The human dimensions of business – areas such as talent development, intellectual property and relationships with suppliers and customers – will be the primary focus of top executives during the next 18 to 24 months. And one of their first challenges will be determining the value of these factors to unlock strategic potential – and long-term success.
That’s the overarching theme of a new report commissioned by the AICPA and the Chartered Institute of Management Accountants (CIMA).
“Rebooting Business: Valuing the Human Dimension”, an analysis of quantitative and qualitative research conducted by Oxford Economics, shows that CEOs around the globe are placing more emphasis on non-financial aspects of their businesses as they chart their futures.
The report was released Tuesday by the AICPA and CIMA in conjunction with the launch of the Chartered Global Management Accountant (CGMA) designation. Senior finance executives gathered in New York City and London for a live broadcast panel discussion of the research. More details from the report are available at cgma.org.
The 280 CEOs surveyed for the report span 21 countries. Three-quarters of the CEOs recognised the need for measuring non-financial value. Meanwhile, 76% think the current reporting system places excessive emphasis on financial data.
“Here is a group of CEOs from every corner of the globe saying this is a significant issue that needs to be addressed because it’s about value drivers of the business that are not being communicated effectively today,” AICPA President and CEO Barry Melancon, CPA, CGMA, said in an interview Monday. “And I think that’s a great opening for some traction in the non-financial measures area.”
At the same time, executives worry that the short-term focus of investors is hindering their ability to plan for the long term.
Assigning a value to non-financial data could give companies a clearer picture of the future, rather than focusing solely on historical data, the report says. Take customer relations, for example. “What the customer wants, where the customer or the market is going, you need to be alert to that,” Gary Kabureck, vice president and chief accounting officer at Xerox, says in the report. “And the company that can identify earlier and get there better will be more successful than those that can’t.”
“People increasingly realise that planning properly for the long term is a better way to build shareholder value than reacting to the kind of short-term movements we are seeing,” Paul Polman, CEO of Unilever, says in the report.
The report makes the case that CGMAs are well positioned to analyse financial data and qualitative aspects of a business and, in turn, clearly articulate how those factors can guide strategic business decisions.
“For years companies have tried to get their arms around how to measure the value of their people or their loyal customers, or their great partnerships. Over the next few years we’re going to see an even greater focus on that as companies find ways to measure that in a more tangible way,” Debra D’Agostino, editorial director, thought leadership and senior analyst, technology and innovation at Oxford Economics, said in an interview Monday.
“Will we get to a point where we can actually measure all these things in a perfect way? That’s a difficult question to answer,” D’Agostino said. “But certainly we’re making steps in that direction.”
The power of transparency
As technology and media expand – and as the workforce becomes more mobile – the boundaries between the company and the outside world are more permeable, the report says. Being clear about objectives and open about performance can improve a company’s reputation with customers, suppliers and potential employees.
Of the CEOs surveyed, 87% viewed transparency as an opportunity, and 13% viewed it as a threat. The question among many CEOs is how much transparency is too much?
“In this age of ‘big data,’ where there is so much more information available to you than ever before, there is a tendency to think that more is better. That’s not always true. More can sometimes be paralysing,” D’Agostino said Monday. “The real key is having the information you really need and being able to make sense of that information.”
“There should be great clarity in terms of what all the stakeholders want to understand about a business that’s relevant to them,” Douglas Flint, group chairman of HSBC Holdings, says in the report. “So they should understand how it conducts its business, where it conducts its business, how it makes its money, what the financial obligations and assets of the business are.”
When asked what competencies most need to be developed within the executive team to drive success, CEOs’ top responses included marketing expertise, performance management skills, technological expertise and the ability to transform data into knowledge. See the report for a longer list of competencies and details on regional differences in the findings.
“You’ve got to be able to represent not only your discipline, but you’ve got to be able to think broadly and connect the dots,” says Prat Bhatt, vice president, corporate controller and principal accounting officer for Cisco Systems. “I think executives looking forward have to have that sort of multidisciplinary approach.”
The survey found that many executives do not turn to their finance department for routine help with measuring non-financial value, with only 12% of all CEOs saying they are most likely to turn to their finance team as a whole to measure non-financial value. Whether they run publicly-traded or private companies, they are far more likely to look to their executive teams for non-financial measures, a dynamic that creates great opportunity for management accountants to deliver value to their companies by drawing on their skills.
“We have an opportunity to play a major part in a transformative era of looking at non-financial measures in addition to the financial measures. I don’t think we should be threatened by that growing focus on non-financial data. We should see that as a huge, important role for management accountants,” Melancon said. “CGMA is a tool that will help them do that.”