7 April 2016
Speakers
Hosted at the University of Edinburgh Business School, the conference featured the following distinguished speakers:
- Mr Keith Luck, Immediate Past President CIMA and Commercial Director, Serco
- Dr Alexandra Cran-McGreehin, Head of Costing, HM Treasury
- Professor Paolo Quattrone, Chair in Accounting, Governance and Social Innovation, and Co-director, Centre for Accounting and Society
They were ably chaired by Ray Perman, a highly respected financial journalist, author, and alumnus of the University. A mixed group of academics, business executives and representatives from the public sector made up a lively audience.
A review of how the journey of accounting for value has advanced since the middle ages
Professor Paolo Quattrone started the proceedings with a review of how the journey of accounting for value had advanced since the middle ages. It would have been remiss of Paolo not to mention the Jesuits – and he did. He explained that initially value was supposed to be produced by assets, like a tree producing fruits. In agrarian societies, assets did not depreciate and the ledger book was closed when it ran out of pages and it had to be ‘closed’ and a new one ‘reopened’: the creation of wealth was measured as difference from assets and liabilities and the balance sheet was king. It was only with the industrial revolution that the visible hand of managers provided coordination to production factors and therefore processes and not simply assets produced wealth: the income statement became the focus of attention as it measured flows rather than stocks.
Value was firstly profit for shareholders and more recently value for stakeholders. Accounting was still a key mechanism of assessing value creation but the emergence of neoliberal and market ideologies made the market and not the accounting book the space where value was created and measured. It was during the financial crisis that we came to realise that value is volatile, context dependent and immaterial. It was during that time that we also realised that markets often fail as valuation mechanisms.
What next? Paolo ventured into the current digital revolution where value is no longer crated in value chains, but in constellations of changing suppliers organised digitally by algorithms. Social networks spread information more effectively than financial reports and accounting communication is at a crossroad of regaining or losing relevance all together. This is indeed a key challenge for accountants and the accounting profession.
Business Models
Keith Luck began his contribution with an overview of the work being carried out by CIMA’s Director of Education, Dr Noel Tagoe, on business models. Central to that work is the notion that organisations’ business models are designed to generate value. Of course, a business model may well be unique to a particular organisation but the common theme was to achieve the strategy, whatever that may look like, but which would inevitably be to provide value to a range of stakeholders. Different values may ascribe to different stakeholders from the one organisational strategy.
Keith demonstrated his points by explicating his experiences in Serco. Of particular interest was the transition in thinking from a purely shareholder perspective to one that took account of the variety of stakeholders in train operations – network operators, train operators, passengers, shareholders, staff. Serco had realised that to create value for themselves, they needed to create value for a range of people. The challenge was to understand what those various definitions of value were. This led to a brief discussion on desired outcomes as arguably the achievement of outcomes (derived from the strategy) was what generated value. We were entertained to a brief synopsis on an experiment of adapting a bus to use rail bogeys to provide relatively cheap transport utilising the rail infrastructure. Possibly value was obtained by the operator from using cheaper vehicles and the passenger still got to the destination (her desired outcome?).
The Concept of Value
Dr Alexandra Cran-McGreehin discussed two areas of her work which helped illuminate the concept of value. She explained that in her role as Head of Secretariat for Independent Commission for Aid Impact she had specific responsibilities for ensuring that value for money was being achieved by foreign aid from the UK government. Specifically, she was required to investigate the actions the various agencies carried out and whether they made a difference. Although she changed role in late 2015, the whole question of foreign aid is a highly topical one.
Value for money is defined by the NAO as the optimal use of resources to achieve the intended outcomes. This definition takes us back to what the original intention of UK Government would be when offering aid and then to ascertain whether the purposes were actually achieved in what are often very challenging situations and locations. The second element of Alexandra’s discourse was on her role in HM Treasury. This was to support UK Govt Departments by developing and using a common, rigorous understanding of cost to bring financial management to the heart of decision making. This was being achieved by carrying out short, sharp investigations into complex areas of HMG spending, to build granular understanding, identify potential areas of efficiency and improve data, reporting and costing capability.
Thereafter, value maps would be created for all Departmental spending. The primary purpose of this work was to drive value by getting the best data and using it to effectively map inputs, outputs and outcomes. The work is at an early stage of development.
Understanding Value
Inevitably, value is a concept that can have different meanings to different people. That does not mean that there is a right or wrong definition but a better understanding of diversity of perception should increase the likelihood of stakeholder outcomes being achieved in the future. Society is changing and it is no longer sufficient to concentrate organisational efforts on satisfying only one set of stakeholders. This notion applies to all sectors. Interestingly, all speakers discussed this important issue despite coming at the topic from very different perspectives.
Written by Alasdair Macnab, Director of Corporate Services, Royal Botanic Garden, Edinburgh