Business Needs to Look After the People

Possibly the most important issue we face in the modern world is the fact that economic "progress" of the post war (WW2) period has left a lot of people behind. It's true that economic progress has been phenomenal, with vast numbers living better lives than anyone has in history, nevertheless a lot of people have been left behind or, equally importantly, have felt they have been left behind.

This became an issue in the popular mind when we started talking about the 1%. Attention turned to the growing gap in personal incomes such as that between workers and CEOs. Now we see it in the growing populist movements around the world, and it is abundantly clear that the end result of these movements could be, and is likely to be, very ugly.

It also appears to be clear that we cannot rely on governments to resolve this issue. There is growing recognition that business helped to create the problem and needs to help to resolve it.

But what exactly should they do?

PWC recently released a report that offers some guidance on what business can do.

1. Global connectivity and local initiative must go hand-in-hand
   
   Increasingly corporate performance is measured globally. However, their work has major impacts on local communities. Overall objectives and initiatives need to be aligned between global objectives and local community objectives.
2. Look beyond financial performance
   
   Corporate performance has traditionally been measured on financial results only. It rings hollow to certain communities, however, when a company announces that it has achieved record profits but has closed several plants, some of which were the lifeblood of those communities. Over recent years, some change in corporate reporting has been made. Corporate performance has increasingly included sustainability reporting, that focuses on impact on the environment. That's great, and is starting to have a positive impact on corporate behaviour. Corporate reporting has also been expanded to include ESG (Environmental, Social and Governance)  But it is questionable whether the change in behaviour has extended to the impact on society and communities. The reporting has in many cases, but there is much more to be done. Companies can't be totally responsible for those communities, but they can be held responsible for significant actions they take that impact on the communities.
3. Technology doesn’t care. But we must.
   
   Technology is people neutral. If people are harmed by the effect of technology in a corporation, only the management and other people in the corporation can help direct that effect to as positive a result as possible. 
4. Educate for the future
   
   Education and retraining must be a responsibility of the companies involved. They are often the first to see the need for new skills and the opportunities for education to develop those skills. They need to play a role in meeting the needs of the future.  

The changes needed in corporate reporting recognize that we are at a crossroads in our society and significant change is required to make it sustainable. Failure to do so will result in a governmental and environmental upheaval .

A better explanation of these guidelines is included in the PWC report.

Digital Transformation - Change Management on Steroids

KPMG recently released their 2018 Global Manufacturing Outlook, a survey of 300 CEOs, part of a larger study which involved obtaining data from 1300 CEOs in 11 countries.

The results point to larger trends in business and are relevant far beyond manufacturing. All of the trends we know about are represented there - digital transformation, with growing use of artificial intelligence and the consequent encroachment on human activity by machines. This is probably the biggest worry to people working in manufacturing - or most other businesses.

The survey shows that this will increase in intensity, along with greater integration and collaboration across the world among companies. Of course this leads to the need for people to constantly learn new skills, which is not new but now a permanent part of the landscape. For example, there is a strong indication that the need for data scientists will continue to grow.

We started to hear about change becoming the only constant back in the 1960s. Since then, that has been a fact of life.  But now the pace of change has accelerated to the point that it is likely to bring about radical societal change. Of course, this will bring resistance from some quarters. Some people always resist change. So the study identifies a resurgence of territoriality (political and economic) as one of the major risks of doing business over the next twenty years. Of course, we see this already.

In a broad sense, the transformation going on today boils down to a huge exercise in change management, with a need for strong leadership, clear foresight, good strategic planning, and tight management of the risks. It's change management on steroids.

The survey is available on the KPMG website.

How Analytics can be Used to Fact Check News Items

Companies have been focusing on the capture of big data using tools such as Hadoop for a few years now. However, it appears that many of them still do not identify big data as a strategic resource worthy of enterprise wide analysis. As a result, while there is much data available, it is being used in scattered ways by various departments operating in silos.

Some of the major analytical tools - Cloudera, Hortonworks and Map R have responded with high level and sophisticated offerings using artificial intelligence and machine learning techniques. They feel this will make the tools easier to use and more powerful.

A good example come from Cloudera, in the form of their application Reuters Tracer. This remarkable tool is used by Reuters News Agency for analyzing twitter feeds, fact checking them and producing results in a matter of milliseconds.

