Burgess Manuscript
Basic Concepts for TrueValueMetrics
Version of 2010
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About the Author ...Peter Burgess
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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 studied for an undergraduate degree in Mechanical Sciences at
Cambridge University, and subsequently worked as a design engineer /management trainee with
the Davy Ashmore Group, a heavy engineering company based in Sheffield, England. At the time, the company was
manufacturing heavy equipment for 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, Principal of the C&L Consulting Unit. 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 nonexistent 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 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 an immense amount to do the job of being CFO for this relatively small but very complex company. The CSF team were very competent … and the operational staff were able to do amazing things as soon as there was strategic clarity about what needed to be done. I joined CSF about six months after a new President and CEO had been appointed, In the aftermath of the oil shock of the 1970s, the company had become very unprofitable and was in a serious cash flow crisis. My job was to help with a critical turnaround and do it very quickly … and also do it with our very limited financial resources.
On my first visit to our operations in Liberia in West Africa I saw most of our fishing vessels tied up at the dock as I flew into the country over the Monrovia port late Saturday afternoon. I was met by the Fleet Captain, an experienced old hand from Panama, at the Robertsfield airport about 45 km from Monrovia, and taken directly to the Ducor InterContinetal Hotel, the best hotel in town … and was checked into the best suite in the hotel/ The Fleet Captain told me that he would pick me up Monday morning to come to the office for a meeting! Clearly the local CSF staff were not too happy about my visit, which they expected to be a complete waste of their time ... and they assumed that I would be following normal office hours and not working at the weekend.
Next day ... Sunday morning … rather than waiting around all day, I took a taxi to the port, found the CSF office and announced myself!
After the initial shock, I was given a tour of the facilities, the docks and the shrimp trawlers, the synchrolift, shrimp processing plant and cold stores, the maintenance workshops, and the spare parts stores.
By lunch time I had a pretty good idea of what is going on and what sorts of problems they are having to handle. It became pretty clear that the head office had been a big part of creating the current operating problems in the field.
The biggest immediate problem was that the spare parts inventory was on the books at a very big number … but few 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 scrapped. The old management, and especially my predeccsor as Controller/CFO did not allow the proper valuation for the spares inventory because of the write-offs this would create!
That Sunday afternoon the General Manager and the local staff prepared a list of the spares needed to get the current vessels back in service … almost $500,000 of spares … and it was telexed back to the home office back in Secaucus, New Jersey together with a brief description of the spare parts crisis at the CSF Monrovia operations and how it had come about. My boss, the President of the company, immediately understood the issue, and the impact this spare parts problem was having on fishing efficiency.
By Thursday most of the spares we had requested arrived at the Robertsfield airport and were immediately used to do urgent essential repairs on the vessels to get the vessels fishing again.
The profit contribution to cover the cost of these spares was made back in about 10 days!
My view about financial controllership is that the job is to make it possible for operational managers to do excellent work … to enable them and not to get in the way!
Independent 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 success has been limited … I have 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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