A recent survey of finance directors, many of them from the engineering industry, has highlighted the need to take account of ‘soft’ factors such as training and development and customer satisfaction when publishing annual accounts. Short-term thinking is probably the biggest single enemy of long-term success – especially in the engineering industry where research, training and development inevitably stretch many years into the future.
That is why it is not surprising that a survey of finance directors, undertaken for two leading accountancy bodies and Investors in People UK, has just revealed a growing demand for a new approach to the measurement of companies’ performance including, in particular, a greater emphasis on the people factor.
The survey, Evaluation of Investment in People – A Survey of Finance Directors, is of particular interest to the engineering industry since the engineering and manufacturing employers made up the largest single group of participants.
Rather than dwelling entirely on the annual profit and shareholder return figures, the traditional criteria of success, the survey showed that one third of finance directors who participated now want other measures to be taken into account.
In particular, they would like to see included other key indicators such as investment in training and development, together with customer satisfaction levels. These would give valuable clues to how an organisation is likely to perform in the future, rather than a financial statement which is purely of historic significance.
Customer retention and service are now seen as the number one goal for organisations and the research shows that finance directors are increasingly aware that the development and motivation of staff are the critical factors in reaching this objective. Significantly, this reflects the launch earlier this year of a new investment fund by Dresdner Kleinwort Benson which tracks companies on the basis of soft measures, such as their staff and customer relationships and investment in training, rather than purely in terms of financial results.
The key challenge in such initiatives, however, is how to measure and present those features of a company’s performance. Currently there is no single benchmark accepted by the accountancy profession to reflect this aspect of an organisation’s activities.
The Investors in People standard could fill this role. With more than 30% of the working population now involved in the standard, Investors in People is being taken seriously by the accountancy profession.
As Roger Gray, director of public affairs at the Chartered Institute of Management Accountants, and one of the co-sponsors of the survey, commented: ‘CIMA is committed to encouraging more and more organisations to achieve Investor in People status. The research highlights the role accountants, and management accountants in particular, can play in both the provision of information on the investment in people and in the monitoring and review of its effectiveness in furthering the long term prospects of the business. It is a very useful step and we are now implementing programmes to help take these findings forward.’
Based on these findings we would argue that the stage is now set for Investors in People companies to take a significant lead over their rivals. These organisations are best placed to use these results publicly. By using the standard as the benchmark of external disclosure they will add credence to their long-term likelihood of business success.
Among the survey’s other findings was the contrast in approach between finance directors in engineering and manufacturing organisations and those in the finance sector when rating key components for a ‘balanced scorecard’ of financial and non-financial measures. The cost of staff absenteeism, earnings per head, employee activity, customer service level agreements and value of sales/service contracts, were all ranked as more critical for engineers and manufacturers than for those in the finance sector. Similarly, external customer satisfaction, intellectual capital, sales or marketing penetration, employee productivity and the contribution of training and development were ranked more highly by manufacturing and engineering finance directors.
Also significant was the finding that, across all sectors, nine out of 10 finance directors wish to play a role in measuring training and development within their own function, while four out of 10 want to do so across the whole of the organisation.
It was also evident that there was a sharp distinction in the level of awareness of the importance of training and development between finance directors, depending on whether their company had reached the Investors in People standard. The survey suggested that as well as having a better appreciation of the link between training and development and business objectives, the finance directors in Investors in People organisations were also more customer aware and more focused on goal setting. Overall they appear to be thinking more as business strategists and less like the traditional ‘bean counters’.