Integrated financial reporting, sustainability reporting, or developing metrics for corporate governance represent significant changes in the accounting and financial profession that must be addressed and incorporated in how practitioners operate. In addition to how the practitioners involved in the profession must change and adapt to the increasing demands of the marketplace with regard to reporting and information distribution, it is arguably more important to recognize that these items are symptomatic of a larger shift and evolution of the profession. Dubbed Finance 2.0 for the sake of this writing and conversation, this dynamic incorporates several factors previously analyzed within this text, while encapsulating them under the broader umbrella of a more strategic outlook for the profession and industry as whole. Drilling down to the core issue at hand, accounting and finance systems, regardless of what organization is in question, the fundamental question of what exactly accounting provides to organizations.
Operations, marketing, engineering, and other functional divisions of an organization are relatively straightforward to identify and quantify, particularly in terms of the value delivered. Accounting and finance functions, virtually by default, are intangible in nature, and so have often been classified and analyzed purely as cost centers to the organization. Finance 2.0, or the redefining of the profession, is an analytical attempt to redefine this viewpoint and perception. The true value brought to bear from an organizational and planning point of view by the accounting and finance team is the information that is delivered from front-end operations, processed by the organization, and summarized for decision makers at various levels within the organization. Five specific areas of importance appear to be emerging as increasingly important for financial reporting. Accurate and actionable data, speed and efficiency for reporting and data management, leveraging technology resources, improving and updating traditional forecasting models, and managing the increasing cybersecurity threat facing virtually every organization (Hasan 2015). Another way to phrase and summarize this concept is the following definition of accounting or accounting systems, as the process of transforming operational data into financial information.
Accounting: More Than Reporting
Viewed through this lens there are several strategic areas and questions that accounting professions should be asking, and these questions or inquiries should ideally form the basis for process improvements, finding efficiencies in various workflow scenarios, and identifying areas in which accounting professionals can deliver information that is of help to the decision-making levels of the organization. Delivering information that is timely, relevant, and comparable to prior periods and forecasts for future performance is how accounting professionals truly add value to the organization. Flowcharts, presentations, and analytical tools merely represent methods by which this information can be conveyed to different audiences depending on the situation, but the core objective does not change. If the information delivered does not meet the requirements of the decision makers in question, or it does not adequately address the questions raised, how is the information helpful to the management team? That said, there are a few critical areas that CPAs, Certified Management Accountants (CMAs), and other accounting practitioners can concentrate within to maximize the impact of the time and resources expended.
The Critical Path
First, what is the business problem at hand, that is, what is the ultimate goal driving the informational request of reporting requirements? The proliferation of technology and analytical tools has made it relatively straightforward to perform complex analyses and generate reports based on these analyses, but what is the underlying driver of the information? Understanding the actual business purpose at hand allows the accountants to identify what sources of information should be leveraged to come to correct conclusions. Peeling back the layers of management, analytics, and day-to-day business issues is an absolute imperative for accountants seeking to become more strategic in both thinking and application. A core step in finalizing this transition and convincing other business stakeholders of the validity of it, is to be able to identify where specifically to focus analytics, research, and human capital.
Second, and arguably the most important part of the Finance 2.0 process or evolution, is the role of accounting professional in driving initiatives forward through better leadership. Traditionally, and by design, finance and accounting professionals were brought in to advise and consult during specific parts of change initiatives, projects, and other management priorities. Specifically, accounting professionals in particular are often relegated to providing a supporting role to finance, capital planning, and business development. Performing analyses, running reports, and comparing different scenarios represent work product generated and reviewed by the accounting function. The next step, however, is to become not the producer or reviewer of such information, but to position the accounting function to become the messenger and interpreter of such data. While at first glance this might appear to be a relatively logical extension of existing duties and responsibilities, this does not capture the entirety of the proposition.
