Lynn Northrup

What is a mission or vision statement? In brief terms, a mission statement is a description of how an organization defines success and where it is headed going down the road. In order to be successful, a mission statement needs to be more than just words or phrases. An effective mission statement needs to be a living document that provides the necessary focus for all levels of the organization.Despite the importance of defining a mission, there have been a lot of failures to create any change in organizational performance or in what people are doing to accomplish results. One of the big problems is that mission statements fail to effectively communicate to employees on where the company is headed. Mission statements also fall short on linking strategic direction with specific goals and objectives at all levels of the organization.

It is critical for organizations to define their future business direction so employees clearly understand where they are going and how they will get there. From this platform, organizations need to develop a definition of success and a process for setting goals and objectives. Together with these steps, it is critical for the entire organization to have clarity on its sources of strength and competitive advantage.

Once organizations get these step right, they need to move forward to clarify “the what, where, and how” of competitive success. This message then needs to be effectively communicated to employees and other people who have a stake in its success. A process of setting goals and objectives at all levels of the organization needs to be complete so everyone is on the same page in order to achieve a successful execution of the mission.

In many instances I think the objective setting process can be simplified. It doesn’t need to be complicated, but there needs to be buy in at all levels and everyone needs to know their role and how they fit into the plan. Defining an effective set of objectives might sound easy, but it is a tough job and is critical to achieving success.

The key to a successful mission or vision statement boils down to the following three steps:
1. Where is our business going?
2. What are our objectives?
3. How will we accomplish our objectives?
After these three questions have been answered, the key to success is to effectively convert the answers into performance objectives for employees at all levels of the organization. Organizations that commit to this process with focus and determination will be the winners.

In the current economic environment there are lots of business owners struggling to deal with issues and problems and no idea on where and how to get help. Likewise there are CPAs who are asked by their clients for assistance in areas where they lack the knowledge and experience to provide support. It is a perception that help has to be geographically accessible. The reality in many situations is that there are virtual means of accessing the necessary experience and assistance.Many services, including training, can be provided virtually using the telephone, e-mail, and conferencing tools. I selected the areas of my expertise that could be delivered virtually. It is possible to review strategy and operational situations by using my questionnaires and experience in effective ways. Another situation faced by many companies is that they lack the financial expertise to provide the financial and controllership skills required to survive the current difficult economic environment. Virtual tools are available to share financial information and in many instances an experienced financial manager can provide the needed suggestions that can make the difference between success and failure.

Internal controls represent an area where CPAs need some assistance so they can avoid reinventing the wheel. In many instances I can provide instant answers to questions and provide suggested solutions that could otherwise take hours to solve. Based on working with the COSO internal control framework and assessing audit risk, I can provide direction and advice to practitioners and even help them review their work papers to minimize their risk.

My dealings with family-owned businesses have provided me with firsthand experience in working with succession and planning issues including estate and trust planning tools. It is like having someone working in your CPA practice where you can discuss and review a problem for potential solutions.

Some other areas where virtual assistance is available are cost management, operations and supply chain management. Why struggle with these areas when help is a phone call away. I can also provide assistance with strategic planning and share checklist and questionnaires that will allow you to facilitate development of strategic thinking with your clients. If you are a business looking for assistance, I can provide virtual support and training in these and other specialized areas.

You may not have given thought to using virtual support or training, but it available and utilized all the time. It is a cost effective way to receive the assistance you need. Give me a call to discuss ways that I might be of assistance.

Why not virtual consulting and business support? Since I have always performed consulting services at client’s sites, this represents an interesting question. In the current economic environment when every dollar counts it occurred to me that I could provide companies with excellent support and advice they might not be able to access in their geographic region. I teach on-line courses for Villanova University in conjunction with Bisk Education where I facilitate live discussion session with students every week. If I could teach on line then why not consult on line?After pondering the topic and the question, the answer seems pretty straight forward. Clients could really benefit from such an approach. In one of my recent live discussion sessions we had an extensive dialogue on the transformation of communication. Virtual communication is what has evolved in today’s world. Since we communicate virtually, then consulting and business advisory support represents a logical approach.

Telephone and e-mail are logical tools that most clients understand. The part which is a mystery to them is realizing that we can conduct an on-line dialog over the internet utilizing voice in addition to sharing of presentations and other analytical tools. It isn’t quite the same as face to face communication, but it works pretty well and is a lot cheaper and more time effective. It is an approach that works well enough to help a large number of clients. Virtual consulting can save time and reduce costs so traveling to client sites is limited only to the bare essentials.

