Have you ever questioned the reports you are looking at on a daily bases? Perhaps you should!
I frequently visit companies in the food industry and advise them on viable solutions to improve their business. On a regular bases, these companies pull out the reports they have run for the past decades and want me to replicate them with a new system. As an outsider to the organization, I look at these reports and think WHY? Why are they running these reports? What are they doing with them?
More often than not, you learn that a lot of these companies create these reports because they always have. I like to ask companies how they actually use these reports. What type of management changes and decisions are you deriving from the information this report is presenting to you?
The answers are sometimes striking. A lot of times I get to hear that this report does not or very rarely lead to any change in the organization at all. The report had been established way back when, because among other things:
- a person that is no longer with the organization has requested it, and it became a habit since then
- a business issue existed way back when, and the report had been created to manage it. The issue has been fixed systematically a long time ago.
The problem with management reports do not stop there. In the best case scenario, companies just waste time and money to create useless reports, but matters can be worse. I see in some organizations, that they just flat out create reports that trigger the wrong conclusions in the organizations they are running. This is often the case when companies in the food industry do ‘actual costing’. I am not talking about tracking actual costs and actual variances, I mean true actual costing.
Tracking actual costs in the food industry and compare them to standard is an important business tool. It allows you to analyze variances in your company’s performance and the business processes that impact that performance. This creates a management tool that creates change.
If however, you use actual costing all the way, you charge variances in your different value adding departments to the following departments in the process. While you may gain ‘true customer profitability’, you lose an important business tool. Your sales people are no longer measured based on their sales performance, but on all activities that lead to the costs of the product. At the end, you cannot manage your sales people anymore effectively, because their performance is based on the performance of others. This may work in very small organizations, but the larger the organization gets, the more you lose control on the performance of the individual or the department.
I think it is important to create a reporting structure in an organization that truly measures performances by department and the individuals within. Their performance can only be measured based on numbers they can influence and goals they can understand. I think therefore, that a commodity food sales person is better measured, comparing the Net FOB-Price he sold against public market data than comparing his achievements with the costs your organization has, he cannot influence the price your buyers pay, and he cannot influence the yields you have in your production department. It is however his job to understand the market he is selling into, and you pay him to sell at or above market, at least in average.
Another reason of these reports are the systems in use. When people shop for a new business system, they usually have one that is not matching their requirements. Because of this, companies resort largely to two options
- the use MS-Excel to complement management reports
- the bloat up their accounting system with a lot of information that actually does not belong there, just because the accounting is the only working system in the organization
If you now do-it-right, and get a system that truly supports your business, you need to rethink some of the approaches you took because of the limitations you had. Replicating these old workarounds just leads to “doing the wrong things with the new computer system faster”.
Do yourself a favor and review your reports when implementing a new Business Application, challenge yourself with the value of the information it provides and the good business decisions it lead to, but also think about when the report is questionable. Think about what it means to others, if you already question the value of the report and associates of yours may have even less understanding of the background of the presented information. You may wind up with less reports in your organization, but with a more manageable and better performing business.