Examining the leadership aspect of strategic management accounting (SMA) and Finance 2.0 more deeply reveals a large shift in how accounting and finance professionals conduct themselves with colleagues. Instead of merely providing a support or review role for projects and managerial initiatives, accounting professionals assume a leadership role and play an increasingly active role in the contextual conversations preceding and following strategic decisions. Accounting and accounting work product must address a traditional stumbling block toward more strategic involvement. This is the reality that accounting focuses on historical information, while business decisions must be made with forward-looking data and information. (In order to transition to this role, of key stakeholder from that of supporting role, accountants must embrace another aspect of SMA that is too often overlooked or categorized with other functional areas.) The concept of process improvement, finding efficiencies, workflow improvements, and increasing productivity is often relegated to information technology personnel or initiatives. Embracing a broader view of this area, incorporating other nontechnology aspects, and integrating them into the business process management (BPM) conversation reveals a multitude of opportunities for management accountants to add value to the industry as well as their specific organization.
Business Process Management
BPM represents an extension and expansion of that has been historically referred to as process improvement, usually oriented toward the integration of technology to existing processes. More importantly, the underlying methodology of BPM forms a connection between accounting, quantitative data, and organizational leadership. Technology is just one aspect of what BPM is about, albeit an important piece, but a deeper understanding is necessary. BPM expands this definition and attempts to encompass the broader need for improved processes and activities within an organization. As the pace of business increases and is increasingly global in nature, accounting professionals involved in the preparation and review of information disseminated to stakeholders must be able to keep pace with the increasing demand for said information. Existing processes and policies, in essence, are simply insufficient to contend with the increasing demand for information and the variety of information that is presently required of organizations by various stakeholder groups. In order to keep pace with these demands for data, other organizational demands, while also maintaining and increasing the perceived value of the accounting function within the organization, it is imperative that accounting professionals integrate BPM into day-to-day activities and operations.
Taking a step back to review the existing research, however, is a key step in understanding both the specifics of BPM as well as how it is different from the oft-cited process improvement. Process improvement, in essence, can be boiled down to the increased utilization of technology to augment and improve existing business processes, namely through automation efficiency. Examples of process improvement abound, from automating accounts payable transactions, improving the speed with which tax documents can be prepared, and providing accountants and other functional users increased access to powerful data analytics tools to help them perform sophisticated analyses and testing of assumptions. The technology is available in order to effect the changes and improvements so long desired by the management. With such possibilities, accounting professionals must be able to harness the capabilities of said tools. That said, it is important to keep in mind that while technology is a powerful tool, it is merely a tool at the disposal of the accounting professionals in question, and should not serve as a substitution for business knowledge.
Building on this principle, while it is evident from both the practitioner and academic literature that analytics, big data, and other quantitative methodologies have increased in popularity during the last decade, data alone is insufficient. Accountants and other financial professionals are already tasked with the assembly and review of quantitative financial information, interpreting what variances between actual results and budget/forecasted figures could mean for the business. SMA, simply, is a methodology to incorporate these existing trends within the profession, and embeds them within the business decision-making process. Particularly with the importance of nontraditional and qualitative information on the ascent, organizations that are best able to analyze, interpret, and decisively act on information generated by operations will be the ones best positioned for success. Reviewing existing literature and the theory of SMA proposed within this text, it is readily apparent that BPM is an integral component and aspect of SMA. In order for accounting professionals to elevate the role played within an organization, the approach taken must be that of a problem-solving business leader.
Business Process Management & Strategic Management Accounting
Revisiting the central tenet and theme of this text, SMA is not meant to represent an additional acronym or buzzword in an industry populated with a multitude of such acronyms. Rather, this proposition and supporting narrative are positioned as a proposed redefinition of a profession that is currently on the verge of a paradigm shift that will have profound implications for current practitioners and the industry moving forward. Pressures and impetuses for change come not only from traditional sources such as demands for managerial information and analytics, but from how such information is gathered, analyzed, and reported. Rising numbers of data analytics professionals, certifications, and associations have placed pressure on accounting and financial professionals to keep pace. If management can receive quantitative analysis from multiple places, it is imperative that accounting professionals adapt to a changing environment and remain relevant in the face of emerging competition.
Analytics, however, does not merely refer to the quantitative metrics and tools available within the marketplace. Practitioners and academics alike must feel comfortable discussing causation versus correlation, regression factors, and be able to explain what the results of a scatter plot analysis mean for the business, but the role of accounting and analytics must go beyond merely running the numbers. In order to run the numbers and arrive at conclusions that are meaningful to the organizations, accounting professionals must be able to address and understand the primary issues that are of top concern for the managerial team. Diving deeper and identifying the core business issues and problems at hand are characteristics of strategic decisions makers, and accountants wishing to be viewed as such must adopt such a mindset.