In addition to reducing costs and improving efficiency, this approach saves a lot of wear and tear and allows me to reach out to a greater audience and expand my market reach. I can now help more people access my knowledge and expertise. I think this is a good way to work especially in a tough economic environment.

COSO issued new information and direction on monitoring internal control during January 2009 in a three volume publication titled Guidance on Monitoring Internal Control. Monitoring of internal control is performed through application of ongoing evaluations and separate evaluations to ascertain whether other components of internal control continue to function as designed and intended. These evaluations facilitate identification of internal control deficiencies. The deficiencies then need to be communicated to appropriate officials responsible for taking corrective action and where appropriate to higher levels of management and the board of directors.It is important to realize that business risks change over time. The internal control system must be capable of determining that the internal control system continues to be relevant and able to address any new risks. Monitoring should address requirements for revisions in the design of controls as risks change. It also provides assurance regarding the ability of the internal control system to contain risks at an acceptable level in order to provide for effective and efficient operations.

Monitoring follows a risk based approach in evaluating risks linked to achieving operational objectives. It is important to establish a monitoring foundation that includes procedures for evaluating risks, assessing controls, and reporting the results together with any required corrective action steps.

One of the primary elements of the monitoring includes establishing an effective tone at the top of the organization giving a high priority to an effective internal control system. Effective “tone at the top” ensures that the management team and the board of directors are supportive of the evaluation process. Successful monitoring of internal control requires the selection and utilization of evaluators who have a baseline understanding of internal control. They also will have the suitable capabilities, resources, and authority to conduct a meaningful assessment of the internal control system.

Since the enactment of the Sarbanes-Oxley Legislation I have developed multiple training programs dealing with assessment of internal control in addition to my book, Profitable Sarbanes-Oxley Compliance. Please feel free to contact me with your internal control questions and to discuss how to create and implement an internal control monitoring program.

It seems like economic crisis and tough times are all we hear about these days. In a recent publication of Accounting Today an article appeared talking about the need for CPAs to step forth to provide assistance to small businesses. We need to provide guidance but small business people have to make a paradigm shift and realize they need help. They have been used to going without financial assistance for far too long and CPAs have been too focused on tax returns and financial statement preparation. Change needs to happen if businesses are to survive. My web site contains a lot of information both business owners and CPAs can use to survive the recession.CFO and Controllers of larger companies are also in a survival mode. They are laser focused on cash preservation and cost reduction. The key areas of focus include the following:
1. Preserving cash
2. Reducing costs
3. Reducing risk
4. Understanding expenditure patterns
5. Plugging holes in the dike
Over emphasis and indulgence on these factors can lead to overlooking some potential opportunities.

I think small business and larger organizations are missing the boat by placing all the emphasis on cutting back and hunkering down. Risk management should include looking for opportunities in addition to potential risk events that could adversely affect the company. Risk management should include considering opportunities to do a better job of purchasing and improving visibility on spending. Cash conversion efficiency includes managing accounts payable and inventories. These two areas represent a significant source of extra cash. It deserves additional focus and effort that will produce extra cash and liquidity.

Risk management includes effective planning and development of value propositions. Reevaluation of business strategies must be addressed since the old business model has shifted. New product lines and new markets need to be evaluated. More than likely the old rules no longer apply. Survival will depend on creating new visions and new strategies. These strategies then need to be linked to new marketing and sales programs. One of my clients is now spending a significant amount of effort developing new products and markets because the streams of revenue that existed just a few months ago no longer exist.

Operations and strategic planning when combined with sound financial management concepts and methodologies represent exactly how businesses need to deal with the economic crisis. Linked to these concepts are lean accounting and value stream analysis based on the voice of the customer.

I think this back to basics approach is what is required to cope with the challenges we face and represents the road less traveled to build healthy businesses and an economy that will survive the test of time.

Management philosophy is synonymous with “tone at the top” and provides direction as to how the organization will manage its financial reporting and articulate its objectives relative to internal control. Management attitude sets the foundation for financial reporting assertions and the application of accounting principles. The philosophy and operating style of management determines how financial reporting objectives and risk mitigation practices are established and executed.
Many smaller companies have entrepreneurial management teams that don’t always understand accounting and internal control processes. Promoting the importance of risk mitigation and appropriate interaction associated with transaction processing requirements is an adjustment for management teams of smaller companies. In many instances, adjustments need to be made so that all journal entries, together with the underlying assumptions and estimates, are properly authorized and supported by sufficient documen¬tation. Management operating style trickles down to employees, so there needs to be clear communication and application of business judgment so that qualified personnel are in place to perform effectively designed controls. It is critical for smaller organizations to ensure that management communicates effectively with employees as well as external parties relative to information linked to financial reporting objectives and the necessity for accurate and fairly presented financial reporting. Management needs to take financial reporting and internal control seriously by setting a “tone from the top” that is understood at all levels of the organization. Management philosophy and operating style needs to be “do as I do” and not just “do as I say.”

