“It’s all about the numbers.” The 4 key numbers that all CxOs need to be aware of, but many aren’t! |

“It’s all about the numbers.” The 4 key numbers that all CxOs need to be aware of, but many aren’t!

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“It’s all about the numbers.”  The 4 key numbers that all CxOs need to be aware of, but many aren’t!

“It’s all about the numbers.” This was the catchphrase of a CEO that I did some work with recently. He would explain that as a CEO of Private Equity backed business, he had to have absolute confidence in the numbers because if he failed to deliver them, he’d be out!

“And I don’t miss my numbers” he would often go on to say.

He is absolutely right, isn’t he?

I mean, every CEO/ MD/ Business head need to know their numbers, don’t they? Well, in the last 25 years of working with many large corporates, I was amazed to find that in many cases the level of confidence in the numbers was not always there.

Yes, they knew what was projected, but all too often you could hear a sharp intake of breath when they made their projections public. Why?

In my experience, the main reason for this uncertainty is that they knew that things were going to be tight and didn’t have complete confidence in their team’s ability to deliver on the plans. Its become common practice to take a very conservative view of projections and announce the very least that will be accepted.

How can this be right?

As an investor, I want the management team to do everything in their power to realise the maximum return.

The cyclical nature of business means that companies grow and contract at various stages of their development. The companies that are deemed to be most valuable are those that consistently deliver against their projections – they are deemed to be less risky, and when investors become spooked, valuations tend to take a nosedive.

Whatever the likely financial outcome is, whether growth or contraction is expected, the final result will be dependent upon the success or otherwise of multiple activities/ projects/ initiatives. These include acquisitions, divestments, new market entry, new product development, technology enhancements, supply chain initiatives, amongst many others.

The four metrics that all CxOs need to be aware of and often aren’t, focus on the likely outcomes from these initiatives and they are the cornerstones of the COST Optimisation Formula.

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The ability to assess, manage and optimise the four components determines the end result.

Let’s look at an example to highlight the point.

A large corporate client that I did work with a number of years ago entered into a joint venture with a competitor in order to win a significant long-term government contract. One of the stipulations was that the JV would deliver a minimum level of cost reduction over agreed period. A full programme of initiatives was established and key milestones created to check in on progress and validate whether the savings would be forthcoming.

Some of the initiatives were always on target, whilst others were constantly at ‘red’ status. When we evaluated the differences across the initiatives, four key metrics were identified;

  1. Their ability to properly embed the desired change into the teams
  2. Their ability to optimize the internal processes to simplify workflow and make it easy for people to adapt
  3. Their ability to establish collaborative, mutually beneficial supply chain partnerships
  4. Their ability to track ‘value creation’ right to the bottom line

These four metrics have held true across all organisations and projects that I’ve been involved with and have been the catalyst for the creation of the COST Optimisation Formula.

Why do I say this is a formula?

Well, it is the compound effect of these four metrics that determine the actual delivery of the end value. A failure of any one will have a significant impact on the end result.

However, it is not so simple as to say that each metric is equally important, some aspects have been proven to have more impact than others, which led me to develop a simple assessment tool. By answering a short questionnaire and inputting the ‘value’ that you expect the initiative to deliver, you will immediately get an insight into whether your initiative is likely to deliver maximum value or not.

By completing this assessment, you will quickly get a sense of whether you can be confident in your team’s ability to deliver of their projections.

This works at macro level across an organisation as well as micro level within a specific project or initiative. It has been proven to be very successful at highlighting the areas that require closer scrutiny in order to ensure that full value is actually delivered.

Please share your thoughts and experience in these areas.

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