P & L Management
I had the opportunity to get into a virtual discussion with Ken, my ex-boss at Sprint Telecom, regarding the current challenges faced by leaders in corporate management. He had several points to make and I thought them worth including them in this blog post.
In trying to analyze the general state of corporate management, we were discussing whether executives today were getting better at leading people or in just running the place.
In terms of financial results organizations are doing increasingly better. They have downsized and this has led to the “firming up” of roles and responsibilities. Leaders are now able to focus on core matters and are able to prioritize between core and non-core.
All resources are stretched in terms of their scope of work and the quantum that they have to handle and so many other things which lie on the border line of essential Vs non-essential get the lest priority. In fact, in many sectors there’s a severe shortage of talent, and organizations are looking for ways to attract and, more importantly, retain top talent.
The leaders today get so sucked up in core activities like business development, brand creation and shareholder value creation that they largely overlook other essential activities like creating alignment, increasing accountability, and effectively managing the new generation of workers. All this is left to the line managers below with little influence or guidance from the top leader himself.
But it would be wrong to say that corporate management is not understanding the importance of sound leadership and the investments required to create a powerful corporate culture that attracts and keeps great talent. There are efforts in many organizations to measure some indicators like attrition rates, satisfaction survey results, career changes, and average length of time people stay with their organization.
Super leaders continue to meet the organization’s financial and operation objectives while maintaining balance in three key areas: Financial performance and shareowner value; customer loyalty; and employee loyalty. They develop the vision and have the courage to make decisions. They are entrepreneurial, remain focused on the significant tasks, take risks, and encourage others to do the same. They build a culture based on ownership and accountability while living with ambiguity. They have fearless determination and perseverance and are passionate about results. They put the company first and understand that people are their most important asset.
But there are many common issues in organizations. Leaders still face the challenge of directly tying rewards to results. The key is to encourage hard work but only reward results. Most everyone knows how to take care of the people who make things happen. The challenge is how to handle the people who don’t meet expectations.
The next issue is the lack of clarity defining individual responsibilities and objectives. People need to know their role, what’s expected of them, and how they will be measured. Without this, there cannot be fairness. Performance metrics framework make holding people accountable and handling poor performers a lot easier because there is a strong element of fairness involved. The leader’s job is to ensure that every member of the team wins, and failure of a team member is the failure of his manager as well as. This string stops at the leader himself.
It’s been known that companies spend enormous amounts of time, energy, and resources on planning. They hire consultants and travel offsite to planning retreats. They bring in experts to come up with brilliant plans which are temporary ‘feel good’ initiatives.
But thereafter, companies too often don’t invest an equal amount of time, energy, and resources on achieving the results their elaborate plans had targeted. Instead, they go through several months before they realize that the execution is flawed or the plan is incorrect. So they either shelve the project or re-write the plan.
Superior leaders know how to classify their business plans. Long-range plans normally cover three to five years and are used to set and communicate the project direction. This is normally restricted to senior management. Short-range plans cover twelve to eighteen months. Leaders depend on these to remain on course and manage results.
The culture of accountability in organizations today is one of the biggest challenges organizations face. Most companies are not good at holding people accountable or creating a culture of accountability. Having an accountability-based culture that assigns personal ownership in order to make things happen ensures the organization’s success in outperforming the competition.
Superior leaders assign ownership to everyone from senior-level managers to line workers. This makes it difficult for blame and victim mentality to take root and grow. Individual owners are forced to be accountable for achieving their goals. If tasks are measured regularly, and the results are accessible for all to see and it is easy to determine when objectives have been met. Public accountability is a powerful motivator.
Effective P&L management means a top-priority focus on the sales and marketing function. This function is essential to the top-line growth of a business. Effective leaders devote significant resources to develop realistic forecasts and to achieve the targets. It is an established fact that it is a lot easier to achieve and sustain profitability by hitting the top line target instead of cutting costs. The sales and marketing organization focuses on creating new, profitable customers who are in solid financial shape and can develop into long-term relationships. Effective leadership ensures that salespeople understand that not all customers are good customers.
Effective P&L management also means that the leader knows when his organization’s cost structure is lean enough. This is as much an art as it is a science. Effective leaders always prefer to run lean, particularly when the organization is doing well. That’s the perfect time to increase cash reserves and invest in the future.
Understanding the company’s cost structure enables leaders to make sound business decisions across the entire company. Accurate cost information makes it possible to set proper prices, forecast performance, isolate areas that negatively impact cash flow, or determine what to stop doing, what to automate, how to allocate funds, or how best to manage budgets. It’s also critical to understand cost drivers in order to grow a profitable business while investing in areas to improve profitability and results while de-investing in ones that don’t.
Growing a company means growing the cost structure. The key is to make sure that the growth in the cost structure is in right proportion to the revenue by adding cost only in areas where revenue is increasing and where margins and profitability can be maintained or improved.
The trick to running lean is the ability to cause some “buzz” in the organization indicating there aren’t quite enough resources to get all of the critical things done. That forces people to prioritize and work efficiently without the need of excess resources.
The most important aspect of being a superior leader is not only hiring people smarter than he or she is, but hiring them in the right positions.
That’s why top leaders spend more time putting the right team in place to accomplish their objectives than they spend on planning, strategizing, or many other components of their job. The bigger question is: “Can the leadership articulate well to their resourcing firms, the right kind of profile needed for an open position?”
Ever heard of the game ‘Chinese Whispers’? I bet you do.
Related posts:
- Defining Leadership
- Leadership in Professional Firms
- Leadership and Change Management
- Managing Talent
- Managing Change
Tags: attrition rates, brand creation, business, career changes, core activities, corporate culture, corporate management, employees, leadership, performance, professional, roles and responsibilities, satisfaction survey results, shareholder value creation, sound leadership
