Thursday, December 27, 2007

Vital Signs: Google's others numbers!

In "Google: A Druckerian Ideal?", Rick Waltzman of the Drucker Institute unveils an interesting set of measures that help to tell the story behind the financials:

Google (GOOG) turned out quite a dazzling display of data recently when it released its third-quarter results: Profit jumped 46%. Revenue soared 57%. The company's shares shot up $6.14, to more than $639 each, on the news. But it's another set of figures that most impresses me: 17, $0, and 20%.

These refer, respectively, to the number of caf├ęs at Google's Mountain View (Calif.) campus; what it charges employees for all the meals and snacks eaten there; and the amount of time it encourages its engineers to carve out each week to tackle company-related projects that interest them personally but aren't part of their core assignments.


The 20% Google allows engineers to follow their passions and this has resulted in innovative products such as Gmail, Google News, and the Sky feature on Google Earth. They've certainly taken a page from 3M's innovation playbook described in a recent article At 3M, A Struggle Between Efficiency And Creativity":

Official company policy allowed employees to use 15% of their time to pursue independent projects. The company explicitly encouraged risk and tolerated failure. 3M's creative culture foreshadowed the one that is currently celebrated unanimously at Google (GOOG ).


Thanks Rick for highlighting other vital signs that help us understand more of the story that underlies Google's financials!

Monday, December 17, 2007

Vital Sign: Workforce Engagement. 38% of Worksforce are partly to fully disengaged!

In his recent book about management innovation, the Future of Management (p.57), Gary Hamel identified a 2005 Towers Perrin report with a particular performance measure about employee engagement and concluded that the challenge is to reinvent our management systems so they inspire human beings to bring all of their capabilities to work every day.

In the 2007 version of the Towers Perrin Global Workforce Study, this report identified a significant 'Engagement Gap' among the Global Workforce. According to the October 2007 Towers Perrin news release:

Just 21% of the employees surveyed around the world are engaged in their work, meaning they're willing to go the extra mile to help their companies succeed. Fully 38% are partly to fully disengaged. The result is a gap - which Towers Perrin has dubbed the "engagement gap" - between the discretionary effort companies need and people actually want to invest and companies' effectiveness in channeling this effort to enhance performance.

The study found that companies with the highest levels of employee engagement achieve better financial results and are more successful in retaining their most valued employees than companies with lower levels of engagement.

"It's impossible to overstate the importance of an engaged workforce on a company's bottom line," said Julie Gebauer, managing director and leader of Towers Perrin's Workforce Effectiveness consulting practice. "The Global Workforce Study establishes a definitive link between levels of engagement and financial performance and, for the first time, begins to quantify that link. It demonstrates that, at a time when companies are looking for every source of competitive advantage, the workforce itself represents the largest reservoir of untapped potential."

The most striking data about the linkage between employee engagement and financial performance come from a study of 40 global companies which involved a regression analysis of company financial results against engagement data. It found that firms with the highest percentage of engaged employees collectively increased operating income 19% and earnings per share 28% year to year. Those companies with the lowest percentage of engaged employees showed year-to-year declines of 33% in operating income and 11% in earnings per share.


The last line above is particularily interesting and helps make the link between the Finance and HR functions of today's leading organizations. Assuming that this is a non-financial vital sign, Finance should ensure that Workforce engagement is included in the exceutive team's business performance management scorecards.

Download the summary here.

Sunday, December 16, 2007

Vital Sign: Competitiveness Rating. Top 40 Most Competitive Companies in 2007

According to "Most Competitive Companies 2007", a report on competitiveness of consumer oriented companies, a Competitive Rating (CR) represents a company’s ability to earn a consistent profit above their cost of capital, and their ability to protect that profit through multiple sources of ompetitive advantage with consumers.

The Top 5 Competitive Companies:
1. Google Search
2. Bud / Bud Light
3. Coca-Cola
4. Food Network Channel
5. Under Armour

The last two were a surprise, given that recent revenues for FNC and UA were less than 10% of the top 3 in the list.

According to W Ratings, the author of the report:
The competitiveness score is calculated by percentile, ranking companies by their average economic profit over the past five years and by their total moat score, and weighting those rankings equally into one score.