Specifically, the primary focus of SMA should be on two general areas. First, identifying the key levers and opportunities for organizational improvement is very important. Remaining aware of the items that are under the control of the management to improve versus those that are not is the hallmark of a more sophisticated analytics and data approach. This increased the use of stakeholder data to improve operational efficiencies, enabling management teams to make more efficient decisions, is a critical element for organizations seeking to respond to flexible purpose corporations that combine social and financial goals. For example, an organization desires that vendors and customers purchase more per transaction, but what are some of the levers that are under control of the management? Can improvements be made to streamline the purchase process, or are there certain bundling offers that can be packaged together to entice larger purchases more frequently? Understanding the factors driving financial performance allows the accounting professionals, who are tasked with assembling and reviewing the information regardless, an opportunity to explain the story and narrative behind the numbers.
Second, the ability to communicate and articulate information in a manner that is useful to stakeholders is an important skill that must be refined and improved upon in order to fully realize the potential of SMA. If understanding the drivers and analyses that help propel the business forward, the ability to convey this information in a consistent useful manner is the second, and arguably more important, part of the SMA transition. Simply preparing the data is not enough. Rather, accounting professionals, particularly those working in the industry, must be able to explain the narrative surrounding the data, and in doing so, increase the value of the data being collected and analyzed. This is perhaps the most important aspect of SMA, and while BPM should be considered an integral addition to this existing theory, the ability to articulate and explain the information is equally as important as generating said data. Without the ability to articulate and present the information, as well the meaning that the information has for the organization, the value of the accounting function is once again limited in scope to a narrow reporting and analysis context.
Business Process Management Applications
When analyzing BPM, framed within the context of an evolving field such as SMA, it is critical to drill down specifically to what BPM means in both the context of existing research as well as for practitioners attempting to implement this concept into the day-to-day operations of organizations. Beginning at a relatively high level, BPM appears to be a representation of the idea that many of the functions currently performed by the finance and accounting functions are not tightly regulated or controlled within organizations. Reporting and compliance requirements help ensure that a standard set of work products, disclosures, and information is disseminated to the public, but internal processes and procedures are not often written down or standardized. Inefficiencies and redundancies resulting from a lack of shared collaborative knowledge and standard practices slow the flow of information through an organization and make the tasks of analyzing the acting on those analyses much more cumbersome.
Additionally, even relatively simple items such as processing intracompany receivables and cash flows can become increasingly complicated and cumbersome if the policies and processes put into place are not shared. With an increasing number of individuals transitioning between professional roles with increasing frequency, it appears to be vitally important to maintain organizational cohesion, to actively seek out ways to improve efficiency, and improve the productivity of the finance and accounting functions. Leveraging technology and other software, or web-based tools, is an excellent first step, but assuming that these steps are sufficient in and of themselves is not enough. What BPM necessitates, virtually by design, is a rethinking of just how accounting and finance information is treated within an organization, and the steps practitioners can undertake to ensure that (1) value is continuously added and recognized by the accounting function, and (2) that this value can be transferred, analyzed, and improved upon on a continuous and ongoing basis.
Circling back to the concept of SMA, the connection between these concepts crystallizes. In order to provide higher level analyses and insight to assist leadership make better decisions, the accounting personnel attempting to convey this information must be able to rely on processes and procedures in place to generate the information in a timely and consistent manner. In order to ensure that this occurs, however, the workflow and policies currently in place within the organization must be conducive to gathering, collecting, and analyzing information. Building on this, the responsibility lies with the accounting professionals to proactively engage with other functional areas to address the underlying gap between where accounting is and where accounting is heading—what drives the financials?
