Accountancy & Management: A different measure of success: Nigel Macdonald seeks to dispel the money myth, writes Roger Trapp

AS FAR as the public is concerned, accountants are concerned only with money. But this is a misunderstanding, according to Nigel Macdonald, president of the Institute of Chartered Accountants of Scotland. Their real role is to measure all sorts of things; it is just that money is a common denominator and is thus perceived to have acquired greater prominence.

Mr Macdonald, who has taken 'measurement' as the theme for his year of office, is anxious that accountants should make an effort to broaden their approach. 'A focus on profitability will not achieve long- term survival, let alone success,' he said. 'It's like driving while looking in the rear-view mirror.' But nor is the other way desirable. 'We're not saying that accounts are worthless. You've got to keep a balance.'

He is not the only one with these concerns, of course. As he points out, a lot of work is being done all over the world with a view to identifying the appropriate measures for determining whether a business is truly successful in meeting its goals.

In some circles - such as the Royal Society for the encouragement of Arts, Manufactures and Commerce, which is in the midst of a two-year inquiry into 'Tomorrow's Company' - this quest is tied up with the debate over the concept of 'stakeholders', ie those with an interest in a company besides shareholders. Last year's report of the Cadbury Committee on the Financial Aspects of Corporate Governance has also played a part in promoting the idea of looking at more than the figures.

Quality, customer satisfaction, environmental impact and involvement in the community have all been proposed as appropriate areas of interest. After all, it is said that some of Britain's most successful companies (in the traditional sense) are strong in such areas. The difficulty, though, is judging the relative importance of these soft issues.

For instance, British Airways is largely credited with turning itself from an ailing national flag carrier into the 'world's favourite airline' by focusing on customer satisfaction. But it could be argued that this was done at the expense of something else: how else could the 'dirty tricks' business with Virgin have happened?

'Measurement - the Total Picture', the discussion document Mr Macdonald's organisation produced last week, does not provide any conclusive answers. Instead, it is designed to encourage accountants in public practice and business alike to use their 'expertise in measurement' to develop systems of performance measurement that integrate the financial and non-financial sides and to consider what impact such a development might have on different types of organisation. 'The focus on financial measures which results from having gained specific expertise in the financial model must not obscure this opportunity and challenge,' the paper says.

To be fair, some of the leading firms have already cast their minds in this direction. For instance, KPMG Peat Marwick has developed what it calls 'The Balanced Scorecard', Arthur Andersen has 'Information Age Accounting' and Coopers & Lybrand 'Strategic Business Information'. Mr Macdonald's own firm, Ernst & Young, works with Robert Eccles, a Harvard Business School professor, in this area, and the two recently shared a platform designed to discover what measures non-executive directors felt would be a useful aid to them doing their jobs more effectively.

But Mr Macdonald feels that none of these approaches really serves the whole purpose. Consequently, the paper includes a framework designed to help the accountancy profession to move forward in a co-ordinated manner, while still providing opportunity for differences in practice.

This framework has two parts. The first section, Monitoring Operations, is the more familiar, containing as it does the traditional financial measurements needed to assess whether a business is meeting a set plan. But the other, Business Planning, is felt by the Scottish institute to be a novel departure in this area.

It is designed to reflect the fact that managers need to stand back from the day-to-day business from time to time and consider wider issues, such as the company's performance in corporate responsibility terms, and reassess strategies, targets and performance.

As a result, while the monitoring operations tree diagram contains such elements as productivity and inventory control, the business planning part takes in such matters as quality and customer satisfaction profiles.

It is hoped that combining this framework with 'seven guiding principles' will put an individual accountant or an organisation on the right road. But Mr Macdonald freely acknowledges that the destination is still some way off.

Perhaps the most serious potential pitfall is cynicism. Just as many suspect that corporate governance will become less of a concern as the economy improves, there is a widespread feeling that companies only look to other measures of success when the numbers are not so impressive.

However, some organisations - notably Marks & Spencer - have maintained that the two are inextricably linked. Get such matters as quality, customer satisfaction and supplier relationships right and profits will follow naturally, is their view - which perhaps explains how Marks & Spencer has shown other retailers the way home through the recession.

Mr Macdonald himself is cautious about seeing non-financial performance catch on. 'We do not say that tomorrow all companies should be making public reporting of all or most of these measures. We expect reporting to be qualitative rather than quantitative for some time yet,' he said.

But a development last week in the more traditional accounting arena could help pave the way. The final version of the Operating and Financial Review released by the Accounting Standards Board aims to allow companies to escape the strictures of the new standards and describe their position in a way that they want. The idea is to provide analysis and a balance of good and bad along with some projection about the future.

(Photograph omitted)