Another quick trip to the city, back to the training lab in 30 Rock on the 11th floor. One of the best corporate training facilities I get to frequent. On this trip, I had my wife and son with me, it’s one of those family vacations while dad works deal. The weather was perfect, low 70’s and low humidity, at least for New York City.
This group was an attorney group I have been working with. Interestingly, there were 5 of the 20 or so attendees who had been in my Invest class I have been doing at NBCUniversal for several years now. I think we are in year 6-7 on that program, it’s been a great run. I like the NBCUniversal team, it’s interesting that we get repeats attendees. It makes me nervous because they get to hear the same boring stories again. So why do they come back? It is the fact that many of these attendees are not exposed to financial concepts in their jobs. When they get trained and go back to work they lose the training over time. A lot of attendees tell me a review or retaking the class every couple of years really helps. I’ve seen this with other long-term clients like Granite Construction as well.
This group was very inquisitive, in fact there were so many questions it was hard to stay on track. I like classes that are like that because I like the variety of questions and where those questions lead. There was a lot of discussion about he metric that Comcast calls OCF or Operating Cash Flow. This is a metric Comcast executives emphasize with the NBCUniversal group at their parent company. The problem with this is that Comcast OCF is actually EBITDA or earnings before interest, taxes, depreciation, and amortization. Operating cash flow is a number taken from the cash flow statement while EBITDA is taken from the income statement. While they are somewhat related they are not the same. This has always been a source for confusion at NBCUniversal.
So, what is the problem with this? If NBCUniversal managers are measured by Comcast OCF which is actually EBITDA then they can do things that improve real OCF that have no impact on Comcast OCF. Pretty crazy, right? Let me provide an example. Let’s say the Universal Studios Park are trying to improve their OCF by delaying their payables from 45 days to 60 days (a common cash flow management strategy that I am not recommending) which will improve cash flow by not paying vendors. That strategy will improve operating cash flow on the cash flow statement in the near term by putting off payables. During the financial crisis of 2009 GE went to 120 day terms with many of their suppliers. This strategy saved cash in the crisis GE faced in early 2009. The problem with that strategy was that several key suppliers were driven out of business destroying parts of GE’s supply chain. So back to NBCUniversal, the delaying payables strategy does improve OCF on the cash flow statement but has no impact at all on EBITDA which is Comcast calls OCF.
This confusion is tough to deal with when financial literacy is a struggle for most operating managers. Remember our simple financial assessment scored these managers at 38% (see forethought article in the October 2009 Harvard Business Review). So now you mix in the miss labeling of these metrics by Comcast and these managers don’t have a chance of driving the key number because they don’t understand it. I see my task for NBCUniversal is to explain and clear up this misperception one class at a time. I’m confident this group of attorneys got this concept with the help their great questions and my quality training.
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