by Keith Ferrazzi
Let's get to the bottom line. No one ever bought something from someone they didn't trust. So the way I see it, to increase sales, you have to build relationships to establish enough trust between a potential client and yourself to make them OK with buying your stuff. Here are four quick tips for doing just that.
1) Do your homework
Before I meet any new prospect, I do my homework. Of course, boning up on major news about their company is nice, but I really want to know personal things like their hobbies, family, greatest achievements, etc. Trust me: Even the most giving, humble people naturally care most, above and beyond anything else, about what they do. If you can show that you care too, and have understanding or even a way to help, you're well on your way to building a great relationship.
Here's the best part of doing your homework - it doesn't have to be a secret. In fact, I never shy away from mentioning the research I've done. I say, "I always make a special effort to inquire about the people I'd like to meet." Inevitably, people are flattered. Wouldn't you be?
2) Embrace Enabling Technologies (even if you're a sales/networking luddite)
A confession: In 1994, I was the guy at Deloitte who had all e-mails printed and faxed to him. By no means am I an early adopter of all technologies. But Spoke is interesting to me because of the frustration I've had so often doing sales or reengineering sales force processes.
As CMO at Deloitte, I'd identify someone I wanted to meet, say, Michael Eisner. My team would think of the quickest path to meeting him and do a bunch of calls to friends and friends of friends and conduct strategy sessions on how to get a warm lead from someone Eisner trusts. Then, after we'd done our work and announced the win to my partners, out of the woodwork would crawl some senior manager in the Dallas utility practice who's not only familiar with key decision makers at Disney, but is also the godson of Uncle Mikey. Unfortunately, companies don't know what rich human relationships they have buried within themselves. Spoke solves that problem, which is very cool, even to a sales/networking luddite like me.
3) Look For The Loose Brick
When you go into a sales call with a very detailed plan of what you want to sell, the buyer is inclined to figure out what about the proposal isn't right or needs to change. Never go for the complex sale. Always go for the easiest close, which is ALWAYS what the client needs most. I call it looking for the loose brick in the conversation.
Listen and react and find a way to place your value proposition in the context of their immediate needs. Once you begin to listen, sales will no longer be a time to sell but to let your prospect tell you what she wants. IMPORTANT: Usually her problems are not what's stated on the surface and don't deal with products or services. Most of the time, they're human-based issues.
4) Clone everything you do. Or, Never Eat Alone
Invisibility is a fate far worse than failure in building relationships for revenue, just as it is in Hollywood. And, the best relationship-builders, from politicians to the rags-to-riches entrepreneurs to the Fortune 500 CEO, they all live by the same rule: Never eat alone.
How do I meet everyone I want to meet during the course of a week? Someone once remarked cynically, "I'd have to clone myself to take all the meetings you take."
"Ah, you're onto something," I responded. "I don't clone myself. I clone the event."
If I have four people to see and one time slot to see them in, I simply invite them all to dinner - a former client who needs career advice, a prospect for my company's services, a close friend from college, and a potential new hire. Maybe I invite my old client for a drink before the meal, to hash out the personal career soul-searching. And after the dinner, I arrange a brief moment to discuss deal terms with my soon-to-be client. All the while, I'm able to strengthen a very personal, out-of-"professional"-character connection with my new customer. I get to have a life and make a sale. What could be better than that?
[AM-G8C7CW]
¶ 11:23 AM 0 Comments
Monday, January 26, 2004
I've been going through a big pile of applications for the summer internship positions at Fog Creek Software, and, I don't know how to say this, some of them are really, really bad. This is not to say that the applicants are stupid or unqualified, although they might be. I'm never going to find out, because when I have lots of excellent applications for only two open positions, there's really no need to waste time interviewing people that can't be bothered to spell the name of my company right.
So here are a few hints to review, if you're sending out résumés.
* A résumé is a way to get to the next stage: the interview. Companies often get dozens of résumés for every opening ... we get between 100 and 200 per opening. There is no possible way we can interview that many people. The only hope is if we can screen people out using résumés. Don't think of a résumé as a way to get a job: think of it as a way to give some hiring manager an excuse to hit DELETE. At least technically, your résumé has to be perfect to survive.
* If you don't have the right qualifications, don't apply for the job. When the job listing says "summer intern," don't ask for a full time job. You're not going to get it and you're just going to waste your time. (It won't count against you in the future, of course, because your original application was deleted so quickly I'll have no memory of you when we do get a full time opening and you apply for it.)
* OK, this one really bugs me. Learn where spaces go in relation to other punctuation. Attention, the entire population of India: whenever you have a comma, there is always exactly one space and it's always after the comma and never before it. Thank you.
* In the olden days résumés were sent out in the mail and included a cover sheet on top which explained why the résumé was being sent. Now that we use email, there is no reason whatsoever to send the cover letter as an attachment and then write a "cover cover" letter in the body of the email. It's just senseless.
* Even stupider is submitting two big Word documents with no body text in the email. This just gets you spam filtered. I don't even SEE these.
* Please do not use cover letters that you copied out of a book. If you write "I understand the position also requires a candidate who is team- and detail-oriented, works well under pressure, and is able to deal with people in departments throughout the firm" then at best people will think you're a bullshit artist and at worst they will think that you were not born with the part of the brain that allows you to form your own thoughts and ideas.
* The personal pronoun "I" is always capitalized. All sentences must end in a period. If your cover letter looks like this I will not even look at your résumé:
i m interested in your summer job.
here is my resume
--------------------------------------------------------------------------------
Do you Yahoo!?
Yahoo! SiteBuilder - Free web site building tool. Try it!
