I remember being made General Manager of a midsize business. I was told to manage the P/L (Profit/Loss) statement and to grow a business which had struggled to grow before. Interestingly this business had 4 dedicated chemical manufacturing sites in 3 countries which reported to a central manufacturing executive. In addition, the financial/accounting organization was centralized along with human resources, the quality organization and engineering group. In other words none of these departments reported to me except sales, marketing and R&D. Now here is my $200M question: Who was really accountable for my P/L statement? Well you probably know the answer but it would be helpful to know how this matrix organization worked. Here is some personal commentary of how I observed it working in relationship to my business.
– We were successful in getting sales to grow in year 1 by 10%, but the manufacturing group was under orders to cut inventories across the whole company, with bonus plan targets and making known that failure would bring unfavorable consequences at performance review time. My business went into back order. Sadly, while my local manufacturing executives were sympathetic to my issue, they were powerless to act in a way that supported the very business which keep their plants open.
– Capital projects were needed in response to new customer needs and sales opportunities, but the financial and engineering organizations were given instructions and goals to control capital spending. Even though I had the full approval by my Group President for my budgeted capital requests, the financial and engineering organizations vetoed my capital without even asking for a explanation or its impact on my P/L statement.
– In order to achieve growth for this business we moved into new market segments. However these new market segments had different and more demanding quality standards. I found myself in long conversations with my business’s quality group and was told the large number of customer complaints was “normal” and that our several month long complaint investigation process could not be shortened. While changes were eventually made (mainly because the centralized quality group had no interest in my business and wanted me to go away), we lost valuable time in our quest to enter new market segments.
– I recall needing to hire new people as the business expanded and we retooled the organization. Central HR challenged every hire. Again it made no difference if the position was part of my strategic plan and budget, they either denied the request, and or insisted on reducing the level of the position. There seemed to be an attitude that business people, if left to their own plans, would spend on headcount in an out of control way. I remember my European direct report, accountable for my sizable business in Europe, trying to replace his administrative assistant. After months of discussions and follow ups we finally acquired the 14 signatures needed to begin filling the open position.
These show that the parent company had accountability issues. I speculate that senior manager had problems holding managers accountable so they controlled such items as inventory, capital spending and headcount through functional support groups. As the General Manager of my business I would have gladly ensured systems were in place to control inventories, manage capital spending, deliver effective quality and high productivity as part of my P/L statement management. However the real authority to manage was not given and therefore I had accountability for my business in name only.
OK… So I vented a little here. Those were frustrating years but the business somehow flourished and the parent company eventually gave me more authority. But during this period my accountability did not match my authority. For true accountability, it must be matched with the authority to deliver on that accountability. Let’s discuss some common pitfalls in matching accountability and authority.
A plant manager is very interested in quality and safety. She has a production manager, quality manager and a safety manager as part of her staff. She decides to establish some performance goals around reject rates and number of injuries. Who should be assigned these goals? You say “Elementary, my dear Watson.” and it is, if you think about accountability equals authority (acc=auth). The production manager has authority over the production equipment and the product produced. Therefore he/she is assigned the goal of reducing rejects. The quality manager will keep score and support the production manager with analysis and collaborate in problem solving but is not accountable for rejects. Likewise the safety manager does not have authority over most of the people and their work assignments. Therefore the safety goal will be distributed to each manager in proportion to the number of people which they have authority. If this seems obvious, why do so many organizations struggle with this simple principle.
Let’s do one more. Again a plant manager is accountable for controlling inventories made up of raw materials, work in progress (WIP), and finished goods. He also has a budget for distressed inventory which is occasionally produced when things go badly for various reasons. Sales/Marketing is complaining about back-orders on certain important finished good items but other items have excessive inventory levels. The plant manager knows that his budget for distressed goods was 50% over one year and 50% under the next year causing visible impacts in the P/L statement. An analysis shows the volatility is caused by the sales/marketing team accepting large returns of finished goods when some of the biggest customers make ordering mistakes. The plant manager’s boss is very frustrated with his inability to avoid back-orders even when inventories are high, plus he has failed to manage the spending budget for distressed inventory. What should be done?
One possible solution is accept that the plant manager does not have authority over some of the inventory and budget. I recommend the following changes, which may seem a little complex, but actually follows the principle acc=auth better than the current system. Back-orders and finished goods excesses are most likely products of volatility in the sales/marketing forecast. Since sales/marketing does the forecasted demand, they should be accountable for the finished goods inventory. As should be the case in most modern Sales and Operations Planning systems, the manufacturing group is accountable to hit an agreed production level each week or month based on the forecasted demand. Therefore sales/marketing has authority over the level of finished goods and is accountable for controlling this aspect of the inventory. The plant still has authority and accountability over raw materials and work in progress. Both the plant and sales/marketing should have a budget for distressed goods. The plant is accountable for any problem goods when something goes badly, but sales/marketing is accountable for goods which are returned solely to maintain the customer relationship.
Accountability equals authority is a easy principle to remember but most organizations have situations where this principle is being broken. It leads to poor accountability and much frustration as employees try to do their best. Start today and look for your own examples of failing to make acc=auth. Fixing these situations will transform your delivery of results.