The Core – Communicating strategy, vision and values

I will never forget how I first made the acquaintance of one of my previous CFO’s.  I had been hired in by the outgoing CFO as a division controller, my predecessor having already left the company, and with the outgoing CFO leaving during my first month on the job.  Within 30 days I had my first monthly close, a three day affair that required a preliminary estimate of revenue and net profit at the end of Day 1 following the automated system feeds.  Day 2 was for divisional manual entries, with Day 3 reserved for corporate adjustments and the final close; the divisions being expected to come in within +/- $0.1M of the preliminary estimate.

Everything was looking good except for a $250K reversal of a cost accrual.  The initial accrual had been posted two months earlier by my predecessor, with the division financial analyst dutifully re-accruing the cost the next month as well.  I spent most of Day 2 looking for the actual costs coming through the ERP system, both in this current period and the previous, but to no avail.  Without firm proof, I could not see how I could close the books without re-accruing that $250K again, completely blowing my estimate out of the water.

With considerable trepidation, I walked up to mahogany row, knocked on the door of the man who had moved into the CFO’s office only a few days before, and introduced myself: “Hello.  I’m Leo, your new XYZ division controller, started just this month.  I have a $250,000 problem with my close – I have a cost accrual reversal for which I cannot find support on the other side of the transaction.”  He calmly turned to his corporate controller, they had a few words between them, then he asked me if I thought that was the only problem.  I confirmed that it was just the $250K, so he nodded his affirmation that I should go ahead with the accrual and that we could talk later when I had more information.

Whew!

It still took a good week to find the problem – the costs had actually come through the system the same month as the original accrual and had been overlooked because they were broken up into pieces and posted to the wrong accounts, so we got a $250K bluebird the next month.

A couple of years later I was casually chatting with him when I asked if he remembered how we had met.  After I jogged his memory it all came back to him, and he said, “That’s why you and I have never had ‘The Talk’”.

What is “The Talk”, I asked?

“The Finance Talk.  When I sit you down and explain that if you miss your income statement, you might get chewed out a bit, but if you miss your balance sheet, you get fired”.  In layman’s terms, that means that if I missed the forecast there was a chance I’d get a tongue lashing, but if I was hiding things on the balance sheet, that was cause for dismissal.

Which brings me to the subject of values and corporate strategy.  How do you go about communicating these things in your organization?

At the company in question we operated managerially on the principle of the White Space, as illustrated by the accompanying diagram.  The White Space is that space between your boundary (your limits, your delegated authority), and in the center the Core values, principles and strategy of the organization that inform and empower the White Space.  The White Space represents both your degrees of freedom and your area of responsibility.

The outer boundary is fairly straight forward, but absolutely crucial.  Setting strategy lies as much in defining what you are NOT as in defining what you are.  If you are an oil-drilling firm, perhaps your strategy is on land and under 10,000 feet only, meaning that you will reject all offshore and deep well opportunities.  If you are a retailer, you will have a specific, defined demographic – tweens and teen girls, perhaps.  A global distributor may define their boundaries geographically to only countries where they have a maintenance/support/implementation partner.

On the other hand, defining who and what you are and what you do comes from the Core.  Mission, vision, goals, objectives, values, priorities, acceptable risk and all of the many components of strategy.  Communicating this Core is made doubly difficult not only because it’s quite a challenging task, but also because it is constantly evolving and changing.

One way that we all INEFFECTIVELY try to communicate the Core is through the Budget; the poor, overworked, overextended, one-size-fits-all budget.  We give the field a budget and assume that they can discern our corporate values and priorities from the numbers. Good luck with that.

A better way to communicate the Core, of course, would be through the use of a scorecard and a dashboard - applied business intelligence for the entire organization.  Relevant metrics for each function and level, available on-line or via mobile, in a user-defined dashboard presentation that reflects the user’s preferences and priorities.  The right KPI’s and KRI’s, leading and lagging indicators, with benchmarks and thresholds that incorporate external market data as well as internal performance indicators.  Dials, gauges, traffic signals, flags and alerts that indicate progress and not just pass/fail ratings when it’s too late to do anything.  A scorecard that structurally supports and reinforces corporate objectives, priorities and relationships.  For more on this aspect of performance management, please take a look back at my prior post: “Metrics for the Subconscious Organization”.

However, I have one more slightly more radical suggestion for you when it comes to communicating the Core – Governance.

Have you ever considered formally and systematically communicating your Core values and strategy via an organization-wide governance process similar to how you operate at the executive level rather than just through the budget and metrics?  There are several routes to incorporating governance at the lower organizational levels, dashboards and scorecards being the logical initial vehicles, designed this time not just for the reporting of metrics but also for the communication of strategy as well.

As a first step may I suggest the obvious – your internal web site.  If you are using your internal web site for only daily revenue updates, the current stock price, big sales wins and new product announcements then you are missing a trick.  Your internal web site is also your most effective tool for communicating the narratives about people, leadership and values that eventually become the legends of your corporate culture, stories like ‘The Finance Talk’ that convey your corporate passions and ethics. Beyond that, your dashboards and scorecards can be modified and extended to include daily and weekly communications that define, refine and reinforce the Core at the individual employee level, allowing you to communicate vision, strategy and values more quickly, and more geographically and culturally dispersed than ever before.

The key to increasing the range, effectiveness and productivity of the White Space is to strengthen the Core and communicate it to everyone - a strong, empowering Core translates into an extended boundary and therefore more effective White Space in which to operate.