Evolve

Replacement Cost

The financial press and our non-accounting colleagues often allege that accountants struggle to keep up with the new attitudes and techniques demanded by modern business practice.

But, in common with other disciplines, perhaps we are overstretched only where we stray too far from the basics that underpin all that we do. New techniques and processes are put forward at the expense of more established approaches. In reality it is where these techniques or technological advances lose sight of the traditional accounting fundamentals that the problems arise.

The cry is for finance to become more cost effective, more customer focussed and more embedded within business processes. Finance needs to add value and respond quickly to changing needs and it is argued this can be achieved only through that most popular and organic term: transformation.

Part of the strength of the “adapt or die” argument is its acquired familiarity from other parts of our lives. We all know that we are living in an age where meaning, substance and ethics cannot keep up with the capacities offered by affordable new technology. To survive we must evolve but never to the point where developments overlook the fundamentals upon which any method or technology, of whatever age, must rely.

Fundamentals for accountants are theoretical – prudence, accruals, consistency and the like – but they are also eminently practical. Ask anyone who holds the purse strings how important the named project team is to the success of a financial business case. Or witness the power of simply ensuring that appropriate consideration, however brief, is given to the financial consequences of intended actions. The seeds of failure and disappointment can most often be traced back to the point at which management practice became divorced from core meanings and values: meanings and values which enabled the financing and development of new technologies in the first place.

This is similar to an explosive increase in the number of television channels with no additional quality programming, or an incredible uptake in the use of mobile phones with no equivalent improvement in conversation. An excess of information can easily lead to an unproductive and uniquely noisy vacuum.

The charge is that the “scorekeepers” are failing to adapt, that they produce lots and lots of “look! – it’s here right now whoops it’s gone” reporting, an excess of data and automatically generated graphs, scams buried or undiscovered within mounds of data that are constantly refreshed, replaced and sometimes shredded. The more we are exhorted to renew our watch at the “cutting edge” and strain even harder towards our clients’ horizons the less we examine our footsteps. What we should be doing, and what we should be advising others to do, is to ensure that the values we most treasure remain firmly rooted within the latest round of technological implementations. The pace of change demands a more effective deployment of the traditional notions of accounting, not a focus on the method of delivery itself.

Of course many accountants are the scorekeepers that are derided in the management press, and many will quite rightly remain so. For sure the emphasis in certain technical areas has rightly changed but to imply that the whole accounting profession could sustain itself and yet remain divorced from the real and urgent needs of the business it serves, however good a story this makes, plainly cannot be true. Any business function that truly by its very nature stood alone and isolated from the core of business would have long ago perished. There is still a place for old school accounting.

We will add most value in our accounting and consultative roles by recognising where technological advances or potential new practices will truly add value and where there will not, however fantastic the theoretical new capability. To argue that there is a place for financial expertise and analysis across all parts of the organisation, generally it is argued out towards the customer, seems welcome and inescapable. But even with new affordable technologies to help, how far should we be counselling our clients to go? Accountancy is a vital organ of the business. It is not typically visible but is none the less critical to all parts of the beast. To expose it too simplistically and directly to the hurly burly of business operations and commerce may unbalance it and prove a mistake, both practically and psychologically.

By way of example, whilst visibility of the key issues is always desirable, successful selling and buying propositions are not exclusively found in the realm of the mathematical, or even the logical. Would you really (and I mean really) want your accounting team having direct input to your next sales pitch? What makes a good accountant doesn’t necessarily, probably just doesn’t, make a good salesperson and whilst there are benefits in borrowing the best from both in reality this has to be acknowledged as a potentially dangerous game.

Would the result of ever closer union between sales and finance staff result in the sales team having more or less confidence in the accounts department generally? How would you yourself feel settling in to set the monthly accruals with your best salesman panting on your shoulder? There’s room to learn from each other, to provide better services internally, but a gap is healthy and we shouldn’t allow technology, or anything else, close it completely. The ability of accountants to know their place is a considerable strength from which we should all draw comfort.

Whilst capability might change at a rapid pace the human fundamentals don’t. It may not actually be the case that “people only change within novels”, but to ask for a seismic shift within a series of “town hall meetings” is to expect a lot. Over time businesses and people of course do change but the underlying truths that accountancy needs to expose remain the same; the fundamental notions of capitalism hold, at least for now. The strawberry wheel is a blur but it’s still on the same axis.

The only pain or confusion we should be experiencing is the application of sound and trusted values within a new context. This does not represent a donning of goggles and taking of seats on a new fangled “journey to the centre of the business” – we were there already. Any anxiety is understandable and does not arise from a voyage into the unknown but rather what we can already see about us.

Before rushing to embed themselves and their departments into the latest business unit or matrix structure, accountants are uniquely well positioned to provide depth to any vision that emerges, be it from the Marketing Department or from the charismatic Director who, perhaps necessarily, “doesn’t do detail”.

A quadrupling of turnover in four years? What then needs to be achieved financially and when in order to achieve this? What are the milestones? Where are the bottlenecks? How will the workload affect staff? The finance function should not seek to throttle the vision but should make plain the implications of achieving it. The reality is often that whole and vital elements of traditional business planning and operations are in practice ignored or not given due attention, either through lack of knowledge or impatience. We should do what we can to stop this. Traditional accounting values and practices are not dead. New technology can help but it doesn’t replace.

And what’s the alternative response to the “new” challenges? Most importantly, and at the highest level, we must acknowledge that business has indeed become more organic and that the human condition – both in capacity and psychology – has now taken on a much larger import.

Encouragingly, examples of an enlightened approach to the issue of human capacity are increasingly common, albeit that they bring growth pains of their own. There is for example the adoption of international reporting standards, or the development of XML business schemas – standard ways to order and store financial information that will provide consistency and faster access to meaning. And of course, the ensuing more automated analysis will inevitably and once again speed the circulation of capital.

However brutal the competition it survives, and whatever its size, all business is fragile. As the pace quickens the sheer volume of decisions and the daily opportunities to adopt new technological options increase the risk of error. While we’re in such a rush to throw out the bathwater, we need to make sure to retain the bath as much as the baby, at least until something better comes along. The wait might be quite a while.

Our Consultant

Please post comments or questions arising from Evolve Thinking to evolvethinking@evbc.co.uk. All contributions are welcome.

Our consultant is a Fellow Of The Chartered Institute of Management Accountants. An experienced accountant and manager, he has for over 15 years successfully taken responsibility for consultancy and operational roles at Board level in both public and private sectors. He specialises in analytical, procurement and financial issues generally, often undertaking training and mentoring roles in support of our skills transfer philosophy.