Lean accounting is a mystery to most business people and accountants. They have heard of lean manufacturing but not lean accounting. Lean accounting evolved in the manufacturing environment and hasn’t made much progress into lean thinking applications. There are a number of ways lean accounting can be applied in a variety of situations. It is perfect for managing and measuring results in tough economic times.Initially lean accounting got traction because it had the capability of overcoming the problems associated with standard costing. Standard costing is driven by labor efficiency, machine utilization, and absorption of overhead. These standard cost techniques were traditionally used by managers to build excessive inventories and generate positive variances to improve GAAP profitability leading to higher management incentive bonuses.

The economic recession has created a need for lean accounting. However, since most accountants haven’t use lean tools, the application goes unused. Lean accounting deals with tracking throughput or revenue and the associated variable costs required to generate those sales. Understanding that lean contribution from sales directly improves the bottom line is critical. You don’t spend funds unless it is associated with generating revenue. Since lean accounting provides better information for decision-making it has the impact of increasing sales. In a slower economy, companies need tools like value stream costing and similar lean-decision making applications.

Lean accounting financial statements are easier to understand. Since the focus is on the value stream linked to the voice of the customer, lean encourages measurement of drivers that produce value that customers want. Based on lean thinking, we are only incurring costs to produce customer value. We know the cost of the form and features demanded by customer. Costing techniques include target costing and analysis of the life-cycle of products. These approaches utilize continuous improvement techniques focused on improving our profit margins.

Since most managers relate lean accounting to manufacturing, the tendency is to ignore the concepts of lean and lean accounting for non-manufacturing applications. These areas represent the most lucrative opportunities for lean thinking and lean measurement. There are significant opportunities to lean our administrative and other overhead areas of organizations. Service, health care, and other industry sectors are leaving money on the table by not using lean thinking and lean accounting.

There are plenty of ways to apply lean thinking to accounting and financial operations. The use of simplified financial presentation and measurement can represent significant improvement in time savings and better decision-making. One of the concepts I advocate is sales and operational planning linked to rolling forecasts that virtually eliminates the need for annual budgets. This is a process of getting the entire organization to commit to a regular process of monitoring and communicating the most up to date information available and converting it to meaningful and actionable information. Rolling forecasts provide a simplified lean measurement of the organization and where it is going on a timely basis. It becomes a real-time basis decision making tool.

These concepts are discussed and explained in my book, Dynamics of Profit Focused Accounting. A lean front office is no different than a lean shop floor manufacturing operation. It is all about process flow and eliminating the waste from the value stream. The problem lies in the lack of education and inability to shift paradigms to a new lean way of thinking.

Value stream costing is a process of identifying and establishing costs for all the process steps required to provide value to the customer. It is a function of determining how much value is created by each process step. The mapping technique can be as simple as tracking all the steps associated with customer value using paper and pencil. Value stream mapping is a key element of lean thinking as in an effort to focus on and provide customer value. The mapping step is an effort to identify waste by walking through all of the process steps. It also attempts to determine how much value and cost is associated with each process step.

Activities that create form, features, and function of value to the customer are considered to be value added. All other steps are considered to be non-value added. These are the steps we would attempt to eliminate from the process or at least minimize the effort in order to reduce costs. The mapping and costing analysis should start at the customer and work all the way back through the business to its initiation.

Understanding value stream activities is a pretty easy process. From a practical stand point, costing the various value streams backwards from the customer to their source is more revealing than what is provided by traditional cost accounting systems. Activity based analysis and costing is a tool that can be used to help in analyzing value stream activities. The techniques used by this methodology can often be helpful in identifying activities and tasks. Also, the Pareto concept of 20/80 can be effectively applied to value stream mapping and costing since improving 20 percent of the processes will usually generate 80 per¬cent of the potential cost reductions and improvement in cycle time. Value stream mapping should be applied and evaluated through the eyes of the customer. Those value stream activities that provide the greatest profit impact should be addressed on a priority basis.

While this won’t make you an expert in conducting and applying value stream analysis and costing, it will provide an understanding of the basic concepts and how they are used. It is a great tool that is used in conjunction with lean accounting and lean work flow.

