The Role of Finance

Key Thoughts:-

Once in a while, an article that summarizes my thoughts. Here’s one I just read. The article mainly mentioned the CFO specifically, but I think no one person can do a job, it’s a whole team. So I believe it’s applicable to all of us.

Summary:-

The article opened with a declaration that Finance bring a unique view to the table – ‘a broad, objective perspective on costs, cash, and capital, with the long-term best interest of the organization in mind.’

However, near-term pressures to ‘reduce costs, better manage cash and working capital, and monitor capital expenditures’ cause some Finance function to shift focus.

Areas Finance should focus on includes:-

1. Information Management. Management is about making decision, and we can’t make decision if we have no information. Or if we have bad information, we make bad decision. The need for greater accuracy and control over the ‘development and use of information’

2. Enterprise Risk Management. Awareness of risk means that the risk management processes will require greater, broader, and more frequent effort.

3. Cash Management. A recent survey shows that the CFO’s agenda has shifted from ‘value preservation’ to ‘value creation’. Needs to be front and center in discussions of growth opportunities. The need to develop scenarios planning means we need competencies in cash forecasting.

4. COO’s area of responsibilities. The consolidation of COO role in some hospitals means more areas come under Finance, facilities management, human resources performance management, regulatory affairs, and general operations.

My Comments:

It’s heartening to note that at PAH, Finance is already doing a lot of the area listed, this serves as a reinforcement that we are on the right track. What we need is increase the effectiveness of what we are contributing.

Reference: Finance Needs to Sit At the Head Table, Edward J. Giniat. HFM, May 2009, pg 80-82.

Opportunities in the Downturn

Key Thought:

The author’s premise for this article is that ‘of the many opportunities that arise out of troubled times, the most valuable of all for many businesspeople are the opportunities for personal growth, particularly for developing as a leader.’

Summaries:

What does true leadership under unimaginable stress look like?

1. Be seen early and often. People want to be led.

2. Act fast. It’s amazing how people who would be at one another’s throats in good times will accept that in a crisis, decisions have to be made. leaders in a crisis must not lose their rare opportunity to act. Every instinct tells you to decide more slowly than usual, yet it’s vital to decide more quickly.

3. Show fearlessness. we want our leaders to show us that they’re not afraid. The effective leader announces trouble in unvarnished terms, then explains confidently how it will be defeated. “Show fearlessness, not be fearless” – you should be terrified in such situation, but it didn’t matter.

4. Tell a story that puts the crisis in context. There are two groups of people, those who see stressful events as bad – suffers more, those who see stressful events as normal – do better. The leader helps everyone to respond like the second group.

My Comments:

Opportunity like a crisis pushes leaders to become great from average. It’s up to us to step up and make the difference. In normal times, your superior is not interested in your failure, so we tend to be save. But a crisis offers that chance, it’s up to us to take the chance.

Reference: The Upside of the Downturn, by Geoff Colvin, Fortune Asian Edition, June 8, 2009, page 42-46.

East Versus West

Key Thought:

A very un-politically correct article on how research is showing that Asians thinks different from Westerners. The article profile Richard Nisbett, University of Michigan professor.

Summaries:

In one experiment, the Americans went ‘for the biggest, brightest moving object and focused on that and on its attributes’. The Japanese would describe the stream, the water, the rocks and shells…and then there were three big fish swimming off to the left.’

In another study, Nisbett discovered that East Asians have an easier time remembering objects when they are presented with the same background against which they were first seen. By contrast, context doesn’t seem to affect Western recognition of an object.

East Asians	Westerners
see things in context	focus on the point at hand
dependent	independent
holistic	analytic
collectivistic	individualistic

The article goes on to describe more difference. The stock market, Westerner’s preference for lawyers over engineers, Asians higher score in Math in Westerners (no, it’s not Asians are smarter), a lot of Asian would be concert pianists, but fewer opera-singers, and what it means for marketers of consumer goods.

