Facing financial change head on
MOST financial institutions favour stability over change; put change in the context of a business environment and worrying aspects usually loom: coups, revolutions and disasters. But Chartered Institute of Management Accounting’s president Andrew Miskin said change is not only inevitable, but should be regarded as a sign of progress.
Financial bend
In most organisations, finance departments typically produce accounting information from the organisation’s core financial systems.
These days, management accounting is defined as the analyses and communication of decision-relevant information to create and preserve value; this information is much wider than just core financial systems.
Finding, analysing and communicating information help the organisation’s decision-makers, assisting in good decisionmaking that ultimately affects the financial performance.
This is different from book-keeping – the compilation of accurate information on financial transactions – that will be completely automated by the next five to 10 years.
As a sign of changing times, many routine job tasks would also move towards automation thanks to the steady use of artificial intelligence, or AI.
This allows humans to concentrate at what they are good at: pattern-recognition, analysis, understanding insight.
These functions are exclusively owned by humans and today’s AI cannot yet achieve human perfection and these functions are what future finance professionals will focus on.
According to Miskin, the current Chartered Global Management Accounting (CGMA) syllabus has incorporated analysis techniques but is beyond mere analytics. “We as management accountants are focusing on the decision that they [the decision-makers] have to make and how they use that information or analyses.”
He said CIMA has started training people in that manner.
Following trending topics
Today’s financiers also need to keep abreast on current affairs, though the world has been through a period of relatively unprecedented stability.
But Miskin thinks the world is at the brink of a period of considerable change.
Stability has affected how organisations are run recently, with many returning to core competencies and slimming down, focusing on what they do well.
They might have to consider risk management, and address a range of scenarios that foresee changes within the next 15 to 20 years of AI.
During the World Economic Forum in Davos-Klosters, Switzerland, last year a fourth industrial revolution was identified as the rise of AI in organisations.
Like the first industrial revolution, when physical effort was mechanised, the world now faces a revolution in mechanised intellect that will change the value of things.
What was actual work deemed intellectually difficult will be automated, mechanised and will stop becoming valuable, like data-processing and numbers-crunching.
What will increase in value is the ability to recognise patterns, form relationships, communicate with people and influencing them – those will affect the way people invest. Financiers who are not well informed may invest in things that are not relevant for the future.
Rethinking business models
Today’s business models are focused on investors and globally it is the capitalist business model that is predominant.
Miskin thinks soon there is also consideration on how business models will evolve beyond the financial capital.
When talking about a return on capital, financial capital is just the tip of the iceberg – there are also the return on employee and green capitals.
Also many industries in the public and private sectors have dominated market wants by supplying products they feel will benefit their business plan.
That could change – the power of the consumer and people nowadays drive organisations to adapt business models to what people want.
Companies need to challenge and rethink what their business model is all about and how to create value.
Rise of information overload
Ironically, today’s wealth of information has contributed to, not transparency and clarity, but confusion and misinformation.
Miskin mentioned CEOs and CFOs the world over agreed that excessive data largely left them feeling dataless and they have almost gone back to relying on gut-feelings during decision-making.
While the massive availability of information will remain for the future, Miskin has the opinion that people will learn to deal with that better.
“We will start to address some of what is considered the post-truth world, and start to see the value of good analyses and understanding of the fact base.”
He explained that new technologies will free up what humans can do, opening opportunities that will add value to humanity.
Glowing, not gloomy
Miskin advised finance students not to be overwhelmed by the complexity of a world that has always been complex.
And certainly not to change.
“In fact, we used to call change as progress,” said Miskin, “and progress is good. Uncertainty used to be called opportunity.”
His advice is not to look at the new world order as a huge unstoppable, terrible catastrophe waiting to happen.
Regard it as an opportunity to be free from doing things one is not good at, to doing things one excels in.
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