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Compromised Agility
Contents:


  1. The Agile Manager's Guide to Leadership (The Agile Manager Series)
  2. To agility and beyond: The history—and legacy—of agile development
  3. Scrum Training Series: Free Scrum Master Training from Seattle
  4. A Lean-Agile Approach to Content Management

Pay is changing as well. Research and practice have shown that compensation works best as a motivator when it comes as soon as possible after the desired behavior. Instant rewards reinforce instant feedback in a powerful way. Annual merit-based raises are less effective, because too much time goes by. Patagonia has actually eliminated annual raises for its knowledge workers.

Instead the company adjusts wages for each job much more frequently, according to research on where market rates are going. Increases can also be allocated when employees take on more-difficult projects or go above and beyond in other ways. Upward feedback from employees to team leaders is valued in agile organizations. Compensation is also being used to reinforce agile values such as learning and knowledge sharing. In the start-up world, for instance, the online clothing-rental company Rent the Runway dropped separate bonuses, rolling the money into base pay.

CEO Jennifer Hyman reports that the bonus program was getting in the way of honest peer feedback. DigitalOcean redesigned its rewards to promote equitable treatment of employees and a culture of collaboration. Salary adjustments now happen twice a year to respond to changes in the outside labor market and in jobs and performance. More important, DigitalOcean has closed gaps in pay for equivalent work. To personalize compensation, the firm maps where people are having impact in their roles and where they need to grow and develop.

Negotiating to raise your own salary is fiercely discouraged. All employees are eligible for bonuses, which are based on company performance rather than individual contributions. How does DigitalOcean motivate people to perform their best without inflated financial rewards? Matt Hoffman, its vice president of people, says it focuses on creating a culture that inspires purpose and creativity.

So far that seems to be working. The latest engagement survey, via Culture Amp, ranks DigitalOcean 17 points above the industry benchmark in satisfaction with compensation. With the improvements in the economy since the Great Recession, recruiting and hiring have become more urgent—and more agile. For instance, a cross-functional team works together on all hiring requisitions.

Openings are ranked, and the team concentrates on the top-priority hires until they are completed. It works on several hires at once so that members can share information about candidates who may fit better in other roles. The team keeps track of its cycle time for filling positions and monitors all open requisitions on a kanban board to identify bottlenecks and blocked processes. IBM now takes a similar approach to recruitment.

Companies are also relying more heavily on technology to find and track candidates who are well suited to an agile work environment. The IT recruiting company HackerRank offers an online tool for the same purpose. Most companies already have a suite of online learning modules that employees can access on demand. Although helpful for those who have clearly defined needs, this is a bit like giving a student the key to a library and telling her to figure out what she must know and then learn it.

Newer approaches use data analysis to identify the skills required for particular jobs and for advancement and then suggest to individual employees what kinds of training and future jobs make sense for them, given their experience and interests. The agile pioneers in the tech world are years ahead of everyone else in adopting the methodology at scale. So who better to provide guidance as managers and HR leaders grapple with how to apply agile talent practices throughout their organizations?

In a recent survey, thousands of software developers across many countries and industries identified their biggest obstacles in scaling and the ways they got past them. The world often fails to cooperate with those plans, though. Companies routinely find that by the time senior leadership positions open up, their needs have changed. The most common solution is to ignore the plan and start a search from scratch. But organizations often continue doing long-term succession planning anyway.

About half of large companies have a plan to develop successors for the top job. Pepsi is one company taking a simple step away from this model by shortening the time frame. It provides brief quarterly updates on the development of possible successors—in contrast to the usual annual updates—and delays appointments so that they happen closer to when successors are likely to step into their roles. To be sure, not every organization or group is in hot pursuit of rapid innovation. Some jobs must remain largely rules based.

Consider the work that accountants, nuclear control-room operators, and surgeons do. In such cases agile talent practices may not make sense. The move toward cloud-based IT, which is happening independently, has made it easier to adopt app-based tools. But people issues remain a sticking point. Many HR tasks, such as traditional approaches to recruitment, onboarding, and program coordination, will become obsolete, as will expertise in those areas. Meanwhile, new tasks are being created. Helping supervisors replace judging with coaching is a big challenge not just in terms of skills but also because it undercuts their status and formal authority.