* And while I'm on it, anonymous email accounts and AOL accounts just don't send a good message. They won't exactly disqualify you since so many people use them, but crazydood2004 at hotmail.com does not really impress me as much as name at alumni.something.edu. Do you really need to know if I Yahoo!? Do you really want to advertise Yahoo! SiteBuilder, a competitor to one of Fog Creek's products, when you're actually applying for a job at Fog Creek?
* In most of the English speaking world it is not considered polite to open letters to a Mr. Joel Spolsky by writing "Dear Spolsky." One might write "Dear Mr. Spolsky," or "Dear sir," or perhaps, "Hi Joel!" But "Dear Spolsky" is usually followed by some story about embezzled funds and needing to borrow my bank account.
* Don't tell me about one of the requirements of the position and then tell me that you don't want to follow it. "One of the requirements for Summer Internship says that you need to interview in person in New York City. I am interested in the position but I stay in East Nowhere, TN." OK, that's nice, hon, you stay there. Another PS, I thought we said in the requirements "Excellent command of written and spoken English." Oh, yes, indeed, that was our first requirement. So at least do yourself a favor and get someone to check your cover letter for obvious mistakes. Like I said, don't give me an excuse to throw your résumé in the trash.
I don't know why I need to spell these out because they're probably listed in every single "how to send out résumés" book on the planet, right there in chapter 1, but I still get more résumés that show an appalling lack of concern for what it takes to get an interview.
Let me try not to be so negative and provide some constructive advice.
* Proofread everything a hundred times and have one other person proofread it. Someone who got really good grades in English.
* Write a personal cover letter that is customized for the job you are applying for. Try to sound like a human in the cover letter. You want people to think of you as a human being.
* Study the directions that are given for how to apply. They are there for a reason. For example our website instructs you to send a résumé to jobs@fogcreek.com. This goes into an email folder which we go through to find good candidates. If you think for some reason that your résumé will get more attention if you print it out and send it through the mail, that you'll "stand out" somehow, disabuse yourself of that notion. Paper résumés can't get into the email folder we're using to keep track of applicants unless we scan them in, and, you know what? The scanner is right next to the shredder in my office and the shredder is easier to use.
* Don't apply for too many jobs. I don't think there's ever a reason to apply for more than three or four jobs at a time. Résuméspam, or any sign that you're applying for 100 jobs, just makes you look desperate which makes you look unqualified. You want to look like you are good enough to be in heavy demand. You're going to decide where you want to work, because you're smart enough to have a choice in the matter, so you only need to apply for one or two jobs. A personalized cover letter that shows that you understand what the company does goes a long way to proving that you care enough to deserve a chance.
Some of this stuff may sound pretty superficial. Indeed, what we're really looking for when we look at résumés is someone who is passionate and successful at whatever they try to do. We like people who are passionate about software. Writing a shareware app when you're a teenager is just as good a qualification to us as getting into MIT. This is your life story, and by the time you're applying for a job it's probably too late to change that.
Would I reject someone just because they don't quite understand the relationship between the comma and the space? Well, not necessarily. But when I have to find two summer interns out of 300 applicants, here's what I do with the résumés: I make three piles: Good, OK, and Bad. I give the same résumés to Michael and he does the same thing. There are always enough people that we both put in the Good pile that those are really the only people that stand a chance. In principle if we can't find enough people we like that we both rated as "good" we would consider some people who got Good/OK, but in practice this has never happened. Much as I'd love to be able to consider everyone on their merits instead of on superficial résumé stuff, it's just not realistic, and there's just no reason a college graduate can't get this right.
(Added 1/27/2004)
The number one best way to get someone to look at your resume closely: come across as a human being, not a list of jobs and programming languages. Tell me a little story. "I've spent the last three weeks looking for a job at a real software company, but all I can find are cheezy web design shops looking for slave labor." Or, "We yanked our son out of high school and brought him to Virginia. I am not going to move again until he is out of high school, even if I have to go work at Radio Shack or become a Wal*Mart greeter." (These are slightly modified quotes from two real people.)
These are both great. You know why? Because I can't read them without thinking of these people as human beings. And now the dynamic has changed. I like you. I care about you. I like the fact that you want to work in a real software company. I wanted to work in a real software company so much I started one. I like the fact that you care more about your teenage son than your career.
I just can't care about "C/C++/Perl/ASP" in the same way.
So, maybe you won't be qualified for the job, but it's just a lot harder for me to dismiss you out of hand.
The contents of these pages represent the opinions of one person.
All contents Copyright © 1999-2004 by Joel Spolsky. All Rights Reserved.
[AM-U1VRCV2] ¶ 2:06 PM 0 Comments
By Jeffrey Marshall
While their roles are very different, CIOs and CFOs say that more than ever, they need to cooperate and plan together to cost-effectively deliver systems and applications that companies need to thrive.
Yin and yang, heavy metal and Mozart: The interpersonal dynamics of information technology (IT) and finance officers have often been portrayed as a clash of opposites, starting from their formative days as pizza-craving programmers or buttoned-down accountants.
If you talk to chief information officers (CIOs) and CFOs today, however, that clichéd vision evaporates. They are seasoned professionals, intensely aware of the importance of finance and IT talking and walking together in the face of ever-escalating demands for corporate systems to provide everything from automated financials and procurement, to real-time links to global offices, to protection against a myriad of viruses and other operation and security threats - and do so cost-effectively.
"There is clearly a need for financial executives and IS (information systems) executives to come closer together," says Ed Trainor, CIO of Paramount Pictures and the 2003 president of The Society for Information Management (SIM). "There is a mutual desire to do that, and we all can do better." FEI is co-locating its Forum on Finance and Technology with SIM's annual event, the SIMPosium, in Chicago this month, giving top finance executives and CIOs an opportunity to rub elbows and compare notes.
