Recently I spent a morning with a colleague discussing ideas for a new business. He is working on a number of excellent business models and if he can commercialise them, he should do very well.
He asked if I could assist him to “clear his head.” He was too close to the detail and the ideas and concepts were beginning to blur.
My immediate suggestions were:
1. Draw the business.
2. Follow the money.
We spent the next two hours on exactly these two points. What he initially thought was a simple question, and one that he already had straight in his head, proved to be quite complex. It is amazing how a person can jump large chasms in a single bound in his/her head.
Our conversation produced a new and annotated picture of the proposed business depicting how it would work and the flow of money. It was completely different to the picture he initially had in his head and it substantially changed the business case and intended architecture. Importantly it resolved a number of the mental blocks he had about the business. The blocks existed as subconsciously he knew there were issues; he just could not articulate where. Following the money is a sure way of resolving this problem.
This same difficulty constantly plays out on a large scale with my clients. As a consultant, I am frequently engaged to prepare process models, maps and related material. The conversation generally revolves around the relationship between people, process and technology and is often interlaced with the phrase “shared service.”
What I battle to understand is this: why, despite engaging consultants to investigate the business, are managers so reluctant to engage with the detail? Businesses are complex, but managers just don’t seem to want to know.
To further illustrate this point, the next graphic is an example of a detailed process map. Call it “Process 1.” I do not expect managers to invest significant time at this level of detail. That is, managers other than the process owner.
Occasionally, an individual process map will include a reference to the next process in the sequence. More often than not, the process just ends with a box that says “post invoice” or “file letter” or “pay supplier.” That’s it. Process over.
This style of process mapping has little bearing on reality. Activity very seldom just stops in a business. Rather there is a handover to the next department or process. Everybody knows this and automatically accepts that this detail is just not included on individual process maps.
But, when that process map is placed in conjunction with other processes on the value chain, it offers limited insight. When the same process is shown inclusive of its relationships to other processes the value of the analysis goes up significantly. Consider the next two graphics.
The first graphic shows what processes sit where on the framework. The second graphic shows the relationships between them. The interconnecting lines represent the hand off between processes and the flow of information within the business.
The top row of each graphic represents the functions and processes that generate revenue. This row answers the question, “How do I make money?” The middle row comprises the processes that support revenue generation. These processes are not customer facing and exist only because revenue is flowing. The bottom row comprises the processes that must exist for the company to be in business, in other words, the true back office.
Rows 2 and 3 tend to be the areas where you spend money. In rough terms row 2 goes to gross contribution and row 3 to operating expenses.
The layout is a great way to “show me the money.” It tells you which processes result in revenue and how and where the invoice is generated. It also provides a foundation for determining which processes belong in the shared services group and the basic configuration of that group. By extension it supports the demarcation of service level agreements and key performance indicators.
A simple critique of the graphic demonstrates that there is possibly a significant gap in the revenue flow.
Within the circle there is no output process for the third process. It is a revenue generating process but it is almost 100% independent of all other processes. This can’t be right. Equally getting to its trigger process seems somewhat convoluted.
This insight is enormously valuable, especially if a company wants to implement or refine a shared services model.
If this reasonably simple diagram produces this type of value, why then are managers reluctant to engage in the detail? Without the detail the above issue would not be exposed. Yet it can easily be consulting suicide to put the graphic up for comment. There is a good chance you will hear, “It’s too complex, and I can’t understand it.” So you “dumb it down” to a point where it fits on a slide and uses large font.
I fully acknowledge there is a time and a place for getting into the detail and presentations should be tailored to the audience.
I close with the comment that businesses are complex places and managers should make the effort and take the time to understand them. At the very minimum they should understand the flow of money. Where is it generated? Where and when it is invoiced? And how is it spent? Not necessarily at the fine detail level, but most certainly at the building block level.
2 thoughts on “SHOW ME THE MONEY”
Interesting to contrast the clarity gained by your entrepreneurial colleague about the ‘whole business’ vs the more narrow view of a typical Dept/Function head in a larger business who is usually incented to optimize their link in the chain to the detriment of the end to end net value delivered. Managers may avoid detail but senior execs also avoid the reconciliation of the end to end strategy. Hopefully your graphics can raise questions which are harder (or more embarrassing) for post-founder leaders to ignore.
Insightful and accurate as always Garth