Are we in business to make a profit or are we in business with a purpose to make a difference? The phrasing of this question implies that one of these intentions hampers the other.
However, a pulse check survey included in a new brief Purpose and Profit by the Association of International Certified Professional Accountants in conjunction with Black Sun and the International Integrated Reporting Council (IIRC) reveals that purpose and profit can be mutually achievable.
Purpose and Profit key findings
- In this pulse survey check of AICPA and CIMA members holding executive positions, nearly 90% agreed the need to take into account wider value consideration than just profit. And over 70% of respondents recognised the need to balance profitability objectives with social and environmental factors.
- Underpinning the need to focus on both purpose and profit, the top three factors that business leaders deemed important to the success of their organisations are: meeting customer needs and expectations (97%), inspiring and engaging employees (90%), and profitability and financial returns for investors (89%).
- Business leaders in the survey, given the choice and key information, would rather plan further into the future than they do at present with over 70% preferring to extend their planning horizon beyond three years. This matches calls from the marketplace for organisations to lead the way from short-term capitalism to long-term sustainable growth.
- However, the majority of executives are hampered by the lack of management and reporting information – beyond financial data – needed to understand and interpret the true value drivers of their business. Only 11% of executives surveyed believed that non-financial factors are extensively researched and significantly influence strategic decision making in their organisation.
- But there is some good news as work is underway to bridge this gap, with almost half of respondents working in organisations that are currently developing tools and techniques to better understand non-financial factors and incorporate them into their strategic decision making. Such integrated thinking is necessary to be able to deliver value beyond profit which is necessary in today’s business environment.
Integrated Reporting <IR> is seen as one of the solutions rather than one of the barriers to success by the majority of executives. In fact, nearly three quarters of executives believe that <IR> will reduce short-term thinking within the organisation by supporting decision making and actions that focus on sustainable value creation over the short, medium and long term.
Future Value Creation – the next steps
Helpfully, the report does not limit itself to reporting executive views about the current state of play as it also highlights 10 critical questions that executives can use to gauge the current state of preparedness of their own organisations for future value creation and point towards areas needing attention.
The questions focus on the organisation’s abilities and competencies, the business environment that the organisation faces, the strengths and weaknesses of its business model, future direction, strategic resources and relationships key to future success, metrics and reward systems and ability to think and make decisions in an integrated multi-capital way.
Separate research by the Association, Joining the Dots, reinforces findings from the Purpose and profit brief. It shows that senior leaders are struggling to make the right decisions due to bureaucratic decision-making processes, siloed and short-term thinking, intra-organisational breakdowns in trust and collaboration and difficulty translating ever expanding volumes of information into relevant knowledge.
The systems and cultures in which organisations are functioning are making it difficult to ‘do’ integrated thinking. But help is available to support those organisations that wish to improve their capabilities in relation to integrated thinking and decision-making. The Joining the Dots report shows that organisations which have advanced capability in the four Principles to create and preserve Value on which the CGMA Global Management Accounting Principles (GMAPs) focus — Influence, Relevance, Analysis and Trust — enjoy a decision making advantage. For example, in terms of better performance, improved strategic execution and fewer failures of strategic initiatives due to delays in decision-making and reduced susceptibility to delivering flawed information to decision-makers.
The practices of management accounting as described by the GMAPs provide the integrated information required to support integrated thinking and decision-making, in particular, taking into account both financial and non-financial performance across multiple timeframes. This integrated information is the foundation for a shared understanding of how an organisation creates value through its business model.
Such integrated thinking is necessary to be able to deliver value beyond profit which is so necessary in today’s business environment. However, we must not lose sight of the need to create profit without which commercial enterprises will not survive over the medium, let alone the long term. As the report title says the objective is both Purpose and Profit.
About this research
Purpose and Profit is a project co-ordinated by the Association of International Certified Professional Accountants (the Association), Black Sun and the International Integrated Reporting Council (IIRC). It is a pulse check based on a survey of almost 100 AICPA and CIMA members as at March 2019, including CEOs, CFOs and COOs. 78% of respondents were part of an organisation’s finance function and 62% worked in private companies. The study incorporates the views of business leaders to analyse how value creation information is measured, disclosed and understood.