Shifting the focus of management from individuals to teams may be even more difficult, because team dynamics can be a black box to those who are still struggling to understand how to coach individuals. The big question is whether companies can help managers take all this on and see the value in it. The HR function will also require reskilling. It will need more expertise in IT support—especially given all the performance data generated by the new apps—and deeper knowledge about teams and hands-on supervision.

HR has not had to change in recent decades nearly as much as have the line operations it supports. Peter Cappelli is the George W. He is the author of several books, including Will College Pay Off? Companies that are adopting agile talent practices are giving a lot of thought to how employees experience the workplace—in some ways, treating them like customers. Edited excerpts follow. GHERSON: Like a lot of other companies, we started with the belief that if people felt great about working with us, our clients would too.

But it has required a shift in mindset. Before, we tended to rely on experts to build our HR programs. A good example is employee onboarding—the first process we took a very hard look at. We approached it in a traditional way that made it all about the orientation class, all about the experience you have on your first day.

Once you realize that, the remit for the onboarding team becomes how people experience the whole process, end to end. To get it right, you have to work with a broader set of players. You bring in Security to make sure the ID badges are there. You bring in Real Estate to make sure people have a physical space and know where to go.

You bring in Networking to make sure their remote access is up and running. All that is part of onboarding. It took a while for us to understand that. You have to broaden your scope and stop thinking in silos in order to create a great employee experience. So we had to put aside our traditional learning-management system and think differently about education and development. Again, we brought in our Millennials, brought in our users, and codesigned a learning platform that is individually personalized for every one of our , IBMers. You can see how others have rated the various offerings.

We measure HR offerings such as learning with a Net Promoter Score—the ultimate metric for an irresistible experience. Before, we used a classic five-point satisfaction scale. Even if someone rated you a 3. For learning, at last count, our NPS was The system is cognitive, so it knows you—it has ingested the data about your skills and is able to give you personalized learning recommendations. The tool then helps you achieve the badge by recommending specific webinars and internal and external courses. We used to have this laborious manual process of getting people to fill out skills questionnaires and having their managers sign off on them.

But that gets outdated really fast. So we stopped doing that. In our case, people arent buying shares in what we have. They are buying shares in what they think we will become in the futurea bigger company with increasing revenues and profits. Still, said Steve, book value bears some relationship to market value, dont you think?

If only as a reference point? And you know what? Youre already starting to talk like an old pro. Each part of this equation can be defined simply: Assets are anything of value that a company owns, like cash, accounts receivable, inventory, buildings, or equipment. Liabilities are what the company owes to creditors. In plain language, theyre debts.

The Agile Manager's Guide to Leadership (The Agile Manager Series)

Well, we. Theyre amounts, that est ip is, sums of money, that the company owes to outside parties. I The balance sheet freezes the suppose you might call them companys account balances debts. The Owners equity or net worth is the balance sheet can be obsostake or interest that the owners lete the very next day. In a corporation, owners equity is called stockholders equity. If the company is a partnership, it would be partners equity. If the business is a sole proprietorship which means its owned by one guy or gal , owners equity could also be called capital or net worth.

Remember what we said back in. Balance Sheet: Distinguishing Features What makes a balance sheet different from an income statement? For one thing, it doesnt summarize information for cerest ip tain accounts as the income statement does. A service business will most Rather, a balance sheet is a likely not have an inventory of snapshot statement.

The comany of value. Most of the accounts on a balance sheet have at least one thing in common: Their balances fluctuate a little bit every day because of the days business activities. Also, the balances in a companys balance sheet accounts run perpetually. In contrast, the balances in the income statement accounts sales, expenses, purchases, and freight, for example are reset to zero or closed out at the beginning of the new financial year.

Figure on the following page shows the balance sheet for Avaricious Industries. Again, these are anything of value that the company owns. Assets are typically broken down into current assets and property and equipment. Current assets are cash, things that will be converted into cash. Keep looking at the asset section of the balance sheet as we investigate these items in detail. Cash and cash equivalents. This is the balance in the companys checking account s , plus highly liquid short-term or temporary investments sometimes called marketable securities.

