAM-I
Cost & Performance Management Symposium
May 9-12, 2001-Nashville
Jonathan B. Schiff
Schiff Consulting Group
jschiff@schiffconsulting.com
Signs That Your Company Has
Gone Too Far With Cost Cutting…
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The head of purchasing goes
to employees’ homes and steals
back office supplies.
Water coolers are coin operated.
To get paid company life insurance, you have
to sell ten policies to relatives.
You have to call in sick on a 900 number.
Company blood drives are now considered a
profit center.
Copyrignt, Schiff Consulting, 2001
Today’s Agenda
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What’s New?
Winning the New Cost Wars
Performance Management for the
CFO Community
Actionable recommendations
Copyrignt, Schiff Consulting, 2001
Dr. Gary Hamel, Harvard
Business School Futurist
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Earnings pressure is here to stay.
Earnings management practices are running
out of steam.
Diminishing returns from industry
consolidation, typical efficiency programs, and
share-buy backs.
M&A is the last breadth of traditional cost
cutting! If recent trends of heightened M&A
activity continue in 7 years, we will end up
with one company!
Copyrignt, Schiff Consulting, 2001
How will we add value
in this New Economy?
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From Stewardship to Entrepreneurship
Nothing happened on my watch!
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End of incrementalism
New search for value creation
Exponential (quantum) change
Role models: Enron, GE Capital, Virgin
Atlantic, Shell Oil, Southwest, & Kohl’s.
Copyrignt, Schiff Consulting, 2001
Evidence of Exponential
Change
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Spending on children has increased by
300% during the last 5 years.
Wireless messaging services are
changing social patterns.
MN-based Kohl’s comes out of nowhere
to revolutionize retail using counterintuitive innovation.
Copyrignt, Schiff Consulting, 2001
How do we do it?
Old Capital
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Structural Capital
Intellectual
Capital
Driven by
incremental
thinkers.
New Capital
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Imagination Capital
Entrepreneurial
Capital
Driven by seers,
heretics, and
activists.
Copyrignt, Schiff Consulting, 2001
What’s Needed
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From Best Practice to New Practice
From market share to share of wealth
creation
From unbalanced incremental
scorecards and low hurdle rate based
EVA to measures that drive innovation
E.g. Company market value/Industry
market value
Copyrignt, Schiff Consulting, 2001
What questions should
be asked?
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What opportunities are being missed?
Where are we blind?
What are we missing?
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e is not enough!
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IT spending has doubled over that last year
(’99-’00) with no new competitive advantage
produced for most!
What we need is less follow and more
differentiation for distinctive results!
Copyrignt, Schiff Consulting, 2001
Reality Check
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Most wealth comes from non-linear,
discontinuous innovation.
Innovation and entrepreneurship needs to be
a company-wide capability across the value
chain.
…And we certainly don’t want to be The
Weakest Link!
Copyrignt, Schiff Consulting, 2001
What Financial Leaders
Should Do…
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Begin to introduce wealth creation metrics
IT spending should challenged to create
unique competitive advantage
Push for a portion of capital spending for
“radical” project. Radical does not necessarily
equal high risk. New portfolio of
experimental capital projects are generally,
under $100K each at Enron.
Copyrignt, Schiff Consulting, 2001
What Financial Leaders
Should Do…
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Remove inhibiting business practices
and activities that are toxic to
innovation, reengineer processes
between ideas and wealth creation.
At Shell Oil, experimental capital project
approval takes just 5 days!
Keep the Good-Grow the Great!
Copyrignt, Schiff Consulting, 2001
Are You Ready to Win the
New Cost Wars?
Replay or Fast
Forward?
Winning the New Cost Wars…
Impact of the Current Business
Environment on the CFO
 Increased expectation to do more with less.
 CFO community and leaders are expected to
deliver ideas, innovations, and solutions.
 Traditional standards of integrity and
technical acumen are a given.
 CFO community is expected to align its skills
set with the dynamic needs of the business.
 Increased competition from within and…
Copyrignt, Schiff Consulting, 2001
The Brave New
Competitive World
“Taxes.
Internal Audit.
Finance and Accounting.
There must be a reason many of your
competitors don’t do them anymore.”
-Text of full page Arthur Andersen advertisement appearing in Fortune,
Business Week, and Forbes magazines.
Copyrignt, Schiff Consulting, 2001
Winning the New Cost Wars
What has not worked...
 Fragmented, piecemeal approach.
 Finance and accounting technical focus.
 Key elements of value-chain scoped out.
