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Wednesday, February 28, 2007

Open Letter to Radio CEO's

Are you working for or running a financially oriented organization? If so, you may be headed for trouble. Finance provides the capital to fund business development and tracks the results of operations, but it doesn't have that much to do with what comes in between. The bottom line is on the bottom for the simple reason that it is the result of operations, not the cause. Yet many managers focus on bottom-line financial results and thereby fail to manage the things that drive those results.

How do you know if you or your organization is overly financial in orientation? The most obvious clue is that everybody is held to "the numbers". That's how managers are evaluated, that's what the boss always wants to talk about, and that's what everybody manages for. If you find that you or your people are obsessed with "making their numbers", then you know you have a financial orientation. And while financial management needs to be a core activity in the organization, it cannot be permitted to displace other forms of management.

People and organizations that manage by the bottom line never perform as well in the long run as those that focus on the causes of bottom-line performance. An orientation toward your employees, customers, technologies, and business processes is much more likely to produce good bottom-line results.

Let's look at a real-life example. Radio group "X" hires a new GM for its major market cluster of 5 stations. This person is tough. That's why he was hired. This person insists that his sales managers make their numbers, even though the sales goals they were given were unrealistic. And so, these sales managers - constantly pressured to make their numbers did so - by "loading the trade" or unrealistically overselling the commercial unit limits, under pricing, throwing in "value-added" promotions that the programming department could not live up to and using other aggressive sales methods. The numbers that were seen by this new market manager looked great and subsequently they were passed on up the food chain to corporate. Confidence was high. Then it hit the fan.

Commercial inventory was so oversold and there were not enough cancellations 30% of the projected revenue evaporated. The lower priced spots that were sold and did get on in high-revenue day parts like morning drive did not enable the station to achieve budgets. So much for rubbing people's noses in the bottom line. It just doesn't produce long-term results.

Financial statements offer one of many possible views into the inner workings and end results of a highly complex business process that is itself a small part of a complex economic and social system. If you focus only on the bottom line results in your financial statements, you will be managing in the dark because you won't seek out and understand the variables that drive your systems.

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