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|Date: 2022-07-07 Page is: DBtxt001.php bk00001010|
The Basic Concepts of True Value Metrics
NOTE: This section is written in the first person. The rest of the book is written in the third person!
I trained as an engineer. I did an undergraduate degree in Mechanical Sciences at Cambridge University, and subsequently did design engineering in heavy engineering for the Davy Ashmore Group based in Sheffield, England. At the time, the company was working on integrated steel mill projects all around the world including India, Turkey, Mexico, and Finland as well as several big projects in England, Scotland and Wales.
I also read economics at Cambridge … and subsequently trained with Coopers and Lybrand in London and was articled to Brian Maynard. Subsequently I became a Chartered Accountant. It was a “wake up call” to see separately the power of engineering and the power of accountancy and to understand what a waste because of the almost non-existent coordination or collaboration between the different “silos” of professional development.
I traveled extensively as a student both in Europe and in North America. After several years of professional accounting and audit work in the UK, I migrated to Canada and obtained a position as a field accountant with HA Simons, consulting engineers, based in Vancouver BC, Canada. My field work took me to several assignments including major projects with the general contractor Brown and Root in Texas.
Subsequently I worked with Aerosol Techniques Inc. of Milford Connectivity, Gulton Industries of Metuchen New Jersey and Continental Seafoods Inc. of Secaucus, New Jersey and their subsidiaries. These companies could not have been more different in both industry sector … consumer products, high tech electronics and international fisheries … and in the character of the companies.
After more than 15 years of professional and corporate management, I became an independent consultant based in the USA with a focus on management and international initiatives. This led to some long term associations with some interesting companies, and with the World Bank and the United Nations Development Programme (UNDP) … and eventually to a lot of work associated with the official relief and development assistance (ORDA) sector.
My journey with information technology (IT) and management development has been long. During my work with Coopers and Lybrand I worked on the audit of one of the first commercial computers built to do business computing … at EMI just outside London. EMI, a leading electronics company had built the computer itself, and used it in one of their subsidiaries … EMI Records, that was involved with the distribution of Beatles records. The audit was impossible … but there were enormous lessons learned. At this time almost all accounting was done manually with the assistance of “bookkeeping” machines. There was a premium on being organized, and with “organization it was possible to do amazingly fast reporting of financial performance, even though the business was very, very large.
At HA Simons, a new computer was being used to manage the money aspects of all the firm's major projects for pulp and paper mill construction oversight … simple budget and expenditure control, but very powerful because it was timely and closely integrated engineering design with money accounting. I developed a field cost audit technique using budgets and standard costs that made it possible to manage contract costs very precisely right from the start of a project … and went up against the contractors Brown and Root based on this methodology.
In the late 1960s, Aerosol Techniques installed a mainframe computer … which initially did not work. I became responsible for fixing the problem and making the computer do something useful for the company. The Harvard based Management Analysis Center consulting firm worked on this as well, and several Harvard Business School cases were based on the work. The company had been very profitable and available cash had been invested in facilities expansion … but not well … beautiful architecture but poor production engineering. My cost analysis showed that no amount of cost reduction would make the main new factory investment contribute to profit … no way, no how! The most unpopular short report in the company. I did a lot of other work on cost analysis and how to make products contribute to profit … costs depend on the product design and the factory process, not on how the accountant fiddles around with the numbers!
Gulton Industries was an early enabler of the computer era as a leading edge developer of miniature ceramic components for electronic systems … their microceramics division. This led to military and space work where size and weight were important. The company supplied power supply equipment and communications equipment to the Apollo program and it was Gulton equipment that was used in the conversations from the moon! For internal management Gulton did things in an “old fashioned way” … numbers on paper, but used them to manage high tech work! More cost analysis … and identification of pieces of the business that were highly profitable, and those that were big and a huge drag on profit performance.
I was given the assignment to be Controller of the Gulton subsidiary, Southern States Inc, near Atlanta, Georgia … more cost analysis … and then a decision that for this unit to improve profit performance it would require drastic management action. The President and three out of five vice presidents were removed … and everything went better … engineering … marketing … procurement … production … profits! I was put in charge of “Admin” and was also VP Manufacturing in the new operational structure!
One of the production departments was a foundry … this operation was critical to the whole production cycle and operating at full capacity on a two shift basis, and limiting everything else. My solution was a third shift … which was met with fierce opposition. What else to do? No suggestions, so the third shift was implemented. The opposition was right … costs were high, production was abysmal. Why? I turned up at 2 am in the middle of the night unannounced … everyone doing nothing … a key machine broken down. No maintenance … not enough supervision. I called the maintenance manager … 2 am … and asked him what the problem was? Within days, with real supervision and adequate maintenance the night shift became the best of the shifts … and proud of what they were doing!
