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Five Human Resource Management Must-Dos to boost Productivity and Profits in Global Organizations – Business Management

Five Human Resource Management Must-Dos to boost Productivity and Profits in Global Organizations – Business Management

by | Sep 2, 2012 | Business, Business Operations, Career, Leadership, Management, Performance, Productivity

Trawling through the web today, I chanced upon this gem of a story:

Buddha, one day, was in deep thought about the worldly activities and the ways of instilling goodness in human beings. One of his disciples approached him and said humbly – Oh my teacher! While you are so concerned about the world and others, why don’t you look into the welfare and needs of your own disciples too?

Buddha:   OK.. Tell me how can I help you?
Disciple:   Master! My attire is worn out. Can I get a new one, please?
Buddha found the robe indeed was in a bad condition and needed replacement. He asked the store keeper to give the disciple a new robe to wear on. The disciple thanked Buddha and retired to his room. A while later, Buddha went to his disciple’s place and asked him – Is your new attire comfortable? Do you need anything more?
Disciple:   Thank you my Master. The attire is indeed very comfortable. I need nothing more.
Buddha:   Having got the new one, what did you do with your old attire?
Disciple:   I am using it as my bed spread.
Buddha:   Then.. hope you have disposed off your old bed spread?
Disciple:   No.. no.. master. I am using my old bed spread as my window curtain?
Buddha:   What about your old curtain?
Disciple:   That is being used to hold hot utensils in the kitchen.
Buddha :   Oh.. I see.. Can you tell me what they did with the old cloth they were using in the kitchen?
Disciple:   It is being used to wash the floor.
Buddha:   Then, the old rag being used to wash the floor…?
Disciple:   Master, since the rag was all torn, we could not find any better use, but to use as a wick in the oil lamp, which is right now lighting your study room….
Buddha smiled in contentment and left for his room.

This story struck home – all the more because I am working on an assignment to improve the resource utilization of the unit in various centers across the globe. And isn’t that what resource utilization is all about – connecting the dots in terms of skills, availability, requirements and time frames ?

Given the pressures of the talent shortage prevalent in the market today, resource management has become a business critical function to explore every option and implement strategy to leverage the talent within our organizations to boost productivity and profits. So how do we utilize our best assets optimally in our organizations?

Here are five short-term and long-term approaches that I have seen work and believe are must-dos to build the talent advantage:

Must-Do #1 – Demand forecasting – There needs to be a robust budgeting and forecasting process established to accurately predict resource requirements in line with the business needs. The success of resource management lies in the ability to manage spikes and dips in resource requirements so that there is no impact to revenue or profits due to lack or excess of skilled staff. This can only be done if we have a process in place to arrive at fair estimate of our pipeline into the future (not just for the current quarter but also for the next three quarters) and tie the sales forecasts with the resource planning on a regular basis through smart use of business metrics.

Must-Do #2 – Supply planning – Once you have the demand forecast in place, the supply chain needs to vetted to ensure that we have the right hiring engines to meet short-term as well as long-term needs. For example, hiring of permanent employees and the hiring of contract employees will need different strategies and engines. The supply chain needs to be aware of the demand forecast and the current priorities on a regular basis to effectively plan the sourcing channels as well as capacity building in terms of recruiters, infrastructure and training needs. These two must-dos will go a long way in arriving at a solution to this challenging question:  ‘What skills are needed to deliver on strategic objectives and how to ensure that the right people in the right places at the right time are available?’

Must-Do #3 – Competency development – Look into any HR trends or surveys in the past year and you will find the recurring theme of skills shortage as the top threat to growth and profitability. Lack of available talent means the delay or disbanding of strategic initiatives critical to pursuing new market opportunities or innovative offers. It is extremely difficult to find the “perfect” fits in terms of resources for your important requirements. A fool-proof plan is needed instead to hire or internally source “best” fits and then put them through a skill building plan based on your demand forecast and supply gaps. Any new offer or initiative should only be pursued after vetting the demand-supply gaps and having a competency building plan in place.

