Success in the 21st Century - the mantra of joined-up thinking

The explosion of specialists in all walks of life is, some would argue, a reflection of the growing complexity and sophistication of our society. I'm not sure precisely what Adam Smith would make of this, at best it is consistent with his theories around the division of labour but perhaps someone arriving from another planet might see it as a sophisticated scheme to keep people gainfully employed and off the street. One thing that I believe we can all accept is that increased specialisation has resulted in the growth of siloed thinking and behaviour across so many aspects of business and government. It has also resulted in enormous amounts of structural and functional rigidity, if only we could have joined up business and government thinking - how much more efficient and enjoyable life would be. 

Perhaps it's this time in the cycle when some elements of this challenge can be dealt with. Taking 5% out of the cost base is unlikely to result in transformational change, when everyone tweaks established practices at the margin. Ask an organisation to reduce costs by 15% to 20%, while maintaining product or service quality, requires a totally new approach. And for many companies and governments around the world this is the size of the ask. So my advice for those operating in silos, those in highly specialised areas, is that now is the time to broaden the mindset, collaborate with others, think the unthinkable - because if you're not doing that, the likelihood is that someone else is. 

I've mentioned in a past blog the fact that the Financial Reporting Council (FRC) in the UK has issued a consultation document on complexity in reporting entitled 'Louder than Words'. It’s a timely reminder that no one is immune from the challenge of trying to streamline and simplify what they do or are responsible for. However, the challenge as we know it, is not raising the issue, or possibly identifying the issues and opportunities for change, it’s about how we make change happen in a meaningful and substantive way. In the world of reporting, this challenge is much greater due to the international dimensions and the central role played by the International Accounting Standards Board (IASB).

I thought you might be interested in PwC's response - Louder than Words. In particular, I'd direct you to the last part of the covering letter entitled - 'Actions to move the agenda forward'. Here we encourage the FRC to take the following actions:

• Help sponsor the creation of a strategic plan for the future development of reporting
• Promote the strategic plan internationally
• Support developments in market practice that can be made within the constraints of International Financial Reporting Standards (IFRS), focusing on the structure of annual reports in their entirety and how financial information is organised and presented
• Remove standing data from the annual report

I'd be interested if you think these actions will help start addressing the challenges of complexity in reporting and what other ideas you may have. With all that is going on in the world of reporting, the quicker we create the blueprint for the future the better - and I suspect this is not going to happen without the removal of some silos and a move to much more joined-up thinking. If we can achieve this, we have a chance of ensuring reporting remains relevant and useful.

Please send me your views on this by commenting on the blog or by email.

David

Comments

[Mary Adams]

David - I agree with you and with the FRC that reports "no longer reflect the reality of the underlying businesses."

But the problem will not be fixed through clearer language or increased transparency of the existing numbers.

At some point, the conversation will have to focus explicitly on the 50%+ intangibles gap that exists between total corporate value and the book value presented on a balance sheet.

Intangibles are the missing data point necessary to “join the dots” between corporate strategy and financial statements--and move corporate reporting into the 21st century.

A more extended response is here: http://www.i-capitaladvisors.com/2009/11/19/open-response-to-pwc-and-the-uk-financial-reporting-council/