Commentary

This has been a nice quiet week at Directis – I’ve just wrapped up final reports on a few projects and I’m waiting for a couple of new projects to begin next week. In years past I would have used a week like this to go shopping, stay home and read novels, or surf Facebook. I guess I must have grown up sometime in the last 12-18 months because this week I’ve actually been just as busy as when there were five projects in the cooker.

Here are some of the topics I’ve been researching and working on this week:

• industry research – getting to know the lay of the land in two new industries where I have customers or prospects, so I can respond intelligently to their business challenges and opportunities.
• business governance (as opposed to non-profit governance) – finding ways to translate “corporate” governance models from the land of the Fortune 500 to family businesses or just small businesses.
• Certified Management Consultant designation – I have started compiling engagement summaries from the past few years to present my qualifications for the CMC designation.
• Appreciative Inquiry as a basis for strategic planning – if you got my newsletter you read the article about building from your strengths.

I’ve been a busy little beaver! I know that in a couple of months it will be time for my annual Birthday strategic planning retreat, so I’m also looking at my strat plan and reflecting on what’s been done, what is outstanding and what became irrelevant as the year wore on and things evolved. In short, I’m doing outstandingly well on my goals and there will be some key strategic decisions to make this summer about how I take it onwards from here.

I’m starting to get tired of hearing “business experts” give advice based on studies or research that was done in the 1960s and 1970s. The whole world has changed since then. Business is vastly different. The same management models that were gospel in the Watergate era… well those are the ones that grew up and gave us WorldCom and Enron.

Let’s look at a few examples.

How about performance-based compensation and bonuses? That sounds like a wonderful idea in theory: employers should pay employees based on how much value they’re providing through their work. Aha, but it’s not working, is it? With a few special exceptions where short-term focus without long-term learning is desired, performance-based compensation doesn’t actually lead to increases in productivity. It just gets expensive, because over time people come to expect more rewards for the same behaviour. (Oops I have to contradict myself here: Alfie Kohn has been right against performance-based compensation since the 1970s, but nobody listened to him until Daniel Pink wrote a book using most of the same ideas in the 2000s and then made an RSAnimate video about it which went viral).

How about Michael Porter’s ideas; he’s one of the most prolific management-concept-thinker-uppers out there right now. Some of his gems provide a good starting point for discussion, but need to be updated as they stand. When I learned Porter’s Five Forces in business school ten years ago, they were already teaching updates to the model.

I’m not going to go through and debunk all of the management models out there. For the most part, they are useful starting points to provide some discipline to your strategic thinking. However they are dangerous if you allow one model or school of thought to influence your whole approach. You need to amalgamate and synthesize the ideas to go with your own operating environment and the shifting needs of your customers. Basically every leader needs to become a DJ of ideas and create their own mash-up.

It’s been my pleasure to have some discussions with several successful and talented people in small business and not-for-profit organizations recently around the topic of impact. More specifically, what is the impact we make on our clients and society as a result of our actions?

For entrepreneurs, impact is most often measured by the profits generated by the company. If you are financially successful, it is assumed that you’re offering a product or service that your customers view as having value, so they exchange money for it. You are able to generate that product or service for less money than what people are willing to pay. Henceforth, profit – and out of the jobs we create, the taxes we pay and perhaps the charitable donations we make, we can say we have a net positive impact on society.

On the not-for-profit side, impact is less easily quantified. What is the scorecard to be used in measuring how successful an organization is at saving dolphins, enriching lives, or protecting the weak? The Census doesn’t ask people subjective questions so there isn’t a statistically reliable (or not, alas) way to measure quality of life. I think this is one of the great challenges facing non-profit Boards: to define the social good in such a way that they can demonstrate a positive impact. And even if they could, they are still bound to a financial measure in that they have to be able to attract enough funding to deliver their services in a way that allows them to break-even or have a reinvestable surplus.

Jim Collins (author of Good to Great) has penned an addendum to that notable work, Good to Great for the Social Sectors. It’s actually available on Kindle (I read it on my iPad, having downloaded it via BC Ferries’ wifi connection last week – I ♥ mobility!) as well as printed form. It’s a quick read, and it will actually benefit people in for-profit, not-for-profit or anywhere in between, because it will make you think about your impact. Thanks to the fine folks at Power to Be Adventure Therapy for telling me about this book!

