Hi and welcome to Be The Flagship with our podcast host Jeff Parsons.
This is where we tackle the day-to-day talent management challenges you face.
And now over to our host.
Take it away, Jeff.
Hello.
And welcome to my podcast Be The Flagship.
I'm your host Jeff Parsons and I'm proud to announce that we have refurbished the podcast
if you will.
We have broadened the scope of the topics we're going to cover.
I consider this podcast to be about all things operations.
So that talks about operations itself and all the other supporting functions, all those
other support that operations needs in order to drive business success.
So thank you for joining us.
I'm excited to get started on this broadened scope for Be The Flagship.
I have a very special guest today.
He's a good friend of mine.
His name is Jeff Smith and our first episode is going to be the beginning of a series where
we talk about the importance of finance and financial management and how it truly supports
operational excellence and drives business success.
Well thank you, Jeff, for joining us today.
I look forward to your contributions.
So if you're ready to go, we'll get started.
I'm ready and the pleasure is mine.
So Jeff, talk to us about your career.
Give us a little synopsis of your background, your career and what you're doing right now.
Okay.
So as we've talked about on other episodes, I am Canadian.
Don't hold it against me.
But my background and my accounting training is a Canadian designation.
I have a long background in industry and in manufacturing.
Basically before I started with along the accounting route, I worked in factories.
My dad was a career proctor and gamble person.
And so I worked at Proctor and Gamble in the process.
I was processing byproducts and filling trucks and sending them out.
So I've worked in everything from forest products to heavy goods manufacturing, high technology,
even dirt.
And so I really have a love for the manufacturing process.
Throughout my career, I've spent a lot of time in strategy and the outcome of that of
acquisitions.
And so I have a passion for strategic and operational planning and post-acquisition
integration activities.
I've recently started my own consulting practice, which is dynamic business strategies.
So in your consulting practice, what types of services do you provide for your clients?
So we provide really three different offerings.
One is on the strategic and operational planning side.
The other is on the acquisition integration activities.
And then the third aspect is that of education.
Education and lifelong learning is a passion for me.
And so we offer a series of training and leadership development courses ranging anywhere from
business ethics to business acumen.
Thank you, Jeff.
You mentioned a passion for education.
I can recall earlier in my illustrious career, I facilitated numerous sessions in finance
for non-financial managers targeting first line managers within manufacturing.
And we used a simulation that literally tracked cash as it flowed through a manufacturing
process.
So from incoming materials to finished product going out the door.
And the attendees, the participants, were responsible for tracking that cash and completing
a basic finance statement, a statement of cash flow balance sheet.
And it gave them a basic understanding of how what they do on a daily basis impacts
the financial success of their company.
And so you mentioned education.
I'm just curious how you feel about the role of education and financial education specifically
within operations.
So I'm of the firm belief that operational leaders really need to understand the financial
impacts of what they do.
And so I actually got into accounting not because I wanted to be an accountant, but
because I wanted to understand financial statements.
It turns out that I'm pretty good at accounting.
So I continued in that field and excelled in it.
And long ago and early in my career, I taught finance for first time leaders and helped
them to understand the impacts, the financial impacts of their operational activities so
that they could understand the budgetary area that they were responsible for.
Yeah, so we have similar experiences there and I also found that it was helpful for first
line supervisors and maybe the next level up to understand how what they did on a daily
basis fed into statement of cash flow and the balance sheet and all in those key financial
statements, income statement, that sort of thing.
So again, our focus is on all things operational and which includes support groups and finances,
no exception to that, is a very important support groups as relates to operational success.
So why don't you explain the role of finance and the operational success of a company?
Okay, so I view finance as being having three different layers.
One is it's a historical scorekeeper role.
What did we do last month and organize it and present it as far as did we make money
or did we lose money?
So that historical perspective allows us to understand what our past operations results
were.
From a day to day perspective, finance contributes to the operational success because the bills
need to be paid, the cash flow needs to be managed, payroll needs to be completed, all
those sort of things need to be recorded and accounted for in order for the smooth operation
of the business.
Pay the vendors, make sure that you're always getting your goods in because the bills are
paid.
Paying the employees.
Paying the employees, they tend to be happy when they get paid.
That's a fact.
And then from a forward looking perspective, and this is the part that really intrigues
me is that you can use past performance, you can use things that you know about the business
to predict the future of the business.
And so you can start doing things like what if, what if I did this, what would the outcome
be?
And so finance can participate in those conversations about what the financial impact is to various
activities that the business is investigating.
Gotcha.
