Davy United Engineering Company. Davy Ashmore Group
1961-1962 ... Sheffield UK
Going from academic engineering in the university setting to one of the biggest and best heavy engineering machine shops in the UK was a major reset. This was 1961 when the world was building more integrated iron and steel mills than at any previous time in history, and Davy United was in the middle of this boom. We were designing and building integrated steel mill projects all over the United Kingdom and around the world including India, Australia, South Africa, Turkey, Mexico, Sweden and Finland. We specialized in rolling mills, but other members of the group built blast furnaces as well as the pressure vessels for nuclear power plants.
Part of my experience in this factory environment was trying to understand how the company's accountants determined costs and how the company's marketing department determnined contract prices. What I learned shocked me, because the cost accountants did not understand how the factory costs behaved and nor did the marketing department. This was a big issue because the technology of steel mill operation was rapidly changing and brute strength was now being merged with quite sophisticated (for 1961) hydraulic and electo-mechanical controls. Contracts based on the weight of the machinery was a disaster waiting to happen.
Fairly fast, I decided that in order to be part of the senior decision making management cadre I needed to know more about accountancy, and I started to find a place where I could get the training and experience. Eventually I landed up at Cooper Brothers in London.
Cooper Brothers (CB&Co) and Coopers and Lybrand (C&L)
1962-1966 ... London UK
Many years later, Coopers and Lybrand merged with Price Waterhouse to form PriceWaterhouseCoopers
I was articled to Brian Maynard, a Partner at Cooper Brothers and Principal of the Coopers and Lybrand international management consulting practice. The experience working with CB&Co was very valuable as it combined learning about the theoretical principles of accountancy with real world work, in my case, on mainly audit and investigations. I had to do an obligatory stint on tax but it was the business and performance side of accountancy that got my interest.
To their credit CB&Co made use of my engineering background, giving me all sorts of assignments that involved cost accounting, and interesting factory related accounting issues. One of these assignments was a review of some World Bank work.
The task was to review and validate the costing of the Kariba Dam project that was being planned on the Zambesi River in the Federation of Rhodesia and Nyasaland. I was young and naive enough to want to get it right no matter what, and really rocked the boat when I concluded that the World Bank estimate was only about half what it needed to be. The World Bank engineers had made good cost estimates based on the static information about costs as they were now, or had been in the past ... but nobody seemed to have adjusted anything for the changes that surely would take place when a project of the magnitude of the Kariba dam was in progress. My calculations suggested that the actual cost would be twice what the World Bank was planning. Because I was part of Coopers and Lybrand, the firm's name carried weight and substantial changes to the estimates were made at the Bank, and the project was eventually a considerable success. Even though I was very young, within Coopers and Lybrand I had credibility because I had already worked as an engineer in the factory environment and done production costing work prior to joining the firm, and understood economics from my academic work at Cambridge.
While the main focus of accountancy training is on financial accounting and audit, I was fortunate to be introduced to computer accounting at its very birth.
I was part of the CB&Co audit team that was tasked with the audit of EMI Records Ltd ... a subsidiary of EMI that had built a computer and was using it to run its accounting and inventory system. This was one of the very first computers used for commercial applications. We developed an audit approach that would satisfy the prevailing audit expectations. Much of this experience was published in a book called 'An audit approach to computers' authored by the partner in charge Andrew Pinkney
HA Simons International (HAS) Vancouver, BC Canada
1966-1967 ... Vancouver BC, Canada and Houston and Beaumont, Texas USA
I started my work at HA Simons (HAS) in their home office where a new computer was being used to manage the money aspects of all the firm's major projects for pulp and paper mill construction from initial design and costing, to construction conrol and management oversight. The system was a relatively simple budget and expenditure control system, but, for its time, very powerful because it was timely and integrated engineering design with money accounting very closely.
After a relatively short time I was transfered to a field accounting position in Texas where HAS was the engineer in charge of two major projects. one in Channelview near Houston amd one in Silsebee near Beaumont. For both of these contracts, the general contractor was Brown and Root, one of the largest and best connected construction companies in the United States.
The HAS contract costing system was simple, but had enough detail and was timely enough to use for effective oversight of the contract. A few months into the work this report seemed to be showing that 2% of the moneys had been spent, but our observations of progress on the construction site suggested that only about 1% of the work had been done. I improvised some audit techniques to assess the actual costs being incurred relative to what our standards called for, and it demonstrated that the costs were running at bout twice what they should have been. The HA project manager reviewed my work in detail, and eventually called the Brown and Root manager in charge to alert him to our findings. Next day which was a Friday there was a big meeting between HAS and P&R and on Monday there were only 700 workers on the site, compared to some 1,400 that had been there when I was doing my audit. The contract was eventually completed on time and very close to the original budget cost estimate.