Of course, variance analysis and obtaining an understanding of the drivers of variances are already an integral aspect of what accounting and finance professionals perform as a part of their core duties, but this idea drills much deeper than that. Instead of simply acknowledging the reality of variances and the drivers that are causing them, and in order to fully evolve into a more strategic partner, accountants must research and understand the business. This does not mean, however, that accountants must become experts in the intricacies of the specific industry since there are other well-qualified individuals already performing that function. What this does mean, and herein lies the core of SMA, is that accountants must be willing to observe the business from the proverbial 30,000-foot level and understand what factors, internal and external, are driving the industry and organization forward. Whether this analysis is framed within the context of Porter’s Five Forces, or a slightly different lens is less important than the fact that the analysis, in and of itself, is occurring. Once the major forces that are influencing the organization have been identified, it is possible and more realistic at that point, to begin diving into the appropriate analyses and testing to see just what exactly the organization can do about these factors. While there are factors that are out of the control of the organization, there are many factors that are under the control of the management, and that can be influenced by managerial decisions, and this is key to arriving at the optimal solution.
Digitization continues to transform the flow of information from customers to organizations, as well as the flow of data and information between organizations. Accountants must be ready to seize the opportunities resulting from this shift. Whether this means enrolling in courses to improve existing skills or obtaining certification in emerging technologies or analytic tools, the core message is the same. If organizations speak to each other in data-based constructs, and interact with customers in terms of data collection and analysis, accountants must be able to be part of this conversation. It is important to remember, however, that in the context of SMA analytics and data, they are tools that enhance the value brought to the organization by accounting professionals, and not a substitute for critical thinking and long-term planning.
BPM, Governance, and Integrated Reporting
Turning to corporate governance, an often nebulous concept, and BPM, there are clearly ways in which the reporting and analytics assigned to corporate governance can and should be improved. Specifically, examples in recent years such as Alibaba, Yahoo, Volkswagen, and Viacom demonstrate the ramifications of a less-than-adequate governance structure and analysis process. In theory, the board of directors is supposed to hold senior management accountable for its actions, and ensure proper stewardship or organizational assets. In addition to this fiduciary responsibility, the board is also tasked with ensuring that the organization operates within the rules and regulations set down by applicable regulatory bodies. Highlighted at the end of 2015, with the emission scandal that engulfed Volkswagen into 2016, there are clearly instances where organizations suffered dramatic financial consequences for not disclosing certain information to stakeholders, or operating in a manner that was less than transparent.
Clearly, corporate governance and the effect that it can have on organizational and financial performance continue to rise in importance for organizations. Embedded within the framework and purpose of integrated reporting is a significant component of improved governance reporting. The critical question remains, in many instances, as how best to collect and report on information related to corporate governance in a manner that is usable and relevant for various stakeholder groups. First, and returning to a core principle of SMA, is to address the following—what is the business impact of this information on decision-making processes? Put another way, why is the information regarding corporate governance of importance to the managerial decision makers who are being informed of this data?
One area that has grown in importance, particularly since the financial crisis of 2008, is the role that activist investors and shareholders play in managerial decision making. This trend shows no sign of dissipating, and the evolution of integrated financial reporting itself highlights the role of stakeholders on internal business processes and decision making. Such outside investors and groups often agitate for changes to both organizational policy and leadership. An accounting function that has fully embraced the concept and spirit of SMA will view this situation as an almost ideal opportunity to deliver value and insights to business leaders. Activist investors, by and large, focus on the fact that, due to the decisions made by the current management team, the organization is not achieving the sort of financial returns for shareholders that it should, that is, that the business is engaging in activities that are either unprofitable or is focused on areas that are not best aligned with the core competencies of the organization. An SMA function should be proactively engaged with both senior management as well as functional areas of the organizations in order to collect, analyze, and report on the most pertinent information for the decision in question.
Integrated Reporting & Finance 2.0
Organizations are continuously looking for areas of growth and future opportunities in terms of market share, products, and service offerings to appeal to a broader base of consumers and users of organizational offerings. Accounting professionals can and should embrace a similar mindset as it pertains to the future of the profession. Institutions and management professionals pursue growth opportunities and areas in order to stay abreast of market trends, and accounting is similarly being buffeted by forces that are generating a paradigm shift within the profession and how the profession is perceived by other functional areas. Perhaps most importantly, the requirements and expectations of organizations as they pertain to both the quantity and composition of the information distributed have evolved along with business models and operating structures. Accounting professionals must proactively adapt to changes in the business environment to retain relevance. SMA is simply a manifestation of the convergence occurring within the field.