Must-Do #4 – Lateral career development – This one is about investing in “your own” workforce – companies need to refocus efforts and investments on first identifying their key talent and then providing them a platform to increase their ability in different areas and stay relevant in this rapidly changing (technology and business models) world. The complexities of a global business environment and the pressing need of trying to do more with less provides the business case of allowing and empowering employees to move laterally across different functions, locations and positions.  Through this, companies can create a core team of multi-cultural, multi-functional generalists who could then become the pivot around which new teams can be built with greater agility. Deloitte terms this model as the “Corporate Lattice” which reframes workplace suppositions, providing a framework to organize and advance a company’s existing incremental efforts into a comprehensive, strategic response—and mindset shift—to the changing world of work.

Must-Do #5 – Skill Repository and collaboration tools – This one is about making resource related information available throughout the important functions of the organization – where access is based on the potential value that people bring in and not on the hierarchy prevalent in the organization.  One of the things that I have found very useful in improving resource utilization is in building a company wide skill repository (a bank, so to say of the human assets) where anyone who has a resource requirement can tap into to see who is available where and when. This greatly improves resource deployment ability moving it from “pockets” to a more global arena. Add to that collaboration tools with some analytic tools thrown in, and soon you offer a space where managers and employees can “manage” themselves leading to tremendous productivity benefits (20% to 25% as per this piece of research from McKinsey)

Whatever the size of your organization, talent management is an area that needs huge attention, thought and planning. One size does not fit all as they say and it is important to create your strategy and build your implementation plan that best suits your nature of business. However, if you focus on aligning your sales plan to your resource plan, build in a process to forecast the future and plan for it, develop the right talent, make resource management a collaborative function instead of a silo and measure using the right metrics and analytics – you will be well on your way to creating the talent advantage for your organization.

 Image courtesy : http://www.flickr.com/photos/elpatojo/312519196/

Five Management or Leadership Styles that should be Banned from the Work Place – Business Operations Performance Challenges

Five Management or Leadership Styles that should be Banned from the Work Place – Business Operations Performance Challenges

by | Aug 5, 2012 | Business, Business Operations, Leadership, Management, Managing Yourself, Office Etiquette, Performance, Productivity

Do you think that every work/office space should have a few punching bags around? Sometimes I definitely feel there is some merit in the idea.  All that violence and stress bottled up inside cannot possibly be good for anyone. Violence, stress, punching bags – does not exactly fit the theme of my blog, Happy in the Now.  But hey – work is not all sweetness and light particularly when you have to work sometimes with people who have the talent of bringing out the worst in you. I have written about the barriers to operational excellence before and about behaviors that are best avoided at the work place. This week’s post is focused on the leadership or management styles that block progress and help no one – not the managers or leaders nor their teams and certainly not the organization.

With great power comes great responsibility – leaders and managers need to keep this in mind in all their daily interactions and do everyone a favor by keeping a firm check on these punch-bag reminder inducing styles:

Management/Leadership Style #1 – Waffling: Here is the dictionary definition of the word and I am quite sure some images/experiences will pop up in your mind:

Waffling – present participle of waf·fle (Verb): 1. Fail to make up one’s mind 2. Speak or write esp. at great length, without saying anything important or useful.

This is the work place equivalent of the Hamlet soliloquy – To be or not to be…be, not be, be, not be– God, can you please make up your mind and move on and let your team get to the work at hand  ?

Management/Leadership Style #2 – Death by Committees: This one starts with – sounds like a good idea, let’s set up a meeting to decide who needs to decide, and invite them to a meeting to decide when it needs to get decided and then set up a meeting to discuss who else need to be invited that needs to decide and then set up a meeting to discuss what we need to decide – hey! Can you please remind me what the great idea was again?

Ok, so I know that there is research that says there is wisdom in crowds but seriously, can we please stop killing all possible innovation and initiative through this inclusive decision-making (read as death by committee) style?

Management/Leadership Style #3 – I am the victim – This style shows up in full bloom when the time comes to take hard decisions and set ownerships.  Some symptoms to diagnose this style is when someone says –  Hey don’t ask me why things are not working because I am just the new person here/the markets are down/whoever drew up the budget or the plan was smoking something/no one supports me/other people don’t know how to do their jobs/ whine whine whine whine whine……

You are a manager or leader because sometime somewhere you did do something right. Can you please stop whining and get your act together again – everybody knows the problems, YOU are the person who has to provide the solution – that is why you are where you are.

