Management: Money talks but other things matter too: New study aims to show there is more to prosperity than profit

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TEN YEARS ago, nearly everyone in business would have stated that companies existed solely to make profits and enhance the wealth of their shareholders. Now, though, they are not so sure.

The focus more recently on such issues as quality, customer satisfaction and environmental impact has made the better companies realise that profit alone is not an adequate indicator of future prosperity. But there are few reliable ways of measuring these alternative attributes, so they have yet to gain acceptance in the City and the wider community.

The Royal Society for the encouragement of Arts, Manufactures & Commerce hopes that the interim report of its inquiry into 'Tomorrow's Company' will change all that. The report, published last week, is not just an academic treatise but based on detailed discussions with senior executives of 25 sponsor companies and a handful of other supporters.

However, this may also be a weakness. Given that many successful companies are already addressing the sort of issues discussed in the report, it might have been more stimulating if it had trodden new ground. Professor Charles Handy, the management thinker, acknowledged the study as a 'shot in the arm' but said it would have been more forward- looking if it had tackled the issue of key employees - or 'knowledge workers' - replacing buildings and plant as the most important assets of a company.

For all that, the document, which was launched by Sir Anthony Cleaver, chairman of IBM and leader of the businesses involved, is still somewhat theoretical. Its conclusion is that to achieve sustainable success, the company of the future needs to take an 'inclusive approach' with customers, suppliers, employees, investors and the community. Success will not be based on a single bottom line. Nor will a company's purpose be centred on one 'stakeholder'. Instead, the organisation will understand and measure the value of all its main relationships. And to do this it needs a lot of information it will probably not have now.

The interim report has arrived at a good time to gain a sympathetic hearing. The Cadbury Report on the financial aspects of corporate governance and 'Measurement - the Total Picture', a discussion document from the Institute of Chartered Accountants of Scotland, have already paved the way for fresh thinking in this area. Moreover, the backers see the society's inquiry as part of the background work to securing the White Paper on UK competitiveness expected shortly. However, the practical advances that many observers are looking for will depend on the success of the case studies planned for the coming months.

Peter Ward, a partner with the accountancy firm Coopers & Lybrand, which is sponsoring the project, said progress in this area would involve taking specific companies, finding out what drives their success and then working out how they could manage a new set of indicators.

'It would be naive of me to think that boardrooms aren't thinking about this, but I think some are struggling with non- traditional ways of measuring,' he said.

This is largely because many have not yet come to terms with the huge changes in the business environment in recent years. While anxious to point out that - like other indicators - financial measures are not worthless, Mr Ward said they are proving increasingly limited because of their historic nature. The pace of change is now so fast that just because a company made pounds 100,000 today, it does not mean it will do the same tomorrow, he added. Of much greater use would be 'more predictive' indicators.

It was the desire to deal with these competitive uncertainties that led Keith Orrell- Jones, group managing director of Blue Circle Industries, to sign up for the project. As a company that has been a continual subject of takeover rumours in recent years, Blue Circle was seeking ways of turning threats into opportunities, he said.

A massive programme of job cuts was one of its responses. For instance, the first thing Mr Orrell-Jones had to do on taking up his current role was reduce the staff in the company's UK cement operation by 20 per cent. On the face of it this sits oddly with seeing employees as important stakeholders. And if there are doubts here, they could affect the other stakeholders - such as customers and suppliers - with whom the modern business is supposed to be building long-term relationships.

The argument of Mr Orrell- Jones - and presumably other sponsors, such as IBM and Coopers, which have been forced to abandon the perceived concept of life-long employment - is that these reductions were part of a rationalisation without which British business could not possibly compete.

Now that such changes have taken place, long-term relationships - or 'shared destinies' - can be developed for employees and the other stakeholders.

But what happens if there is another serious downturn requiring dramatic short-term action?

(Photograph omitted)

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