Fundamentals to build stronger business

Andrew Harding, FCMA, CGMA

Sometimes it is a good idea to go back to the basics, the ABCs of management accounting — and I don't just mean activity-based costing. Going back to first principles is a good way to ground yourself when the world seems to be changing 20 times per second.

Ignoring change is not an option, but reimagining the basics can help.

At its most fundamental level, management accounting is about decision-making. And to make the right decisions we need the right data.

As the new CIMA President Paul Ash said in his speech at CIMA's Annual General Meeting, "No business has ever succeeded without good, solid, reliable, and timely data." For our profession, data has always been the keystone. Now, everyone has latched on to that secret, and data analysis is often cited as a, if not the, key future skill.

The assembly and analysis of relevant data is increasingly automated. Data itself is becoming more sophisticated, and the conversion of the value of important assets into meaningful data is a challenge. How do you plan to show your company's ESG impact, for example? (This FM issue focuses on aspects of sustainability: "Sustainability Accountants: What Do They Do?" on page 38; and "Driving Down Carbon Emissions With Internal Pricing" on page 42.)

You also need to ensure you do not gather data for data's sake. As the Global Management Accounting Principles (GMAPs) say, "Management accounting makes relevant information available to decision-makers when they need it."

Although it is important, data is only the start of the decision-making process. Insights gleaned from information must be set against externalities such as prevailing business conditions, which can be affected by myriad factors and not all of which have data immediately available. This is where management accountants, with their knowledge of operating and business models, can show both their own value and that of the profession. We use "integrated thinking" to join the dots and tell the story that supports good decision-making.

Understanding the stories behind the numbers is a particularly useful skill when it comes to performance management. The Association is publishing new research on performance management that reimagines traditional financial considerations.

It says that to succeed over the short, medium, and longer term, businesses are adopting new ways of managing performance that capitalise on the talents of their people, and leverage their business model, systems, processes, and procedures. It also notes the advantage of good relationships with the full breadth of a business's stakeholders.

The end goal of this is higher productivity and efficiency, but despite the rise of AI, companies are — by definition — staffed by people. The human factor needs to be managed intelligently and empathetically.

It is a truism that change makes people uncomfortable, but by encouraging staff to cultivate an agile mindset and adopt integrated thinking, you can reduce friction caused by new systems rubbing against old ways of working. Good stewardship builds trust, that most difficult quality to evaluate.

A 2017 Harvard Business Review article, "The Neuroscience of Trust", described how compared with people at low-trust companies, people at high-trust companies report 74% less stress, 106% more energy at work, 50% higher productivity, 13% fewer sick days, 76% more engagement, and 40% less burnout.

Get the foundations right and you can build a stronger business.

Andrew Harding, FCMA, CGMA, is chief executive—Management Accounting at the Association of International Certified Professional Accountants, representing AICPA & CIMA.