Management/Leadership Style #4 – My way or the highway – This is the style of the professional bully who relies on his/her title, or a loud voice, or a threat or other trappings of power to force complete submission of subordinates or colleagues and does so because he/she can, and because that’s the only way he/she knows how to manage.

But seriously, the command and control style of leadership was outdated even a century back – isn’t it time to change your style so that people actually WANT to work for you or with you?

Management/Leadership Style #5 – Divide and Rule –  Best explained in Wiki (derived from Latin: divide et impera) (also known as divide and conquer) is a strategy of gaining and maintaining power by breaking up larger concentrations of power into chunks that individually have less power than the one implementing the strategy. In this case, insecurity rules, the leader/manager’s own insecurity makes him/her intentionally create disharmony, goes about collecting information (the water-coolers sessions equivalent) from team about team-mates, discusses and is dismissive about subordinates in front of their peers and actually pits one against the other. When this happens, the subordinates would obviously not come together as a team and be a threat to his/her security.

Excuse me – but the Cold War is over, can you please stop behaving like a secret agent/playing childish games and grow up and be the fair and trust-worthy leader that your team needs you to be?

We all need to look into the mirror frequently and do some honest evaluation of our leadership and management styles. It is easy to slip and slide and fall prey to the trappings of power – remember the adage, power corrupts and absolute power corrupts absolutely? Introspect, Acknowledge and Change – it is never too late to be the leader or manager we should be (and then the idea of punching bags in the office would become obsolete!)

So did reading my post ring any bells for you? Do you have some “boss from hell” or “the best boss” stories to share? I would love to hear back from you.

Five Human Resource Metrics that link People to Business Strategy – Business Operations Performance Metrics

Five Human Resource Metrics that link People to Business Strategy – Business Operations Performance Metrics

by | Jul 29, 2012 | Business, Business Operations, Leadership, Management, Performance, Productivity

The abundance of information – from both internal and external sources – is the richest possible mine when it comes to understanding the employer brand, employee engagement and what employees want and need from the organization. The vital, and apparently missing, step is to transform the data collected into strategic advantage. The use of analytics, seems to be focused on external stakeholders and is yet to be used to its full effect when it comes to talent management. Only under half of CEOs (46%) use analytics to provide insight into how effectively skills are being deployed in their organizations.

This was a key finding in PwC’s 18th Annual Global CEO Survey, “People strategy for the digital age: A new take on talent”, which seeks to understand how businesses are preparing for the wholesale redesign of the world of work.

Clearly the standard HR metrics of Cost per resource, HR efficiency (no. of HR employees to total no. of employees), etc. which primarily help in driving down the costs are no longer sufficient in an environment where talent is the competitive edge for organizations. The need of the hour is HR metrics that are aligned to the current and the future business plans to ensure that not only is there no shortage of talent when we need it but also that we have processes and programs in place to create the right talent for our business.

When we create budgets for the year, we spend a significant amount of time planning where the revenue will come from and how the spend will be distributed across cost headers. In services organization, labour is the biggest component of both income and expenditure. Do we spend the same amount of time in planning how we would attract, retain and develop this big-ticket item so that the business objectives are met? Annual talent strategy planning is a must to develop and harness the potential of human capital – to proactively drive business outcomes instead of reactively responding to whatever the latest talent shortage crisis is. Based on my experiences in resource management and operations, here are the five human resource metrics that I think can help link your people strategy to your business strategy:

Human Resource Metrics #1: Competency Development Spend % – This one starts with identifying the key skills and talents that are necessary to execute on the company’s strategy for the year and create the competitive advantage while providing a platform for internal employees to learn and grow in their chosen career ladders. These could be technical (specialized software or hardware skills), functional (customer service, selling, tools and technology training) or managerial (leadership development, communication, succession planning, mentoring). Assess the current skill levels and the gap from where it needs to be and then draw up the competency development plan with budgets, timelines and desired outcomes for the year. Monitor the spend against the budget periodically (maybe monthly or quarterly) to ensure that there is focus on developing the right competencies that are needed for business success and that the plan is relevant to the current business scenarios.