These might include certificates of deposit, stocks, and corporate or U. They were initially bought to keep excess cash working instead of leaving it to gather dust in a non-interest-bearing checking account. Accounts receivable and notes receivable. Accounts receivable are owed to the company by customers to which it sold goods or services on credit. Notes receivable are promissory notes that the company will collect in less than a year.

Notes receivable due in more than a year would be listed as a long-term asset. Notice that the total accounts receivable balance is reduced by an allowance for doubtful accounts. Thats the accountants practical side at work, telling you that the business probably wont collect all of those accounts. In a big business that has literally hundreds if not thousands of credit customers, some will inevitably turn out to be deadbeats or go bankrupt. So the accountants estimate what percentage of the companys receivables will turn sour and subtract that amount. The result is a realistic net amount that the company expects crossing its fingers to collect.

Merchandise inventories. If the company is a retailing or wholesaling business, this is the value of products that the company has bought and intends to resell for a profit. In a manufacturing business, inventories include finished goods that are sitting in the warehouse as well as goods in process those in various stages of completion , raw materials, and parts and components that will go into the end product.

You can calculate the value of a companys inventory using one of four methods. Sit tight; therell be more about this in chapter six. The second category of assets, property and equipment, are, well, property and equipment.

To agility and beyond: The history—and legacy—of agile development

The business uses them to make the product or provide the service that it sells. Land, buildings, machinery, and equipment fall under this heading. Theyre shown at the cost the company paid to buy or build est ip them including such expenses as installation costs and taxes miLiabilities and stockholders nus the amount that theyve deequity represent claims against a companys assets. Thats why preciated since they were bought or built. Land isnt depreciated, by the way, because you never use it up and they arent making any more of it. Raw land is shown on the balance sheet at its purchase price and neither appraised nor depreciated as years go by.

If the land and the building are eventually sold, the difference between the lands cost and what was received on the sale would be recorded as a gain if greater than cost or loss if less than cost on sale of plant and equipment. Some companies may have other categories of assets too, including intangible assets such as patents and copyrights.

This section, which well reproduce here as Figure to save you from having to flip back a page, shows all the debts the company owes to creditors of every kind. Even employees are creditors of the company on the balance sheet date, because it owes them salaries that wont be paid until payday. Current liabilities are bills the company must pay within the next twelve months.

Long-term liabilities are bills that will come. As Figure shows, A. Total liabilities? Stockholders Equity. This section shows what the company is worth to its ownersthose optimistic, hopeful stockholders, including widows, orphans, and retirees living on Social Security, who risked their life savings to cast their lot with the future of Avaricious Industries. As Figure shows, Avaricious Industries has sold 2,, shares of stock.

Management used the money it got from stock sales along with what it borrowed by issuing bonds first to start and then expand the business. Youll notice that A. While its customary to assign a par value to stock, as A. Its a relic from the pre-Depression era, when stock had to be sold at its par value. Accountants have capital, which is why A. Because A. Then there are retained earnings, the profits A. Last Januarys retained earnings, plus the net income or profit that the company made this year which is carried over here from the income statement , minus dividends, equals the retained earnings on the balance sheet date of December And when you add in the par value of its common stock and the capital received in excess of par, you have the total stockholders equity.

A Balancing Act As Figure shows, the balance sheet really does balance. That is, A. The balance sheet, in fact, always balances, even when liabilities exceed assets. In that case, equity is a negative numberand the company is dead or close to it, barring an infusion of capital. Theory and reality are two different things, however, so the sale could bring in quite a bit more moneyor quite a bit less.

A selling price depends on the industry, long-term profitability, the companys prospects, and a host of other concerns to buyers. The Agile Managers Checklist A balance sheet is a one-day snapshot of the companys assets, debts, and owners equity. A balance sheet shows assets what the company owns and sets them equal to its liabilities what the company owes plus the owners equity in the business.

Theoretically, stockholders equity is what the stockholders would collect if the company were sold on the balance sheet date. Retained earnings on December 31 is last years retained earnings plus this years net income. Now were getting into it, Stevie, said the Agile Manager rubbing his hands together. Cash flow is what its all about. If cash flow is healthy, it covers a lot of sins. I dont get it. Doesnt every company have a lot of cash flowing in and out of it? Yeah, but cash flow usually refers to the excess of cash coming in over the cash going out.