The evolving relationship between CFOs and CIOs doesn't date back that far; as recently as the 1980s, relatively few companies had designated someone as a CIO. More than likely, the top technology manager at that time ran a data center or some other back-office function, and didn't have the C-level interaction with the CFO, COO or CEO that many do today.
And if you go back more than a generation, when computer projects were distilled from stacks of IBM Corp. punch cards and programmers still sported horn-rimmed glasses and pocket protectors, automation and finance were still mostly in separate worlds.
"When I started, we were still in a mode of transitioning from manual general ledger entry to a general ledger package, which then interjected the first direct relationship with IT in support of an application," says Todd R. Stephenson, CFO of Lincoln National Life Insurance in Fort Wayne, Ind., a 27-year veteran of the insurance industry. "With the interface of that data into the general ledger, the accounting folks became more computer-literate."
It's been onward and upward from there for most organizations, yet over the years the stories have persisted about companies that still had IT and finance in separate "silos" - and some where the IT group was seen as insufficiently aware, or concerned, about the cost of systems. In such cases, finance came to view IT as one of the dreaded corporate bogeymen: a cost center.
"Where I've seen silos, it's where [IT] was seen as a cost center. But what ends up happening there is you get a very disjointed strategy," says Michael Doyle, CFO of EasyLink Services Corp. in Piscataway, N.J., and a former finance executive at companies including Pepsi-Cola Co., AlliedSignal, Cendant Corp. and Dun & Bradstreet.
In some, mostly smaller organizations, there have been situations where the CFO has taken charge of buying applications for finance, apparently because finance either didn't trust or respect the IT group enough to involve them. "I would have a real issue with that," Doyle says. "Some ERP [enterprise resource planning] systems might not accommodate all of a CFO's needs, but you still need that link to the CIO."
Paramount's Trainor is similarly taken aback by the notion of the CFO buying finance applications and bypassing IT. "I've never experienced that situation," he says. "That means you'd be talking about a very decentralized function; it sounds illogical. In that kind of instance, you are building silos. There would be duplication of information. There would be redundancy, and more expense."
Doyle chuckles at a reference to the CFO as a "Dr. No" taking a scalpel to IT budgets. "The challenge we face is the tendency for the systems folks to say, 'We have to have best-in-class for everything.' I've faced that as a divisional CFO, and here [at EasyLink]. We have to make sure that the IT activity and the resources match well with the strategy.
"Sometimes it's a question of how often you upgrade," he adds. "You don't always have to have best-in-class." Corporate security costs, he notes, keeps coming down, thanks in part to vendor competition.
"What's important is that IT and finance are in a partnership to improve efficiency and bring down costs," says Elizabeth Monrad, CFO of TIAA-CREF, the New York-based pension and mutual fund giant. "What may have happened in the past was that IT was asked to build what I would call 'intergalactic' homegrown systems aimed at solving all the information needs for an organization. When that software was homegrown, there was often a high failure rate or significant cost overruns. By the time those packages were ready, the organization's needs may have changed, and that's why IT sometimes had a reputation for being difficult to control."
And it's too facile simply to blame the IT managers for escalating budgets, says Stephenson. "Over time, those [cost] discussions have included the business process owners for the systems application or hardware tools; they also have opinions," he says. "As much, if not more, it's been the user area that has a desire for more sophisticated hardware, not the IT folks. Today, the IT folks are more likely to partner with finance to ensure that the long-time cost of ownership is something that is considered when systems are being developed."
CFOs and CIOs interviewed agreed that the overall jump in computer literacy in the past couple of decades - facilitated by the personal computer - has helped IT and finance communicate better. "I've seen a lot of evolution because business people in general have become, through business and college training, more computer-literate. They're no longer behind the glass wall," says Stephenson. "There's greater partnering because the ability of both sides to talk the same language has improved."
"IT leadership should bridge the communication gap," says TIAA-CREF's Monrad, "and be able to translate complex technical matters into layman's terms - just as finance professionals need to be able to communicate technical financial matters (such as derivatives, stock option, pension accounting) in plain English. Our CIO is excellent at such communication - I can't think of a conversation where she hasn't put technical issues into understandable terms." Cooperation and partnership are brought up often, and it's often noted that this has been facilitated by emergence of the CIO as more of a "player," as companies have anointed a single person as their head technologist and given him or her a stature commensurate with other key managers.
With that, technology leadership isn't enough for CIOs anymore, says David Luce, assistant vice president and CIO of The Rockefeller Group, a commercial real estate services company based in New York City, and SIM's president-elect for 2005. "There's a greater emphasis on having a good understanding of the industry we represent," he says. "We need to be businesspeople. Technology happens to be our product. It's extremely important for me to be able to talk with senior people about commercial real estate, and I need to relate the technology to the business requirements that we have."
Change from the Old Ways
"I think [organizations] are most successful where it's perceived that the business processes own the systems and look to and work with IT as partners in enhancing those systems," says Lincoln National's Stephenson. "What happened a long time ago was that a systems person came into the business manager's office and asked, 'What information do you want to get out of the system?' Then IT designed an [application] to create those reports. Unfortunately, if you decided later that you wanted other information later, it didn't have the flexibility" to do that.
Today, many of those "tell me what you want" conversations are more interactive - and it's widely agreed that regulations like The Sarbanes-Oxley Act, with its intense focus on internal controls, can only drive IT and finance closer together.
"In general, each year we continue to drop five days [from the deadlines for] the 10-Qs and 10-Ks," notes EasyLink's Doyle in a reference to Securities and Exchange Commission filings for public companies. "The need to get information faster will force a need to automate faster. Ideally, you want to have systems that are limited in complexity, and you can eliminate manual processes. Having one good integrated system, with the ability to deliver greater transparency, will allow us to segment and drill down more effectively."
