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PUBLISHED ARTICLE: Sharpening Financial Skills to Enhance Management Effectiveness
6-Jun-12 [ by Larry Chao ] 257509 Read and 3 Comment

It seems too much time is spent on people management skills and not enough on teaching executives how to use financial results to manage the business‚ writes Larry Chao.  
This is particularly evident today‚ as companies need to be more cognizant about financial health in the midst of ever-changing marketplace challenges.  Most corporate training curricula are weighted towards topics such as delegation‚ coaching and empowerment.  Nothing wrong with helping executives learn how to motivate and develop their subordinates‚ but in our haste to improve people skills‚ we often overlook the need to improve the quality of decision-making.  

Effective management skills such as empowerment go hand in hand with sensible business judgment.  This includes understanding the impact of performance on the balance sheet and income statement. 

Too often bosses delegate tasks to subordinates without briefing them on the full consequences of their actions.  Subordinates are told‚ for example‚ to reduce inventory levels without understanding the trade-offs of lower inventory costs on customer service and sales.

The problem is we fail to train our executives to appreciate the link between their actions‚ organization performance and financial results.  When‚ for example‚ was the last time you attended a training session that explained how to manage cash flow?  How about a course on how to interpret financial ratios to piece together a story on where the company has been‚ where it stands and where it is likely headed?

Now some might argue that aside from senior executives‚ business management skills and financial acumen are not priority skills for the rest of the organization.  They believe that accountants alone are responsible for understanding and interpreting financial performance. 

But this is a dangerous assumption.  In a fast changing environment‚ missing financial warning bells‚ or heeding to the short term expectations of Wall Street can lead to disastrous results.

Company accountants prepare and analyze financial statements.  By nature they are conservative and focus on the past‚ not necessarily the future.  For their work to add value‚ they need to work with line managers to understand future assumptions about the business‚ markets and growth strategies.  Together line managers and accountants can cobble together a winning strategy.

One president of a multinational foods company had this to say about his company\'s training programs: \"We have plenty of soft skills training such as leadership and team building‚ but nothing on teaching our executives how to think like a business owner.  We can be more effective and quicker to react to marketplace changes if more people understand how our strategies and actions affect the bottom line.\"

Indeed‚ by seeing the big picture‚ executives could delegate tasks more proactively without waiting to be told what to do.

In a recent company conference I attended‚ we mixed the agenda to include a session on working capital and how it affects an organization\'s ability to compete.  Participants learned about the importance of managing inventory levels‚ accounts receivables and accounts payables in the context of their overall company strategy. 

They were given different scenarios and challenged to debate the alternatives with relevant facts to make sensible decisions.  In the end‚ they learned the trade-offs of reducing working capital.  They learned how to manage it to support strategic objectives without disrupting other key parts of the business.  Most importantly‚ they learned the impact of sound working capital practices on their bonuses!

Having excellent management skills without a sense of how operations ties to financial health is like operating in a vacuum.  Better‚ faster decisions and more effective empowerment occur when executives are more informed. 

Perhaps one way to encourage learning business management and financial skills is to create simple case studies that illustrate how operations tie to financial performance.  Through this case study method‚ executives from all functions will be able to see how their work and decisions impact each other and the overall company results.  They will be able to explain the importance of tasks they delegate to subordinates‚ and reap the full benefits of their management skills training.

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