Importantly, integrated reporting provides strategically oriented management accountants a platform from which to help solve forward-looking business problems. Additionally, the increased utilization of smart devices and processes provides management teams with increased amounts of data from which to evaluate decision options. Digitization, both of customer data and competitive forces, results in organizations that must operate on a continuous basis, and that must be able to aggregate, analyze, and interpret organizational data on a continuous basis. In addition, the increased dependency on analytics, and the technological tools necessary to generate these analytics, and the need and demand for explanation and narrative surrounding the results of the organization continue to increase. These converging needs, both for quantitative and analytical information to help business leaders make better choices, as well as the overall need for narrative and explanation surrounding organizational results, provide a nearly ideal situation for accounting professionals to seize and take advantage of successfully.
That said, it is important to reflect upon the challenges and obstacles that face the accounting profession in the coming years, particularly as the profession attempts to evolve and meet the needs of a dynamic and evolving marketplace. First, and most difficult to overcome, will be the institutional and professional inertia that will slow down the progress of professionals seeking to alter the composition and nature of what accountants do. These forces might very well come from professional bodies, academia, and the professional marketplace, and whenever an organization attempts to pivot, transition, or otherwise reinvent itself there is almost always resistance. The transition of accounting to an SMA model will be no different.
Second, and equally as important as resistance of current practitioners and members of the profession, is the need for updated educational materials. Strategic thinking and planning is not something you learn in a course or seminar, master, and discard afterward. Rather, strategy and strategic thinking are a continuous process that must be constantly reinforced, and improved upon. This need, and the need to integrate accounting information into a more strategic format and distribution process, requires different skills that complement existing knowledge and training. Requirements such as the ability to quantify traditionally qualitative data, however, necessitate different training and educational programs that exist today.
Building Bridges
Accountants are well versed in preparing, reviewing, and analyzing different types of reports and information. Integrated reporting provides a vehicle that management accountants can use to funnel and direct forward-looking information to management and external constituencies. Illustrated in Figure 5.1 on the next page, accounting professionals should think of accounting in a comprehensive manner. In addition to providing an environment that benefits management accounting professionals, integrated reporting also presents an opportunity to include both financial and nonfinancial data in the information distribution. Inclusion of other pertinent data linked to operations, strategic thinking, sustainability, and risk management, an incomplete picture is provided of how the organization is actually performing.
Driven by a multiple capital model that focuses on how different aspects of operations can drive organization performance, integrated reporting serves as an almost ideal platform for accounting professionals seeking a more strategic and active role within the organization. Revisiting the multiple capital model, illustrated by the following figure, it is readily apparent that financial information and reporting is just one of many areas in which management teams must be able to analyze, understand, and make decisions on moving forward. Connecting the specifics of a multiple capital model to broader issues that are affecting organizations represents a logical and straightforward way that management accountants can amplify changes in the accounting field to elevate and enhance the roles they play within organizations.
Figure 5.1 The multiple capital model
The Transition
Business development and bean growing, however, do not have to be limited merely to working within the existing business structure or parameters of the organization. Technology, obviously, can assist accounting professionals in developing better tools and metrics to improve analysis and existing analytics, but they also provide an opportunity for accountants to elevate themselves and the profession in terms of branding and market position. Establishing and maintaining a brand, or in the case of many accountants, redefining the brand from that of bean counter to bean grower, represents a task that is much easier said than done. Traditional brand building has centered on advertising, word-of-mouth communication, and establishing a connection with clients by face-to-face networking and interactions. Those methods, tried and true, are still incredibly effective and certainly should be pursued, but now can be complemented by social media and online engagement. In essence, it is now much simpler and easier for an accounting professional to establish himself or herself as a thought leader than ever before. With the entire world accessible through a mobile device, what reason is there to not leverage these technologies and harness them to work for the advancement of the profession?