 Top management strategic focus shift.
 Not walking the talk.
 Attitude: “The new system will fix
everything.”
Copyrignt, Schiff Consulting, 2001
Winning the New Cost Wars
Symptoms that lead to failure...
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Cost shifting
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Don Quixote-type leader
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New information system dependency
Consultant engagement model dysfunction
Disconnect with top management vision and
strategy
Over intellectualization
Report production fixation, not results focused
Gratuitous complexity
Copyrignt, Schiff Consulting, 2001
The New Cost Wars
Where we fallen short...
 Global computer maker/No learning legacy,
limited to pockets of excellence.
 Leading cell phone manufacturer/High-profile
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cheerleading, modest wins and low crossfunctional interest.
Health insurance giant/Finance-driven
initiative, great reports, but actions limited to
very low-impact areas.
Copyrignt, Schiff Consulting, 2001
Winning the New Cost Wars
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New Harvard Business School Case:
MiCRUS: Activity-Based Management for
Business Turnaround, a collaboration
between Bob Kaplan and Jonathan Schiff
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The MiCRUS Case was published as
Harvard Business Case # N9-101-070 on
March 5, 2001 by Harvard Business School
Publishing, Boston, MA.
Copyrignt, Schiff Consulting, 2001
Insights from the MiCRUS Case
Overview
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Cross-functional, enterprise-wide
application.
ABCM is a key element of an inclusive
incentive compensation program to
support an aggressive business
strategy.
Industry is all about change.
Performance and Open-book
management integration.
Copyrignt, Schiff Consulting, 2001
MiCRUS Corporation Case
Case background
 Extremely competitive industry.
 History of failed initiative sloganeering.
 Leadership role.
 The “burning platform” for change.
 A unique holistic approach.
Copyrignt, Schiff Consulting, 2001
MiCRUS Corporation
The Problem
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New joint venture initiative and new business
model-the virtual fab. Expectations are great.
Legacy IBM management practices not in alignment
with current needs-Selective amnesia required.
Global competition heating up, primarily from
Taiwan and Korea.
Industry benchmarks for yield and cost readily
available. You can run, but you can’t hide!
Copyrignt, Schiff Consulting, 2001
MiCRUS Corporation
The Solution
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Establish “stretch” (non-incremental), but attainable
cost and yield (quality) targets.
Initiate incentive compensation program for all
employees tied to making the new numbers.
Train all employees on development and use of
activity accounting information for process
improvement and costing—their power tool.
All functions and processes covered-12 teams
Monthly team progress briefings with the CEO.
Copyrignt, Schiff Consulting, 2001
MiCRUS Corporation
Results
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MiCRUS won “Fab of the Year”
industry award in 1999.
MiCRUS is now a global leader
in low cost and high quality.
MiCRUS instituted a variety
of process innovations resulting
from this initiative.
MiCRUS associates have met
and exceeded their stretch goals
in 1997-2000!
Copyrignt, Schiff Consulting, 2001
Show
Me the
Money!
MiCRUS Case Summary
ABM
Information
Inclusive
Incentive
Compensation
MiCRUS
Corporation
Open Book
Management
On-going
Leadership
Commitment
Copyrignt, Schiff Consulting, 2001
Winning the New Cost Wars—First
Steps…
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Need—Cross-functional, top-to-bottom cost leadership,
skills, and information readiness assessment.
Reality—Most managers do not understand cost, beyond
a very simplistic level, a result of the generational legacy
of the Raging Bull Market.
Goal—For cost leadership to take hold culturally, it needs
a passionate and consistent leadership commitment
similar to that often found in diversity, integrity, and in
new product development.
Linkage-If not aligned to strategic goals it’s DOA!
If you can’t demonstrate the WIIFMs,
don’t start until you can!
Copyrignt, Schiff Consulting, 2001
What About Performance
Management for Finance?
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“We chain our best people to
their desks and watch their
enthusiasm die.”
“I hire MBA/CPAs, throw them
into the deep end of the pool
and see if they can swim.”
“I have two ulcers to show for
it and I’ll be damned if I help
those young S.O.B.s learn any
faster or better than I did.”
Copyrignt, Schiff Consulting, 2001
Rapid Tech, Inc.
A CFO Organization Performance
Management Case Study: Adapted
from actual practice
Background
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$2 Billion global manufacturing
company in the transportation industry
Industry consolidation heating up the
competitive environment
New CFO from outside the company
Copyrignt, Schiff Consulting, 2001
Business Problem:
Finance Workforce Not Meeting the
Challenges of the New Economy
Chronic Symptoms:
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Finance “not at the table” with business leaders
during key decision making
Financial analysts known for finding reasons not
to pursue new ideas
Finance working harder – not smarter
Financial analysts complain that it takes days to
extract data that internal clients expect within
hours.