It means you have cash in the bank to pay bills, fund initiatives, sock a little away for a rainy day, and so onno matter what your income statement says about your profits. The Agile Manager leaned back. I once worked for a company that didnt make a profit five years in a row, he said. But the owner never missed her yearly trip to Bermuda, and she leased a Benz every two years.

And we were all paid well and had good equipment to work with. But howd she do it? Steve interjected excitedly. Great cash flow. She was absolutely brilliant at timing income with outflow. When nothing was happening, shed lay low for a while and cut back on expenses. She also had a pretty sharp accountant who knew how to spread losses around, as well as a few other tricksall legalfor reducing the profit.

But isnt profit good? Its necessary, especially for publicly held companies. But profit is one of those things that can be manipulated up or down. And sole owners tend to like it down, so they dont have to pay taxes on it.


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He straightened up again. Your cash flow, however, never lies. Let me show you what I mean. A cash-flow statement shows where the companys cash came from sources of cash and where it went uses of cash. Like an income statement, the cash-flow statement covers a block of time, est ip such as a month or year. Avaricious Industries cash-flow stateThe income statement and balance sheet dont tell you as ment appears in Figure on the following page. Cash Flow: Its a Big Deal As our whimsical opening quote implies, a companys cash flow deserves plenty of attention.

There are cases of companies that had millions of dollars in noncash assetsand profitability on paperbut which had to close down because they couldnt keep enough cash on hand to pay their regular monthly bills and run the company day to day. Cash flows from financing activities Sale of common stock 25, Sale of bonds 65, Cash dividends paid 50, Net cash inflow from financing activities Net increase decrease in cash Cash balance, December 31, 19XX last year Cash balance, December 31, 19XX this year.

Businesses, like people, sometimes spend recklessly, anticipate sales from uncertain sources such as landing that big contract the corporate version of winning the lottery , expect rapid payment of accounts receivable ha , and otherwise live beyond their means. Businesses sometimes also pay too much attention to their income statements to make decisions.

That can be dangerous, because virtually all corporations keep their books on an accrual basis. This means they record income when they make the sale, and not when they receive the cash. Similarly, they record expenses when they incur them, not when they pay them. Its probably how you manage your home finances. Thats why a company can be profitable on paper, while struggling to come up with the cash to fund growth or pay bills. What Its Good For Because a cash-flow statement shows sources and uses of cash, it can be used to: 1. Forecast future cash flows. Previous cash receipts and disbursements establish a pattern.

Management can use it to predict where cash is most likely to come from and go to next year. Show the companys owners and creditors how much management invested last year in new equipment and facilities. The slogan of companies that dont upgrade their facilities and equipment might be, Answering yesterdays challenges tomorrow or the next day. The cash-flow statement can also be used to confirm whether a company has enough cash available to pay interest to bondholders and dividends to stockholders. If a firm has bonds outstanding, management will have to contribute enough cash to a sinking fund each yearan account set up specifically to hold money used to pay off both bond interest and principal.

Companies usually invest the money in their sinking funds with the hopes that they can earn returns good enough to retire bonds early. Dissecting a Cash-flow Statement Lets take a look at each part of A. Cash flows from operations. This section shows how much cash came into the company and how much went out during the normal course of business. Figure below starts with A. Several other aspects of the companys operations either increased or decreased its cash, however, and those are shown under the adjustments heading.

Generally Accepted Accounting Principles GAAPs as well as logic dictate how these adjustments are made on the cash-flow statement and whether they increased or decreased the companys supply of cash. While not venturing too far into the technical forest, lets look at the adjustments and their consequences. The logic here: An increase in receivables is money earned and reflected in the net income. But Avaricious doesnt actually have that money yet, hence the decrease in actual cash on hand. For the same reason, the increase in the notes receivable balance also signals a reduction in cash.

That acts to free up increase cash previously sitting in inventory. Since depreciation on equipment didnt physically decrease the companys cash balanceits only an accounting fiction accounting rules call for it to be shown as an inflow of cash from operations. Cash flows from investing activities. Cash may come in and go out because of various investing activities that arent connected to business as usual.

