Accountants Driving Change
Author: Penelope Kenny
[Full text] As a profession, we have been at the forefront of leadership since biblical times. The advent of modern accounting principles was the genesis of business as we see it today, and basic accounting tenets such as the concept and methodology around the true and fair view underlie many of the most influential processes in society. We have wrought order from chaos, profit from loss, and the odd P&L from a shoebox of scruffy receipts. As leaders we have engineered, reengineered, downsized and ABC'd. As accountants, we represent the most formidable force in business, the need to supervise profits, maintain trust within the investment community, report revenue and control expenses.
With ambition the mood of the new economy and the pace of change beyond human comprehension, accountants need to break down the walls of order which we have so lovingly protected since the Venetians introduced double entry. We need to assume a new role - a role in which we become the drivers of corporate change rather than the controllers of corporate destiny. The accountant as innovator, the accountant as visionary, accountants as intrapreneurs within the organisations and society they serve.
Learning from the ice gatherers
Many years ago, along the north-eastern shores of the United States, lived a happy and satiated group of people. They performed a task much valued by society in the late 1800s. They were the ice gatherers. Guy Kawasaki of garage.com tells the story: Ice gathering companies would cut blocks of ice from frozen lakes and ponds and sell them around the world. The largest single shipment was 200 tons shipped to India. 100 tons got there unmelted, but this was enough to make a profit.
The ice-makers were put out of business by refrigerator companies. If it was convenient to make ice at a manufacturing plant, imagine how much better it was to make ice and create cold storage in everyone's home.
You would think that the ice gatherers would see the advantages of ice making and adopt this technology. However, all they could think about was the known: better saws, better storage, better transportation. Then you would think that the ice-makers would see the advantages of refrigerators and adopt this technology? The truth is that the ice gatherers couldn't embrace the unknown and jump their curve to the next curve.
The important role played by ice gatherers disappeared. Time, famously, stops for no man. The ice gatherers, fearful of change, did not change course. There are no ice gatherers today. End of story.
How is our role changing? Here are three examples of trends we need to observe and resolve before we can jump the curve:
Trend 1 -The corporate accountant
"It appears likely that business and group finance people will be focussed on adding value, having far greater input to strategy and general business decisions than is typical today ... Finance people will be an integral part of business decision making." (CFO of the Future, Institute of Chartered Accountants in Australia.).
Accountable managers are building learning organisations - organisations which challenge the traditional way of thinking about problems and encourage a culture of commitment to learning, rather than a commitment to always being right. Organisations that treat knowledge as power are losing out. The fast pace of change no longer allows us the time to command and control.
Trend 2 -The Financial Reporting Accountant -The Knowledge Gap
External Reporting should focus on competitiveness - today it does not. Ed Jenkins, Past-Chairman FASB. Published accounts increasingly show a significant divergence between the balance sheet total and the organisation's market capitalisation. Companies like Esat and Amazon are examples of this trend. In these companies the total market capitalisation is a multiple of the book value. Those that try to define the gap suggest that it represents assets such as knowledge of the workforce, customer relationships, new business potential and the ability of the business to be innovative. In identifying and valuing these intangible assets stock-exchange analysts are the closest to counting their value. One trend seems to emerge - the gap is widening, the intangibles are becoming the greatest asset.
Trend 3 - The CFO - and the focus on value
When knowledge-based assets exceed tangible assets, the role of the CFO logically must evolve to one of adding value by leveraging these knowledge-based assets. The trend of CFO as builder of alliances within and outside the organisation becomes logical, as does the role of building and growing that knowledge. We are fast discovering that knowledge is most valuable when shared and spread around - before it becomes obsolete.
The added value trend graph:
So, what does adding value look like? As a rule, accountants provide timely, relevant information and meet standards. If we simply respond to requests to correct problems and breakdowns, our work may be outsourceable. As we address the concerns of our customers both internal and external, we start to produce significant added value. It is only at this added value stage that we become trusted operators in a business context addressing the real business concerns of those for whom we perform work. At this stage we can make valuable offers to the business stakeholders. We partner within the business, sharing knowledge, leveraging people, co-inventing the business future. We are trusted by the business stakeholders. In other words we are trusted leaders.
Changing the Way we Think
Fundamentally accountants have a linear thinking process which identifies input, process and output. We solve problems by breaking them into tasks. EVA and ABC and value based accounting uphold the belief that people are cogs in a production wheel. Yet the organisations we work in, and for, are showing their biggest asset not as product or output but as the value of intangible knowledge and intellectual capital, the value in potential for innovation, and other unaccountable things! But if people are the asset how do you value them? How do you leverage them? How do we add this kind of exponential value growth to our profession and to our organisations? A starting point might look like this:
1. A shift in thinking about our work, from how better to maintain the status quo to how to bring growth and innovation.
2. A new interpretation of change as something we initiate ourselves rather than something that is forced upon us.
3. A commitment to learning and development of new competencies.
4. A shared vision of what is possible
Considering the role we play in society we need to stop and ask ourselves three questions:
1. As individuals, what future are we preparing for ourselves so that we will be the dynamists of industry in this new century?
2. What responsibility am I accepting to create an industry, which will excite and inspire future generations?
3. How do I show a professional commitment to leadership and the generation of market value?
Our answers to these questions will tell us a lot. For one they will tell us whether we will be ice gatherers, or will we continue to play the role for which we are educated, the role played so well by the leaders which inspired us to become chartered accountants. Whatever happens, we know we will be playing in a radically different world, and we need to be playing well-equipped to lead.
Remember, It wasn't raining when Noah built the Ark (D.P.Flinn FCA.) My learned colleagues, I ask you, Hasn't it started to rain?
Accountancy Ireland Vol 32 No 1 February 2000