Financial managers need only concentrate on

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Financial managers need only concentrate on

Few corporate executives would disagree with this idea conceptually. But it is also true that most treat the economic value of employees in enhancing customer relationships and company profits as "soft" numbers, unlike the "hard" numbers they use to manage their operations, such as the cost of labor.

The problem with this is that when the going gets tough, managers focus on the hard numbers.

And the reality is that at some point every company will go through tough times. That is the nature of business cycles. The result is that today, we are overwhelmed with downsizings and restructurings. Layoffs make the front pages of our newspapers regularly. And while Wall Street often rewards layoffs by treating them as a sign that management is serious about getting a company's financial house in order, the reality is quite different.

Most organizations that downsize fail to realize any long-term cost savings or efficiencies, which necessitates even more recession staffing strategies and employee layoffs.

Background

Disloyalty Is a Two-Way Street Although the cost benefits of downsizing tend to be mirages, the corresponding pain to customers and employees is all too real.

Research using the American Customer Satisfaction Index found that those firms that engaged in substantial downsizing experienced large declines in customer satisfaction. Unfortunately for those firms, the index has proven to be a good predictor of future earnings. The study's authors note that "the current trend toward downsizing in US firms may increase productivity in the short term, but the downsized firms' future financial performance will suffer if repeat business is dependent on labor-intensive customized service.

Downsizings result in a rumor-filled paranoia. When Coca-Cola instituted a restructuring that resulted in the loss of thousands of jobs, the company became so awash in far-fetched stories that executives were forced to take the unusual step of intervening to quash them.

Two years ago, we worked sixty-five-hour weeks. People were willing to do it, because it was a great place to work and we were doing something that mattered.

Do financial managers need only concentrate on meeting the needs of shareholders

From here on in, it's just a job for me. I'll put in my forty hours and that's it. No CEO relishes the thought of layoffs. It means that their companies are floundering. Furthermore, history has shown us that the pain often outweighs any long-term financial gains.

If companies are going to grow their way out of difficult times and excel in good timesthey need two things: But this only happens through an organization of committed, loyal employees. Finding the Link between Employee Loyalty and Profitability Benjamin Schneider, professor emeritus at the University of Maryland, has shown conclusively that the employee's loyalty-related attitudes precede a firm's financial and market performance.

And there is a much greater payoff in working on improving the human factor than people think. Researchers at University of Pennsylvania found that spending 10 percent of a company's revenue on capital improvements increased productivity by 3.

But investing that same amount in developing the employee capital more than doubles that amount, to a whopping 8. It is one thing to believe that employee loyalty results in positive financial outcomes, it is quite another to quantify those outcomes.

But if we are going to be able to resist our natural inclinations to focus exclusively on the short-term in difficult times, then we need to get very good at understanding what the real implications to the long-term health of our business is of employee loyalty.

The place to begin at your company is by asking, "How loyal are our employees really? And you have to be willing to ask tough questions. How do our managers' relationship styles impact the organization's service climate and employee loyalty? Does the company provide the necessary tools and training for employees to perform their jobs well?

Financial managers need only concentrate on

Is a commitment to serve customers rewarded and encouraged by the organization? Does the company demonstrate that it deserves the loyalty of its employees? There will of course be other dimensions that are of concern for your particular organization or industry. The key is to identify those few, vital dimensions that are most essential for your success.

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Once you have identified these dimensions, you must measure them in a clear, objective, and rigorous manner.

Typically, these come down to four things: The ability to statistically link each of these measures to employee loyalty is relatively straightforward. The key is to aggregate employee data into groups that meaningfully link to turnover, customer loyalty, and revenue.

For example, a retail chain might find store level analysis to be the most relevant unit, since customer loyalty and revenue are tracked at this level, and stores typically have semi-independent management.

The correlation between employee-loyalty-related attitudes and business outcomes is always meaningful from a practical, managerially relevant perspective, so it is worth the effort.Financial reports in management accounting are prepared as the need arises.

Expert's Answer

There have been arguments as to which between financial accounting and managerial accounting is more important. However, it is somewhat pointless to argue on which is more important.

Financial Management Network is a comprehensive financial planning and investment management company in Orange County California.

FMN specializes in tax savings, asset allocation, retirement, insurance and estate planning. Governmental fund financial statements (including financial statements for the general, special revenue, capital projects, debt service, and permanent funds) should be prepared using the current financial resources measurement focus and the modified accrual basis of accounting.

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their quality management colleagues who believe that risk managers are only focused on financial losses from medical malpractice claims and other forms of organizational liability.

Financial managers need only concentrate on

The financial focus. The problem with this is that when the going gets tough, managers focus on the hard numbers. And the reality is that at some point every company will go through tough .

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