Figure shows that A. The investment in property and equipment is an investment in the companys future; it should enhance its competitive position. Lets have a round of applause for proactive management! And the inflow from equipment sales was minimal, a good sign. Unlike some cash-strapped companies, A. A company thats forced to do that is like a sinking ship that jettisons its cargo to stay afloat.

If it survives at all, itll just be an empty shell that eventually washes up on the rocky shoals of bankruptcy. Cash flows from financing activities. Thats good. Healthy companies are able to meet their normal cash requirements through operations. Long-term financing selling shares of stock or bonds, or getting a multi-year loan should be used to raise funds for acquiring new machinery, equipment, or facilitiesnever to pay daily business bills.

A negative cash flow from operations means that the company failed to meet its cash needs. In that case, the company must lower expenses quickly or raise cash. The notes at the end of one small corporations annual report discreetly revealed that it was so hard up for cash that it had borrowed on the cash surrender value of its life insurance policy on the chief executive officer! The final entry on A. The Agile Managers Checklist The cash-flow statement reconciles a companys cash balance from one year to the next. The cash-flow statement shows the net cash flow from: Normal operations; Investing activities, such as buying new equipment and selling obsolete equipment; s Financing activities, such as selling stock or bonds and paying out dividends.

While depreciation is deducted on the income statement to come up with net income, it doesnt decrease the companys cash. Note how much a company invested in its operations. Its a telling figure. Just dropped in to see what condition your condition was in. Besides return on investment for the products this department produces, I like to look at companywide things like sales per employee and return on net assets, said the Agile Manager.

Why bother? Dont we have plenty of bean counters at corporate to worry about stuff like that? I dont care whether we do or not. Its part of my early warning system. Tells me about the overall health of the company. If the sales-per-employee figure is slipping, for example, then Im careful about requesting funds for a new hire. If the return on assets or equity is declining, I can expect some kind of belt-tightening program.

Its not a question of if, but when. But how do you know what those numbers mean to the senior managers? How do you know what makes em happy or sad? I dont know for sure. But I suspect theyre doing what I do: Comparing them to figures for our competitors. Look at this, he said pulling a sheet from the top drawer of his battered desk. This Its compiled by the Medical Products Manufacturers Association from real numbers. To be part of the organization, you have to submit financial data.

Hmm, said Steve thoughtfully as he gazed at the page. Heybonus city this year, right? Sureif it were up to me alone, said the Agile Manager chuckling. But that figure will benefit you in other ways. I just got the approval to hire another developer, which will take the load off the rest of us. And well be getting a new test bench next month. Most people seem drawn to, indeed, fascinated by, things with beautiful shapes. Its part of our aesthetic, kinder-gentler-artloving side to want to gaze upon visually appealing objects that speak to and nurture our inner spirit.

But how can you gently strip away its corporate clothing layer by layer to reveal whether that company is really in great shape or just trying to dazzle you with the business version of a face lift, tummy tuck, Rogaine, or hair transplants? By reading this chapter, of course! Sometimes its called ratio analysis, although some of the digital checkups well do are ratios and some arent.

Financial analysis can be fun. Dont adjust your glasses; you read that right. Why fun? Because statements conceal lots of important and sometimes delightful or terrifying facts just by the way theyre laid out. The information isnt all that obvious. Its not that someones trying to pull a fast one usually not, anyway. But eyeballing statements to evaluate a companys con-. They dont connect certain pieces of information the way theyll be connected, related, and explained in plain language here.

Youll notice that we sort of est ip eased up to the topic of a companys financial fitness casually, as Theres no best calculation if we were approaching the firm that answers the question, in a singles bar. We checked it out Hows the business doing? Now its time to make a serious move. Take Precautions First Precautions here means theres no one best calculation you can do with a companys financial statements that neatly answers the question, Hows the business doing? Some of the calculations well do may show that its in great shape. Others may show its in trouble.

And something else: Most of what youll find out about our friend Avaricious Industries in this chapter will mean lots more when stacked up against comparative data from a reliable source. Comparative data means whats typical for other companies in the same line of business as A. Reliable source can refer to several possible places: s. The companys trade association, which should be able to summarize the average performance for a company in that particular industry. Robert Morris Associates Annual Statement Studies, which examines the annual financial statements of lots and lots of companies of all sizes and in all industries.

