by Bruce Newman

   This article was originally published in The Productivity Institute (PI) Newsletter

It is next to impossible to impartially evaluate all aspects of a business.  Whether that business is a non-profit organization or a for-profit business is irrelevant - it must still run as a business.  As such, both entities must generate income, manage expenses and deal with a gamut of business issues every day.

Determining productive and non-productive costs can greatly affect a company’s positive cash flow.  Productive costs are those functions that produce revenues that are essential to the operation of a business.  One such example is the cost of research and development.  Conversely, non-productive costs are simply expenses.  A company car or unused rental space are simple examples of non-productive costs.

Often, companies are loath to reduce or even acknowledge these non-productive costs.  Usually born in better economic times, they nonetheless remain as vestiges of that foregone era.  This was readily apparent the first time the CEO’s of all three major American automobile companies flew to Washington DC on their company’s corporate jets to ask for bailout money (at a cost per flight of over $20,000, each).  It was merely a function of just how they do business.

Possessing feelings is a part of human nature.  From the time we are infants until our death (hopefully after many years), emotions and feelings are a part of our behavior and the basis for much of our interactions.  Given these innate and learned sensibilities, is it any wonder that we are unable to be impartial when evaluating our employer’s business?

When employees are asked to assess a business, an additional factor may appear: the desire to inflate that person’s value, often to the detriment of someone else.  This inherent conflict of interest requires further explanation.  Let’s say the person doing the evaluation is a senior vice president who has not been particularly effective in his job.  An impartial evaluation will denote his shortcomings, possibly resulting in his termination.  However, a biased evaluation may report his performance as exceptional, depending on how the assessment and report is structured – with another employee receiving the blame.

Impartiality also requires the expertise and knowledge to develop probing questions when evaluating a company.  Asking the question to a CEO and upper management (individually), “What does your company do?” for example, will usually elicit a surprisingly wide range of responses that require further study.  It is unlikely that a high level employee would ask this seemingly simple question to his co-workers and possibly his boss and impartially report and interpret the results.

To more closely examine this issue, consider the different levels of responses you would likely receive to the following statement with the only difference being whether the questioner was an impartial expert or an employee: 

Please rate and comment: The organization has a clearly defined strategy for adding outstanding and unique value in its selected markets.

Would a person suffering from job insecurity or afraid of a – potentially harmful - answer really respond truthfully? 

This raises my final point: the interpretation of the results.  An unbiased, experienced evaluator may look at the study results and draw vastly different conclusions from a company employee, primarily as a result of his perspective and experience - which might also become the basis for further study in determining the cause of a problem and its resolution.

Evaluating a company can greatly affect its positive cash flow and financial flexibility.  It can uncover huge non-productive costs – which are usually recurring, and make recommendations that can enormously benefit the company both in the present and the future.  To accomplish this requires the systematic efforts of an impartial and experienced evaluator.

Bruce Newman is the Vice President at The Productivity Institute, LLC, an acknowledged leader in locating, evaluating and matching the specific areas of expertise of consultants to the needs of its clients.  Bruce also specializes in evaluating companies to improve their productivity and positive cashflow using CFNA. He is also the editor of the Productivity Institute Newsletter, a free content-is-king newsletter and thought leader.  Follow him on LinkedIn, Twitter and the Productivity Institute blog.