We need to show outsiders that value creation is more important to us than reporting compliance.
Finance professionals are responsible for a wide range of activities in their organisations. External financial reporting is one such crucial task. It must be done professionally and accurately, complying with all the necessary standards. Certainly, regulatory compliance has forced it high on the agendas of boards, CEOs and CFOs.
Confidence in business is essential, so stakeholders must receive accurate financial reports to maintain this confidence. But what they actually want is for organisations to create sustained shareholder value and business success--they want performance. They should be able to take conformance with financial standards as read.
Financial reporting is a technical skill that quantifies the value created (or lost) in an organisation, yet this activity does not create value in itself. The increasing pressures and complexities of compliance can easily distract finance professionals in business from their main function, which is to help create value. If we are to convince non-financial colleagues that finance is not all about scorekeeping, we must be seen to walk the talk as true value creators.
Chartered management accountants differentiate themselves by being value creators in their organisations, getting the balance right between driving performance and reporting on performance. Finance professionals need to use their skills to identify and report on the true drivers of performance, finding the unique factors that are the engine of their organisations' economic success. These drivers are not always evident and many management teams do not truly appreciate them. But the most successful companies fully understand them, articulate them internally and base their tactical and strategic decisions on them.
Walgreens, the US pharmaceutical retailer, is one firm that has delivered outstanding shareholder value. One of the keys to its prosperity has been its correct identification of profit per customer visit as the key economic driver in its business, not the more commonly used metric of profit per store. For example, the company once opened nine stores in one square mile--a decision that would have been inconsistent with the goal of maximising profit per store, but which did maximise profit per customer visit. This strategy proved to be a brilliant success.
Management accountants should be adding value by identifying and using the key drivers of performance. They should remember that their job is to be creators of value, not only reporters of performance. CEOs and boards should be seeking value creators rather than financial technicians to fill the senior finance roles in their organisations. The creators are more important than the reporters.
The accountancy profession could risk being replaced as the natural provider of CFOs if outsiders believe that it's focusing excessively on reporting. People with MBA qualifications could be seen as a more creative alternative for the role.
Management accounting was born out of the need to drive value creation. With so much emphasis on reporting standards, there is a real risk that it will distract us from our true roles. Non-financial people need to know that chartered management accountants lead the way in keeping the right balance between compliance reporting and actually driving performance.
John Coghlan, CIMA president
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|Title Annotation:||IN BUSINESS|
|Publication:||Financial Management (UK)|
|Date:||Sep 1, 2006|
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