Bob: Well, gentlemen, now that we have dispensed with the planning for the Christmas party, let’s proceed to item three on the board agenda: this month’s financial report. As you know from your own copies, there are 45 pages of it, so I’d like to call on Harry Junkbond, our chief financial officer, to take us through the highlights.
Harry: Bob, if I can start with the summary schedule on page one, we can see from the “flash” figures that our company, Intergroup Holdings, appears to have lost $2.3 million in May against a budgeted profit of $1.5 million. This was because of an unexpected loss of market share in our detergents division, together with excess costs as a result of product recall in our pet food operation. On a year-to-date basis, this puts us $14.6 million behind budget, and as a result I believe we’ll be looking at a shortfall in our budgeted year-end out-turn.
Bob: How much are we talking about?
Harry. Well, as yet we don’t have formal re-forecasts from the divisions, hut on the face of it, I would say we could be as much as $35 million down from our budget of $142 million.
Bob: Is there any more detail about this elsewhere in the report?
Harry: Well, further analyses of the variances are in the detergents and pet foods sections. We can trace the product lines and regions affected. But I understand that the market share problem has been driven by competitive price-cutting, while the product recall in pet foods was caused by a shipment of mad cows from our main supplier. We don’t have any information about these issues in the financial report, and perhaps I should defer to Elaine and Gunter here to tell us more about the company’s financial problems.
Bob: Just one moment. We maintain, at enormous cost, a small army of financial analysts and computer people to process our monthly information. Are you telling me that as soon as we hit an expected $35 million profit shortfall, our management information is helpless and we have to rely on the anecdotal evidence of the executives concerned?
Elaine: Speaking on behalf of detergents, I must say that I wouldn’t normally expect to look in our board report for a view about what’s actually happening in our business. Isn’t it mainly for the accountants and the auditors, that sort of thing?
Harry: Well, we do try to combine the statutory compliance aspects, the audit trail as it were, with the cut and thrust of the operational results. Won’t you be using your section of the report in your divisional management meeting next week, for example?
Elaine: Harry, it’s already June 25, and we’re looking here at figures that are only estimates for May, which finished five weeks ago. In detergents, we look at the key trends continuously, and next week we’ll be discussing the June results and July forecast. Our market share is dropping because of no-wash competition: disposable paper clothing. Intergroup is at least a year away from being able to launch a range like that, and even that won’t do any good for my division.
Bob: Harry, why is it we do the report this way? All these numbers, all this historic stuff and detailed analyses don’t really help us, do they? Why don’t we put in things about what is going to happen, and not so much of what might have happened last month? And why is it that everything has to be in dollars? If the reality is what Elaine and Gunter just said, why not report it that way? And couldn’t your analysts spend some time tracking our competitors, instead of adding up our own numbers?
Harry: Where would they get the data from for that?
Elaine: Harry, the fact that it’s difficult doesn’t make it irrelevant.
Gunter: Absolutely. Also, why is it that the format of the report is always the same? We have middle managers whose job is running the operation according to its current structure and goals-business as usual. Now surely our job is to change the business, not just to run it. The way I change my own division is through projects, not departmental cost summaries. But your board report doesn’t contain any information about projects at all.
Harry: Forecasts, nonfinancial measures . . . don’t you want to know anything about the financial picture?
Bob: Of course we do. But I think we’re getting too much detail in one area and nothing in the others.
Harry: Suppose we keep the finance report as is, but we cooperate in putting together a new document-a Management Review?
Bob: Great. How about one next month?
Harry: Now wait a minute, Bob, let’s not be too hasty. We’ve got budget reviews and year-end coming up. Maybe we could put together some kind of mock-up in about six months.
Elaine: Harry, we just don’t have that amount of time. My people are launching our new campaign, “And what will you do when it rains?”, to combat the paper clothing competitors. We’ve got to start tracking our market share more scientifically, but I don’t have the staff. Can’t some of your qualified people help us?
Harry: Uhh . . . my concern is that . .
Bob: Good, that’s settled then. Let’s get the financial boys out of the closet and into the front line. With them as partners in management, I see a whole new dawn. They will help propel Intergroup toward a bright new future. Today accountants, but tomorrow lion tamers. Elaine, gentlemen: I think we’ve earned our lunch.
Robert Bittlestone is founder and chief executive of Metapraxis, a