Accountancy & Management: Change and imagination needed to beat recession: Too many British companies are obsessed with balance sheets, says David Bishop

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The Independent Online
THE ECONOMY is in a deep recession. Every day brings a new batch of statistics that not only confirm this but also seem to push the time of recovery further and further away.

The reaction of some leading companies to the never-ending bad news is akin to that of frightened rabbits caught in the headlights of an oncoming car. They freeze and wait for some external assistance.

However, rather than simply relying on government action, surely companies could be doing more to get the country out of recession and at the same time position themselves to take full advantage of the improved economic environment when it arrives.

Too many of our companies are content to enjoy the benefits of the good times and to endure the hardships of the bad times - hoping that they will survive from one month to another.

At the heart of this unimaginative attitude is the British obsession with balance sheets and profit and loss accounts: as if the financial perspective were the only measure of a company's performance.

In fact, it gives only one part of the overall picture of a company's performance.

It does not, for example, indicate the reasons for the company's performance or how well equipped it is to grow and adapt to a changing political and business environment - whether it be the opening of new markets in Eastern Europe, the advances in information technology or the onset of a recession.

One sentence from the first business prospectus published in 1946 by Sony is a lesson for all British companies. It read: 'We shall create unique products.' Sony has achieved its worldwide reputation for innovation and reliability because it has indeed consistently created 'unique products' that consumers want to buy.

Many British manufacturers of cars, motorcycles and word processors have for a period produced products that were indeed innovative and commercially successful. But these companies were eventually overtaken by overseas competitors because the managers did not take their eyes off the 'bottom line' and did not, therefore, have a vision or strategy for the future.

In addition, they did not have access to all relevant information needed for a comprehensive view of a company's performance.

Without this, managers are unable to see change coming or to exploit the new opportunities that are created. So what set of measures provides a comprehensive view of a business?

The answer is the 'balanced business scorecard'.

This includes the financial perspective, as represented by the balance sheet and profit and loss account.

But this is linked to other factors critical to a company's success - how the customer sees the business, which business processes contribute to the value obtained by customers, and how the business can improve and grow.

The balanced business scorecard has been likened to the dials and indicators of an aircraft cockpit. In order to navigate and fly an aircraft, pilots need detailed information on fuel, air speed, altitude, bearing destination and other indicators that summarise the current and predicted environmental conditions.

To rely on one instrument could be fatal.

In the same way, managing an organisation requires being able to view performance in several areas simultaneously.

The scorecard enables all the essential information to be included in a single management report and helps a company to look - and move - forwards instead of backwards.

This information may, of course, lead to some difficult decisions being taken. Myths - 'this product cannot be discontinued' or 'that's the way we've always done things' - may have to be unmade; symbols - chauffeurs; segregated dining rooms - may have to disappear. And the workforce may have to alter its behaviour and traditional work patterns.

All of these changes can only be successfully made if everyone is informed of - and understands - the company's vision and strategy. In this way a shared set of goals is developed. Otherwise resources are wasted and new problems created.

British companies have traditionally made changes only when they have been forced on them - usually because of short-term financial reasons.

But, if our companies wish to come out of the recession as quickly as possible and be in a position to compete successfully within the European single market and elsewhere, changes have to be made now.

These must be based on the strong foundation of a strategy for the future and measures that give a total picture of a company's progress.

If company managers and executives do not respond positively and imaginatively to the challenges of competitors, they will not only have betrayed their shareholders and employees, but all of us who expect them to make a significant contribution to the wealth of the country.

David Bishop is president of the Chartered Association of Certified Accountants.

(Photograph omitted)

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