A-E People V1
Leaders know where they are going, and they lead the way. To do this they need vision and a sense of direction. But they must also be able to share...
The power of people
<small>Business relationships in difficult times
Crises bring out the best, and the worst, in people. Whatever the initial cause, they will invariably take us by surprise. People, like organisations, are seldom prepared for a crisis — we may have made poor decisions, taken risks, ignored warnings or failed to consider our external environment. Or, as in the case of COVID-19, dismissed it as someone else’s problem.
In times of crisis, people must work together. Some sectors will suffer more than others,
but in all cases authenticity, trust and engagement in our business relationships
But the decisions we make,
and how we communicate them, can devalue and even destroy relationships.
As a business, where have you invested most of your efforts during the pandemic crisis?
- Operational resilience
- Financial wellbeing
Relationships, like finance, affect
all aspects of an organisation
from supply chain to boardroom.
In uncertain times, when financial sustainability and resilience is a key concern, the role of the finance professional is more important
‘Knowing the numbers’ is, of course, a crucial element of any accountancy role. But without effective communication, interpretation and dissemination, these numbers are worthless. People skills — influence, negotiation, decision-making, communication, collaboration and partnering — are fundamental to the role of the management accountant.
Effective management accounting recognises the links between short-term non-financial indicators and longer-term financial impact. For example, the metrics used to assess the strength of an organisation’s people derive from staff engagement and satisfaction surveys. They are not financial indicators, but their deterioration will inevitably lead to financial issues such as increased costs as a result of lower efficiency and engagement, and lower funding as a result of poorer business relationships with clients. The term ‘pre-financial’ is often used to communicate the importance of these key factors.
Over the last 15 years, the rise of finance business partner roles has highlighted the value accountants working directly with their colleagues across business operations add. But in today’s remote-working world, we must work harder to maintain these relationships and networks. Collaboration, communication and negotiation across digital media require new skill sets.
'People skills and the ability to communicate effectively are used to influence the decisions, actions and behaviours of decision-makers and others throughout the organisation and its stakeholders. The ability to collaborate and work with partners is also a key skill.'
CGMA Competency Framework, 2019
Despite the rise of automation,
most workplaces are human-centric, social environments.
With few exceptions, the immediate response of business leaders worldwide to the COVID-19 crisis was to protect their people. A recent meeting of UK CFOs hosted by Andrew Harding highlighted
A leading brewer had reconfigured its factory space to protect the workforce through social distancing. With the main customer sector — pubs and restaurants — out of business, production was refocused on the domestic market, supplying cans
and bottles to supermarkets rather than kegs to pubs. In this way, production operations could continue, simultaneously protecting the workforce and future business revenues.
Industries identified as critical have no option but to continue operations as best they can. The finance directors of an organisation providing essential technical support and services to the energy industry described the lengths they have gone to “keep the lights on,” switching 90% of the workforce to home working and retaining a skeleton staff on-site to maintain operations.
But keeping the factory open is challenging. A supplier of components to the transport industry highlighted the complex nature of maintaining operations, from both supply chain and human resource perspectives. Securing PPE for workers and finding alternate suppliers for components from inoperable factories were major problems, while keeping their factory running required a complete rework of shift patterns to schedule work around deep cleaning and ensure separation between worker groups.
Unsurprisingly, the technology sector has transitioned smoothly into distance working. Facebook employees have been told they can work from home for the remainder of 2020, and Twitter has publicly stated that employees can telecommute permanently. Yet remote working, which has become a daily reality for many, brings its problems. Despite the initial challenges of getting the right equipment to the right people, the technical aspects of lockdown — equipment and connectivity — are, in the most part, relatively simple to overcome. The psychological aspects of being alone, or — for those juggling work and child care — not alone enough, are more difficult to manage. 'Zoom fatigue', the exhaustion of never-ending conference calls, has been a stress factor for many. We are yet to see the physical impact of this sudden switch to remote working. Workplace health and safety guidelines go out of the window when sharing the kitchen table with partners, children and volatile sourdough starters.
Whatever the current working situation, leaders must maintain effective channels of communication with employees. Importantly, they must trust in them to make the right decisions. This has proved challenging in the past — CGMA research into managing the open workforce found that almost two-thirds of organisations found it difficult to strike the right balance between control and empowerment when employees are dispersed. But in times of crisis, there is no space, and little tolerance for micromanagement.