It is important to remember, however, that in terms of building and maintaining a brand, and establishing a pattern of thought leadership, it is not always necessary to launch a sophisticated or multifaceted social media campaign. Simple steps such as maintaining an up-to-date LinkedIn profile are something that, while many professionals consider it a basic and simple step regarding social media and an online presence, it is something that many people do not do on a continuous basis. Elevating the profession and changing the perception of the profession to both other professionals and external partners necessitate that accountants seize the narrative and play a more proactive role in the conversations surrounding the profession. Drilling down specifically, and utilizing a term increasingly associated with senior-level decision making and leadership, it is necessary for accounting professionals to become thought leaders and advocates of the strategic accounting concept and ideal.
Advocacy and campaigning, while often associated with political lobbying and political aspirations, can be leveraged to advance the cause of the accounting profession. While not an easy task, or an endeavor that can be accomplished overnight, accounting professionals must become vocal advocates for the change they wish to see in both the profession and how they are perceived by the marketplace. One of the most efficient ways to introduce and solidify the concept of SMA in the greater business conversation is to write and speak on the subject matter itself. Stated another way, the responsibility is with the profession to document, write, and speak about the changes and idea they desire to see within both the profession and business at large.
As mentioned throughout the piece, there will inevitably be obstacles and challenges as professionals seek to elevate and change the perception of the profession to that of business partner and strategic thinker, but large amounts of industry and academic support already exist. Virtually every professional organization or advocacy group has been speaking, writing, and discussing the changing nature of business and the profession. Strategically minded accountants must simply tap into this sentiment.
Action toward IR and SMA
Building and maintaining a campaign for SMA require that accounting professionals engage with a multitude of stakeholder groups, including traditional users of accounting information as well as more analytically oriented management professionals. Successfully advocating and communicating the value of a more strategic accounting professional on a one-to-one basis requires, in addition to personal advocacy and grass roots activity, citation and inclusion within the literature as well as the overall conversation. Despite obvious obstacles, there are definitive steps that management accounting professionals can take and leverage to increase the position and perception of the profession in the minds of end users.
Working within organizations, and focusing on the needs of various business users, are clearly ways to highlight the ways in which accounting professionals can add value. In addition to taking steps to highlight this value at a specific organization, it is imperative that advocates for strategic accounting publish these views. As part of a broader conversation, it is critical that the message and idea of a more strategically oriented accounting function become part of the materials read and analyzed by business professionals at large. Integrating and expanding the concept, and introducing the idea of SMA to a broader audience are key steps in the campaign process to spread, embed, and maintain the idea of a more strategic accounting function in business parlance.
Becoming the ambassador for a more strategically and businessoriented accounting function represents a transformational shift for many accounting and finance professionals, but it is a necessary shift. While there are a variety of opportunities available for professionals willing to take advantage of shifts and changes in the marketplace, it is equally important to illustrate potential pitfalls for individuals who do not do so. Analytics, reporting on nontraditional information, and communicating this information to stakeholders do not necessarily require the services of a traditional accounting professional, or even an accounting organization. Positioning the profession, whether in an academic setting or focusing more on practitioner applications, are both important areas to focus on, but they are both part of a larger and more overarching transition occurring within the field. Embracing ambassadorship and engaging the broader business community is a responsibility of every professional within the profession.
Drilling down to a specific checklist or list of items to account for or engage in, while appealing, is not the correct approach for building a reputation for flexibility, adaptability, and integrating new concepts and ideas. Depending on the specific circumstances of the individual, and the industry in which that individual works, there will be different venues and vectors by which individuals can develop themselves both as individuals and as accounting professionals. That said, it is imperative that accounting professionals, in addition to leveraging social media and other interactive tools, also take advantage of lengthier publications and opportunities to spread both the concept of SMA as well as build a professional brand.
Why Now?
Skeptical professionals might ask why the profession, and busy individuals, should focus on learning and developing a new brand and position in the marketplace at this specific time. After all, with all the changes that have enveloped the business world as well as the world at large over the last several decades, why is this moment in time any different? Answering this question, and linking back to the overarching theme, and really thesis, underpinning the advocated shift in the profession, is the realization that while business has changed (see—disrupted), the accounting and financial reporting function has remained stagnant. This is not to say that professionals, and indeed the profession as a whole, have ignored trends in technology and business decision making, actually the reality is quite the opposite. Integrating technology throughout the finance workflow has enabled organizations and practitioners to gain efficiencies and gain productivity in accounts payable, tax, treasury, cash management, and reconciliation items. The matter at hand, however, is larger than simply layering technology and process improvements over existing tasks and matters performed by accounting and other financial professionals. It is, drilling down to the basic essence of the situation, a reinvention, and re-creation of the profession itself. There are several critical areas in which professionals and academics must turn their collective focus to in order to maximize the opportunities at hand.