HAS was an interesting company. It was probably the best consulting firm in the international Pulp and Paper Industry at the time. One of its claims to fame was their ability to design and build a greenfield mill in two years compared to the industry norm of around 4 years. At the time this represented a huge profit advantage to the owner of the mill.
In addition to my work as 'field accountant' I also had the job of expediting materials required for the construction work. This was routine most of the time, but there was a situation over Christmas 1966. The Eastex Pulp and Paper Mill was being expanded and for the first time since it opened, it was being shut-down so that major cut-ins could be completed. The plan was for the plant to be shut down for 3 days ... 72 hours ... but during the work some damage was done to some critical electric cables which meant that the existing plant would not be able to start-up again. When profits are at stake, the American system can work very fast, even over a Christmas holiday. The HAS team located the big generators we needed, got them onto planes, moved them to Texas and got them ready to go. The start up was delayed by just 4 hours.
Aerosol Techniques (ATI)
1967-1970 ... Milford, Connecticut
I joined Aerosol Techniques (ATI) to be part of a young management team that was working to introduce modern management concepts into a company that had had rapid entrepreneurial growth and great success, but in many ways was 'out of control'. Our team worked closely with the Harvard based consulting firm Management Analysis Center (MAC). My first work was in connection with making a formal budget system work as an integral part of a planning and accounting system. On the strength of this work, I was appointed the Division Controller for the biggest manufacturing division and in collaboration with another team member, we introduced a new way of optimizing factory production to get control of the labor costs and operating efficiency. I was also charged with fixing the computer.
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!
I worked on a series of possible acquisitions, doing the operating and financial analysis of many diffierent companies broadly in the same line of business as ATI. In my view most of the companies I worked on were priced far higher than could be justified based on solid financial analysis. One company, Oxzyn in Trenton, New Jersey, a company I did not work on was, however, acqquired. It turned out to be a bad investment, and I was given the assignment to become its Controller and orchestrate profit improvement. We made considerable progress in profit improvement, and based on the physical plant the company started to do quite well. However, relative to the acquisition price, the company remained a drag on ATI's performance.
Oxzyn (Subsidiary of Aerosol Techniques)
1973-1974 ... Trenton, New Jersey
As VP and Controller of Oxzyn, I had a difficult assignment. ATI had bought the company for a price that was perhaps five times what would have been reasonable. Oxzyn did contract packing for a large range of cosmetic and personal care product companies. One product ... Tanya, a sun lotion ... was hugely successful for a couple of years before the ATI acquisition, but then faded into obscurity. There was nothing that replaced it, and I was faced with a serious challenge. A number of rather modest changes to the way in which Oxzyn priced its contracts made it possible to increase the size of each production run substantially ... price went down a little bit, but cost went down by a very large amount. This did not save the day, but it made a big difference.
Gulton Industries
1970-1974 ... Metuchen, New Jersey
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.
My initial assignment was as Budget Manager with the task of getting their budget process under control and helping to turn around massive losses and stem a disastrous cash outflow.
At the time, companies had started to do annual budgets but they were quite static. We created a budget process that was continuous with monthly updates and major decisions getting made based on the latest indicators of performance. Part of the process involved close scrutiny of assets employed ... balance sheet ... to identify possible surprises. This system helped to move the company from huge losses to modest profits in about 18 months. Every product line and manufacturing facility was analyzed and changes made to achieve profitability if possible. Some plants had to be closed and product lines dicontinued.
Southern States Inc. (Subsidiary of Gulton Industries)
1972-1974 ... Atlanta, Georgia
After the Southern States unit of the company failed to improve, I was given the assignment to be the Unit Controller. Though the unit's President had been assuring the home office that the results were going to improve, our budget analysis suggested this was not happening. As controller I did more cost analysis, and determined that for this unit to improve profit performance it would require drastic management action. As a result, the President and four out of six VPs were removed. Interestingly, without the top level overhead, everything went better … engineering … marketing … procurement … production … profits! In the new operating structure I was put in charge of Manufacturing while continuing with the admin accounting role.
One of my first moves was, not surprisingly in the area of reporting ... production reporting.
For years, 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 at 8 am every supervisor estimated the production they anticipated for the day, just half an hour into the shift. By 8.30 everyone in management 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 there was record production day after day after day! This is a simple application of engineering control theory … very simple … but very powerful!