Trust is a two-way relationship. As identified in our recent report ‘Leadership in hard times’, leaders must be trusted if they are to be effective. Openness, empathy and honesty are key to building this trust.
Our most important business relationships are now conducted over the digital ecosystem. Magazine publishers, fitness instructors and rock bands have switched to digital channels. Favourite brands who cannot
serve us via their usual consumer channels have an eye to the future, empathetically checking in
with emailed wellness tips,
‘better days’ competitions and motivational videos.
There is growing recognition of the need,
in this extraordinary situation, to
At the brewing company mentioned above, reductions in capital expenditure mean funding is available to support payment pauses for its smaller customers, such as independent pubs and restaurants. Keeping them in business through and beyond the crisis is in everyone’s
Banks report that they are talking to their customers more than before, discussing liquidity and capital requirements. Although physical presence has changed, operations continue much as usual.
The education sector, on the other hand, has had to radically change how it operates, delivering remote learning and examination sessions. International students are an important source of revenue to universities, but familial concerns combined with travel restrictions are likely to have a huge impact on the 2020–21 academic year. The charity and service sectors, traditionally face-to-face, are having to rethink how they can support and maintain connections with
Behind the digital portal, it is people who are the interface between business and customer; more than ever, we must all become brand ambassadors.
Supply chain resilience
Organisations globally have recognised the need to build resilience into their upstream and downstream supply chains. In the UK, pre-Brexit supply chain reviews gave some organisations a head start. But how well do you know the people and organisational cultures in your supply chains? In a crisis, the survival of your business may rely on these relationships.
The global reach of today’s supply chains — over 90% of Fortune 1000 companies had one or more Tier 2 suppliers in Hubei province — carries the risk that supply chains become transactional rather than relational. Cost-cutting, distance and communication barriers can lead to supply chains that are fragmented rather than lean. When international transport logistics break down, insourcing by country or region may seem a better, if not cheaper option. Organisations are considering the balance of cost and resilience but often, as is the case with PPE, there is simply not enough supply to fulfil demand. In some cases, there are alternate supply options. Hospitals and care settings have helped
fill the gaps, and spirit distillers are diversifying into the production of
Good relationships, like good accountants, rely on trust and transparency. This is particularly important when the supply of goods to the end-user relies on strong linkages between suppliers, manufacturers and logistics-providers.
Tools such as open book accounting can help build the relational, collaborative aspects of supply chains. By looking at cost structures across the supply chain, partners can identify and eliminate non-value-adding activity, such as process duplication, which can incur substantial cost. Quality costing approaches enhance understanding of prevention, avoidance and failure costs. The information gathered can then be discussed openly with cross-functional teams, resulting in better decision-making.
Every disruption is a test of risk management processes and resilience in supply chains. Agility, flexibility and open communication are crucial to an
Crisis management is one of the reasons organisations need high-level strategic oversight.
When things go seriously wrong in the organisational ecosystem, boards and executive committees focus on the organisation’s viability, looking at operational resilience, financial well-being and reputation.
To do this, they need good communication and clear information, both financial and non-financial. A defining characteristic of the COVID-19 pandemic has been the huge amount of advice and guidance by government, business, the media, scientists, health professionals and well-meaning individuals generate and share. Even discounting the “fake news” so prevalent in today’s social media, there is so much “genuine” information flying around that it’s often hard to recognise what is relevant, and what really matters.
There is often far too much bumph in committee papers. But with travel and social distancing restrictions indicating that business meetings will be held remotely for the foreseeable future, it’s more important than ever to cut to the chase. This will not be achieved by exception reporting or, at the other end of the scale, an endless list of red, amber and green KPIs. Indeed, the calculations behind our existing metrics may no longer be fair or appropriate.
In a complex world, there will be uncertainty around any decision. Management accounting systems and accounting figures should help to raise the right questions about what cannot be measured, rather than providing reassuring but faulty or irrelevant numerical answers.
‘Dealing with the Unknown’, CIMA 2016
To understand the long-term impact of any disruption, the focus needs to be upon KPQs — the key performance questions that need answering around operational resilience, financial well-being and reputation. From this, we can identify the KPIs that will address and
answer these questions.
Although it may be tempting to analyse past actions, committee discussions should also look forward. There will be increased demand for forward-thinking analytics that deliver the insight needed for strategic decision-making.
In the current situation, there will be statutory reporting implications to consider, including going concern conditions, principal risks and uncertainties and adjusting events. Unlike the majority of business crises, the COVID-19 pandemic has posed a direct threat to every employee, customer, supplier, investor. And with their families also under threat, there is more at stake than there has ever been.