Your library should have a copy. And business owners: Be aware that your banker will probably check your financial statements against it when you march in to ask for a loan. One more tidbit. Remember that whats considered good performance in one industry may be not so good in another. It depends on the nature of the business itself. Retailing businesses, for example, are very different creatures from cement producers, computer manufacturers, or companies that write software.

Each group of animals in the business zoo has distinct norms and behavior.

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Financial Voyeurism Think of the calculations youre going to learn about as individual windows you can look through. They are just like the windows in a house. Each gives you a different view of whats going on inside, and some views may be lots more interesting than est ip others. But no one window in a house lets you see everything Most of the information that thats going on inside, just like no financial analysis uncovers one calculation shows you everytakes on a lot more meaning thing thats going on inside a when you compare it with company.

You have to do a numindustry standards. So lets play Peeping Tom financially speaking and see what happens when we peek over A. Grab your calculator and come on! Analyzing an Income Statement Here well hark back to Figure and pull off whatever numbers we need. Its reproduced on the next page. Ratio of Net Income to Net Sales. Find this by dividing net income by net sales: Net income Net sales. Avaricious Industries Consolidated Earnings Statement For Year Ended December 31, 19XX Net sales Cost of goods sold: Inventory, January 1 Purchases net Goods available for sale Less inventory, December 31 Cost of goods sold: Gross profit Operating expenses Selling: Sales salaries expense 1,, Advertising expense 3,, Sales promotion expense , Depreciation expense selling equipment , General and administrative: Office salaries expense 1,, Repairs expense , Utilities expense 39, Insurance expense 48, Equipment expense 63, Interest expense , Misc.

Is that good or bad? It depends on whats typical for A. In the supermarket industry, two to five cents on each dollar of net sales is about average year in and year out. Maybe thats why you see delicatessens, fast-food restaurants, pharmacies, flower shops, bank branches, and plastic surgery salons now appearing inside many of the larger supermarkets near you. Those operations return a higher profit on each dollar of net sales and make up for the grocery businesss meager profits.

Were only kidding about the plastic surgery salons, but theyre probably in the works. Dont forget where you heard the idea first! Chipmaker Intel, on the other hand, has been known to make upwards of 25 cents on each dollar of revenuenow theres an avaricious industry! Incidentally, the formula above also yields a figure for something youve probably heard ofnet profit margin. Its expressed in percentage form. AIs net profit margin is thus 4 percent.

Lets detour here for a moment and use this ratio to make several points about figuring and understanding ratios in general. When the ingredients are named in the title as in ratio of net income to net sales put the first item above the line and the second one below. Thats a handy memory key in case youre ever caught without this book God forbid! Once youve set it up, Always divide the lower number into the upper one.

Put another way, always divide the upper number by the lower number. Thats Straubs first law of ratio math. If you do it the other way, youll be dead wrong, and full-time financial types will sneer as you walk past the water cooler. The first number in your answer always refers to whatever was above the line in this case, net income and the 1 always refers to whatevers underneath in this case, net sales.

Lots of folks like to express ratios in money instead of blandsounding numbers, because people really tend to listen up whenever moneys involved. No surprise, huh?


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  5. So well be talking ratios in money here. Now, back to the show. Ratio of Net Sales to Net Income. This flip-flops the two ingredients used above, but youll still get some useful information. This ratio tells you that A. Thats how hard the company has to work to make a buck. Well, some went to cover the cost of the goods that were sold, and the rest went to pay expenses. Remember now, dont jump to conclusions about any of this information until you get a comparative figure from a reliable source.

    What looks good for a company in one industry may be not so good for a company in a different line of business. Once you found out what the typical ratio of net income to net sales was for A. Inventory Turnover. This is a theoretical figure. Its the number of times the company sold out to the bare walls and replaced its average stock of goods this year. Note that inventory turnover isnt expressed as a ratio, percent, or some other way.

    Youd simply say that A. A good turnover figure depends on what line of business youre in. Jewelry stores, for example, may be lucky to turn over sell out their average inventory once a year. Supermarkets and health-food stores, which sell perishable items, turn over their inest ip ventory dozens of times in a year. Get a comparative figure for your Low turnover often indicates line of business.