Another story associated with the foundry was the long time use of average cost … cost per pound … to do casting design. With this method engineers were encouraged to make castings lighter and lighter to “reduce costs” … but in fact were doing exactly the opposite. The behavior of cost in a foundry depends on many factors other than the weight of metal including the shape of the casting, the quantity being made, the process needed for the specific casting, scrap rates, the type and quality of the mold and so on. These are standard process elements, and designing to reduce cost of each of these changes the dynamic … higher production, lower costs, better castings.
It was also at Southern States that I used production reporting to improve production performance. A routine daily production report was circulated to “management” and department supervisors next day mid-morning … it showed what had been produced, and most people knew what should have been produced, so they had an idea of how well the factory was doing. It was an excuse for a cup of coffee and a conversation … not really very much more! As the new VP Manufacturing, I had the report modified so that every supervisor estimated the production they anticipated for the day half an hour into the shift. By 8.30 am we all had an estimate of production for the day … and we knew … and maintenance knew where the problems for day were located. By 9 am the problems were being fixed … and by the end of the day record production day after day after day! This is a simple application of engineering control theory … very simple … but very powerful!
Continental Seafoods (CSF) was a completely different experience.
In some ways CSF was a very small company, but it had operations in 26 different jurisdictions around the world, and was involved with a very complex array of different legal business issues that affected operations and the way the accounting was done. Every country has its own business laws … and their own fishing laws, rules and regulations, etc. There are international rules about ownership, flagging and insurance of vessels. There are rules about international trade, export taxes and import duties. There are rules about employment of local staff and rules for international staff … about benefits … about hiring and firing … about taxes … and remittances. There are fluctuations in market prices and fluctuations in currency exchange rates. There are very long supply chains for spare parts and everything else … and getting materials through customs may or may not be quick and easy!
I had to learn more to do the quite modest job of being CFO for this company quickly than at any time in my life. The CSF team were very accomplished … and the operational staff were able to do amazing things as soon as there was some clarity about what needed to be done. When I joined CSF … about six months after a new President and CEO had been appointed … the company was in a cash flow crisis and very unprofitable. I was able to help focus the turnaround on what would make a difference very quickly … and then do it with our very limited resources.
On my first visit to our operations in Liberia in West Africa I see most of the fishing vessels at the dock as I fly into the country late Saturday afternoon. I am met at the airport, and taken to the best hotel in town … and checked into the best suite … and then advised that they would pick me up Monday morning to come to the office for a meeting! Sunday morning … I take a taxi to the seaport, find the CSF office and announce myself! After the initial shock, I get a tour of the vessels, and the facilities … production plant, cold store, maintenance workshops, spare parts stores, etc. By lunch time I have a pretty good idea of what is going on and what sorts of problems they are trying to handle. It became pretty clear that the head office had been a big part of creating the current operating problems in the field … spare parts inventory was on the books at a very big number … but none of the spares were useful to keep the current vessels running. Most of the spares were old, and were only useful for vessels long since discarded … but the old management did not allow the proper valuation for the spares and the write-offs this would create! That Sunday afternoon a list was made of the spares needed to get the vessels back in service … almost $500,000 of spares … and it was telexed to the home office. By Thursday most of the spares arrived at the airport and were on the vessels very soon afterwards and the vessels went back to fishing again. The profit contribution to cover the cost of these spares was made back in about 10 days!
My position about financial controllership is that the job is to make it possible for operational managers to do excellent work … and not to get in the way! I forget what we did on Monday when they originally planned to meet me!
Independent analysis and consultancy
After almost 20 years of professional work and corporate employment I started a small consultancy firm. It had little success in domestic US consultancy but did better doing work in the international area. I did my first consulting assignment with the World Bank in 1978 and did many more over the years. However, it was a deep shock to see the state of management information in the official relief and development assistance (ORDA) community and in government compared to what was now being doing in the privare corporate sector. By the time I got into consulting, I was an enthusiast for management as a tool for achieving high performance, whatever the endeavor. I was completely unprepared for the way government and large bureaucratic organizations actually function, and remain concerned about this deficit.
I was totally unprepared for the impact deregulation had on business in the 1980s, especially in the United States. I understand the concept of “laissez faire” but in my book it does not translate into “anything goes”. The fact of fraud and misbehavior on the part of many people and organizations was a great disappointment … and the fact that similar behavior is still tolerated in the higher levels of corporate and economic power.
There is much evidence that there has been significant manipulation and fraud in achieving high profits in the deregulated environment of the past thirty years … but getting high socio-economic performance for society in this setting has been difficult. The problem is not people … the problem is a system that has metrics that ignore everything except profit and data that moves capital markets higher … the problem is a system that ignores every single aspect of investment in society.
Though my financial success was limited … I had the opportunity over the years to work and do assignments in more than fifty countries round the world … I have worked at different levels of the economy from refugee camps and rural communities to national level planning and oversight. Some of my work has been very practical … some quite academic!
From my background and experience, I am clear that something different is needed that will help to improve the management of resources. What is needed is a combination of “system” and “movement” so that the power of management information can be available not only to a small rich powerful elite, but to everyone who is interested in an improving society and doing the best right thing!
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