In this context, and with growing interest in the reporting of non-financial assets, driven largely by the sustainability agenda, boards must consider the ways in which, and how effectively, they will report their People metrics to investors.
The financial impact of the COVID-19 epidemic spelled disaster for many organisations, with many High Street retailers, already struggling against their lower-cost online competitors, closing their doors for good. Stock markets plunged to their lowest during the first quarter of 2020 and, although we are now beginning to see the first signs of economic recovery, investor confidence has taken a huge knock.
Over the last decade, the sustainability and reporting agendas have increasingly raised questions around traditional notions of business value, seeking to incorporate areas such as environmental and
The International Integrated Reporting Council (IIRC) Integrated Reporting framework highlights three areas
relating to the activities of people — human, intellectual, and social & relationship capital.
The consequence of years of under-investment in health infrastructure was highlighted in a recent commentary from the IIRC looking at integrated reporting in a post-pandemic world. It raised important questions around people activities and their affects:
Human capital — Has your organisation considered their obligations to broader societal health and hygiene, and whether their products and technologies serve to address, or to add to, the problem?
Social and relationship capital — Does your organisation offer solutions for the mental health of people of different age groups and in different working contexts? How well do you support organisational and societal preparedness for
Intellectual capital — Is your company contributing to enhanced trust in science? Are you enabling the re-skilling of employees, shaping attractive working environments and building the capacity of future talent?
In the post-COVID-19 world, which has brought the population and societal aspects of our existence sharply into focus, organisations are likely to take a different view of their relationships, activities and affects, both positive and negative. Focusing on the links between pre-financial and financial information will be essential.
In times of crisis, investors will want access to reliable and comprehensive information around the sustainability of their investment. Organisations must consider the most appropriate and honest way to report this.
A company’s relationships are interconnected. Communicating in a coherent way that meets their different needs is key to creating and sustaining value.
CGMA 'Integrated Thinking', 2014
In February 2020, we launched “Finance Transformation: the human perspective”, a report that explored the “people” aspects of finance transformation from both a finance and an HR perspective. We found that underinvestment in people and resources, lack of training, insufficient and inconsistent communications, no clear change management and/or the absence of a talent pipeline can all spell disaster for an organisation. A matter of weeks later, we saw this in practice, as government and business leaders scrambled, often chaotically, to deal with the emerging threat.
Our research showed that transformation is as much about a culture of organisational growth, learning and development as it is about technology. Adopting a growth mindset, both individually and as an organisation, was key to success. The digitally driven
remote-working future may have arrived rather abruptly but here it is.
As we transition into our new normal, we will all have to adapt to new ways of working and thinking.
As we enter the crisis recovery zone, it is tempting to focus on cost control, particularly when revenue streams have dried up. However, this carries the risk that we cut back on drivers of long-term business success. We must manage our people, networks and relationships as assets, rather than costs.
So far, we’ve focused on firefighting and protecting our people. But now we need to go beyond survival.
Organisations widely recognise that they need to become more agile to better perform in today’s complex world. But agility is more than just an organisation’s ability to innovate, adapt to changing market conditions and make shrewd capital allocation decisions — it also relates to their growth mindset. The ability to learn, evolve, think differently and understand quickly is just as important for individuals as it is for businesses. As old systems and processes are superseded by new ways of working, we must learn to leave our legacy mindsets in the past.
Finance Transformation: the human perspective AICPA and CIMA, 2020
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Chartered Global Management Accountant® (CGMA®)
CGMA is the most widely held management accounting designation in the world. It distinguishes more than 150,000 accounting and finance professionals who have advanced proficiency in finance, operations, strategy and management. In the United States, the vast majority also are CPAs. The CGMA designation is underpinned by extensive global research to maintain the highest relevance with employers and develop competencies most in demand. CGMA designation holders qualify through rigorous education, exam and experience requirements. They must commit to lifelong education and adhere to a stringent code of ethical conduct. Businesses, governments and not-for-profits around the world trust CGMAs to guide critical decisions that drive strong performance.
Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants® (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs® (AICPA) and the Chartered Institute of Management Accountants® (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMA designation holders and accounting and finance professionals globally.
Peter Simons, BBS, MBA, FCMA, CGMA
Associate Technical Director of Research –
Head of Future of Finance Research
Association of International Certified Professional Accountants
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