Well-established organizations continue to contend with the forces of disruption and industry-wide change on an ongoing basis, start-up companies are challenging the status quo, and it appears that all stakeholders are requiring more information. The business environment and landscape have changed, and management accounting professionals must keep pace in order to remain relevant. SMA provides a conceptual framework within which accounting professionals can expand their current roles and assume a more strategic position within the organization. Reinforcing this idea is the template and framework of integrated reporting to solidify the concepts embedded by SMA. Integrated financial reporting and the multiple capital model embedded within the integrated reporting framework are an excellent tool for management accountants seeking to transform the concept of SMA into reality.
Analytics
Analytics and Big Data are words that unfortunately have become somewhat commonplace, and utilized in so many different functions and situations, that the core and original meanings have become obfuscated. The core purpose, and truly the only real applicable business use for analytics is to assist management and other business decision makers make better business decisions. The specifics of the data being analyzed, or even the decision being made, are less important than the fact that, in order to be effective, both the information analyzed and the following presentation of the analysis must be usable and useful to the management. Specifically, analytics and reporting linked to governance and sustainability, and the quantification of qualitative information, present both a challenge and an opportunity for accounting professionals and academics. As pointed out by Robert Eccles in a 2015 Harvard Business Review interview, developing and implementing assurance and reporting standards for nontraditional metrics represent both the largest opportunity and challenge for the profession. Establishing such metrics and standards, akin to the establishment of traditional financial standards, is an obligation and opportunity for the profession.
Stakeholder Reporting
Stakeholder reporting and orientation represent perhaps the largest paradigm shift in reporting and governance interactions. Instead of focusing explicitly on the needs of financial shareholders and creditors, management teams and boards of directors are increasingly aware of the needs of nonfinancial stakeholder groups. Governance, sustainability, and data security have continued to evolve and transition from footnote disclosures to matters that have substantial effects on the financial performance of the organization. As business has evolved and transitioned to meet the needs of customers across the globe with varying needs, it is imperative that business also transition and realize that it must meet the needs of an increasingly varied user base.
Specifically, and particularly following the global financial crisis of 2008 as well as the sluggish subsequent recovery, it is increasingly apparent that users of organizational data include a broad spectrum of users, and these varied requirements must be integrated into how organizations report and analyze performance. In essence, the core function of an information system, whether it pertains specifically to accounting or operations, is to provide information that is applicable to those receiving it. Building templates and reporting frameworks that are consistent and usable by the increasingly broad and varied user base of company data is an area in which management accountants are uniquely positioned to succeed. By developing solutions to managerial problems concerning interactions with external users, management accountants can increase their perceived value both among colleagues and senior leadership.
The Importance of Strategy
Virtually every organization has some sort of strategic plan, growth initiatives, or projections for how the entity plans to move forward and continue to develop. That said, the most perfectly planned and outlined strategic plans or initiatives will suffer and fail to maximize their potential if they are not supported by quantitative data that can be used to evaluate performance. Periodically revisiting the performance of such strategic initiatives, and perhaps tweaking and re-evaluating the initiatives themselves, is a healthy and necessary part of the strategic planning process. Strategy, boiled down to its bare essence, is an idea or concept of where the organization should be moving toward going forward. Obviously, as situations and facts change, it is often necessary to update and/or change plans, and the same truths hold constant for organizations. All too often, however, strategy and strategic plans are set into place and then left to run their respective courses without subsequent re-evaluations or assessments. Such a practice does a disservice to organizations, their employees, and their stakeholders.
