Executive Briefings

Sure, Every Department Made Its Numbers for the Month, But they Weren't in Step with Each Other

The CEO is in a monthly operating review meeting with all of his product managers. One turns to the CEO and says, "I made my numbers this month." One by one, the rest look the CEO in the eye and say the same thing. The CEO should be delighted, right?

"Why don't I feel better?" the CEO asks. His answer: "I'm the only one in the damn room who didn't make his numbers!"

What's going on here isn't hard to explain, says Jonathan L.S. Byrnes, a senior lecturer at MIT and president of Jonathan Byrnes & Co., in Lexington, Mass. The numbers most important to the product managers are not necessarily those most important to the CEO. The product managers met their numbers, but the CEO, whose main number is profitability, was disappointed. Let's look at why: One product manager increased sales volume, but did so by discounting the product, thereby sacrificing margins. Another managed to grow the top line-by throwing in free maintenance, further eroding margins. Still another acquired new customers, but the additional sales required frequent shipping of small orders. The gross margins did not cover the distribution cost, so the company lost money on every transaction.

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The CEO is in a monthly operating review meeting with all of his product managers. One turns to the CEO and says, "I made my numbers this month." One by one, the rest look the CEO in the eye and say the same thing. The CEO should be delighted, right?

"Why don't I feel better?" the CEO asks. His answer: "I'm the only one in the damn room who didn't make his numbers!"

What's going on here isn't hard to explain, says Jonathan L.S. Byrnes, a senior lecturer at MIT and president of Jonathan Byrnes & Co., in Lexington, Mass. The numbers most important to the product managers are not necessarily those most important to the CEO. The product managers met their numbers, but the CEO, whose main number is profitability, was disappointed. Let's look at why: One product manager increased sales volume, but did so by discounting the product, thereby sacrificing margins. Another managed to grow the top line-by throwing in free maintenance, further eroding margins. Still another acquired new customers, but the additional sales required frequent shipping of small orders. The gross margins did not cover the distribution cost, so the company lost money on every transaction.

Read Full Article