I also just watched the first 15 minutes of this video about Financial Planning for Startups, which talks about why money is important for startups: because the ability to generate money is the sign of a sustainable business model. I think the ability to generate money is one thing, but the ability to use it wisely – to create an impact – is something entirely different and much more important in profit and not-for-profit organizations. (Maybe if more people in the tech-start-up field were trying to use money wisely rather than just generate money, we’d have been spared the tech bubble and the ludicrous valuations of tech start-ups that do very little aside from look good and play foosball. But I digress).

I’m going to watch the rest of this video now… I just had to pause for this blogging moment.

Fast Company published an article on their site entitled “Culture Eats Strategy for Lunch.” I barely got halfway through before my inner blogger started screaming “DISAGREE! DISAGREE!”

The major hypothesis of the article is that culture is more important than strategy, because without an organizational culture which favours accountability and responsibility, you can’t actually implement any strategy. I agree with that, but I also think many of the points the author, Shawn Parr, makes in support of his hypothesis actually prove that the relationship between culture and strategy is a two-way street.

A strong culture flourishes with a clear set of values and norms that actively guide the way a company operates. Employees are actively and passionately engaged in the business, operating from a sense of confidence and empowerment rather than navigating their days through miserably extensive procedures and mind-numbing bureaucracy.

There are lots of businesses out there that have a great culture. They are wonderful, nice places to come to work. Everybody’s having fun, everybody loves the company… but the company is slowly going bankrupt. Why? Because employees cannot productively engage in the business without knowing the purpose and direction they should be making an effort. That direction comes from… you guessed it… the strategy. Employees without a sense of the company’s strategy will engage all right… but in a shotgun scattered approach.

The article talks about accountability, which is a fabulous concept, but it depends on something: accountability to what? If there are no goals, no roadmap in place then you can have all the accountability in the world but it still doesn’t give you a successful company (or organization).

A poor culture can hamstring a good strategy, that is true. But a lack of strategy or a poor strategy can make the best culture in the world into nothing more than a big dance party on the Titanic. It’s going down… but aren’t we having fun?

I have to be careful when writing this open letter, as I don’t want to offend any of the lovely accountants, bookkeepers and clients of same that I have worked with and am working with. So please bear with me as I try to be extremely tactful, but there’s something I must get off my chest.

In nearly every business or non-profit organization I’ve worked with, I have encountered a knowledge gap in financial management. What I’ve seen in 90% of the organizations is that the people responsible for making decisions about the future use of resources do not understand the financial information they’re being given (if they are being given it at all) by the professionals who are “doing the books.”

It’s understandable, I see, because bookkeeping and accounting seems to the outsider like a dry topic (those of you in the profession know it’s anything but!). Bookkeepers and accountants – is it really up to you to make sure your clients/employers fully understand the information you’re giving them? (I might argue yes, but I’m sure it’d be a heated debate). Board members, EDs, business owners and managers – is it too much to ask for your financial “people” to alert you to the stories written between the lines of the spreadsheets and reports? (I might argue no, but again there’d be a heated debate).

What this illustrates to me more than anything else is that the low level of financial literacy which has been reported on by the media, with a heavy emphasis on our high levels of household debt and poor understanding of personal investments, is wreaking havoc in our businesses and non-profit organizations as well. Decisions about how to use the Gross Domestic Product of this country are in the hands of people who don’t always see the stories that are staring at them from the columns of red and black ink. This scares me. Real value is lost when companies and organizations go bankrupt; then jobs are lost and lives are changed, for want of financial understanding.

So I am asking, to all those who work with numbers and those who are in the position of making decisions that affect the numbers: please try to talk to each other. We non-accountants need to learn what the financial statements are telling us and think in terms of what may happen next. The financial professions must learn to go outside their comfort zone and shake us up when we seem to be missing the point (financial reports can be tricky, subtle creatures). Between us, we need to start using our financial information more wisely and more often. Our grandchildren may depend on it!

In the past week or so I’ve been reviewing a number of strategic planning software as well as business assessment tools. Something I’ve noted is there seems to be a real emphasis on quantitative measurement of outcomes and results in many of the business software tools out there on the market.

For example, I’m looking at a software tool that a company or non-profit can use to do an assessment prior to doing strategic planning. Looking at the reports that this tool creates, almost everything is boiled down into a number. There are many graphs and bar charts. I love visual representation of ideas, but I don’t think this sort of “data” works for me. It seems like you’re distilling the real human issues and nuances to the point where it can become overwhelming and lose its meaning. Why not just write a qualitative report based on the survey responses?