"Economic profit" is defined as a company's return on invested capital in excess of the company's weighted average cost of capital. Additionally, W Ratings measures a company's ability to achieve a higher economic profit than its rivals and sustain that competitive advantage through "moats," a term popularized by investment guru Warren Buffet when describing the qualitative measurement of a company's ability to keep competitors from penetrating their market for an extended period of time. Total moat score is derived from a consumer survey database and is defined as the sum of nine areas of competitive advantage with each area, or moat, measuring between negative one and five. The more moats and higher total moat score indicate a higher likelihood of sustaining a competitive advantage with consumers. To be considered, companies must have either a dominant market share or wide recognition among the general U.S. population and have publicly available financial data. Sectors surveyed comprise retail and consumer goods, media and communications, financial services, travel and leisure, and restaurant and beverage.


Report available as a download here: http://www.wratings.com/freereport.pdf

Vital Sign: 4,500 Scientists in GE’s Bangalore John F Welch Technology Centre

The first post tagged as 'Vital Signs'. 'Vital Signs' posts will be posts which feature a Key Performance Indicator of the innovation economy.

As reported in the article "GE puts India on Centre Stage" (Business Standard), GE has drawn up plans to make India a global sourcing hub for all its core businesses. The story illustrates GE's strategy for sourcing innovative products from India:

Giving an example of products developed in India, which can be taken to mature markets, Chopra said that GE’s John F Welch Technology Centre in Bangalore had developed a mobile electro-cardiogram, which costs a fraction of what existing machines cost.

“We can even sell it for use at home in the US,” said Chopra, adding, “We solve unique problems here as over 300 million people live at less than $1 a day. The innovation coming out of this country in terms of technology as well as business models can help us in whatever we do.”

Vital Signs - A new focus for the blog

Introduction to the new Vital Signs Blog

For those of us who seek metaphors for what we see in the business world, the Wikipedia definition for Vital Signs helps us with a medical health metaphor: vital signs in medicine are those measures taken by health professionals in order to assess the most basic body functions. They are: body temperature, pulse/heart rate, blood pressure and respiratory rate.

In the business setting, CFO's are called upon to measure, report and assess the health of the business and its ability to be competitive. CFO's are expected to have the pulse of the business and to know its financial and non-financial vital signs. HR leaders are expected to increase the talent base of the organization, arguably noting that ability to attract and retain talent is a vital sign that should be measured. This business-oriented blog therefore focuses on business vital signs but extends the metaphor beyond basic health to vital signs of competitiveness and innovation. And these are most often leading indicators.

As a management consultant focused on helping organizations transform their performance management processes (see my recent article, 'CFO as Strategist and Catalyst in Building a High-Performance Culture), I have come to the realization that many employees are not aware of the organization's vital signs, let alone the vital signs of their industry, and of the global economy in which their organization operates. In future posts of this Vital Signs blog, I will explore key internal performance measures as well as industry, and broader economic Vital Signs that could be part of your organization's scorecard. Both financial and non-financial vital signs will be highlighted.

Tuesday, December 4, 2007

Social Finance

Zopa (us.zopa.com) just launched in the US. It was previously featured here in the Economist.

In their own words:
We're coining a term to describe what we do. It's called social finance. It means we want to improve the tools of financial services--investments, and loans, and so forth--by allowing people to use them to help themselves, and other people, at the same time.

Zopa is early in the process in the US but the intention is for everyday people to lend to each other.


Kiva (www.kiva.org) is also out there and just had a great article written about it Stanford Magazine. It's mission is more specific:
We let you loan to the working poor

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can "sponsor a business" and help the world's working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you've sponsored. As loans are repaid, you get your loan money back.


According to the Stanford Magazine article about Kiva:

People are lining up. In fact, Kiva has so many lenders—more than 123,000 extending $12.4 million to some 18,000 entrepreneurs in 39 countries—that it recently limited each participant to $25 per business, “so that everyone has a chance to make a Kiva loan. After two years in operation, Kiva attracts $1.5 million a month


These are game changing stories well worth watching!

** Update: Thanks also to Guy Kawasaki for his posting "Six Lessons of Kiva" summarizing the Stanford Article 'Small Change, Big Payoff'

** Update: On a related note, Fast Company posted their 2008 Social Capitalist Awards and a list of 45 Social Entrepreneurs who are Changing the World"

Sunday, December 2, 2007

Article: CFO as Strategist and Catalyst in Building a High-Performance Culture

The Ivey Business Journal recently posted my article titled THE CFO AS STRATEGIST AND CATALYST IN BUILDING A HIGH-PERFORMANCE CULTURE

Look forward to receiving your comments!