MACPA Story of using Itegral Operations Finance


MACPA Case - Tom Hood’s story - draft v.1-6 Joe Antoniak was an unlikely ally for a CFO.

A great highway construction foreman, Joe also became instrumental in helping convince the bankers and the bonding company to continue to support his company through a consistent net loss position for two and a half years

In the early 1990s, Tom Hood was CFO of a $110 million highway construction and paving company called Bryn Awel Corporation. During his tenure, the entire industry in Maryland took a 70 percent downturn in less than a year due to the combination of a loss of federal dollars and a severe construction recession.

Bryn Awel Corporation had the painful experience of having to radically cut costs (including people) to survive, which Hood vowed he would never to do again if there was any other alternative.

Using an innovative piece of software called the Mobley Matrix, Hood convinced the construction operations teams and foremen like Joe to change their behaviors in a way that would result in positive cash flow despite the mounting losses in the profit and loss statement. This shift in operations proved critical in reassuring the company bankers that Bryn Awel would keep its doors open.

As it turns out, the whole picture of the business was easily available in the matrix and key driver screens for the men who ran the construction projects – even for those who operated the heavy equipment. Anchored in the simplicity of the actual operating activities in the bank account, financial statements not only made common sense, but also were the foundation of effective dialogue, generating consistently good decisions from among all the leadership and operational roles in the Bryn Awel organization.

Anchored in the simplicity of the actual operating activities in the bank account, financial statements not only made common sense, but also were the foundation of effective dialogue, generating consistently good decisions from among all the leadership and operational roles in the Bryn Awel organization.

By 2001, Hood had been serving as CEO of the Maryland Association of CPAs (MACPA) for five years. The association, founded in 1901, had just finished celebrating its centennial. Early on, Hood realized the business model was in need of an overhaul.

Tom’s Story in his Own Words

“I was recruited from the private sector. I had been through a massive industry downturn in which I had to do a lot of painful cost-cutting. The association’s business was coming off a period of slow or no growth, and had a structural deficit. The leadership team and I decided together that we were going to add staff rather than cut, and work to consistently build revenues rather than try to cut our way to success.

“My story is really two stories. I've been a CPA for a good number of years, and spent a big part of my career as a CFO in the highway construction business. We were an asphalt and paving company in the Maryland region with about 500 employees. We had three asphalt manufacturing facilities, with about 16 road crews doing grading concrete and asphalt. The company did everything from driveways to highways for government, commercial, and residential uses. After weathering a severe downturn, we ended up being acquired by a large multinational conglomerate and I decided to follow my passion for the CPA profession.

“From there, I ended up as the CEO for the Maryland Association of CPAs, a non-profit with 9,000 members and a head count of about 31. We do training, development, and lobbying. Our purpose is to help CPAs be successful and protect the CPA brand. The interesting thing is that I've been able to relate tools that helped us survive in the asphalt business to thrive in a CEO role here at the MACPA. Our CFO, as one of our key senior team members, has helped a lot in this journey.

“When I got to the MACPA, we said, ’What if we could get our folks thinking like businesspeople, help our CPAs, then innovate and grow the association at the same time?’ Being around for a hundred years, we definitely had a mature market, so there was not a lot of innovation going on.

“As senior leaders, all of us have a fundamental challenge with organizational leadership – it is that we're just never done because our businesses are constantly evolving and changing, as are our people. The question then becomes, how do we continually figure the current situation out? How do we engage our people, train them and get them owning our business strategy, and then drive business execution in the right direction?

“The question then becomes - how do we continually figure the current situation out, how do we engage our people, train them and get them owning our business strategy, and then driving business execution in the right direction?”

Three Three-Bottom-Line Education for the Whole Team

“We used one of the biggest non-profits in the world, Kaiser Permanente, as our model,” Hood continued “Their CEO, David Lawrence was quoted saying, ’No margin, no mission.’ No matter how important the mission, it can't be achieved without sound financial management. So, how was I to teach a group of non-profit folks about business concepts so that they would ultimately relate business decisions to our financial growth?