Adds Trainor at Paramount Pictures: "The two sides have to work together, [yet] I don't think the things that are covered by Sarbanes-Oxley are where all the vulnerabilities are. Departments have to go beyond Sarbanes-Oxley in protecting those assets, such as corporate data and networks," and making sure they are protected from outside intrusion.
Interestingly, as worrisome as Sarbanes-Oxley has been in corporate finance suites, it's become equally troubling for some CIOs for another reason entirely, noted CIO magazine in its June 2004 cover story.
"Some CIOs see a darker agenda at work [with Sarbanes-Oxley] - a conspiracy," the article noted. "They fear [Sarbanes-Oxley] has become a stalking-horse that CFOs are using to assert control over IT and displace the CIO as the company's business process expert. Egging CFOs on, this theory goes, are the Big Four accounting firms, desperate to reassert themselves after the Enron debacle (which turned the Big Five into the Big Four after Arthur Andersen bit the dust) and needing consulting revenue to replace what they lost when most split off their consulting divisions."
The article added that only 12 of 22 companies surveyed by The Hackett Group had IT representation on their Sarbanes-Oxley steering committee, and just 65 percent of 75 companies surveyed last fall by Gartner Inc. said IT was involved in those committees.
Provocative as it is, this "agenda" theory remains mostly rumor and innuendo. The CFOs and CIOs interviewed for this article consistently underscored the need for a stronger working partnership between finance and IT.
"At Pepsi, [the relationship] worked extremely well because IT was very tied into the strategy and what we were doing," Doyle recalls. "They had a seat at the table. We were revamping a lot of processes and how we got to the customer." Adds Stephenson: "Success comes when the IT folks think of themselves not just as contract programmers doing a specific chore, but have experience and interactions with business line people."
Luce says, "For a CIO to be successful, you need a strong partnership with the CFO. So much of what we do revolves around funding and the resources that are required. Analysis for major projects needs to have the blessing of the CFO.
"There's a tremendous emphasis for the CIO to be a stronger business leader, and to have a better understanding of the financial impact of business decisions," Luce adds. "The CFO needs a stronger appreciation of what technology is about. [IT] can be very instructive to the CFO in helping gather the necessary level of understanding."
Who Does the CIO Report To?
In perhaps half of companies with the relevant titles, the CIO or an equivalent reports to the CFO, according to technology industry surveys. But that's apparently most common in smaller organizations, and most of the executives interviewed for this article disagreed with that structure.
At EasyLink, the CIO reports to the to chief operating officer, which is "very appropriate," says CFO Michael Doyle. "It's a technology company, so that makes sense - IT is a support center and part of product development, and not folded under the CFO. Even if you're not a tech company, you can make a case for the CIO having that seat at the table.
"There are very few things in terms of product development and delivery that systems won't touch, across the organization. If you keep the reporting at the COO level, I think you get a very effective organization."
At Lincoln National Life, CFO Todd Stephenson says the CIO reports to the COO, which enables him to "co-manage and leverage technology for the purposes of process improvement." Having the CIO report directly to the CFO, he says, "is not the most effective model."
"It depends on the business," says David Luce, CIO of the Rockefeller Group, who reports to the CEO. "If it's highly financially oriented, [reporting to the CFO] may be the [appropriate] case. The situation has been changing rapidly in the past five to 10 years, and there's been a different view of what technology means to an organization, and the importance that has to be given to it. You tend to have CEOs that have a far greater interest in it."
Adds Elizabeth Monrad, CFO of TIAA-CREF: "The CEO may want IT as a direct report when technology represents a strategic, competitive advantage for the company, and the CEO wants to stay close to the area."
[AM-PWLQ7U2]
¶ 11:26 AM 0 Comments
by Eric Krell
IF YOU CAN'T MEASURE IT, YOU CAN'T MANAGE IT. Until recently, that corporate finance axiom was rarely uttered in human resources departments. Today, however, it's increasingly familiar to HR executives, many of whom face growing pressure to manage the enterprise's largest asset with much greater financial rigor.
The finance and human resources functions typically view human capital management from different -- and often opposing -- perspectives. HR takes responsibility for investments that support recruiting; retention; and, to a certain degree, employee performance management. Finance scrutinizes overall costs.
"Finance tends to have a better handle on the true cost of human capital, while human resources tends to [focus on] related costs, such as the levels of compensation and benefits," explains Jim Kochanski, senior vice president of Sibson Consulting, the New York City-based human capital consulting pision of The Segal Co. "HR also influences some of the dynamics of human capital, such as turnover and rates of hiring."
At the same time, many finance executives and managers question whether HR can manage human capital in a financially disciplined manner. "Most human resources professionals lack the financial acumen to ensure that the company is receiving the best benefit for its investment in human capital," says Bert Hensley, chairman and CEO of Morgan Samuels Co., a Beverly Hills, Calif.-based management consulting firm that specializes in executive recruitment.
Finance must take part of the blame for that shortcoming because it has failed to provide HR with an adequate level of guidance and support. In Business Finance's annual executive career and compensation surveys, finance executives consistently rank "managing and developing people" in the middle of their pack of priorities.
In private conversations, however, many CFOs bemoan the fact that the more immediate demands of their job -- growing the business, boosting revenue and cutting costs, for example -- prevent them from giving workforce issues the attention they feel is warranted.
"Human resources and finance are finding out that we really need to merge our understanding of employees to develop a deeper understanding of the costs, benefits and risks associated with our people," says David Davis, director of finance and corporate controller for SAS Institute Inc. in Cary, N.C. "I know we can do a better job by blending our skills and strengths."
Kochanski agrees. "You need both parts of the picture to really manage human capital like an asset," he observes.
