SEVENTH RULE OF MANAGEMENT
November 26, 2012 2 Comments
The first rule of management is that successful management is actually more about how you manage yourself rather than being about how you manage others (see “First rule of management” posted June 25, 2012).
The second rule of management is that the key to your own success is totally dependent on the success of your people (see “Second rule of management” posted September 24, 2012).
The third rule of management is that no man is an island, and you need to build a network in all directions (see “Third rule of management” posted October 1, 2012).
The fourth rule of management is that you do not manage people, but you manage their behaviour (see “Fourth rule of management” posted October 15, 2012).
The fifth rule of management is that if you are serious about moving up, you need to first move sideways (see “Fifth rule of management” posted November 5, 2012).
The sixth rule of management is that you should not over-manage your people (see “Sixth rule of management” posted November 19, 2012).
The seventh rule of management is that if you don’t manage the financials they will manage you.
French author Jules Renard (1864-1910) said “I finally know what distinguishes man from the other beasts: financial worries.”
What differentiates professional managers from amateurs is that good managers work hard to totally understand and worry about the financials at all times, and don’t just hand over all the financial responsibilities to their senior finance person. Ultimately the responsibility has to lie with the most senior manager, no matter how much reliance he has placed on his finance team.
This was shown in a big way last week, with the release of the latest financial results from Hewlett Packard.
The results were bad enough on their own, but were not helped by the write down of $5 billion related to the acquisition of Autonomy for $11.7 billion, just over one year ago in August 2011. According to HP there had been improprieties in the way Autonomy had been valued, and HP had been misled by Autonomy’s questionable financial reporting.
Former Autonomy CEO, Mike Lynch said “It took 10 years to build Autonomy’s industry-leading technology and it is sad to see how it has been mismanaged since its acquisition by HP”,and that this was just an attempt by HP to distract the market from its poor results.
The CEO of HP, Meg Whitman, said that the HP Board had relied for the purchase of Autonomy on financials supplied by Deloitte, and that they had even hired KPMG to audit Deloitte. Apart from having “watchers watching watchers”, there was no mention of their own due diligence carried out by HP itself, which one would have expected with a trade purchase of any size. This excuse just seemed like a blatant attempt to move the responsibility for the disaster away from the management team, where it always belongs. It was too obvious and not acceptable.
Managers do not have the luxury of being able to shift the blame to others for actions that occur on their watch, and in their area of responsibility.
Whilst Whitman was not the CEO at the time of the purchase, she was at that time a member of the board that ultimately approved the deal, and there is no way that the senior team in any organisation can pass the responsibility to anyone else.
To me, this seems like management incompetence on a grand scale, but serious financial management is just as critical at every level of an organisation. It is just as mandatory for the leader of a small team as it is for the CEO of a large corporation.
Business management is a people and a numbers game.
It is not enough, for example, for a sales manager to just work on the number of suspects needed to supply the requisite number of prospects to drive the number of qualified opportunities that will provide the number of successful deals closed to deliver the committed revenue numbers, and then believe that these responsibilities alone are enough to do the job. It is just as important for success to also closely manage elements like the travel expenses needed to deliver these opportunities.
I once had a country MD who was skilled at driving the top line, and rarely had problems making his revenue forecasts. The problem was that he believed that as long as he made his revenue goals the bottom line would look after itself. It didn’t in his case and it rarely does in any case. He achieved his sales goals by over incentivising his sales force with end of quarter and end of year extra commission schemes, which not only blew up his cost of sales, but also drove un-natural behaviour in his field organisation which skewed business towards the end of whatever time period was being rewarded. He also believed that it was the responsibility of his CFO to manage the numbers, but as an over-confident MD he would override his CFO’s concerns. The real issue is that, like many managers, he really did not understand how to manage the financials of a complex organisation. The end result was that the subsidiary did not meet its profit goals and the MD had to be replaced.
To be successful a manager must develop “a nose” for the financial health of his business area, in the same way that a wine connoisseur can tell everything about a particular wine s/he is tasting. S/he particularly has to be able to “smell” that something doesn’t feel right, particularly when it comes to understanding the numbers. This means that every manager has to make it their responsibility to totally understand not just how to read a Balance Sheet and Profit and Loss report, but has to be able to understand that s/he needs to have access to a dashboard that gives the metrics needed to measure the health of the business area in real time.
The problem is that few managers have the financial skills to do more than to cast a cursory glance at the financials, and it often gets worse as one travels higher up the organisational pyramid.
As so well supported by Robert Toru Kiyosaki, American investor, businessman and author “Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them”.