“We decided to really take that on. One of the key things we did was the ’Three-Bottom-Line‘ education that Jahn Ballard brought to us. This was the same financial modeling system that I used at Bryn Awel Corporation to motivate our construction managers and convince our bankers of our sustainability.

“A CPA named Chuck Kremer, working with Lou Mobley, developed that system for CPAs, as well as a simple version of the Mobley Matrix, an Excel template called the Financial Scoreboard. In addition to providing it to our members, we used it in-house to relate to our people the connections between sales, cash flow, assets and expenses. From these basic and simple concepts, we then had them relate the finances back to their jobs. We asked our people, 

'What do you guys do to help sales when we want a successful CPA event? If there is high member satisfaction, what's the likelihood of that member coming back to another course?’

“Now they could start to relate some of those key performance measures to their own behaviors. Why is it important to get new members? That's an increase in sales. What is there about your behaviors that could help in controlling expenses? How do assets relate to cash flow? All of that is often not on the top of people's minds. We showed people some of the things manage cash flow if you reduce your assets or increase liabilities. They started to relate some of these core business principles to developing key performance indicators, and also began to educate the rest of our team.

What is there about your behaviors that could help in controlling expenses? How do assets relate to cash flow? All of which is often not on the top of people's minds . . . They started to relate some of these core business principles to developing key performance indicators, and also began to educate the rest of our team.

“Now we can look back on the story over the last 10 years. This is a picture of success, knock on wood, but I'm not ready to say it's a guaranteed recipe. The recipe is constantly bringing the team back to learn and to continue exploring these critical questions, like, ’How do I increase this, keep cash flow going and boost that return on assets?’ So my point is, this is a conversation that we have to continually have, and it never stops.

“After we got everyone focused on new product development and member satisfaction as the pivotal new strategies, you can see on the graph (below or on the facing page) we had profit tracking with consistent revenue growth for five years. We had an internal team, the Metrics Team, that met every month and got together and created their own metrics. By working on measures that they can link to results, or tell us how they relate to our overall financial and strategic goals for the association, we've now got it to where the teams are educating themselves.

“Our team started understanding drivers and linkages, and with that they were making decisions a lot better, all the way down to the receptionist. They started to understand what contributes to profitability and growth so it helps

them make better decisions. This process of involving our team in our strategy development, and then the financial linkages to their jobs and our strategy made a major difference. Our team started understanding drivers and linkages and with that they were making decisions a lot better, all the way down to the receptionist. They started to understand what contributes to profitability and growth so it helps them make better decisions . . . We also realized that we had not achieved full understanding of our team with bridging the gap between operations and our financials.

We experienced 10 years of revenue growth and profitability in a mature market. Our member satisfaction rose and we were recognized as one of the most innovative non-profits in the industry. By early 2011, we realized that the environment was getting more complex and we needed to evolve our business model once again.”

Becoming a Self-Auditing Culture

“With Performance Management Institute (PMI), we began the process by having our CFO, Skip Falatko, do a thorough due diligence review on ourselves through a self-auditing process, starting with his personal behavioral and financial knowledge of MACPA Skip began by using the Three-Bottom-Line Scoreboard and Dashboard tools and analysis to prepare and present the next fiscal-year budget for board approval. He was able to this do in a matter of minutes, hours and days using this approach, instead of the hours, weeks and months that it had taken in the past. Using the Scoreboard and Dashboard for the presentation made that portion of the board meeting so efficient, the whole budget was approved in less than half an hour – a significantly shorter time than it had ever taken before.

“Then Skip began a thorough examination of our work system with an emphasis on linking MACPA team behaviors with our financial results. With support from Jahn, our COO, and me, he developed a draft accounts list that PMI calls our ‘Chart of Behaviors’, which showed the complete sequence of value-creating activities we follow to serve our members. The beauty of that approach is that it also shows the activities that generate all our financial results.