My comments:

The differences are real, they might now always be for the better, but they matter. The final sentence sums up the article well - Nisbett believe that those who will be most successful in the 21st century are the ones who grasp what’s best about both worldviews. The Americans should temper their optimism, Asians their reluctance to take center stage.

Reference: East Versus West: A psychology professor dares to compare how Asians and Americans think, by Hana R. Alberts, Forbes Asia, May 11, 2009, pg 64-65.

Lesson from Delhi Metro

Key Thought:

Best practices can be found in the most unlikely places, because it’s not the place, people or culture that makes the difference, it’s the leader. Time and time again, I have seen this validated.

The article in question profile Delhi Metro’s MD Elattuvalapil Sreedharan. His claim to fame in the article - ‘finish building the initial $2.3 billion subway system in 2005 under budget and almost three years ahead of schedule.’

Summaries:

- weekly inspection of expansion, solve problems on the spot

- deeply spiritual man, meditate every day, does yoga and walks at least 45 minutes in the evening

- plaque in his office quotes from the Indian scripture Yog Vashist: “Work I do; not that ‘I’ do it.”

- More than 800,000 people use Delhi Metro each day, and it remains clean and punctual, with 99.9% of all trains running on time since it began operating (eat your heart out, KTM!)

- digital clocks that counts down to the days before the next line must be completed are found throughout Delhi Metro’s offices and construction sites

- it’s one of the few subway systems in the world that is operationally profitable without government subsidies

My Thoughts:

Just the above few points tickle the imagination. What’s going on here? We see intensity, passion, detailed minded, relentless focus on the goal, manage efficiently and effectively. It’s also balanced with personal development (spiritually). There’s no doubt a lot of the achievement is due to the leader himself. Look at it simplistically, it would seem it’s reachable for most people to achieve what he had achieved, it’s a matter of execution.

Reference: Delhi’s Subway Is Cheap—and Early, by Amy Yee, Forbes Asia, May 11, 2009, pg26-27.

My Readings: Labor Day Long Weekend

I thought I will jot down what I finished reading this past long weekend.  Yes, many of them I started long before this weekend, this is just a record of what I finished reading.

The New Gold Standard: 5 leadership principles for creating a legendary customer experience courtesy of The Ritz-Carlton Hotel Company, Joseph A. Michelli, McGraw Hill, 2008.

Lost in the Amazon: the true story of five men and their desperate battle for survival, Stephen Kirkpatrick, W Publishing Group, 2005.

Forbes Asia magazine, Global 2000, April 27, 2009.

A mixture of theoretical, good story, light business reading for the weekend.

For the record, I also started a couple of new books.  Details to follow when I finish them!

This week’s goal is to get the summary of the above 3 resource out to the blog page.  Let’s see how we go…

When knowing the customer isn’t enough

Key Thought:

What can we learn from the retail industry that will apply to a hospital setting? Does it even make sense? Is it that important?

Below is a summary of an article on retail analytics and some of it, I think, is instructive for a hospital trying to move from basic services to a five-star hotel service level (or at least try to :-P)

Summaries:

1. “Know the customer” is a retailing mantra. Retailers evaluate ‘consumers from multiple sources to understand who the best customers are, then combine that information with what and how they like to buy’.

2. ‘Unfortunately, just knowing the customer isn’t enough in today’s retail world.’

3. ‘Retailers need to anticipate and shape future demand to come as close as possible to satisfying each customer’s unique needs. Achieving this at such a detailed level requires automated processes enabled to solutions with the latest in predictive analytics and optimization capabilities.’

4. ‘The ultimate goal is more than having the right product in stock at the right price; it’s about tailoring the entire shopping experience to create an emotional bond with the customer. In effect, this means turning today’s multichannel retail enterprise – in a consumer’s eyes – from “the store” to “my store.”’

5. ‘Did you know? Your favorite retailers use analytics to know not just what to put on the shelves, but also where to put it.’

My comments:

While this article is discussing decision process automation (DPA), a lot of what was said can be translated, some indirectly I admit, to healthcare.

