Finance chiefs can't grasp latest methods

Britain's finance directors have admitted that they neither understand nor use many of the latest financial management techniques, writes Roger Trapp.

A survey by the Chartered Institute of Management Accounting may explain the volatile performance of many companies. Only 13 per cent of respondents understood the value management concept, while only 24 per cent could get their heads round the widely publicised business process re-engineering. Even activity-based management was understood by just 42 per cent of respondents.

Shareholder value came off particularly badly, with fewer than a third of finance directors having a good grasp of the idea. While two-thirds of those in public companies used it as a strategic driver, only a third reported it as a performance measure.

CIMA asks: "How does the missing third measure whether it is meeting this strategic objective? Why do 67 per cent of plcs drive their strategy using a measure which only 29 per cent understand? And can it really be true that companies are taking decisions guided by a concept with which they are not familiar?"

The study, The Current State of Financial Management in UK plc, also found that 60 per cent of finance directors agree that their reporting emphasised profit rather than cash, while 40 per cent of companies did not measure mid-period working capital.

Alarming as some of the findings were to Deloitte & Touche Consulting, which carried out the research with Cima, they did not surprise Roger Young, director general of the Institute of Management. He said there was frequently a stand-off on boards, in which accountants presented figures in a complicated way and the directors were afraid of showing their ignorance by asking too many questions. The challenge is for finance directors to present the information in such a way that it was easy to see what was happening in the business.

The study, which questioned 500 finance directors in large, small and medium-sized companies, adds: "There is a lack of consistency between what organisations are measuring and what, apparently, is important to them. And this is backed by a depressing lack of familiarity with the tools and techniques which are supposed to be helping and which, when they are used, do not give the expected results."

Paul Fuller, partner at Deloitte & Touche, said that the lack of understanding might explain why so many change projects failed to meet their targets.