We have been following the Deal Architects Business Process Angioplasty posts with some interest over the past several weeks. And this week we ran into a clogged process that we have seen before, too many times. Business owners and managers, being a naturally curious lot, ask questions about their business and how it breaks down. Which of my line managers is running the tightest operation? Who deserves bonus and who coal? Who adds the most revenue and who eats up the most costs? These are all good questions and managers have every right to ask them. The financial artery becomes clogged when the answers are all written into the General Ledger. Just the other day I spoke to a CFO of a rapidly growing software and consulting firm. Pretty typical SMB (small and medium business). They have two products and several geographies. The firm is growing rapidly and they spend an inordinate amount of time every week allocating the salaries and expenses of the consulting team, and other indirect labor, to various products and geographies. To get a sense of the plaque in this process consider that he expects to have to add another person for each 4 or 5 new geographies. They will soon have 10 or 12 accountants doing expense and overhead allocations! What's really unfortunate, though, is the fact that the managers are manipulating the allocations to avoid embarrassing results. So the very people the whole process is supposed to measure are actually subverting it. The first time that I saw this it was at a Fortune 500 company, amazingly enough, and they had built all kinds of strange systems to try to handle it. But when you really got down to it they had to sheepishly admit they really were not able to book actuals like they said they were doing. Instead they were making a number of assumptions that they felt got them close enough to an actual number without forcing them or the organization to really undergo the effort required for the real 'actual'. Of course the managers bit this tail and wouldn't let go. They were being held accountable for numbers on the G/L reports that no one could really explain in exact detail. The numbers were no good, so the Executives kept the heat on for better numbers, more detail, etc .. Huge circle of hate and frustration. The General Ledger in a decent modern accounting system should not contain every detail of the organization's business. It is a financial reporting tool, not a management accounting tool. I think cost accounting makes a lot of sense but do you have to do it in the G/L? Can you imagine a manufacturing company putting machine hours into the G/L? Even Activity Based Costing is better than writing everything into the G/L. The other thing about this that amazes me is how the focus of the company becomes so completely about financial results, everything else is forgotten. How about Customer Service issues? Wouldn't they be a good indication of which manager's people are doing the best job at implementation? Or how about contract renewals and upsell? Don't these indicate which managers are servicing the customer base best? Business processes usually become overburdened when we try to make them do so much more than they were intended to do. Even at the cost of complete accuracy, which we never have anyway, it is better to unburden the process and come up with a simple system to help you make the required management decisions. | 