1. In a hospital, we don’t just open a new clinic, and hope patients would show up. Or we just gathered materials from the doctor, and hopefully that is what patients wanted. Do we need to spend more time understanding our patients? It’s a fact that hospital are organized for the efficiency of the process, and not the patient. When was the last time we ask ourselves, how can we make it simpler for the patient?

2. After the mantra, ‘know your customers’, it seems that it is not enough. As competition heats up, yes, even in healthcare, discerning patients looks for more. How much do patients value transparency, honesty, fair prices, competence, and environmental consciousness in a hospital? How much before patients will make a different choice in selecting a different hospital?

3. Automation will be required to analyze the endless permutation of needs, but building that capability organization-wide will not be easy. The concept itself is not well understood by decision makers. Getting care-givers to come on-board will be the key to succeeding.

4. Yes, we are in the experience economy. Same goes for healthcare.

5. It will get even more specific as tools become affordable.

When are we ready for the change? Can we afford to wait longer?

Reference: When knowing the customer isn’t enough: decision process automation is the key to delivering jus the right offer to each retail consumer by Alexi Samevitz, SASCOM magazine pg 7-8, First Quarter 2009.

Creating Value in a Down Economy

Key Thought:

The dominant topic in conversation these days is who got laid off.  As usual, the book titles in the book shop has adjusted accordingly too. There are a lot of opportunistic penmanship out there, but I did come across a very relevant, practical and solid write up.  It's about customer profitability.

Is there a way to improve profit without increase revenue or laying off staff? Apparently there is.  Read on...

Summary:

Quotes:

- Potentially, 400 percent of the figures listed on your profit-and-loss statement could be recovered as profit

- ...best 20 percent of customers contribute profits equal to 500 percent of earned income, while 60 percent breakeven at best; the worst 20 percent destroy 400 percent of earned income.

- ...if market segmentation analysis relies on incorrect information about profitability, efforts to grow sales could be directed toward the 20 percent of customers that are unprofitable.  In reality, these efforts will accelerate the destruction of profit.

The article helpfully define what Activity-Based Management (ABM) is.  It's not a financial system, it's an organizational cost-and-profit-analysis too.  It attributes costs to processes, and process costs to the products and services that benefit, and ultimately to the customers that receive those benefits.  ABM pinpoints, in a highly understandable way, the top areas for action and the changes that will maximize profits and minimize costs.

ABM can be used to resolve budget constraints, fight price wars, re-engineer processes, consolidate overlapping organizations, optimize customer acquisition and retention, reduce unused capacity.

Top 3 barriers to adoption of ABM:

1. Failure to convince management that change is needed. Resolution requires leadership, communication, learning and the ability to build a broad-based coalition of the willing.

2. Failure to define a clear business purpose for ABM.

3. Failure to plan for and capture a significant ROI. If the business purpose of ABM is to change decisions for the better, it should be possible to anticipate where the returns will be.  And, once the system is in place, you should be able to compute the returns from the resulting decisions.

Often, the ROOT CAUSE of barriers to adoption is lack of knowledge about ABM. So to start, we must build a coalition of the willing in order to get ABM adopted in our organization.

Additional input from SAS blogs:

- champion from Finance/Accounting is needed

- start focused and small

- firms have to be aware of the necessity to track...how much to spend on each customer to retain them as profitable customers

- the company with the best cost information wins

My Comments:

It is in our mid-term plan to implement ABM.  This is the first shot in our quest to get ready for this.  We should take heed of the last paragraph, let's learn as much as we can about the theory, the tools and the lessons learned from those who have done it, then we start.

Two links to SAS website provides more information.

www.sas.com/sascom-profitablecustomers

www.sas.com/sascom-abmtour

Reference: Creating Value in a down economy: want to turn losses into profits? identify your most - and least - valuable customers, Interview with Peter Turney, CEO of Cost Technology, by Jonathan Hornby, SASCOM magazine, First Quarter 2009.