It Doesn't Work for Long When Managers 'Work the Numbers'

NEW YORK (TheStreet) -- Many inexperienced (and even some experienced) managers and executives get caught up in the "management" of internal issues and "working the numbers." They forget that serving the customer is the objective. Let me tell you about a company we'll call CYA that got too caught up in getting the numbers to attain the year-end bonus, and forgot about the customer.

CYA's executive team was not concerned with the long-term impact of decisions. Their decision horizon was one year or less (the later in the year they operated, the less time something had to "pay back" the investment.) This time horizon and priority disconnect was most evident in making decisions on the maintenance and replacement of the key production lines.

The main production lines were running 24/7/365. Initially, the schedule included periodic maintenance such as oil, lubrication, cleaning and annual maintenance to replace parts and do major upkeep (e.g., gears, motors). Then production rejects and scrap rates began to increase. Management directed the scrap and rejects be "set aside" until customer orders were "caught up on." The production supervisor was directed to suspend maintenance and keep the lines working to "catch up." He argued against this, but lost.

Quality issues increased, one out of two, then two out of three and then three out of four items produced were rejected as either scrap or to be "reworked." And of course management did not believe that they could "afford" to do major repairs and maintenance to the production operation while everything was "behind." The CFO's solution? "Rework" the numbers.

You should be able to guess the result. It wasn't long before customer complaints became overwhelming. Over 90% of shipments were late, incomplete, or of poor quality, and customers began to go elsewhere. Would it surprise you to know that the financials still "looked good"?

Many organizations confuse using financial information and reporting as a tool for monitoring results with actually getting those results. When the focus is managing the "numbers" rather than managing the activities, processes, people and outcomes, well things can quickly get out of synch. No organization, regardless of size, can avoid facing reality when the numbers can no longer be "managed." When the dysfunction of internal management processes begin impacting delivery -- quality, timeliness, accuracy of orders, etc. -- to the customer, then the numbers will reveal what is really happening in the organization. What is working and what doesn't work ultimately flows into the financial statements.