    A turnmuch of the wrong kind of over thats lower than the indusgoods. Any combination of these situations would lower turnover and be bad news: 1. If the companys carrying too much inventory, its tying up money unnecessarily not to mention storage space and the people who keep records. Also, it has to pay interest on the funds it probably borrowed to pay suppliers. An overstocked inventory means potential trouble if the company is selling seasonal or fashion merchandise that may be hard to unload later. Just try selling snowmobiles in midsummer or marketing bell-bottom slacks or Nehru jackets to todays youth.

    Low turnover caused by the wrong selection of inventory means management may be out of touch with what the companys customers want to buystubbornly trying to sell them widgets when they really want gadgets, for example. What if turnovers high? A turnover thats higher than the industry average may mean that the companys doing a better marketing job than its competitors, and that would be cause to throw a party. But before management starts sending out invitations, a high turnover could also mean that the business is stocking a lower average inventory than it should and not buying in large quantities.

    That could mean three things: 1. Its not getting the highest possible quantity discounts from suppliers. It may be paying higher freight charges, because buying often and in small amounts usually forces you to ship by the most expensive methods. Its paying too much. When prices are rising as they usually are buying often and in small quantities means youll pay successively higher prices every time you buy. So a higher-than-average turnover might be good or bad. Management wont know which until they check records, search their souls, call a few meetings, and reward or scare the hell out of whoever might be responsible, depending on the case.

    Note: Although wholesalers and retailers must often carry a large inventory to accommodate the demands of their customers, manufacturers attempt to keep their inventories at a minimum. The practice of just-in-time inventory management in manufacturing has produced sizable savings in storage space, materials handling equipment, interest paid on borrowed funds, and other costs associated with carrying an inventory of materials and parts that go into an end product.

    In the case of manufacturers, then, a zillion inventory turns could mean great things for a company. Analyzing a Balance Sheet Now lets revisit Figure its on the next page and pull off whatever numbers we need from there. Current Ratio. Find this by dividing A. It tells you how many times the company could pay its current debts if it used its current assets to pay them with. A current ratio may give you a false sense of security, though, because it includes some current assets like inventory, for example that can be hard to get rid of in a hurry if creditors are breaking down your doors. So a more realistic ratio that highlights a companys ability to pay its current bills is the next one.

    Acid-test Ratio. The acid-test ratio is:. The acid-test ratio shows how well a company could pay its current debts using only its most liquid or quick assets. This is a more pessimisticbut also realisticmeasure of safety than the current ratio, because it ignores sluggish, hard-to-liquidate current assets like inventory and notes receivable. Instead, it adds up the three most liquid assets a business has:. Hows the company going to weather a quick, unforeseen storm? Ratio of Debt to Stockholders Equity. This calculation shows which groupcreditors or stockholdershas the biggest stake in or the most control of the company.

    Observe: Total liabilities Stockholders equity. In fact, it would mean that est ip management is actually working half of every day for the comA healthy company has a ratio of debt to equity of 1 : 2 panys creditors. What a miserable thought! A high ratio here means that the company is heavily financed with debt most likely bonds or long-term loans , which also means its probably paying through the nose in interest each yearnot to mention that the debt is going to come due someday.

    But good old A. And happy stockholders mean that the top managers can probably feel safe trading in last years Mercedes on a new model or adding a third vacation home. Book Value of Common Stock. This is the theoretical amount per share that each stockholder would receive if the companys assets were sold on the balance sheet date. How much would that be if you were an A. When the book value of a companys common stock is higher than its market value, investors usually consider the stock a good buy.

    A book value thats considerably less than market value, however, suggests that the stock may be overpriced on the market. That doesnt necessarily mean that investors are being taken for a ride, however. Investors who are optimistic about a companys financial future may be perfectly willing to pay lots more for the stock on the open market than theyd get if the company were sold. But the greater the gap between book value and market value, the greater the risk.

    Calculations That Use Data from Both Statements Some calculations pull one figure off the income statement and one off the balance sheet. Calculators at the ready? Rate of Return on Stockholders Equity. This tells you how much profit management made on each dollar that stockholders invested in the company. Again, its important to have a comparative figure for companies in the same industry as A.