Human Resource Metrics #2: Employee Engagement – This is the HR Mantra and enough research has been done to show that the EE figures of an organization are directly proportional to its business performance. Falling engagement levels are the precursor to higher attrition, lower productivity and increasing costs per hire. But an employee engagement survey just for the sake of measuring engagement is a waste of time and energy. The survey should be used as a tool to collect information that helps drive better results. Analysis should be done to isolate sincere actionable feedback from the “noise”. For example – what do your best performers think about your organization – does it allow them to perform to their optimum levels and get better every day? Invest and prioritize the engagement feedback that will really have an impact on key employee retention and overall employee performance and build this into your annual plan.

Human Resource Metrics #3: Quality of Hiring – This amounts to determining how a new hire’s abilities and performance varies from pre-hire requirements and expectations and is a metric that is generally calculated from 3-6 months after the hiring. Combined with the cost of hire (external recruitment spend+ internal labor costs) and the speed of hire (time taken to fulfill an open position), the quality of hire metric forms a great basis to measure the overall efficiency of your recruitment function and its processes (targeted sourcing,  speedy reaction time, consistent screening process and continuous improvement). The impact of a wrong hire is huge on the business outcome and we definitely need to spend some time here to ensure we have the right data points and methodologies to ensure that we hire the right people for the right jobs. Some excellent data on this metric here : http://www.ere.net/2009/10/02/quality-of-hire-the-missing-link-in-calculating-roi-part-i-of-a-series/

Human Resource Metrics #4: Resource Utilization % – This is the most common metric used in human resource management and for a good reason. It is the ratio of the resource’s billable work to the total amount of work and hence has a visible and direct impact on a company’s revenue and margins. What I want to highlight here is the need to go beyond this number and look at the underlying reasons for variations in the numbers and focus on them for improvement.  Numerous factors can change utilization rates, including inconsistency in calculations of what constitutes work and billable work, late and cancelled projects, increased training and ramp –up times and ancillary job demands, such as paperwork. Keep track of employee expertise areas and availability status in a central skill database, so that you can the quickly move people into a project and maximize utilization. Cross-train technical staff to respond quickly to changes in client demand. Developing a versatile and flexible workforce keeping in mind future customer requirements reduces idle time. Develop a bench strategy and a robust demand and supply forecasting process to stay on top of the target utilization numbers.

Human Resource Metrics #5: Revenue per Employee – This is a simple metric but the most important one to gauge and measure the success of all the plans and initiatives as outlined above – quarter on quarter and year on year. It also helps to compare the performance of your organization with similar organizations and set benchmarks internally for your HR and resource management functions, the data on total revenue and total headcount of companies being easily available. The revenue per employee should steadily increase leading to expanding margins and improved profitability. This is a number that must feature on all management reviews as it helps keep focus not only on the denominator (costs – and there is only so much cutting that you can do) but also on the numerator (revenue – where are we getting maximum value out of our labour and why – to drive strategy in the directions where it is working).

One size definitely does not fit all when it comes to metrics  – and you may have your own views on what metrics are best suited to drive the talent advantage for your organization. One thing is common though – we need to collect consistent information on our resources, use metrics that enable decision-making and ensure that talent management strategy remains relevant with overall business strategy and contributes actively to business growth. We need to choose the metrics that help the management to make quick and sound business decisions that are based on facts rather than feeling. What has worked for you in this area – I would love to hear and learn from you.

Five Working Principles for Business Operations Performance Management – In Gratitude and Honour of Seth Godin

Five Working Principles for Business Operations Performance Management – In Gratitude and Honour of Seth Godin

by | Jul 15, 2012 | Business, Business Operations, Career, Leadership, Life, Management, Managing Yourself, Performance, Productivity

Isn’t it strange (in a good way) how sometimes someone who you have never met or interacted with can have such a profound impact on your life and work? I think it was two years ago when the CEO of one of the places that I have worked in quoted Seth Godin in a discussion. I went and looked him up and wow – did he make me think! Seth posts every day and almost every single one of his posts have made me take a step back and take a close look at one or other area of my life and work. If you already follow him, then I am sure you have also experienced this – if you haven’t yet, then I suggest you go and subscribe to his blog here – I can confidently say that your thought processes will never remain the same.

