The month my brother got his pilot’s license, I politely declined his invitations to go flying. Being a new pilot, Dick was trained to take off and land visually. He was not instrument certified. If unexpected fog, clouds or a storm should arise, he could easily become disoriented and crash. And as much as I love my brother, I don’t have a burning desire to die with him.
Based on a July 2003 survey published by the Institute of Management Accountants, senior management of most manufacturing, distribution and service organizations are flying their businesses in a “financial fog” without instrument training.
“Of the more than 2,000 senior level financial executives who participated in a recent survey, 98 percent said they believe that they receive inaccurate cost information at their companies, with distortion factors such as overhead allocations and shared services.”(1)
Why are the vast majority of senior managers willing to put their organizations at risk making critical decisions – such as charting strategy, defining products or services, setting prices, defining budgets – using inaccurate, irrelevant costs? I believe one major cause can be found in the prevailing culture of America.
Current culture contends that there are no absolutes. Anything and everything goes. The summer of 2003 had numerous examples of leaders ignoring absolutes. Leadership of the Episcopal Church ignored the Bible and voted in a homosexual priest. The Ten Commandments were moved out of public view. Alan Dershowitz, Harvard Law School professor said, “I do not know what is right, and you know what? Neither do you.” (2)
Black or white is out. The prevailing color of the 21st century is gray, including the numbers on corporate financial statements. While the shady accounting practices exposed at Enron, WorldCom and others are absolutely irresponsible, knowingly running a business with inaccurate cost information is only marginally better.
What is the impact of having no absolutes? For a business, a person, a family or a pilot, the eventual impact is the same for all … death. Inaccurate cost information leads to poor plans, poor pricing, poor sales and poor profits. The result? The poor house.
Without a firm foundation built on absolutes, people and organizations can fall for anything because they stand for nothing. My absolutes … faith in Jesus Christ, Success is not logical, Manage the work not the worker, Family comprised of a husband and wife are the cornerstone of society … share a common source – the Bible.
What does it feel like to live or manage without absolutes? Go for a day without a wristwatch. While you may enjoy it for a day or two … I admit that I would at times … it would be very frustrating to go without absolutes for a lifetime.
According to the IMA survey, managers – including those at the highest levels of multi-billion dollar corporations – have been influenced into believing that there is no such thing as an absolutely accurate, reliable, informative, useful cost management reporting system. Another summer 2003 survey – Bain & Company’s Global Survey of Management Tools – tells a different story!
“Activity-Based Management (ABM) uses detailed economic analyses of important business activities to improve strategic and operational decisions. Activity-Based Management increases the accuracy of cost information by more precisely linking overhead and other indirect costs to products or customer segments.” (3)
Since their last survey in 2000, Bain & Company reports usage of ABM/ABC has doubled worldwide. Of greater importance, satisfaction with ABM/ABC by the surveyed 6,323 corporate executives remains high. Absolutes do exist, including in the discipline of cost management.
People don’t give much thought to absolutes until they face a crisis or major decision. After a couple of close calls, my brother gave up flying. His son, who became a pilot for US Air, watched one of the jets hit the twin towers. He too has given up flying. My brother and nephew’s absolutes were both exposed during a crisis. The absolutes of America were revealed in the aftermath of September 11, 2001 … faith in God, family, patriotism, respect for the rule of law, compassion for others, commitment to the principles of freedom.
As you prepare for the second anniversary of 9-1-1, clear the cultural “fog” and focus on the absolutes of your life and your business. List them and hold fast. And if you find yourself without a firm foundation, I have great news … absolutes do exist.