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New King for the Information Age -- Dickeson

June 2001
A few weeks ago I asked for an annual sales summary from Fictitious Press, a printing company. I wanted to see how the sales stacked up account-by-account for the year—to do some internal benchmarking. What I received was an ugly dot matrix printout with neither dollar signs for currency nor percent signs for ratios.

Each account was on two lines, making it difficult to read the columns vertically. There were fields for sales, value added, margin and percent margin. The 365 accounts were listed alphabetically by company name. There were no product-type classifications for the accounts or salesperson designations.

The report was useless for internal benchmarking of accounts, products, sales performance or core competence identification. Yet it was the product of Digital Fancies, one of the top printing company management information systems suppliers, and it was a report in use by Fictitious, a successful commercial printing company.

Who designed this report? What criteria and objectives did they have in mind? Who uses the report? Anyone? What information does it provide? What knowledge does it offer? What decisions does it evoke? What actions does it promote? Is the report typical of the other reports in the system? Is it typical of the MIS (Management Information System) reports being provided for our industry?

I tried some "pragmatic marketing analysis." The report data was converted to a spreadsheet file with each account on a separate line. Accounts were ranked from highest total contribution dollars to lowest. Values were provided by the Digital Fancies job cost accounting system in place. I did say "pragmatic," didn't I?

The top 20 of the 365 accounts provided 80 percent of the total contribution for the year. That was a surprise. Quite often we find 20 percent of the accounts providing 80 percent of the total contribution—the old 80/20 rule. But here we found 5.5 percent of the accounts were providing 80 percent of the total Fictitious enterprise contribution. The lowest 80 accounts had negative contribution.

Now we have information that provides knowledge. Fictitious is vulnerable to a few accounts that are subsidizing a large number of deficient margin accounts. Is the enterprise dangerously out of marketing balance? What would you do, knowing this condition? You'd want more facts, more information, wouldn't you?

First question you'd ask might be, "Is the Job Cost Accounting System based on full-absorption cost rates?" That's a cockamamie model replete with assumptions and arbitrary allocations that invariably misleads analysis. The managers of Fictitious must realize the deceptive nature of the job cost system and just ignore it. Which sales reps are selling the high and low margin accounts? What products are producing the best margins? And on and on.

Why didn't that Digital Fancies printout provide all that marketing analysis as report information initially? The format of the report was a legacy from BC (before computers.) It originated long before we could sort, group, filter and compute the raw data into analytic structures. We all became so entranced by the "functionality" of computers and systems that we forgot the management information objective.

One of my friends is a software system designer for another industry. I asked him if he was designing systems that presented data listings rather than knowledge. "Yes," he responded. "The management of a company is willing to spend what it takes to get the data, but not willing to spend the additional amount needed to convert it to information—a form of knowledge that evokes corrective action."

Charles Wang, president of Computer Associates, believes that we are wasting a trillion dollars each year to provide computer information we don't or cannot use. My account summary example is a case in point. But it is just one small example.

Our primary hang-up has always been pricing. For pricing and managerial systems we had developed the Job Cost Accounting System in the 1920s. When computers came along in the '70s, we simply imported the job cost model into microprocessors.

Slowly, we've become aware that we were still getting financial reports in the same amount of time as BC and that the job cost statistical method has the same weaknesses in a computer that it had in calculators and comptometers. So we treat our job costing like a kindly, but wacky, uncle. We're polite, but we mostly ignore him because he doesn't make sense.

At least we can use the job cost databases we presently have to relate jobs to each other. We can get some idea of how customer accounts and sales reps rank, and what products produce better bottom-line results. We can develop some marketing strategies such as gradually increasing prices on the accounts in the lowest quarter of the rankings. Sales reps needing help, training or shifted responsibilities are identified by their ranking. Equipment to bolster the core competence products can be acquired with confidence.

These things can be done by developing report formats from the data we have. Insist that your package software must have formats that provide decision support information. Ask if your system has files that can be accessed by report writers such as Crystal Reports from Seagate, or Microsoft Excel. If so, then develop a library of your own reports using the talents of people already on the payroll. Or look around for some outside contract help for report writing.

We've matured. Functionality of computer systems is no longer king. Report content is the new king in this Age of Information.

—Roger V. Dickeson

About the Author
Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at roger@prem-associates.com, by fax (520)903-2295, or on the Web at http://www.prem-associates.com.
 

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