“We started the engagement process of the entire team with a survey of the whole staff, to find out their insights on what was not working. Each staff person was asked for the two to four most serious issues they saw personally, so between all of them we could get information on everything in our work system that needed improvement. Skip and Jahn worked through the more than 70 different issues that were raised, organizing them into a list of more than 30 that the whole team could work on together.”

A KPI Kaizen

“We decided to follow Jahn’s encouragement to assemble everyone to work on the overall activities and measurement framework as a whole, letting them generate as many proposed key performance indicators (KPIs) as they could. He suggested that Skip, myself and our COO, Jackie Brown, keep completely quiet during the half-day session. We called it a Kaizen, taking a page from the lean manufacturing approach to cross-disciplinary problem-solving and rapid prototyping with all the reporting layers and key stakeholders represented. It was wonderful, and somewhat challenging, to keep our mouths shut and allow our people to work everything through without our input. Having the executive team agree to speak only when asked a direct question was certainly different approach to a meeting than we had ever had before.

“Getting everyone engaged in refining and improving the Chart of Behaviors itself was incredible to watch. Everyone took it very seriously, with a tremendous amount of very relevant input that added very significantly to the initial work the three of us on the Decision Team had done. Then, after they had prioritized down to five of the KPIs as the ones they agreed would have the most beneficial impact on the whole organization, the employees formed teams to drive progress forward. These teams are all self-organizing more and more.

“We now have the KPI impact teams meeting, and then they all come together once a month for 75-90 minutes ’huddle’ to report on progress to each other, and to us. Jackie, Skip and I meet as the Decision Team after each huddle to debrief on which parts of the teams’ work we want to encourage fully, where we see the need for modifications, and where we may decide to have them table a direction, or even the team itself, for the time being. We love the way this is both giving us complete oversight of the improvement process while also having an increasing flow of team tacit job knowledge, and newly discovered organizational knowledge coming towards us consistently.”

Unanimous Agreement about ’What We Do Here

“As of this writing, we have created a visual poster of the Chart of Behaviors that we call our MACPA Value Cycle. The poster is on the wall next to the CFO’s door, and every staff member has his or her own laminated copy. Having this unanimously affirmed visual reference point brings fantastic clarity and focus to every conversation because everyone at all levels can see how their areas connect with all the others. They also have great clarity on both the hand-offs they receive and the ones they make, so the value throughput to our members is as focused, smooth and impactful as we can make it. By the second Kaizen, we had focused down to three KPIs from the original five the staff created. One of them is new since the KPI Kaizen, and the other two have stuck as invented by the staff.

“Once we had the KPI Impact Teams aligned and getting up to speed, we asked Jahn to come back in to do a second Kaizen on our organizational measurement system, which was delivered on March 5th. We wanted to get our entire staff to understand the financial side as well. Now that the staff was under way with understanding and driving the behavioral side, it was time to connect that to economic results. With four months left in our fiscal-year budget cycle, we were behind the revenue goals enough that if we did not ‘hit the gas,’ we would end up with a loss for the year.

“After we oriented the whole team to Three-Bottom-Line performance and showed them how to project results in the future, we looked at the story of our last 13 years since 1999, so everyone could see how our history is reflected in our total revenue, profit and operating cash flow record. We then showed them the loss scenario that was likely to happen if we did not change that outcome together. We developed a report that showed financial details that were relevant to key functions each person and team performs, and then we had them sort into work teams to explore the data and look creatively at how to really pop their results for the next four months.

“Everyone really went right into the details and many great insights emerged that together could well put us over the top for the year. We are all now fully aligned around a new projection that we introduced at the March monthly huddle that we had later in the month.”

See Exhibits document illustrating MACPA’s behavioral and financial accounting and finance practices give visual reference for following case narrative with each exhibit having it own brief explanations and/or definitions:

© JW Ballard and Performance Management Institute, 2012, subject to review and approval of the Senior System Steward of this Case.

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