Well, Jeff, we have a lot of topics to cover on this subject and how finance impacts operations
both in this podcast and during this series on finance and financial support for operations.
So tell you what, you take a break.
Let's take a quick break and then we'll be back.
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What do we mean by the right talent?
We mean we find talent who will commit to your organizational goals and align with your
values and behavior expectations.
Talent who will perform to your expectations.
Talent who will stay and grow with your organization.
How are we different from our competitors?
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To learn more, contact Jeff Parsons by email at jeff at FlagshipTalent.com or by phone
at 1-800-530-4189, extension 101.
Okay, we're back with our guest, Jeff Smear.
So let's investigate some of the major topics within finance where finance provides a level
or degree of support to operations.
One of those is budgeting and forecasting.
So how crucial are budgeting and forecasting for effective operational planning and what
best practices should companies follow?
Okay, so absolutely critical to understand the financial impact of your decisions.
And as far as what best practices for budgeting and forecasting is, it's important to involve
the people that do the work.
There's a concept in lean manufacturing and we're giving, I know you and I both like the
lean manufacturing ideas on the set of the Gemba Walk.
And the Gemba Walk is going to where the work is done.
And the same thing applies to budgeting and forecasting is a lot of companies view budgeting
and forecasting as kind of an accounting exercise, but it's not.
It's an operational exercise.
If you can go to where the work is done, go to the people that do the work and understand
the resources that are required in order to achieve the objectives of the business.
The finances are the downstream impacts of those upstream activities.
And so focusing on activities where how many people do I need to accomplish those goals?
How much raw material do I need in order to get this amount of finished goods?
Those sort of things are what drives the results of the business.
And so as a budgeting and forecasting exercise, starting with the activities and the inputs
is really important to one, understand what the results of the business are and two, to
gain accountability and gain ownership of the results of the business.
Gotcha.
Which sort of leads us into the next area, cost management.
And you mentioned lean.
So talk to me about the strategies that you as a finance professional use to manage and
reduce operational costs without compromising quality or efficiencies.
Correct.
Yes.
And as we talked about, I'm a big fan of lean concepts and lean operations.
And so a lot of frontline managers have no influence over the hourly rate that you pay
your employees.
They have no influence over how much the raw materials cost.
What they do have influence over is how efficiently those resources are used.
And so my role as a member of the team is to help them to make that connection between
efficient use of resources and outcomes.
Right?
Now hold them accountable for how much you pay an employee per hour or how much you pay
per pound of raw materials, because those are beyond their control.
But help them to understand if they change the mix, if they change the configuration,
can they get more out of their operation?
Interesting.
You know, you mentioned lean and you mentioned gimbal walks.
I have another past contributor to the podcast and a friend who's a lean expert.
It would be a lot of fun, I think, to get he and you both on the same panel discussion
as it relates to, you know, the various facets of lean because a lot of people think that's
just a manufacturing thing that you, you know, they don't get the value that it brings in
the administrative areas such as finance and HR and that sort of thing.
So that would be a lot of fun.
Yeah.
Talk to me about financial metrics.
I know you're very metrics driven.
So in your experience, which financial metrics are most important for operations managers
to monitor?
You know, just in general, I know it really is situationally depends, but based on your
experience, what would you advise and what have you seen in terms of typical metrics?
Yeah.
So, yeah, as you mentioned, it's very situationally dependent.
If you have a capital intensive business, it's going to be different than if you have
a service business.
But I like to make sure that I have a balance of different metrics.
I want to have activity metrics, things like gross profit or revenue per employee, those
sort of activity metrics that help us to look at how efficiently we're operating as a business.
And then we have management metrics of how we're managing our resources, right?
So things like cash flow from operations or working capital as a percentage of sales and
those sort of things.
So those are, how are we doing as a management team at managing operations?
Absolutely.
And then we have investment metrics, which are things like return on capital employed,
or how much we're investing in the future as far as R&D spend per revenue dollar.
Those sort of things help us to understand how we're preparing for the future of the
business.
So it sounds like the metrics, the dashboard of metrics is different based on or can be
different based on your role within the organization.
If you're an operations leader, you're going to have a dashboard of financial metrics.
If you're the CEO of business, they may be different metrics.
And the operational metrics would feed into the broader...
And that's the key is that we all have to be going in the same direction.
And so the metrics need to support one another, but the CEO will be looking at a higher level
dashboard that'll have different things.
And each level down is going to have more granularity in the metrics, but it'll be all
supportive of those high level metrics.
Okay.
That's a great discussion regarding metrics, Jeff.
