How corporate accounting obscures the truth about your business
Traditional ways to account for performance (profit and loss account) and financial health (balance sheet) command all the attention of managers. Yet it is the qualitative ones that actually drive productivity. So why is that the qualitative health of a business is not measured when it is so material to performance?
An obsession with numbers
Managers obsess over quantitative measures. Key performance indicators involve financial, market or satisfaction measurements, anything, frankly, which is easy to collect and analyse and is related to the bottom line. But how many managers can tell you about the relative happiness of their people or customers?
The problem is partly to do with how hard it is to relate feelings to performance. But the truth is the former drives the latter so simply recognising that they are interconnected is an important step. The next issue relates to accounting – how should firms recognise these intangible assets (or liabilities)?. My contention is that modern accounting practices do not reflect the true health of a firm because such assets and liabilities are not recognised at all on the balance sheet when they in fact are more important than tangible assets and liabilities.
A failure of marketing
Behavioural sciences are pretty categoric; if you want productive relationships with customers and people in the market, engage their hearts and minds meaningfully; staff productivity is no different either. In both cases, emotions are crucial.
Marketers are the ones best placed to represent the emotional health of a business but they don’t. Marketing lost its way about 40 years ago, as practitioners obsessed more with promotion and communications than with strategy and management. And as they did so, they lost their financial and commercial skills, struggled to communicate with FD’s and lost their place in the boardroom.
Changing the game
It doesn’t have to be like this. If you want to grow a business, numbers can only help you understand historic outcomes and tell you little about the future. What customers and staff (and others in the market) feel about your firm explains more about your profitability than an accountant ever can. So start finding out today what the hidden assets and liabilities are that drive your profitability and growth.
And with that knowledge about where your business really stands in people’s minds, you can take much better control of your future.
whereyoustand is my London based insight and advisory firm. The combination of my ‘hidden voice of the customer’ research and marketing advisory services helps entrepreneurs grow their businesses.