Management accounting professionals must play a more prominent role in the development and refinement of strategy and strategic planning. They are often the individuals with access to and an understanding of the information most pertinent to objectively evaluating the performance of the organizations strategy. Bridging the gap between operations and senior leadership represents an often unspoken role of the accounting function. Akin to how accounting systems and processes translate operational data and results into financial information to be used for comparative decision making, the articulation and explanation of such information is an essential aspect of the accountant’s role. That said, and in the face of escalating change and transition within the broader business community, accounting professionals must be ready to and able to embrace changes in the roles and responsibilities they are held accountable to perform. Moving forward, it is no longer sufficient to simply report on the financial condition of the organization. Accountants must also be able to explain where the organization is charted to go in the future.
Bringing It All Together
Regardless of the specific terminology or concept used to describe it, the underlying message is unequivocal. The broader business landscape and the requirements placed upon the accounting profession have changed. Buffeted by changes in both the competitive and regulatory landscape, organizations have had to adapt, and implement new reporting and analytic structures to meet the demand of a rapidly changing and transitioning business environment. In spite of the transformative, and in some instances disruptive, changes that have occurred within virtually every aspect of business, the role and services by management accountants have not always kept pace. Increasingly, as business and business decision makers are focusing on digitizing information and automating processes and reporting, the management accounting function is being forced to reinvent itself and how it is perceived within the organization. Maintaining relevance and, in fact, increasing the importance and perceived value of the accounting function require a larger degree of creative thinking and flexibility than has traditionally been associated with accounting.
These trends, and the evolving conversation surrounding them, are not merely items to be discussed or analyzed on an inconsistent or cursory basis, and these issues require rigorous analysis and debate. Integrating the changes, and the changing needs of both management and external users, is a multifaceted task that cannot be accomplished overnight, and this process will be an iterative exercise. That said, it is critically important for professionals to begin the process as soon as possible. In essence, accounting professionals must perform two distinct roles simultaneously. First, the reporting and analytics that embedded within the profession, and the responsibilities that come with that role, must be maintained and kept current alongside developments in the marketplace. Along with this, however, it is imperative that accounting professionals also remember to embrace the need for advocacy and the implementation of new tactics and techniques to make their products more valuable to end users. Linking back to the analysis and discussion around the areas of sustainability, governance, and the integration of risk management and strategy into business decision making, it is increasingly clear that the role of accounting is evolving.
In addition to being responsible for financial reporting and analytics, the core mission and purpose of the accounting function is coming increasingly into focus. Serving as an intermediary and translator, of operational data and results into financial information, accounting professionals are uniquely positioned to play an important role in the business decision-making process. The need for increasing volumes and types of information, demands from shareholders as well as nonfinancial stakeholders, and the requirements of the management for real-time information converge to create what amounts to an ideal situation for a more strategic accounting function. As is almost always the case, however, it is not enough to simply be aware of and acknowledge the fact that changes have arrived to your profession; members of the profession must embrace these facts and leverage them to the collective benefit of the profession, or the individual organizations involved in the conversation.
Linking back to the core mission of the accounting and finance function, the timely and consistent dissemination of information throughout the organization, it is readily evident that the groundwork has been laid for an evolution and transition of the profession. Organizations, as well as both internal and external stakeholders, are demanding larger quantities of information in a timelier manner, and accounting professionals must be able to fulfill these requirements. The increasing utilization of analytics and the growing field of data science present both an opportunity and a challenge. While data science and analytics are not historically linked to the accounting profession, the growing importance of these areas means that accounting professionals must embrace these shifts. Fortunately, this trend does build on the historical strengths of the profession, specifically as they relate to the capability of accounting professionals to quantify and report on information in a meaningful and consistent manner.
Leveraging the advances in the broader business profession, as well as the accounting profession, it is clear that accounting professionals are uniquely positioned to take advantage of changes in the business environment while also advancing the profession as a whole. In essence, accounting and data-driven decision making are essential for making the most informed and accurate business decisions. Managers need accurate data to make the most effective decisions, which is an existing competency of the accounting function. Building on this need for timely and comparable data simultaneously builds on existing strengths of the accounting profession and introduces the concept and idea of SMA into the general business environment and conversation. Much like the general and broader business environment has evolved and transitioned to a digitized and global economy, it is important that the accounting function keep pace and adapt appropriately. The path forward is clear, and accounting professionals must simply take action and turn these concepts into reality.