Deciding on what product and or service attributes will provide the best chance to win a competitive edge strikes to the very heart of how to develop an effective strategy. There are a number of approaches that can be used to craft a winning strategy. In this post we will identify some of the more common techniques that can be deployed.One approach many companies use, especially during difficult economic conditions, is a low-cost and low price approach. An alternative approach is one of differentiation and selection of a specific market niche. Differentiation can represent a more profitable option.

During a turbulent economy you will see a number of companies making moves in response to the rapidly changing industry conditions and other factors that develop in the external environment. This is one of the reasons adopting and maintaining a strategic focus is so essential when times are tough and competition heats up. Many of your strategic choices will go beyond just pure survival; they will be to secure a competitive advantage.

Another element of strategy relates to geographic market coverage and the extent of penetration in the market. Companies who got stretched with excessive capacity will have to consider adopting this approach to secure markets and customers to consume this capacity. One approach that some businesses have followed is deciding to pursue vertical integration to enable more sales to existing customers.

There are a number of different financial value propositions that are used by companies as a component of their strategy. Additional choices include the application of human resources, research and development, technology, and a variety of marketing promotions. Linked to these options will be manufacturing and operational approaches that fit with these choices.

A unique approach to strategy as we proceed into the 21st century is collaborative partnerships and strategic alliances. This seems to be a growing trend since it is difficult to be all things to all people making this a choice of necessity.

Strategic choices require developing skills, expertise, and competitive capabilities that set the business apart from rivals. The goal is to insulate your business as much as possible from the effects of competition. From this step you need to perform an analysis of the strategic variables and match them with your capabilities as well as your competitors. Strategic and competitive analysis is a critical component of crafting a winning and sustainable strategy.

You need to carefully think about your point of view relative to the future and assess how it stacks up against your competitors. Are you a risk-taker or just a rule maker? Another question that begs answering is what percentage of your effort is focused on catching up to competitors versus building business advantages that will take your business successfully into the future. It is critical to evaluate your agenda and determine whether you are setting it or if it is being driven by the competition.

While times are tough and success doesn’t come easily, it is imperative to think into the future and set the course for where you plan to be in five to ten years.

My recent post Strategies for Recession implies that everyone understands strategy. The truth is that strategy isn’t well understood and means many things to different people. One of my students in a recent session indicated she had worked on strategy development project for a large unnamed company and the executives didn’t have a clue as to what strategy is and how to utilize it. Hopefully, we’ll shed some light on strategy and how it is crafted.I think competitive strategy is about being different and deliberately making choices relative to activities that will provide a unique value proposition to customers. One contradiction is that operational effectiveness is strategy. This is what every organization should be doing to remain competitive. Strategy is about making tough choices needed to maintain a competitive advantage. These are choices to change the rules so they work in your favor.

Having the right goals is a critical component of having a sound strategy. Setting goals and objectives represent components of effective strategies. Strategy needs to have continuity and isn’t something that can be constantly reinvented. It boils down to the basic value proposition you are trying to deliver to customers.

A good strategy includes simple consistency between all the functional activities and the overall strategy. The strategic fit drives competitive advantage and sustainability and occurs when the activities are reinforcing thus achieving optimization of effort. Competitive strategy grows out of the entire system of activities.

Thompson and Strickland in their book Crafting and Implementing Strategy define five primary tasks:
1. Formulating a strategic vision of the company’s future business composition and the direction where the entity is headed.
2. Setting objectives.
3. Crafting a strategy to achieve the desired outcomes.
4. Implementing and executing the selected strategy efficiently and effectively.
5. Evaluating organizational performance and making appropriate corrective adjustment wherever necessary.

These five primary tasks become a continuous loop whereby you are observing, orienting, deciding, and acting on necessary adjustments as needed. In the current economic environment, organizations need to be agile and quick in making these decisions.

I will provide additional insight on strategy and how to apply it effectively in the future. In the meantime some strategic terminology might be helpful. Here are some definitions that will help to remove some of the mystery.

Strategic Vision is a view of the organization’s future direction and business makeup. The organization’s mission is defining it’s the business purpose and what the business is trying to accomplish on behalf of its customers. Strategic objectives represent the targets management establishes for strengthening the organization’s overall business position and competitive vitality. So strategy represents the actions and approaches that are implemented to satisfy customers and the strategic plan is a statement outlining the mission, performance targets and strategy.

This should provide some clarity and eliminate confusion related to strategy. Hopefully this will help you navigate turbulent waters and craft your strategies for survival.