Hensley believes finance executives can help their organization's HR department by emphasizing overarching corporate goals and insisting that human capital management means much more than hiring people to fill positions. "CFOs should focus the organization on the company's strategy," he says, "and then emphasize the importance of analyzing the skill sets necessary to execute that strategy and finding the best talent to meet those needs."
Finance executives may need to offer their HR colleagues an introduction to basic financial principles and terminology (see Teaching Scorecard 101). But they can do much more than that. They can partner with HR executives to help them increase returns from pension, benefit and compensation investments; manage the impact of new regulations; and address a looming labor crunch.
Driving HR Improvements
Corporate finance departments' "measure to manage" mantra has helped most areas of the organization -- including, belatedly, HR -- to understand the importance of tracking the costs and benefits that their processes, projects and investments generate. CFOs' efforts in these areas have leaned heavily on sophisticated information systems that enable companies to conduct concise and timely analyses. Human capital management software, for example, can show inpidual employees how their activities relate to high-level corporate objectives and, in cases where incentive compensation is applied, how their performance directly influences the size of their paycheck.
Michael Bileca, CFO and COO of Towncare Dental Partnership Inc., a dental care and service provider in Miami, views human capital management as a natural extension of his role. When his organization restructured its doctors' compensation plan two years ago, switching from a revenue-sharing model to a profit-sharing model, it invested substantial time, money and effort in new performance management and training processes and technology, including a workforce management application from Kronos.
"We needed to help develop our doctors' abilities to take on management responsibilities, which means cultivating entrepreneurial skills and a greater willingness to take business risks," Bileca explains. "Companies can build great skill sets, but they can still be the wrong skill sets. To avoid that pitfall, you need to place the training in a much larger enterprise context."
Towncare Dental uses the new system's balanced scorecard functionality to keep its doctors and their staff focused on business objectives and continually informed of their performance. The organization ties training, performance management, operational processes and enterprise strategy into its scorecard.
David Klementz is another finance executive with a deep commitment to HR improvements. He's senior vice president and CFO of Progress Rail Services Corp., an Albertville, Ala.-based company that supplies rail and track-work components to the railroad industry. During the past two years, Klementz has invested much of his time in overhauling his $800 million organization's incentive compensation plan and extending it to all of Progress Rail Services' employees.
A central component of the initiative is a matrix Klementz designed that tracks how the corporation's top five goals trickle down to the facility level of the enterprise, where Progress Rail Services uses metrics such as productivity and injury rates to gauge its workers' performance.
Klementz does not see human capital management as a departure from his core priorities. "I view this as clarifying the links among our forecast, business plan, and the systems and rewards we have in place," he explains.
Beyond Benchmarked Compensation
Initiatives like Towncare Dental's and Progress Rail Services' illustrate the strengths that finance can bring to human capital issues. "CFOs are expected to provide a return analysis on just about every capital investment that a company makes, whether it is a piece of machinery, a new factory or new office equipment," notes Peter LeBlanc, senior vice president in the Raleigh, N.C., offices of Sibson Consulting. "That ROI analysis has never been applied to compensation."
A company may attach a much higher value to a given job than other organizations in its industry do, yet the majority of companies base their nonexecutive compensation programs on industry benchmarks. "Almost every job in the enterprise is being paid relative to the marketplace," LeBlanc says. Instead, he insists, "there should be jobs that are paid higher vis-Ã -vis their benchmark and lower vis-Ã -vis their benchmark."
Companies that are beginning to embrace this approach, such as Circuit City and Standard Register, separate jobs into three or four buckets based on their impact (low, moderate or high) on a handful of high-level corporate objectives such as revenue growth. Some of these organizations also rate their employees -- A player, B player or C player, for example -- based on their job performance. This dual-rating system can provide valuable insights into human capital deployment. For example, it can help companies ensure that they are optimizing deployment of their HR assets by assigning A players to high-impact positions.
Not surprisingly, LeBlanc says that he finds CFOs more receptive to this innovative approach to compensation than HR executives, few of whom give deep strategic thought to salary and benefits packages below the executive level. Yet "most of the money spent on compensation is spent below the executive level," he points out. "From the CFO perspective, there is an opportunity."
Klementz agrees. Companies should look beyond industry compensation benchmarks, he believes, if doing so helps them attract the skills they need to meet high-level objectives. Progress Rail Services now pays as much as 110 percent of the industry benchmark for some positions.
Before adopting that strategy, the company conducted a compensation planning exercise that was helpful in large part, Klementz says, because Progress Rail Services' senior management team actively participated and had a voice in how compensation levels would be stratified.
Vigilance in Pensions and Recruiting
CFOs and HR executives alike have been breathing a little easier in the past couple of years thanks to some good news in another critical area of employee rewards: retirement benefits. Pension plan funding levels have regained some of the ground they lost in a dramatic three-year dive that began in 1999. A recent Watson Wyatt Worldwide study of defined-benefit pension plans at more than 600 of the 1,000 largest U.S. companies found that the average plan's "funded status" -- the ratio of plan assets to the estimated cost of its accrued pension obligations -- increased from 82 percent in 2002 to 88 percent in 2003. Pension plan liabilities increased by nearly $125 billion (about 11 percent) in that period; however, assets rose by $172.4 billion, or about 18 percent.
"After three years of low interest rates and weak investment performance, last year's increase in funded status is a welcome change," notes Kevin Wagner, a consulting actuary in Watson Wyatt's Southfield, Mich., offices. "Many employers and participants should be heartened that their pension plans remain well-positioned to pay retirement benefits."
At the same time, few finance executives feel sufficiently reassured to relax their vigilance over this complex and critical area. As the equity markets' reaction to a more restrictive federal monetary policy unfolds, CFOs will continue to monitor their organization's pension plan assets and liabilities closely.