Another example of matching analysis with reality was in connection with foundry costing and casting design.
As long as anyone could remember the engineers had used a cost per pound as the way to calculate cost ... with the result that they designed lighter and lighter castings. This method resulted in lighter castings but ignored everything else. 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 by designing to reduce cost of each of these elements the foundry started to achieve higher production, lower costs and better castings.
There was another story associated with the foundry:
The foundry was critical to the whole production cycle and even with full operation on a two shift basis the foundry was limiting overall production. I proposed a third shift … which was met with fierce opposition by everyone. But 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! Management can make a difference!
Continental Seafoods
1972-1974 ... Secaucus, New Jersey
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 became the CFO of CSF at the time of the first big oil shocks when business was being challenged with energy based cost structures changing dramatically. Markets adjusted, sometimes quite violently. Shrimp prices dropped by 75% while costs doubled. When I became CFO, the company was almost bankrupt, but we managed ourselves through the crisis and eventually the company became very profitable. I learned a lot about other international companies and how they operated. I did not like much of what I saw. Nor did I like the enormous gap between the wealth of a few and the poverty of everyone else.
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.
Within weeks of joining the company I made my first visit to our operations in Liberia in West Africa. As I fly into the country late Saturday afternoon, I see most of our fishing vessels tied up at the dock. I am met at the airport, and taken to the best hotel in town … and then checked into the best suite in the hotel! I was told that they would pick me up Monday morning to come to the office for a meeting! Clearly, the local team was uncomfortable have the new CFO getting in their way.
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 most of the spares were old and obsolete and useless to keep the current vessels in the fleet running. My predecsessor had taken the view that it was better to keep obsolete spares on the books rather than write themoff ... understandable, but it catches up with you. During the 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!
From then on my visits to the field were highly productive. Our job was not to find fault, but to find solutions to problems that could be very complex and not easy to solve without some creative thinking.
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!
Burgess Management Associates
1978-Present ... Montclair, New Jersey / New York NY / Bushkill PA
I expected the main work of this consultancy to be profit improvement planning for US based companies, but in fact this became a very small part of the work. Instead, I became a consultant for the World Bank and the United Nations Development Programme (UNDP) doing international work, and also a consultant to some international private companies.
Independent analysis and consultancy
My interest in relief and development performance had been developing over a long time. One of the defining moments was in Nigeria in late 1974.
I had a meeting scheduled in the center of Lagos at Western House, at the time one of the most prestigious buildings in Lagos. Two kids were dead just outside the building. Poverty and death in what was now a very rich oil producing nation. The juxtaposition of these things was something I had never expected. Up to then, in my youthful naiveté, I thought that money solved problems. This was a wake up call. Money is not enough.
I did my first BMA consulting assignment with the World Bank in 1978 and then did many more assignments 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 agencies compared to what was being done in the privare corporate sector. Throughout my corporate carreer, I was an enthusiast for management information as a tool for achieving high performance, whatever the endeavor.
One of my memories of some World Bank work in India was being driven in a Mercedes Benz through the center of a city in Kerala in South India. The streets were crowded. We were stuck in traffic and pedestrian throngs. I could feel hate from the people surrounding the car. They were well justified in their emotions. It was very uncomfortable. Next day ... because I was a “World Bank Consultant” ... I was asked to make a brief presentation at a local Rotary meeting and was on a panel with a local Catholic priest. Our World Bank project was a multi-hundred million dollar project ... which my analysis suggested would do almost no sustainable good ... and the priest had almost no money and was doing quite incredible work that was saving lives and mitigating misery. I was embarrassed ... but did my best “cover up”!
As a young student in engineering I had learned some thermodynamics ... and especially the concept of efficiency. The idea of small resources doing big things was essentially a thermodynamic concept applied more universally. The World Bank was big but inefficient, the Cathgolic priest small but efficient. I have not been impressed with relief and development performance from very early on in my relief and development experience. The sort of rigorous technical, economic and financial analysis that had been so effective when I had used it in the corporate world to help improve profit performance was not being used in the relief and development world.
During the famine in Ethiopia in the 1980s, one of my consulting colleagues became very upset about my criticism of the development process and the results it was achieving. As consultants, we were doing very well. The more that development failed, the more consultants earned. However, after working with me several weeks, and seeing the financial analysis and economic value analysis that I was doing, he understood why I was so very critical.
I bring to the analysis of development a unique combination of technical, economic and accounting knowledge, but also a deep respect for human factors. I have an appreciation of both the limits and amazing possibilities of technology. I respect traditional values and culture that are so important in a family's quality of life. I respect other people's knowledge.
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