At the same time, I know that my way of thinking is strongly oriented away from numerical data. I like pictures, not percentages. That’s not to say I’m bad at math (I’m actually quite good at it, and can do devilishly cool things with spreadsheets). I just find that numbers leave me feeling cold.

For others, however, numbers are the way they look at the world. A number is what they need to tell them if things are going well or not. As a business advisor, I strive to include quantitative measures and goals in all strategic plans, marketing plans – basically anything. There has to be a positive impact on the bottom line (or it has to be financially sustainable), otherwise it’s not worth doing the initiative.

It’s possible to do strategic planning without mentioning numbers at all – sometimes the real question is whether people are aligned on the key ideas – but at some point, it’s imperative to strike a balance between the ideas and the numbers.

Well here we go! Heading into 2012, Directis has a lot of things on the go. This will be an exciting year! Here are some of the projects on our plate for this month, quarter and year:

January:

We are working on a Business Transformer program for small businesses with 5-20 employees and revenues that have passed $500K. This program will help an owner/operator transform their business from being wholly dependent on the owner’s involvement to having a defined strategic plan, a core leadership team, a scalable financial model and (what everybody loves most) a set of documented operating processes! This program is in development and we have two businesses doing the first module beginning this month. There’s room for one business to join each month in 2012.

We have overhauled our project management and time management systems using Insight.ly, a Google App which integrates with our email and calendar systems. The system is set up: now the test is will we use it consistently?

First Quarter

Our Non-Profit consulting process is under review. During our strategic planning session in December we identified that our unique competitive advantage as a consulting team is our ability to help non-profits ignite their entrepreneurial mindset, through adoption of strategic planning, budgets and social enterprise thinking. We’re developing a way to deliver these services within the budget-crunch environment for non-profits. Look for that to begin appearing in our website and communications in April.

2012

By the end of this year, you can expect to see Directis grow so that we have at least two full-time consultants and possibly a junior associate. Our emphasis for this year will be on implementing our consulting programs and developing deep relationships with clients in the SMB ($500K+) and non-profit sectors.

The recent news surrounding BC Hydro’s accounting practices made me shake my head in dismay. When I read about the shenanigans that are happening in BC government finances – allegedly – it sometimes makes me wonder why we all keep agreeing to play this ridiculous shell game.

The fundamental principles of honesty, integrity and transparency have apparently gone the way of the dodo bird, both in government and in the finance sector. The Occupy Wall Street movement, as much as it has its ridiculous flaws and inconsistencies, is at least finally voicing the indignation and frustration “the rest of us” feel when we hear about the games that highly-paid people are playing with paper money. And it’s not just the finance sector, because apparently the BC government and probably our federal government are playing similar games on paper. There seems to be a total lack of accountability for their actions.

This makes me wonder what would happen if I ran my business the way government seems to be running theirs. Since it’s disadvantageous for BC Hydro to post a loss, they’ve rigged their financial statements to show a profit and transfer “funds” to our government. Well right now it’s disadvantageous for Directis to post a profit because I’d have to pay income taxes, so perhaps I’ll just rig my financial statements… oops, no, I can’t. That’s ILLEGAL. Having just written a big fat cheque to the Canada Revenue Agency for my last fiscal year’s taxes and HST remittance, I’m feeling fully cheesed off that somehow the “big guys” are allowed to play hide-and-seek with inconvenient numbers and the rest of us are actually playing by the rules.

You know, even if there was a way for me to cheat and not get caught, I still wouldn’t want to. I was taught to tell the truth, even if it meant revealing I’d done something wrong. I was taught to play by the rules because it’s unethical to benefit from lying or cheating at someone else’s expense. When it comes to paying taxes, I do so because I like the social benefits that our system of government provides, ideologically. I believe that by sharing some of my good fortune in the form of taxes or charitable donations, I will make this country a better place for those who are less fortunate – and benefits will accrue to all of us from living in that sort of society.

So what is there to do, as a small business person, when the “role models” for me in larger corporations or governments seem to have forgotten about “the truth” when it inconveniences them? Well if I want to be able to look at myself in the mirror and raise my son with a clear conscience, I’m going to stick to the fundamentals of business and play by the rules: “take the high road.” There’s a certain moral satisfaction in sticking to what I believe is right, and working with other small businesses and non-profit organizations who also believe in doing what is right.