Copyrignt, Schiff Consulting, 2001
Underlying Problems &
Cost Drivers
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They spend to train and educate, but
most often not on the skills required.
Fewer than half the new hires really
“work out well.”
High-potential finance managers
regularly leave the company.
Copyrignt, Schiff Consulting, 2001
Business Solution
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“Retool” finance workforce to meet the
new challenges of industry
consolidation
Target limited training & development
resources using a competency
model/skills management approach
Copyrignt, Schiff Consulting, 2001
Approach
1.
2.
3.
Set a new standard for
competence
Assess the current state of
competence
“Retool” to close gaps
Copyrignt, Schiff Consulting, 2001
Approach
1. Set
a new standard
Created a detailed Finance
competency model:
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Tops-down input to balance and align
with vision of future
Bottoms-up input to supply job-level
detail and create employee buy-in
Customer input to link to business
strategy
Copyrignt, Schiff Consulting, 2001
Approach
2. Assess the status quo
Captured employee selfassessments:
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Launched a communication campaign to
maximize employee participation
Used a software tool with friendly
interfaces for employees
Provided clear definitions of
competencies at four levels
Copyrignt, Schiff Consulting, 2001
FinanceAchieve Personal Skills Profile for:
John Q. Employee
Current
Level
Required
Level
Expert
Advanced
13 Nov 00
Advanced
Advanced
13 Nov 00
Expert
Expert
20 Apr 01
Communication Skills
Proficient
Advanced
13 Nov 00
Management Competencies
Proficient
Advanced
13 Nov 00
Business/Industry Acumen
Conceptual
Proficient
05 Dec 99
Software Knowledge
No Skill
Advanced
13 Nov 00
Skill
Financial Analysis Techniques
Cost Mgmt. Knowledge
Spreadsheet Applications
Gap
C-R
Assess
Date
Approach
3. Retool
Analyzed and acted on skill gaps:
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Reached consensus on gaps and
created buy-in for actions
Offered training quickly to close easy
gaps and create early “wins”
Restructured hiring and promotion
practices to address longer term gaps
Copyrignt, Schiff Consulting, 2001
FinanceAchieve SKILL GAP ANALYSIS REPORT
Total
Gap
#
Employees
w/ Gap
Rank
Skill Name
1
2
-378
216
-314
242
3
4
5
Industry Acumen
Company Info. Systems Knowledge
Selling Skills
Presentation Skills
Business Process Reengineering
-283
231
-277
229
-216
177
6
7
Internet/Intranet Skills
Database/Data Query Applications
-199
145
-135
96
8
9
Change Management
-112
94
Coaching and Teaching
Business Development Skills
-101
82
-97
97
10
FinanceAchieve Individual Development Plan for: John
Q. Employee This plan is for the period from 14 Sept 2000 to 14 Sept 2001
Skills
Skill Gap: Improve Software Knowledge from No Skill to Proficient
 Activity: Attend in Company Systems Seminars Series I & II
Skill Gap: Improve Communication Skills from Proficient to Advanced
Activity: Join local Toastmasters chapter
Skill Gap: Improve Industry Acumen from Conceptual to Proficient
 Activity: Read Transportation World newsletter weekly
Skill Gap: Improve Industry Acumen from Conceptual to Proficient
 Activity: Assign to Manufacturing Department mentor
Skill Gap: Improve Management Competency from Proficient to Adv.
 Activity: Attend Advanced Supervisory Skills Course
Results:
Finance Perspective
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Identified critical training needs that
had gone unrecognized
Got across the board buy-in on training
& development priorities and funding
Created more career opportunities and
better matches between people and
jobs
Copyrignt, Schiff Consulting, 2001
AND
Results:
Customer Perspective
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Finance gained industry acumen and
customer respect
Finance recognized and eliminated
outdated “silo thinking”
Finance brought new value to the
decision making table
Copyrignt, Schiff Consulting, 2001
FinanceAchieve ROI
New Skills for the New Finance
2.5
250%
Return on
Investment
- Accrual
2
1.5
150%
1
50%
0.5
0
Yr. 2
Yr. 4
Copyrignt, Schiff Consulting, 2001
Thank You!
Schiff Consulting Group
Solutions for Corporate Effectiveness