The Universal Manager - Dossier 09 - Financial Performance

from preface by Don McLeod

As world markets are becoming rationalized and more mature, the traditionally rich Western countries see the economies of the Far East growing extremely rapidly and closing the gap in many areas such as technology, skills base, knowledge base and so on. Consequently, the Western economies are coming under pressure to maintain their relative standard of living. And although political consensus on global trade eludes the politicians of the world (as in the failed GATT talks), barriers to global trade are being swept aside by multinational corporations who are well placed to exploit the advances in communications and technology. Globalization has developed in the last half of the twentieth century to the extent that the overwhelming majority of organizations today are unlikely to remain isolated from international economic pressures by sheltering behind the nation state.

The winners in this maelstrom of change are the global corporations - those that run their own banking systems and hence control their own international cash flows. They can dictate to governments the conditions on which they will establish business units in one territory or another, and can fund the development of teams of international executives without local responsibility.

Potential losers are small and medium sized enterprises that are geographically or financially constrained, and public sector organizations at local, regional and national level. These groups will feel, more than any others, the financial consequences of increasing global competitiveness. Quite apart from the direct competition between enterprises in far-flung countries, governments in Western economies find themselves less able to fund the state infrastructure and machinery they inherited from the mid-twentieth century. Through public-private partnerships, national governments now seek new ways to raise money and decrease their contribution, in an effort to fund the spiralling costs of the executive, the legislature, defence and health care services.

Actual losers are those organizations, in whatever sector, who are not able to manage their finances astutely - astute financial management does not necessarily mean employing a superb set of accountants to run the organization's finances, or paying for the advice of a global consultancy firm. It means that managers at all levels (if levels still remain) have to be attuned to the financial consequences of their acts and omissions. They must have the freedom to commit resources rapidly to back up their well-informed decisions.

The revolution in information and communications technology (ICT) is perhaps the greatest aid to financial modelling and decision taking. An example of the benefits of the technological revolution are the inexpensive and widely available ICT systems that can support:

• Communication in a flat organizational structure
• Rapid transfer of funds
• Detailed financial planning and analysis
• Control systems for widely delegated budgets.

These systems exist for organizations to exploit.

In his Circle of Innovation (Coronet, 1999) Tom Peters cites the example of a hotel chain in the USA where all staff, including the lowliest porter and chambermaid, could commit up to $2,000 of organization funds to deliver an immediate solution for any customer's problem, if it was judged necessary. Apart from the sheer courage of the management team involved and the innovative approach to customer care, this clearly would not work if there were not monitoring and control systems, training and teamwork firmly in place. Financial crises would be inevitable if the hotel chain, say, had fifty hotels all employing 100 staff, 10% of whom used this facility to its full extent once a month! The integration of financial management into planning, marketing and operations is clearly essential in such decisions.

In other words, tomorrow belongs to the organization whose managers are able to seize the opportunities afforded by, for example:

• Globalization (e.g. reducing costs by sourcing less costly components from another country).
• ICT (e.g. using the internet to carry out rapid competitive analysis to make price or margin alterations, or to deliver a budget forecast quickly via e-mail to a person compiling the master budget on the other side of the world).
• Small size (e.g. similar marketing opportunities are available on the internet to small companies as to large companies).

The need for financial discipline in this environment is far greater today than it was in the relatively slow-moving world of the twentieth century. And because distributing and obtaining financial information is now so easy and rapid (with consequent challenges for managers and decision-making processes), there is an ever greater need for an ethical approach to financial management. There are now many more ways, for example, in which a group of organizations can exchange financial data and hence operate a sophisticated cartel beyond the reach of national governments.

To attempt to manage today without an understanding of financial management disciplines would be like attempting to sculpt a bronze purely in one dimension. Planning, decision-making, communicating within and outside the organization, and delivering excellent service are all be impaired without an understanding of financial management. It was possible in the old days when managers' main task was to control information - but it's not like that any more.

From Financial Performance (UMDP09), The Universal Manager ISBN 0948672 62 5
Published by Scitech Educational Ltd.

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