Accountancy & Management: Innovation a new idea for accountants: Alec Reed says corporate prosperity depends more and more on flair and creative thinking among the numbers

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The Independent Online
INNOVATION does not immediately come to mind as the hallmark of a good accountant - not yet that is.

To date, most innovation in accounting has been directed either at dressing up published accounts or at avoiding and evading taxes - not a very honourable history. However, accountants who are not innovative in the future will be failing to provide their employers with the information essential to improve company performance in the Nineties.

In what Tom Peters describes as the 'Nanosecond Nineties', the pace of change is such that only those companies that fully appreciate what is happening to them and recognise the rapid changes in their operating environment will survive. My own business has changed more in the past three years than it did in the previous 30.

With the rapidly and constantly changing opportunities and threats, companies are dramatically adapting their strategies, with moves towards partnerships, joint venturing, core working, empowerment, franchising and the like. Unless accountants can keep pace by innovating appropriate systems of appraisal and management with which to measure the success or otherwise of their companies, they will become an extinct species.

The vast majority of companies are producing management accounts more appropriate to the Sixties than to the Nineties. For example, they are still comparing monthly and year-to- date figures against budgets. When questioned, few seem perturbed that in the first month of a financial year, the year-to-date figures are merely a duplication of those for the month. At its most innocent this means a waste of half the paper on which the accounts are produced. More seriously, it means complete blindness to anything other than the 30-day picture.

If you measure monthly sales and expense figures by showing a variance against budget, the same month last year or against the previous month this year - stop. You may be allowing performance to ebb and flow as bad results are accepted as a benchmark for the future or as budgets become unchallenging. Why not instead measure against best performance or new records, as sportsmen do?

For example, one would keep comparing against the best performance on, say, debt collection until that best was beaten and another record created. This concept of record-breaking accounting could be applied to many aspects of a business.

When one sees the innovation in science, engineering, medicine, retailing, computing, architecture, and the lack of it in accountancy, one should not be surprised that accountants have the reputation of being dull.

How many accountants have experimented with presenting their board with interactive computer, or even audio-visual, displays of their results?

They should remember that they are probably the most numerate members of the management team. The glazed looks from senior management when accounts are considered should be a cause for feelings of inadequacy on the part of accountants at not being able to communicate with colleagues of other disciplines rather than feelings of superiority.

Management accounts are probably the most important communication medium within an organisation, even more so than the company newsletter. If these accounts are stodgy and old- fashioned, then so, perhaps, is the company. If one compares the evolution in accountancy with that in the communication industry as a whole, we are struggling to move away from black-and-white stills. We need to progress to at least talking, moving colour images.

Why not ask recipients of the management accounts to report back on which they think are, say, the three most worrying figures and the three most encouraging? It would also be useful to ask them to list what they consider the 20 most important figures they receive. Alternatively, ask them which five important figures are omitted from the report.

If you can manage your business better by producing two sets of accounts (and I don't mean one for you and the other for the taxman), why not? Indeed, if there's money in it, why not three or four, five or six? After all, one would look at any other picture from a number of directions.

Perhaps each month's management accounts should be prepared in a different format to encourage managers to look afresh at the make-up of the results. It would force the reader into a greater consideration of the results, rather than the usual five-minute glance at favourite items or pages. One month, the form might be exclusively narrative, thereby encouraging the positively innumerate to make a greater contribution.

A common shortcoming of most management accounts (rather like Mozart's music having too many notes) is that they contain too many numbers. The PC has been responsible for monthly accounts reaching encyclopaedic proportions as the machines unthinkingly spew paper and the accountant unthinkingly binds it together and publishes it as management accounts.

Accountants should ask their management for their preferred length for the monthly accounts. Realistically, they may then expect the accounts to be 90 per cent read rather than, as in many cases now, 90 per cent unread. Apparently the main board directors of British Airways are presented with management accounts running to just 10 pages of mainly graphics. If they can do it, so can the rest of us.

Graphics are being used more but still not nearly enough. Accountants have been reactive to software manufacturers rather than proactive in demanding software programs that can deliver a style created by the accountants themselves.

Why have auditors, desperately looking for value-added opportunities in their work, not seized on the chance to offer creative suggestions for the presentation of their clients' management accounts? This is probably because the words 'auditor' and 'creative' can be considered mutually exclusive.

Auditors and accountants are taught how to pass exams and are not encouraged to be creative. If an accountancy student dared to be creative in an exam, he/she would probably lose marks. A totally new concept of accountancy is long overdue to replace the present crude system.

However, accountants should be expanding their interests. In addition to the preparation of management accounts, any accountant worth his or her salt will be contributing to all financial decisions, including the pricing strategy of the company.

While marginal costing was a useful innovative step along the road to competitive pricing, it was taken more than 30 years ago and we seem to have got little further since. Some progress has been made, though, with new approaches, mostly from the United States, being introduced. These include action-based costings, benchmarking and performance measurements.

Increased competition and greater movement towards price tendering, particularly on the part of government and quasi-government institutions, means that any accountant coming up with a fresh point of view on pricings could help his or her company to sweep the board.

I disagree with Michael Heseltine, President of the Board of Trade, when he suggests that there might be too many accountants in the UK. I know them to be an invaluable resource. The problem is how they are employed. Too many are working in the past, too many are working in financial services, too many are employed avoiding taxes.

Accountancy training offers an excellent foundation for accountants to make an important contribution to the commercial and industrial success of this country. They just need to develop themselves more as creative and visionary innovators.

Alec Reed is chairman of Reed Accountancy, a member of the council of the Chartered Institute of Management Accountants and visiting professor of innovation at Royal Holloway College, University of London.

(Photographs omitted)