The financial acumen that companies have applied to compensation strategies and pension plans less frequently supports other areas of human capital management. However, the recruiting process also offers opportunities for efficiency improvements. For example, Morgan Samuels helps it clients streamline their hiring processes by improving metrics such as the amount of time they take to fill a position and the number of candidates they interview for a given job.
Davis notes that the growing financial complexity of internal recruiting calls for greater involvement of finance in HR. As SAS's global presence has grown, he says, the financial aspects of its internal recruiting processes have become increasingly intricate. They now include fair value analyses, which help ensure that pisions losing managers are appropriately compensated; currency ramifications associated with country-to-country personnel transfers; transfer pricing calculations; and tax evaluations.
HR's Compliance Dimension
Finance executives who remain chary of involvement in human capital management might want to reconsider that attitude in light of the HR-related issues raised by Sarbanes-Oxley compliance initiatives.
"CFOs are quickly realizing that there are several business processes residing in the HR department that have a direct and material impact on their financial statements," notes a paper published by Pleasanton, Calif.-based risk consulting and internal audit firm Protiviti Inc. titled "The Impact of Sarbanes-Oxley on Human Capital Management." For example, employees' fringe benefits are a potential compliance risk, according to the report, and these rewards should be tracked carefully. Companies should also conduct periodic reviews to ensure that their calculations of tax liabilities and accruals for pensions, vacations and bonuses are correct.
Payroll and benefits account for 35 percent to 40 percent of companies' operating costs on average, according to PricewaterhouseCoopers, so errors by external payroll and benefits administrators can have a material impact on an organization's balance sheet. Not surprisingly, many Sarbanes-Oxley Section 404 initiatives have identified outsourced payroll and benefits administration as significant risks.
Many organizations are asking their outsourcing partners to provide audits that conform to the American Institute of Certified Public Accountants' Statement on Auditing Standards (SAS) No. 70, Type II, which requires that a public accounting firm attest to the quality of the provider's internal controls environment. But some outsourcing providers are balking at the cost and scope of these audits. As a result, many businesses face difficult sourcing decisions with complex cost and compliance ramifications.
What's more, companies' HR and training functions will play a key role in determining the effectiveness and cost-efficiency of Sarbanes-Oxley compliance efforts over the long haul. If ongoing compliance monitoring is to succeed, inpidual process owners throughout a company -- most of whom have scant finance and accounting experience -- must be trained to anticipate changes which may affect the internal controls that support their process.
Building Bench Strength
A broader partnership between finance and HR can also help companies strengthen their executive pipeline -- an aspect of human resources planning that too many organizations neglect. CFOs are particularly at risk of being stung by weak succession planning. "People who tend to gravitate toward a financial career don't necessarily have in their own skill set the expertise of developing leadership talent," says Guy Beaudin, Toronto-based managing director of management consulting firm RHR International.
Although few, if any, human capital consultants predict a return to the tight labor market of the late 1990s and the inflated compensation packages that accompanied it, most believe a demographically fueled labor crunch will occur as large numbers of baby boomers enter retirement between 2010 and 2015. And that will have serious repercussions for executive teams. In RHR International's most recent executive bench study, half of the 115 companies that participated said that they expect to lose 50 percent or more of their senior management team by 2010.
Developing leadership talent internally is much easier and more cost-effective than integrating executives hired from another organization, Beaudin points out. Yet most of the surveyed companies that formally identify high-potential talent report that they have been doing so for three years or less.
Beaudin sees a bright spot in this area of widespread neglect. "Organizations that take this seriously and develop formal bench-development programs will be able to develop a competitive advantage that will certainly emerge by 2010 -- and probably sooner than that," he says.
Given the fact that CFOs historically have neglected HR issues, proactive finance executives may be able to exploit a range of opportunities in human capital management. CFOs who help their organization's HR executives master the language of finance and strengthen the financial management of human capital will better position their company to handle the regulatory and competitive challenges that lie ahead.
But the chance to pull ahead of competitors on the strength of human capital management sophistication may disappear before long. Terms like Balanced Scorecard, metrics, alignment and portfolio of talent are already slipping into the HR vernacular.
And some organizations -- Towncare Dental, for example --have a head start. "It may sound like a cliché," Bileca says, "but in the service business, people are our greatest asset. We need to invest in our workforce in a way that will help us achieve the results we want to achieve. It's really a matter of pinpointing how well our investment in human capital is performing."
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Teaching Scorecard 101
It's not easy to learn a new language. Finance executives should keep that in mind when teaching their HR colleagues the basic vocabulary of finance -- return on investment, return on assets and alignment, for example.
HR professionals will likely need help with scorecard concepts and terminology, too. James Hatch offers a useful scorecard primer in his paper "The HR Scorecard: The New Way To Measure Your Human Capital." Hatch is a New York City-based principal, HR services, with PricewaterhouseCoopers and managing partner with the Saratoga Institute, a human capital benchmarking and survey organization that's a wholly owned subsidiary of PwC. Here are the principles he recommends:
- Remember that absolute numbers are less meaningful than relative numbers. "Data must always be placed within the appropriate context," Hatch notes. "Factors such as number of employees, revenue, operating expenses and geographic location can be useful in establishing such context. Many metrics are of limited value if there is no basis for comparison."
- Ensure that the data you use to calculate the metrics is clean, transparent and easy to collect. Companies new to scorecards often spend too much time collecting and validating data, and not enough time analyzing the information and elucidating its meaning. Hatch also emphasizes the importance of clearly documenting the numbers and calculations behind the metrics.
- Dovetail your scorecard metrics with measures and tools that your organization is already using. Companies should consider including data from their ongoing performance management programs and employee surveys in their scorecard, at least in its early design stages.
