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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.
 

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