This blog is a compilation of five of his posts from 2012 only (and it was very difficult choosing five, I may need to do a follow-on post) that can inspire you to change the rules of the game in business operations and management:

Working Principle #1: Ask Why Often – Why ask why?

“Why?” is the most important question, not asked nearly enough.

Hint: “Because I said so,” is not a valid answer.

  • Why does it work this way?
  • Why is that our goal?
  • Why did you say no?
  • Why are we treating people differently?
  • Why is this policy?
  • Why don’t we enter this market?
  • Why did you change your mind?
  • Why are we having this meeting?
  • Why not?

Working Principle #2: A Path which may look like a shortcut may not actually be a shortcut – Quick shortcuts (in search of)

There aren’t many actual shortcuts.

There are merely direct paths…

Most people don’t take them, because they frighten us–too direct, I guess. It’s easy to avoid the things that frighten us if we wander around for a while. Stalling takes many forms, and one of them looks like a shortcut.

Things that look like shortcuts are actually detours (disguised as less work).

Working Principle #3: Identify and focus on the Leak First – Insatiable

Long-lasting systems can’t survive if they remain insatiable.

An insatiable thirst for food, power, energy, reassurance, clicks, funding or other raw material will eventually lead to failure. That’s because there’s never enough to satisfy someone or something that’s insatiable. The organization amps up because its need is unmet. It gets out of balance, changing what had previously worked to get more of what it craves. Sooner or later, a crash.

More fame! More money! More investment! Push too hard and you lose what you came with and don’t get what you came for.

An insatiable appetite is a symptom: There’s a hole in the bucket. Something’s leaking out. When a system (or a person) continues to demand more and more but doesn’t produce in response, that’s because the resources aren’t being used properly, something is leaking.

If your organization demands ever more attention or effort or cash to produce the same output, it makes more sense to focus on the leak than it does to work ever harder to feed the beast.

Working Principle #4: It is not about You, it is about the Outcome -The quickest way to get things done and make change

Not the easiest, but the quickest:

Don’t demand authority.

Eagerly take responsibility.

Relentlessly give credit.

Working Principle #5: Caring Enough is a competitive advantage in your hands – “It’s not business, it’s personal”

It’s too easy to blame the organization and the system and the bottom line for decisions that a person would never be willing to take responsibility for.

Whenever you can, work with people who take it personally.

And finally a bonus one from Mr. Godin that I can’t just resist putting in here – It’s never too late…….to start heading in the right direction.

There are many new initiatives that I started on and new directions that I took in the last year inspired by Seth’s daily doses. Who inspires you ? What blogs do you follow that are a must read for you? What do you think of the five principles above? Have you tried them at work ?  What other posts from Seth have you found thought provoking? I would love to hear back and learn from you.

Mergers and Acquisitions – Five steps to a Successful Organizational Integration

Mergers and Acquisitions – Five steps to a Successful Organizational Integration

by | Jul 8, 2012 | Business, Business Operations, Leadership, Management, Performance, Productivity, World of Work

If you like me have worked for a decade or more with or for small or mid-sized companies/clients, it is quite likely that you have experienced that sinking feeling that comes with the announcement of yet another merger or acquisition quite a few times. Whether you are acquiring or getting acquired, merging or get merged, it involves uncertainty and change at all levels. Mergers and Acquisitions (M&A) are done to integrate two entities for achieving rapid inorganic growth (Wiki definitions). But though the goal is performance improvement, results from mergers and acquisitions are often disappointing compared with results predicted or expected. Numerous empirical studies show high failure rates of M & A deals. As Irwin Stelzer, US economist and writer said –

When it comes to mergers, hope triumphs over experience.

I think the major reason that post-merger integrations are not successful in the long-term is the lack of systematic planning and the haste in which “a one size fits all” approach is implemented. Sufficient time, thought and effort needs to be put in. It takes time to understand and establish a vision for the integrated company and then align people, processes and technology to create an ecosystem that allows both the merged entities to adapt to the best from each other and become a collaborative, high-performance organization.