- Focus on outcomes. Executives and line managers tend to focus more on results than on activities. Metrics should reflect that focus by helping HR people answer questions such as: Are we hiring the right people? Are we developing them in a way that supports corporate objectives? Are the right people staying?
- Assign a champion. "Find someone to own this process," Hatch advises, "and make sure every relevant member is made aware of that person's responsibility -- and of theirs."
- Treat your scorecard as a program, not a project. Organizations using scorecards for the first time tend to stop using them once they have settled on measures and begun to track performance.
Originally printed in the October 2004 issue of Business Financ
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To maximize the return on this massive software investment, plenty of planning is needed, even if you've been using ERP for years.
Doug Bartholomew, CFO IT
September 15, 2004
Even as Y2K ushered in boom times for ERP vendors, they were beset by a string of negative press reports regarding the complexity and cost of getting their software to run effectively - assuming it could be made to run at all. ERP horror stories abounded, with Hershey Foods Corp.'s perhaps the best-known example. In 1999, the company attributed a 19 percent drop in third-quarter net income in large part to problems associated with its big-bang implementation of SAP software.
Ancient history? Maybe, but as recently as last year, Goodyear Tire & Rubber Co. saw one of its units make a $19 million adjustment to operating income due to "several factors relating to the company's ERP systems," including an "inability to locate or re-create account reconciliations for prior years." More notably, NASA blamed an ERP foul-up for its financial woes related to the audit of its 2003 financial statements (see "NASA, We Have a Problem," CFO, May). It should be noted that Goodyear's problems were "more an issue with the implementation, not the software itself," according to a company spokesman. Similarly, NASA says conversion to its new ERP system caused the problems with its audit. But the question remains: does ERP have to hurt? Years after cost overruns and disappointing returns became press staples, has anything improved?
Although ERP sales, which expanded at more than a 30 percent annual rate in the late 1990s, have flattened, companies spent a robust $20.7 billion on ERP packages last year, including about $6 billion in maintenance and support fees. So if there is widespread disenchantment, it hasn't dragged down sales, although it may have helped usher in a remarkable buyer's market: testimony during the Oracle-PeopleSoft antitrust trial revealed that some customers paid only a fraction of the software's list price.
Disasters aside, most companies of a certain size - generally $100 million and above, although simplified ERP software is often pitched to much smaller companies - find ERP virtually indispensable. ERP serves as an all-important information pipeline that links finance, manufacturing, logistics, sales, and other departments, with new functions being added continuously, further extending its presence in an organization. The "resource planning" that gave it its name is now just a very small part of the capabilities it brings to an enterprise.
How to avoid an embarrassing blurb about ERP in your next annual report? First, stay focused on why you're moving to, upgrading, or otherwise changing your approach to ERP. That way, you won't be misled into thinking of it as a technology project. "The benefits come from changing your business processes, not from installing ERP," says Bill Swanton, a vice president at AMR Research in Boston. Adds Buzz Adams, president of Peak Value Consulting, a Pasadena, California, consultancy that specializes in process improvement, "The technology will work the way you implement it, so what's important is how you improve the processes - the way you do things."
When Agri Beef Co., a privately held, family owned company that custom feeds 400,000 head of cattle annually, and fabricates and sells 230 million pounds of beef a year to retailers and restaurants, determined that its financial systems were antiquated and its accounting processes out-of-date, a move to ERP seemed warranted. Casey R. McMullen, director of information systems at the Boise, Idaho, company, says that not only did Agri Beef get a new system up and running in six weeks with no glitches, but that the benefits began to accrue at once.
"We had 20 different processes identified where we thought we could get greater efficiencies from new systems," says McMullen. Chief among those was the company's old method of manually handling intracompany transactions, which saw various business units cutting and mailing checks to one another. "With the old method, we had to walk each transaction through," says Kim Stuart, treasurer of the $500 million-plus firm. "Now we can post transactions straight through to another division's general ledger account," she says. "That change alone saves us 200 hours a month." A change to its accounts-payable process allowed the company to accomplish in 2 check runs what used to require 22.
Aware of the Bad Press
Because Agri Beef's software, from PeopleSoft, automated so many manual processes, it also gave the company the ability to look at key financials at a glance. "It makes it easy to get important information in front of you," says McMullen. "For example, we can see which customers have the top 10 highest outstanding balances." Agri Beef, which began installing the software last fall and went live in January, is already considering adding modules for human resources, payroll, and supply-chain management.
McMullen, aware of the bad press ERP implementations have received, says Agri Beef took a number of steps to avoid that fate. For one, it put a premium on identifying power users and schooling them in the software so that they could in turn train others. "One of the benefits of the rapid implementation was that the limited scope prevented project scope creep and kept everyone focused on meeting the defined project needs and requirements. The reduced implementation time also reduced the amount of time for risk exposure," says McMullen. "The other key factor in our success was having decision-makers on our project implementation team. Everyone on the team was able to make decisions not only about software configuration and setup issues but also regarding business-process changes and best practices. This allowed us to make choices and decisions on the fly about how the software would work and how our business would use it."
As a newcomer to ERP, Agri Beef is something of a, dare we say, rarity. Large ERP projects these days are more likely to involve standardization, particularly when acquisitions have left companies with disparate systems. That's the case at Tyson Foods Inc., which, following its recent closing on its acquisition of $14 billion Iowa Beef Packers, is rolling out the latest version of ERP software from SAP across the entire merged business. Senior vice president and CIO Jeri Dunn says a key driver is the need to get all the company's financial groups on the same page. "Our GL is not common yet," she says, "and my CFO wants that in order to reduce the number of days it takes to close."
