The #3 essential accounting value drivers to business
On a Sunday afternoon, my mind paid attention to value of accounting in the dynamic business environment. Colleagues did you know that:
- 2% of the employees in the company drive 98% of the impact to the business according to the Harvard Business Review, 2015! When, I pause and observe, this clearly shows that if you have a company with 100 employees, 2 of these, drive 98% of the impact of the business of that company?
- 34% of the finance tasks are automated; and it is estimated that only 60-80% of the accounting activities are automatable according to The Accenture Research Report, 2018. This research finding signifies that 66% of the accounting tasks are manual. What is equally significant is the concern that not all accounting tasks are automatable.
- 53% of the Chief Finance Officer’s (CFOs) worry that the accounting function is reactive; and that data and information sharing processes are not streamlined – The Accenture Research Report, 2018. This means that if you meet 100 CFOs, 53 of them are worried that their accounting departments have no effective plans and responsive actions to the departmental needs. Of significant importance is the fact that accounting data and information processes are not able to appropriately support financial business decision-making.
You are probably in a fix: wondering and thinking about the extent of uncertainty this brings to the accounting field. As one leaves home for work, the time spent at work is meant for creating value and impact to business and one’s business needs. The issue here, then, is whether the work being done is inspiring, provoking, motivating; and stretching to draw the best value for the mutual benefit of the employer and employee. Importantly to note is the view that an excellent job done is rewarding: if it provides value (goods and services) that stakeholders want and are willing to pay for; but also provides something the person goes home with.
You will realize that the accounting function traditionally, focused on the following three core roles:
This involves putting together numbers, budgets, transactions and reporting of historical information to management and other stakeholders. I remember vividly the manual ledgers and how we were extracting financial statements from them – incredibly tiresome and boring. If you told the dotcom persons to do them now, they may run away! Ensuring day-to-day transactions, and provision of financial statements thus largely preoccupies most CFOs.
This involves an independent review of the operations of the company. Here the CFO ensures that internal and external audits are carried out and that all findings and recommendations are implemented; but more importantly, ensures that the company obtains an opinion from the external auditors with all efforts for a clean audit opinion.
This involves putting in place systems of internal controls, checks and balances: separation of duties, rules, guidelines and procedures for effective operations of the entity.
What then drives this accounting value to business? Let us now look at the three key drivers of accounting value to business:
- People, talents and skills
- What drives finances in and out of the business (sales and costs)
- Technology as the enabler of business.
One, people, talent and skills
Aware that 2% of the people in a business drive 98% impact of the business, the question that arises then is “who are the 2% of the employees?” Is the CFO part of this 2%? And more importantly is “what do employees focus on order to be in this 2% cream category?”
The truth of the matter colleagues, is that by performing the three traditional roles above as a CFO, with your team, with maximum accuracy, you may not fall in the 2% category of the people that drive 98% impact of the business.
What then drives significant accounting value to the business? It is people with the right talents and skills. According to The KPMG survey of 2015 of over 500 Chief Executive Officer’s (CEOs) across 6 continents on the globe, 97% reported that attracting and retaining top finance talent is the most important contributing factor to improve accounting function and I entirely agree with this.
This is the because the right, talents and skills:
- Enable a clear and better understanding of the business that the company is involved in.
This is in terms of: the products and services provided, the nature and types of markets, revenue and cost drivers, customer segmentation and so forth. The better understanding of the business aspects then helps us to provide the best accounting service needs and requirements to the stakeholders (both internal and external).
- Promote the development of a functional model of the finance department. This means looking into what the business is all about; and focusing on what needs to be done now to service the business better: in the short – medium – long-term. This knowledge facilitates the creation of an efficient:
- Operational accounting model
- Strategic accounting model.
With the best talent and skills, this will be like cutting a piece of cake; but without the right talents and skills, it will be like climbing Mt. Everest.
- Motivate the accounting team.
Motivated teams are energized and hence produce more. They are focused: re-thinking value proposition; and are inquisitively analyzing and designing forward- looking systems that create value and opportunities for business.
I strongly believe that if you have the right people, with excellent talents and skills, you will be in control of the accounting business requirement: enabling you to create powerful goals and get out of the low value accounting activities.
Two, what drives finances in and out of the business (sales and costs)
There are two fundamental aspects (sales and costs) that drive finances in and out of the business according to The Harvard Business School- Review:
As the CFO, when your sales decrease, your working capital starts to reduce, when your working capital declines, you intuitively and rightfully so start to think of how to control costs.
In the process of cutting costs, you may end up including cutting costs even on areas that drive sales such as marketing and research: this will in the end have a significant effect on your current and future sales. It leads you to a sales-cost trap: where for the company to create sales, it must incur costs; but costs have to be managed in line with the sales that are coming in.
Therefore, as a CFO, your critical value is identifying and spotting trends that are likely to:
- Increase or decrease sales
- Decrease or increase costs
It is therefore critical that the CFO should:
- Work with all departments and teams to provide analysis and information needed to guide all strategic decisions
- Guide the business on areas that expand or contract sales and costs
- Monitor and project growth and profit trends; forecast how these will impact the future of the business.
Business is leaning to technology for growth and survival. It is now difficult to separate technology from the business. In the accounting field, technology is the enabler of the accounting function necessary to deliver the value adding financial services to the business.
As earlier noted, the level of automation in 2018 of the delivery of the accounting functions was at 34%; and 60-80% of the finance functions were noted to be automatable: raising an alarm for CFOs in terms of automation.
To illustrate this:
- If you visit your bank, please note that the cheque book you are carrying is manual, the register on which you signed for it is manual, most loan forms are manual, cash deposit and withdraw forms are largely manual: then, “What comes to your mind in terms of the level of automation?”
- If you equally visit some of the Universities – staff personal files are manual and financial documents (vouchers, invoices, receipts, asset registers) are largely manual. Most certifications for students (transcripts and certificates) are also largely manual.
This makes two things come to the fore:
- The level of automation.
“To what extent are the accounting functions automated?” But more importantly, “what is the extent to which even the computerised functions are connected to the entire company business processes?”
2. Presence of stand-alone systems
where each function has its own such as: sales, marketing, accounting, auditing, production and so forth.
CFOs are in a strategic position to leverage technology, in terms of enterprise resource planning systems, to drive value to the business. Bear in mind that 85% of CEOs believe that applying financial data to achieve profitable growth is the greatest strategic value an accounting function can bring to an organisation – The KPMG report, 2015. Relatedly, there is need to adopt and apply data analysis to drive strategy and business growth.
As I conclude, there are three key things that drive the value of accounting to the business:
- People, talents and skills
- What drives finances in and out of business (sales and costs)
- Embracing technology as an enabler of business.
The challenge is in fact in focusing on historical information which is useful, but that is not what matters most to the business. Please do not ignore it. Think deeply about the value these three aspects can bring to the accounting function: to create and exert valuable impact on the business.
I call upon you to:
- Stop the busy work and focus on the work that matters. This is the work that inspires, stretches and provokes action; and also drives business value.
- Think of the actions you are going to take up now whose results matter most to the business and have great impact on business value.
- Think and focus on excellence first in any one of three business drivers and progressively improve to all the three areas.
Finally, remember that the key is the connection between the people (right talents and skills), what drives finances in and out of the business; and the technology that enables business to derive the best out of the accounting function.
Dr. Charles Barugahare (FCCA)
The writer has over 23 years’ experience in financial management, auditing, administration and governance as Accounting Officer, Head of internal Audit, Board Member, Entrepreneur and a Rotarian.