The steps of integration can vary from company to company based on the nature of the business and the complexity of the merger. The goal of a merger is business performance improvement and performance is all about people – collectively and individually. Hence, what works is to consider this as the top priority while defining the integration plan. Here are five steps that I have seen worked well for some of the more successful mergers that I have been associated with:

Step 1: A clear and realistic shared Vision – In the pre-merger diligence and evaluation phase, the reasons behind why a merger makes sense for both entities would have emerged. The details from this phase should be used to create a strong, realistic and well-articulated vision statement. This is what would drive integration by giving the organization a strategic direction. It is not easy to create a shared vision but I have seen that through the endless meetings and details in the pre-merger phase, if we are able to find an answer for this question – how will the customer benefit in future from the joint capabilities of each entity ? – it serves as a good starting point to create a vision statement. It helps identify the best features of both companies and ensures that these remain intact post-merger. Once the vision statement is created, it should be used a clarion call to inspire and motivate both teams to work together and communicated through every medium and at every opportunity possible.

Step 2: Understand the differences – Even though most mergers are done because both organizations “fit” each other, the integration will only be successful if you take time to understand the differences. The differences commonly are in the corporate culture and value systems, levels of staff qualifications and competencies, leadership styles, operational processes and systems and tools. The rationale here should not be to just impose one common way of functioning but rather to identify and evaluate the uniqueness in each organization and what needs to be done to preserve the successful business models while creating a platform of commonality that allows the organizations to leverage each other in a way that performance is boosted.

Step 3: Know the people – It is important to identify the key stakeholders/leaders/influencers within the new entity quickly and also listen and address their fears and concerns. Announce an integration core team drawn from multiple functions of  both entities that would be responsible for creating, monitoring and tracking the integration plan with tasks and timelines till all post-merger actions are completed.  If staff in the company being acquired see that their managers have bought into the integration process, they are more likely to get engaged and buy-in as well. The “Us” vs. “Them” mentality soon gets neutralized if people see that the integration is being driven by a joint team. The new organization structure should also be drawn up quickly so that priorities are identified and set by the leadership and the middle management and the staff knows who their leaders and what the long and short-term goals are. This brings in stability and helps quell the normal fears that such changes bring in the minds of people.

Step 4: Define and implement the processes and tools – This is related to step 2. Sufficient attention should be given to identify the best practices in operational and service processes and tools in each organization and to ensure that they become the standard procedure of BOTH the organizations. A merger gives us an opportunity to view our processes with a fresh eye and pick and implement more efficient systems and processes. Set transformation timelines, training programs and workshops to bring the organization up to speed on the changes. A data strategy is also important for data migration and creating a common database to provide the necessary reports for the merged entity.  It is also important to not attempt too many changes in these areas at the same time – initiative overload sets in then derailing the integration process and you also run the risk of hampering the regular business operations.

Step 5: Engage, Engage and Engage : Of all the HR aspects that determine the success or failure of a merger, communication has been found to be the biggest factor that has the power to make or break the post-merger integration. There needs to be a communication strategy within the integration plan so that there is strong leadership communication from day one. It has to be honest, transparent and candid to win the trust and credibility of the employees. Quick wins in the integration process need to be celebrated and a sense of positive urgency needs to be created. A regular two-way feedback mechanism needs to be set up so that there is sufficient input from the organization to measure how well the integration strategy is working. Connect leaders and employees with counterparts or supervisors within both organizations, organize networking events and set up an online social-networking portal or collaboration workspace.

Financials are important in deciding on a merger but after that, it is the softer issues like providing a purpose behind all the change, understanding the cultural nuances and having a well-defined plan that can help make mergers work to achieve the successful outcomes that were intended.

Have you gone through a merger or acquisition or department integration? What was your experience – what worked and what didn’t and how would you have done things differently? I would love to hear back and learn from you.

