Do you drive your car solely by looking at the dashboard, measuring your speed and fuel usage? Or do you mostly drive by looking out the window to see where you are and where you are going and possibly checking upon your passengers to make sure they are okay? It’s the same in business: you have to look out the window to make sure you are going where you want to go. Numbers on a spreadsheet alone won’t get you there. Look at your customers, look at your employees, look at your competitors and assess the business environment as a whole. Most likely, you don’t have metrics to tell you what is going on in those areas so you need to “look out the windows”.
Companies that have shareholder mentality will tend to run business strictly by the numbers such as share price, focusing on the short-term and short changing the long-term. Those numbers, especially the financials, will not tell you what is really going on or what may portend in the future. The financials are usually looking in the past.
An extreme form of dashboard driving I encountered many years ago was the cash flow or days sales outstanding. When new management came on board, they ceased all payments of bills, sometimes prolonging payments for six months, or so I was told. I received many calls from vendors about non-payments and I tried to find out from account payable what was going on. For many months, I got dead silence until, finally, somebody whispered that they received orders not to pay invoices until at least 3 months later. Also, they were to sit on invoices if the invoices lacked certain information. All of this effort of non-payment was done to improve the cash flow metric.
A couple of months later, corporate finance crowed that they received an award for best cash flow, with a negative DSO (I think that was the metric that was negative), meaning they managed to get customers to prepay a lot of items on the front end while neglecting payment to suppliers on the backend. When the announcement came out, I thought that was not something to be proud of because the suppliers were going to bite the company back either in a form of non-delivery of services or demand for prepayment themselves.
And sure enough, I started to see orders where suppliers demanded full payment up front before the service or hardware would be delivered. In one instance, we were working to develop new business which would require new equipment and software. The vendor demanded the full half a million (I think it was half a million if not a million) up front. Of course, our company wouldn’t pay, and so, we could not go forward with the new business.
The issue of non-payment or delayed payment of invoices, along with other questionable business practice, must have reached our customers because just before I left the company, we started losing clients. And about nine months after I left, the company lost its two biggest clients in the US, which sent the US sector reeling. Today, the company is no longer in the US, having sold the diminished US sector to another company.