Managing Change
The role of metrics

Introducing TrueValueMetrics

Mike Townsend wrote an article in The Guardian addressing the idea that 'If boards don't see the real case for sustainability, we'll get nowhere ... Continuous pursuit of growth is not possible with our limited resources. Boards must start engaging with the truth. The article can be found at: http://www.theguardian.com/sustainable-business/boards-real-case-sustainability-limited-growth This is my comment on Mike's article.

I am a former CFO, and my claim to fame was being good at getting companies to improve their performance ... to change what they were doing. Most of what I did was done through accounting, and using data to incentivize behavior that would get the results we were looking for.

30 years later we are looking at a global economy and society that must change in order to have a future, and I see not only the dysfunction of the economy and society, but also the catastrophic misuse of data and the dominance of the wrong metrics.

The wrong metrics that drive much of the conversation are the terrible trio of: (1) money profit for business; (2) stock prices for investors; and, (3) GDP growth for pundits and policy makers. These metrics drive everything towards an unsustainable future.

I believe the fastest way to sustainability in the best sense of this term, is to reform the core metrics being used in business and society. This should be the job of the accountancy profession, but sadly this profession (of which I was / am a part) has completely dropped the ball going back at least 25 years. We need to have accounting for impact on people and planet as rigorously as we have accounting for profit.

Most accounting takes place inside an organization, and the power of analytical accounting inside an organization is impressive. We need something with similar rigor and power operating in the broader society.

The core of the economy is economic activity. The purpose of economic activity is to produce goods and services that people need. Over the past 250 years productivity has improved in an amazing way, and modern economic activity can produce everything people need and way more. This is good news.

So how come several billion people still live in abject poverty, are hungry, unhealthy, not getting educated and essentially ignored by the organizations that make up the modern economy. Of course the answer is that there is no profit in doing what is needed to move this population out of poverty and into a better quality of life and more productive lives. There is, however, what I call valuadd.

Valuadd is a measure of impact. It is like profit, but in the broader economy and society and about value, not money. Every economic activity has valuadd (or value destruction) as well as the money metrics of revenues, cost and profit.

An economic activity is the responsibility of an organization and goes on in a place (community). Consolidating the economic activity one way gives the performance of the organization, and consolidating the same data in a different direction gives the performance of the place.

Place is where organizations, people and planet come together. People live in a place, work in a place and recreate in a place. The various impacts on planet can be observed in a place ... the use of resources, the degradation of the land, the pollution of water and air, etc.

There is another dimension that also needs to be taken into consideration. It is impact arising through the whole value chain of economic activity. This is captured by understanding product. A product travels through a supply chain, goes through a buy or not to buy decision, and then through use, and then post use and the waste chain. Organizations know everything about revenue, cost and profit for every product, customers are told how good the product is through advertising, but nobody knows what impact the product is having on people and planet through its life cycle. This information should be a click away.

In order to have ubiquitous impact value accounting, there has to be an acceptable way to quantify value. This can be done using the concept of standard value, rather like the concept of standard costs in analytical accounting. A standard value is quantified, but this is not the same as equating value to money. It is not.

When there is rigorous accounting around everything that has impact on people and planet, and there is widespread reporting from this accounting and the information is easily accessible, there will be massive change, and it will happen quickly.

Best

Peter Burgess TrueValueMetrics