Five Metrics that can help Maximize Revenue, Margin and Cash Flow Potential from Existing Business

Five Metrics that can help Maximize Revenue, Margin and Cash Flow Potential from Existing Business

by | Jul 1, 2012 | Business, Business Operations, Management, Performance, Productivity

For a business or sales manager, the last week of the quarter is a very stressful time. Push for that last-minute sale, run after the documentation for sales orders and contracts, and make sure that all the steps in the book to bill process happen smoothly – it is a race against time. The scope and degree of these activities may vary from company to company based on the setting of quarterly or annual targets but the end objective is usually the same – maximize the revenue, margin and cash flow potential. Cash is always king and any additional revenue is generally welcome, as long as the bottom line targets are met. But extra revenue, margin and cash flow that can be uncovered and pulled out of existing fixed costs is very valuable because it tends to flow straight through to the bottom line. This is where business operations can play a critical role in identifying sources, plugging gaps and putting in place processes to prevent revenue and cash flow leakage that leads to financial under-performance.

Given the timing, today’s blog post is focused on the metrics and areas that act as indicators to these quarterly business objectives. I have been called a “gold-digger” and a “revenue shark” by my bosses (and I take that as a huge compliment :)) and so here are five of my secret sources that help me uncover hidden treasures and meet the stretched targets specifically in the services business:

Metric #1 – Unbilled Revenue:

What:  Revenue that has been recognized in previous months/quarters but has not been billed to the customer.

Why:  Mainly due to

a)    Lack of confirmation/approval  on milestones in Fixed Price projects from customer on billing

b)    Lack of confirmation/Approval from customer on time sheets in T & M projects

c)    Milestones not in sync with efforts in Fixed price projects – we are burning efforts faster than we bill

Impact: Cash Flow (Collections/DSO) Target

 

Metric #2 – Unearned Revenue

What: Revenue that has been invoiced to the customer but not earned, accrued or recognized.

Why: Mainly due to

a)      Advance billing in Fixed Price projects based on a milestone such as Contract Sign off/PO received/etc

b)      Lack of Information on man months spent for the revenue in the project

c)       Milestones not in sync with efforts in Fixed Price projects – we are billing the customer faster than we are spending the efforts

d)      Man-months and/or Total project value for the project not updated or re-baselined in case of fixed price projects where revenue is calculated on the basis of percentage completion – we thought we would be spending x no. of man-months at project start but actually need lesser amount of man-months to complete the project OR the total project value has changed (+/- CRs) and man-months has not been updated

Impact: Revenue and Margin Targets

Metric #3 – Deferred or Unrecognized Revenue

What: Revenue for which we have spent efforts (tagged as billable) but has not been recognized or earned in the period in which efforts have been spent.

Why: Mainly due to

a)      Lack of documentation needed as per US GAAP or other accounting guidelines – no signed SOW/contract/PO

b)      Orders received but not reached finance or accounting folks

c)       Project not created/updated in financial systems

d)      Billing inputs not received by Finance in terms of how many man-months spent and where

Impact: Revenue, Margin and Cash Flow Targets

Metrics #4 – Resource Utilization Dips

What: Dips in Percentage of the actual revenue earned by assets against the potential revenue that could have earned.

Why: Mainly due to

a)      Real increase in buffer or bench

b)      “Hidden” resources in fixed price projects

c)       Missed billing for resources in T & M Projects

d)      Incorrect tagging or time tracking of resources

Impact: Revenue, Margin and Cash Flow Targets

Metric #5 – Static Backlog

What: No change in Difference amount (i.e. Backlog) of the Value Booked and the Value Billed/Recognized of an Order over a period of time. A healthy backlog is a good sign but it has to be serviced quickly or the order may get cancelled and the backlog will disappear taking away the revenue potential with it.

Why: Mainly due to

a)      Slow ramp-up of internal resources for T & M projects

b)      Delays in project schedule for fixed price projects due to skill unavailability, etc

c)       Delays in hiring

d)      Gaps in understanding of customer expectations

Impact: Revenue and Margin targets

Some of the terms above may seem purely financial in nature but business operations in service companies must look deeper into these numbers in order to discover and monitor the root causes of the variations. The variations in the above metrics are an indication of broken processes and work flows within the organization maybe due to lack of integrated systems or communication gaps or discipline. Fail to understand the significance of these metrics and you will fail to reap the benefits in the shape of maximized revenue, profits and cash flow that arise from the tracking and root cause corrections of these metrics.

I would love to know and learn from you. What terms or metrics do you use to monitor and improve the performance and efficiency of your organization? Where have you found revenue, margin or cash flow leakages in your work? Which of the above metrics would you want to know more about ?