A strong and plausible argument has been made suggesting that our current business measurement standard is the root cause of our most serious social, environmental, economic and business problems.
Given such a serious indictment of poor behaviour, surely our first priority should be to establish the truth, because if it’s true, then the introduction of a new business measurement standard should be a top government and business priority globally, despite perceived difficulties in finding a solution. It presents no greater challenge than any other exploration of the unknown. Perhaps, even less of a problem than we think.
We have known for a long time that something is wrong with business behaviour. Many have wrongly accused Capitalism as the culprit, but this is simply fallacious. Capitalism is a philosophy, which recognises the spirit of free enterprise and the need for business to generate profit. It places the longevity of business before the profit objective, thereby acknowledging that a profit obsession, at the expense of other constituents, does not serve business longevity well. It favours the need for balance. So, the fundamental problems of business lie elsewhere - it lies in its systematic and slavish pursuit of profit, as the sole objective of business.
The plausibility of the claim that our current measurement standard is the root cause of our problems is strong, because we know:-
1. Business outcomes have a direct and significant influence on society, environment, economy and business itself. I’m sure few, if any, will dispute this.
2. We also know that measures dictate outcomes. Here’s a simple analogy to prove this. If you referee a game using the rules of another game, you soon turn that game into a game of the referee’s rules. It’s the same with business, measure the game of business according to financial rules and you get a “financial game”, not a game of business, which are two vastly different games.
We know business affects everything, and our measures dictate outcomes. So, bad measures equate to bad outcomes! What then makes our current measures so bad?
We know that financial measures account for less than 20% of the value creation potential of business. Therefore, if we use financial measures as a business measure, it stands to reason it will be hopelessly inadequate and inappropriate as a business measure. Finance is not business, it’s only a small part of business. Furthermore, financial measures represent a single perspective - an exclusive shareholder perspective. However, despite our clear understanding of its inadequacies and inappropriateness, together with its exclusion of other important constituents (or stakeholders,) we persist in using it as a business measure, because it is the only comparable measure we have. Comparison is the cornerstone of our economy.
Although businesses use non-financial measures extensively, these measures are unseen and unknown by the investment market, and therefore, face the strong probability of being compromised in favour of producing strong financials - the only measure which matters. Our problem lies in our lack of comparable, non-financial measures, which forces us into using inadequate and inappropriate measures, with their exclusive shareholder slant, which results in our systematic pursuit of profit for the exclusive benefit of shareholders.
Had Adam Smith (1723-1790,) commonly referred to as the “father of modern economics,” been alive today he would have scoffed at the notion of us calling ourselves capitalist. He would have no hesitation in calling us profiteers. A profiteer is described as an entity which uses unfair advantage to gain profit over others. That is exactly what our current measurement standard does. It focuses on the enrichment of shareholders through the exclusion of others. The exclusion of others, is an unfair advantage. They profit off the back of other’s inputs, ignoring their true cost and need for recompense.
Does this profiteering approach serve business well? No - not at all. Proof of this is in the decline in business longevity. No imbalanced system works properly. Business comprises many constituents (or stakeholders), and they all need to prosper over the long-term for business to survive. One cannot prosper at the expense of others. That’s why we need to return to the principles of capitalism, which acknowledges the importance of profit, but does not see it as paramount. It sees longevity as paramount (i.e. the continuation and growth of capitalism,) which can only be achieved through a balanced system, which looks after the needs and interests of all stakeholders.
So where do you stand on this issue? Do you support a “business as usual approach” or are you in favour of introducing a new business measurement standard? A new standard which identifies comparable non-financial measures as the key issue? Perhaps you are torn in supporting a new standard, but believe the underlying principle of comparability is unattainable. I have done extensive research into this question and know a solution is possible, as business is made up of both common and unique processes, with enough common processes to provide a framework for measurement. The alternative of doing nothing, in my opinion, is untenable. When the historical spotlight is turned on our generation, in years to come, we will be known as “Generation Profiteers,” where we stood back and did nothing, allowing a minority group (shareholders) to utilise resources unfairly and unjustly.
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There’s a strong possibility we will be known as “Generation Profiteers” by future generations, because despite masquerading as capitalists, we are nothing quite that noble. In fact, we are no more than grubby “profiteers.” What a shameful legacy.
If we do nothing, this historical perspective will stick - a legacy of plundering global resources of every kind for the enrichment of a few at the cost of the many.
If you are not already a strong convert of change, then this article should make you see the desperate need for it, otherwise, I’m not sure what will? This article is not anti-business - far from it. It’s pro-business and capitalism, but with a completely different understanding of what capitalism means.
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