And as I think about it, and as I listen to you, I really believe we should devote a podcast
episode on just metrics and defining those metrics so that our listeners have a better
understanding of what those metrics are, what they measure, and how they can be of value.
But for now, let's talk about capital allocation.
So how does effective capital allocation impact operational performance?
And what factors would you consider when making these types of decisions?
So I mentioned return on capital employed.
And in really high level simple terms is you want to return on your investment.
Whether you're buying a business, you're buying stocks in the stock market, whatever it is
that you're investing in, you want to have a return.
And that return should be at least as much as you could get if you just bought a mutual
fund and left it to grow.
And so using capital allocation is really important to the business.
And there's some things that you are never going to get a return for.
They're just a pay to play sort of spend, like fixing the roof on your factory.
And it maintains safety, it maintains the building, and it safeguards your assets that
are within that building.
You're getting a return on that investment per se.
It's a must have.
Whereas if I'm looking at a new piece of equipment in the manufacturing operation, I'm going
to start asking questions.
And there has to be a business case for it.
Am I going to increase the operational efficiency through this investment?
Am I going to increase the quality?
Or am I going to increase the throughput?
And if I'm improving on those, is the improvement going to pay for that investment?
And how long is it going to take to pay for that investment?
So we'll look at things like payback period, or we'll look at internal rate of return.
And so we'll use financial terminology and calculations to calculate whether that investment
is worth it.
Yeah, and I've witnessed frustration on the behalf of leaders before on the expected period
for a return on their investment.
It really depends on the company and the company structure.
Sometimes you have the big companies, the big corporate entities, the Fortune 100 if
you will.
And they make more R&D focus and they may have more patience in terms of an investment
is going to pay off in five to seven years.
Or we may have a PE based firm and their goal is to turn the business around in three years.
So they're going to have their expectations will be much tighter.
Why should I give you money for this if I'm not going to see a return?
And years ago I worked for a company, a UK based company, and it was run by a small group
of holding company of financial people.
And they literally said when there was a request from the US for capital, they said, well,
why should we give you X amount of money when I can put that same amount of money in, as
you mentioned, mutual fund or something like that and get a better rate of return than
I can in giving it to you.
And that's a real difficult thing for managers to grasp sometimes that it's an investment.
And if I give you $5 and it's going to take me three years to make a dollar and I put
it in this other account, $5 and I can double my or get a better rate.
And if I give it to you, why wouldn't I put it over here?
Because my job as a senior leader within the company is to get a return on the investment,
to make a profit if you will.
And that's what it's like.
And it goes back to that conversation about financial education in the operational part
of the organization is part of my role is to help my operational team understand the
why behind the controls that are in place.
And so, for example, if you've got a privately held company and you walk down the hallway
and say, hey, we need to buy this piece of equipment, president says, yes, you go out
and buy it.
Right.
That's right.
Not a lot of planning that goes into it.
You put your argument together as you're walking down the hallway.
You lay it out and the decision is made.
Right.
Once you start reporting to shareholders or to a PE firm, then you have controls that
go into place.
And so understanding the needs of the parent company or the parent organization or the
investor group is really important.
And then explaining the rationale and the why and helping the operational team work
within the constraints of whatever system is there.
Well, yeah, this has been a great discussion.
Thank you for your contribution.
Tell you what, let's take a quick break and then I'll come back and wrap up this first
episode in finance and operation.
Let's talk flagship talent solutions.
How do we support our clients in operations?
We recruit and place talent in operations and operations support areas.
Examples include operations from supervisor to the C suite engineers in all disciplines
quality professionals, lean and process improvement professionals, operations support such as
finance, including entry level accountants, controllers, finance directors and CFO.
As for HR, we recruit professionals at all levels at flagship talent.
We are focused on placing talent that will drive your operational excellence and business
success.
For more information, contact Jeff today at jeff at flagship talent dot com.
Okay, we're back and thank you for listening today.
I hope you join us for our next episode in finance and operations and we will be covering
topics such as risk management, operational efficiency and the importance of cross department
collaboration.
Again, I'm Jeff Parsons.
The name of this podcast is the flagship.
If you liked it, please subscribe.
You won't regret it and you'll learn a lot today.
In my ads, I wanted to focus on just strictly recruitment and how we support operations
in recruiting and spacing great talent.
In subsequent episodes, we'll talk about the other services we provide our clients
to help them drive operational excellence.
So see you next time.
Thank you for listening to this episode of Be the Flagship with Jeff Parsons.
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Until next time, take the step to become the flagship in your marketplace.