They recognize that Twitter has become a major news source but that it is difficult for people to sort through all the "noise" and determine what is true and what isn't. Reuters Tracer "processes about 13 million tweets daily, capturing events as they happen and determining: is an event true, is it newsworthy, and what is the scope and impact of that event."

"If a tweet is an opinion, Reuters Tracer can determine whether it comes from a recognized expert, and is therefore of news value. In delivering its results, it provides journalists and businesses with a 'newsworthiness score' for each event that rates its assessed level of accuracy and credibility." These results can be produced in as little as 40 milliseconds - basically real time.

Fact checking in the old sense has become something of an industry Reuters Trace can automate, if not  all, much of the fact checking needed to provide a sound basis for decision making.

Many companies are considering applications like this for their own business purposes, perhaps with a big data source like customer or supplier activity with analytics embedded to focus on key strategic decisions. Auditors can definitely use tools like this to improve the analytical techniques used in audits - something that is badly needed.

For more, check out these references - A recent article on the subject and the Cloudera website.

Digital Transformation requires BPR

In the current frantic push of enterprises to digitize their operations, in the form of digital transformation, there is one old process they can't get away from and that's Business Process Reenginering (BPR).

BPR has been around forever, but really came into prominence during the heyday of big ERP (Enterprise Resource Planning) implementations in the 80s and 90s. Those implementations were very difficult and costly and it soon became obvious that BPR was necessary in order to fit the technology and the business together and at the same time make best use of the technology to optimize the business.

Now, the situation of ERP systems is very different. They are well established in, and in many cases, central to the processes of the business. Where once they were the disruptive technology, now they are the legacy systems. Many companies are moving them to the cloud.

Cloud based ERP systems are different from those legacy ERP systems. Partly because ERP has evolved in recent years, and partly because of having transformed to cloud applications, which require new and different operational and security processes.

In the process of digital transformation, many organizations are now using DevOps, which involve automating the processes of software development and IT teams. Since the IT teams must necessarily be concerned with BRP, the DevOps processes must be consistent with the BRP efforts, particularly where they meet.

All of this means that digital transformation can be a tremendously complex affair.

Here's another article on this general topic.

Blockchain and the Accounting Revolution

It is being said that blockchain will revolutionize accounting, because it enables an independent record of all transactions in a separate distributed ledger which is available, shared, independently recorded and unchangeable. Essentially, the entries would flow from the record of smart contracts, under which commitments entered into by parties to a transaction would become part of the shared distributed ledger and then the settlement of that contract would be automatically implemented by the contract and also recorded in the distributed ledger. Thus all parties to the contract would have a record of the entire transaction stream from beginning to end. Since these entries flow from the agreed contract and are then generated by that contract independently of the parties, it forms a tremendously valuable part of the audit trail for those transactions. Some have even suggested that this would eliminate the need for auditors, and although this is an overstatement of its effect, there is absolutely no doubt that it will transform the way that auditors work.

The aspect of blockchain that involves creation of the distributed ledger has been referred to as triple-entry accounting. For those with some knowledge of accounting history, this is a jarring nomenclature, as it evokes memories of Yuji Ijiri, the noted professor at Carnegie Mellon University who published a monograph of that name in 1982 along with a paper in The Accounting Review in 1986 outlining the nature of triple-entry accounting. Some academic writing has focused on this similarity and asked the question is the triple-entry accounting of Ijiri the same idea as that of blockchain? Some have said no and others yes, at least conceptually.

It’s not a simple issue. The essence of Ijiri’s model was the introduction of a new measure of performance called momentum and a Statement of Force that shows the rate of change in the organization. The addition of the Force Statement to the traditional Balance sheet and Income statement gives rise to the triple entry concept.

In blockchain, the third element to the accounting process arises from the creation of the distributed ledger that shows a complete record of all transactions in the enterprise – a very different concept.

However, the distributed ledger could easily be used to create Force Statements as it contains verifiable dates of all events through cryptographic methods. So, a logical conclusion is that the Ijiri and blockchain concepts are very different but at the same time that the two are very compatible. Will the Ijiri concept make a comeback? Who knows?

Blockchain is being adopted quite extensively, particularly in situations where smart contracts make sense. And an industry is forming around it. But it has not reached the level of general adoption across the spectrum of accounting. Whether it will remains an open question. But there is no question that it will be a major force in accounting providing new and better accounting controls and perhaps leading to the extension of accounting into new dimensions, like those of Ijiri, or something like that.