To that end, Tyson has established a companywide effort called Project Won. The project involves more than 400 people, some of whom have traveled to Germany several times, working closely with SAP to make sure the software meets Tyson's needs. While some of those needs are similar to those at Agri Beef - integrating formerly separate systems in various areas of accounting, for example - others are highly specific. Tyson and SAP worked together to customize the system so it could cope with the company's "sell in cases, bill in pounds" procedure, a rare example in which customization, often the bane of ERP projects, made sense.
Dunn has some advice for those installing or upgrading their ERP systems, particularly SAP's. First, she says, treat finance as more than a separate module in SAP. "All roads lead to finance in SAP. So if you get it right, you can close your books very quickly. But if you get it wrong, you will end up with an army of financial people trying to close at the end of the month."
Dunn also recommends paying special attention to change management - that is, the people aspect of organizational and technological change. "SAP won't map exactly to the way your company looks and operates today," she says. "Your company must undergo significant cultural change. For that you will need communication and a training team to minimize the pain of ERP on the organization." Dunn's latest hire, in fact, is a vice president of organizational change.
Dunn also suggests that companies embarking on an ERP effort take care not to underestimate the amount of work needed to develop a clean overall set of master data. The chart of accounts, product data, and other mission-critical information has to be accurate from the get-go, she says, or mistakes will multiply throughout the system. Many an ERP project has been scuttled or gone south altogether because companies failed to do this kind of basic blocking and tackling early on.
M.R. Rangaswami, the former lead marketing executive at ERP vendor Baan Co. who now runs Sand Hill Group, a San Francisco investment firm, suggests that current users of ERP systems pause to first take stock of what they have. "They should really look inward to see if they are getting value from the applications they already have, before going on to the new ones," he says. "Ask why you need that upgrade. Is there anything of a compelling business nature?"
Therein lies the rub: just what constitutes "compelling"? While ERP vendors have extended their products into a vast number of areas - from CRM to analytics to, inevitably, Sarbanes-Oxley compliance - the software is almost never seen as a source of competitive advantage, which might make its complex implementation easier to bear. As Rangaswami says, "The problem with ERP is, how do you justify the high cost? The answer is, you've got to have it - ERP is a necessity."
It's worth noting that despite its problems in 1999, Hershey Foods embarked on a massive upgrade of its SAP system in late 2002 and could point to dozens of quantifiable process improvements by the end of the year. That's a happy ending - by ERP standards, at least.
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Doug Bartholomew is a writer in Berkeley, California, and former senior technology editor at IndustryWeek.
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The Fast(er) Track
Tips for keeping ERP projects on the rails.
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Have a clear, simple corporate vision and objective before you start, and measure and publicize successes as you proceed.
Have a group dedicated to business-process improvements. Also rely on experienced project managers (possibly including internal or external managers who have been certified by the Project Management Institute). Involve key stakeholders as early as possible.
Create a financial analyst position or team to track and analyze project costs and realized benefits.
When choosing a new vendor, put a premium on vertical-industry expertise. Avoid customization, or demand that such requests meet rigorous criteria.
Make sure that data cleansing is addressed as part of the project.
Sources: CFO IT; Accenture; SAP
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Implementation is everything: ''The benefits come from changing your business processes, not from installing ERP.''
Doug Bartholomew, CFO Magazine
October 05, 2004
Most companies of a certain size - generally $100 million and above, although simplified ERP software is available for much smaller companies - find ERP virtually indispensable. ERP serves as an all-important information pipeline that links finance, manufacturing, logistics, sales, and other departments, with new functions being added continuously, further extending its presence in an organization. The "resource planning" that gave it its name is now just a very small part of the capabilities it brings to an enterprise.
ERP also brought with it some horror stories, with Hershey Foods Corp.'s perhaps the best-known example. In 1999, the company attributed a 19 percent drop in third-quarter net income in large part to problems associated with its big-bang implementation of SAP software.
Ancient history? Maybe, but as recently as last year, Goodyear Tire & Rubber Co. saw one of its units make a $19 million adjustment to operating income due to "several factors relating to the company's ERP systems," including an "inability to locate or re-create account reconciliations for prior years." More notably, NASA blamed an ERP foul-up for its financial woes related to the audit of its 2003 financial statements. It should be noted that Goodyear's problems were "more an issue with the implementation, not the software itself," according to a company spokesman. Similarly, NASA says conversion to its new ERP system caused the problems with its audit.
How to avoid an embarrassing blurb about ERP in your next annual report? First, stay focused on why you're moving to, upgrading, or otherwise changing your approach to ERP. That way, you won't be misled into thinking of it as a technology project. "The benefits come from changing your business processes, not from installing ERP," says Bill Swanton, a vice president at AMR Research in Boston. Adds Buzz Adams, president of Peak Value Consulting, a Pasadena, California, consultancy that specializes in process improvement, "The technology will work the way you implement it, so what's important is how you improve the processes - the way you do things."
When Agri Beef Co., a privately held, family owned company that custom feeds 400,000 head of cattle annually, and fabricates and sells 230 million pounds of beef a year to retailers and restaurants, determined that its financial systems were antiquated and its accounting processes out-of-date, a move to ERP seemed warranted. Casey R. McMullen, director of information systems at the Boise, Idaho, company, says that not only did Agri Beef get a new system up and running in six weeks with no glitches, but that the benefits began to accrue at once.
"We had 20 different processes identified where we thought we could get greater efficiencies from new systems," says McMullen. Chief among those was the company's old method of manually handling intracompany transactions, which saw various business units cutting and mailing checks to one another. "With the old method, we had to walk each transaction through," says Kim Stuart, treasurer of the $500 million-plus firm. "Now we can post transactions straight through to another division's general ledger account," she says. "That change alone saves us 200 hours a month." A change to its accounts-payable process allowed the company to accomplish in 2 check runs what used to require 22. (For more, see "The ABC's of ERP," in the Fall issue of CFO IT.)
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