What is the Mobley Matrix?

What is the Mobley Matrix?

What is the Mobley Matrix? How can it help my company's financial management?

Gil:
Too many managers and even owners are lost when it comes to financial management. They keep their accounting up to date, file their taxes, but don't know how to use financial reports strategically. The late Lou Mobley (part of the task force that developed IBM's first computer, and creator of the leadership development program that forged IBM's leaders), grappled with that problem nearly fifty years ago -- and came up with a tool that we find helpful in our company, and which might be useful for yours.

"When I became director of the IBM Executive School in 1959," Mobley said, "I was challenged to find a way to make finance teachable. My first task was to really understand it myself.... One myth after another had to be washed from my mind."

The key, he found was, to connect Income Statements to Balance Sheets, with the Cash Statement was the connecting link. "By using the matrix, I found that finances could finally be taught to non-financial executives so they could communicate well with financial executives. It was a useful tool for salesmen to size up prospective companies. IBM executives named it 'The Mobley Matrix'."

IBM's executives used Mobley's financial matrix to guide IBM's cash flow and ROA between the years of 1957 and 1977. [See chart graphic here.]

In "The Use and Abuse of Financial Statement Information," Chuck Kremer (co-author of Managing by the Numbers) and Randall Chun observe:
The Income Statement leaves a lot of room for creative accounting, some of which is questionable (booking phantom revenue) and some of which is completely legal and ethical (choice of method for depreciation).... Our general advice for using financial-statement information intelligently is to track the bottom line of each of the three financial statements:
  • Operating Cash Flow for the Cash-Flow Statement
  • Net Income for the Income Statement
  • Return on Assets for the Balance Sheet
Jahn Ballard of Financial Scoreboards (disclosure: a friend and business ally) offers "operations finance" services, with workshops and Excel-based and Web-based tools to put Mobley's concepts into practice.

Kremer and Chun offer four rules for using financial-statement information "in today's bizarre business world":

Rule # 1: Never rely on just one measure of financial performance. Instead, use a three-bottom-line approach, which provides for checking performance from various perspectives.

Rule # 2: Accept the press releases with Earnings before the Bad Stuff only if you also track Net Income according to GAAP.

Rule # 3: Track dollar amounts, but also track profitability ratios like ROA, for both trend analysis and for competitor analysis.

Rule # 4: Compare OCF to Net Earnings, and when they don't support each other, place more confidence in OCF for a reality check.


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Gil Friend, systems ecologist and business strategist, is president and CEO of Natural Logic, Inc. -- offering advisory services and tools that help companies and communities prosper by embedding the laws of nature at the heart of enterprise. Sign up online to receive his monthly column via email. Read Gil's blog here.