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    A high return suggests that management is doing a good job of managing the stockholders investment. A low rate of return means that stockholders might consider investing their funds in est ip some other companyor having the managers who are responsible If the book value of a comfor such lousy perfor mance panys common stock is less stoned publicly.

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    Keep in mind that return on equity changes every year as a companys net income changes. Rate of Return on Total Assets. This calculation tells stockholders and creditors how well management is managing the companys assets. So we go shopping in the income statement and balance sheet to find:. Once again, we dont know until we get a comparative figure for companies in the same industry.

    As with rate of return on stockholders equity, a high figure suggests a good job; a low figure a not-so-good job. Number Of Days Sales in Receivables. Intertech has won more than 50 awards for growth, innovation, including being named one of the Top 30 Places to Work in Tech by Fortune magazine. He has an undergraduate degree in Quantitative Methods from the University of St. Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.

    When this happens, simply to meet arbitrary deadlines, the software is not valuable. It is just the opposite. In scrum, teams break their work into manageable chunks and observe results frequently, making adjustments quickly and efficiently. Recommendation Driving your team to meet sprint deadlines that are too tight for any anything valuable to emerge should be avoided.

    Take into account the experience and knowledge of team members when determining frequency of sprints. Buggy software is not valuable and does not satisfy customers. Welcome changing requirements, even late in development. If your team is following agile principles and using a scrum framework as intended, changes are not cause for alarm. Changing market forces, tech constraints, regulations, new innovations: any of these factors can be cause for requirement changes. The scrum process—and its emphasis on doing highest priority tasks first—can easily adapt to changes at any point in a project.

    Change can be daunting for many people, including professional developers or others in your organization. They may resist the natural change aspect of scrum. Plan to educate all project stakeholders and prepare them for the inevitable changes that will occur. Providing an agile methodology overview in advance can be helpful. Deliver working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale. Everyone can understand the value of this principle: faster software means the business can get to market faster and generate revenue faster.

    But this principle only holds when the software works and is what the business actually needs. Recommendation Take the inspection process of each sprint seriously. Make sure it works and is what the customer wants. Involving customers in the inspection process is best and speeds up adjustments because the person s with the required knowledge is part of the process. Business people and developers must work together daily throughout the process. The same can be said about software development projects. When the The ultimate purpose of IT is to deliver value to customers.

    Working closely with business stakeholders encourages alignment with organizational objectives. Close daily engagement also keeps the non-IT stakeholders in the loop. Transparency means everyone is seeing things the same way. Using scrum as a framework guides both IT team members and stakeholders, ensuring everyone sees work at each stage of development and interprets results in a common language.

    Recommendation Transparency matters. Communicate clearly and frequently so all key stakeholders continue to agree on objectives and priorities, particularly if they change. Switch Power Point presentations for face-to-face informal conversations as much as possible. Build projects around motivated individuals. Give them the environment and support they need and trust them to get the job done. Hiring and retaining great people lies at the heart of this principle—it also means letting them make decisions as a team about the work to be done within sprints. Consultants can be a valuable resource for some teams.

    Experienced consultants share knowledge and demonstrate best practices from many other projects. When experienced consultants become de facto team members, they provide subtle but valuable on-the-job training for less experienced employees or those lacking in particular technical knowledge. Respect maturity and experience by allowing employees to be self-directed and to define the work that needs to be done: the size and scope of a sprint. Minimize meetings and other distractions. The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.

    This principle, on its face, seems straightforward: eliminate documentation and just have a chat! Rather, it is against processes and documentation that do not serve a purpose in delivering solutions. We embrace modelling, but not in order to file some diagram in a dusty corporate repository. We embrace documentation, but not hundreds of pages of never-maintained and rarely-used tomes. Use documentation strategically to reduce the interpretation gap. Only create useful documents, keep them to a minimum and continue to talk directly with key stakeholders daily. Working software is the primary measure of progress.

    In other words, quality trumps schedule. Recommendation View sprint deadlines as targets not absolute boundaries.

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    Scrum builds in inspections and adaptations to be accomplished immediately at the team and project levels: reviews, retrospectives and the daily scrum. Adaptations should be made as soon as possible.