Every time I sign a book contract, I believe it will be the last. With Lies, Damned Lies, and Cost Accounting, my focus was on showing how and why cost accounting doesn’t work the way we believe it does, and why companies should not rely on cost accounting information for managerial purposes. Lies had been requested by the founder of the Society of Cost Management, Michael Fournier (may he rest in peace). It was going to be my last book, but as you can see, it was not. In fact, Project Profitability, will follow this one by a few months, so I really lied to myself after Lies.
When people read Lies, it explained a lot of things many figured were wrong. My friend and mentor, Dr. Joe Castellano, a long time accounting professor and all-around good person, told me that the accounting community knew something wasn’t right, but they couldn’t pinpoint what it was. Sometimes significant breakthroughs come from outside a discipline. Being an engineer, the issues were easier to see. Lies highlighted most of these issues. The subsequent question from many readers was, “Ok, so now what should we do?”
I thought the answer was to go to my first books. I designed Lies to be somewhat of a prequel to Explicit Cost Dynamics (ECD) and Essentials of Capacity Management. If you want to know what to do, go back to those two books and the answers will be there for you.
There were two problems with the strategy; each book, itself! I believe those books are very content rich, but I’ll admit, they are not very well understood. I honestly think the point of ECD went over the heads of many who read it, especially cost accounting consultants. Part of this wasn’t their fault. It didn’t help that it was written as an engineer writes; presumptuous, math focused, and technical. I made the content difficult to access. This wasn’t purposeful, I just didn’t know how to write. Additionally, it was still assumed by many that all things financial should be considered accounting. This made it hard for some to grasp the notion that there are ways to think about costs that do not follow the rules of accounting, but instead, follow the rules of basic math. People would beat me up because what I was talking about wasn’t how accounting worked. I wasn’t articulate enough at the time to say, “Of course it doesn’t, because it isn’t accounting!”
Engineers and many academics did seem to like it, though, as the book was selected as the book of the month by the Institute of Industrial and Systems Engineering (IISE) in January of 2002, and much of the feedback I’ve gotten from engineers was, “Thank you. This helps us explain how what we do will affect the organization more positively.” I still refer back to ECD on practically every article and consulting project I’m involved with. It has been the foundation of my work for the past 20 years, both professional and scholarly.
Likewise, Essentials wasn’t well liked by some in the accounting community. I remember a small-time CPA accounting guy from Florida wrote a scathing review on Amazon, and I’m thinking, “He has no clue what I’m talking about in the sections he’s lambasting!” Essentials, though, has been a foundational book in organizational capacity management and has been quoted by academics, governments, and professionals because it shapes and defines organizational capacity, the largest expenditure within organizations. It was listed as one of IISE’s top books of 2003, and it remains the most cited work I’ve written.
Both this book and Lies, along with the many dozens of articles that I’ve written since Essentials came out, were all strongly tied to those books. The training I’ve done for companies, the consulting work I’ve been involved with were all a function of books that accounting people didn’t like.
Enter Strategic Cost Transformation. Over the past two decades, the ideas have matured and have been tried, tested, validated, and tried again. The concepts in ECD and Essentials needed to be updated. Strategic Cost Transformation takes key elements from the first two books, packages them much more nicely, makes them more easily accessible, and presents them to you for consideration. There are also many new ideas included here that didn’t exist when I wrote the first two. Here are a few:
Business Domain Management: breaking companies down into two business domains, the operations and cash or OC Domain, and the Accounting Domain for managerial and analytical purposes. This is a foundational element for cost transformation.
Cash and non-cash costs: One of the most important developments since Essentials and ECD is the notion that not all costs are cash costs. In fact, most of the costs we think are money, such as the cost for most products, services, and activities are not cash at all.
Input and output capacity: Essentials defined one type of capacity. However, I found that by buying the capacity discussed in Essentials (input) you are enabling the ability to create work (output). Both are key to understand, especially when it comes to cost cutting efforts, because what we typically improve is output, yet what we pay for is input. Hence, the improvements do not always lead to improvements in cash.
Isocash curves: I stumbled upon isocash curves. Isocash means equal or same cash, and it demonstrates how business people are often faked into thinking they’re doing something positive for the company from a financial perspective when in reality, they aren’t. The curves show companies can reduce costs while having zero impact on cash. How does this happen? By reducing non-cash costs. The cash cost, however, remains the same.
Finally, switching gears a bit, I’ve chosen to use female pronouns solely throughout the book except when referring to specific people. While writing this book, I was deeply affected by the #metoo movement. Mothers, sisters, daughters, and friends of all of us have been exposed to unthinkable situations and acts, and made to think this is, or should be ok or, at a minimum, covered up. Of course, it isn’t ok and shouldn’t be covered up.
I am blessed to be a product of strong women and of very positive, supporting, and strong men who walked not in front of them, but by their sides along their journeys. The men in my village—my dad, my brother, my godfather, and many others—taught me to be a partner. The women in our village, my mom, my sister, and my godmother especially, taught me, from my earliest memories, the importance of women and how to support and love them. This was one small way I could show support, love, appreciation, and respect for all the women of my village and of the world. Thank you for all you have been, all you are, and all you will be. None of this, or us, would exist without the love, strength, guidance, and wisdom women have and most graciously share.