BPSC Mains 2011 HOT TOPIC-II: 6 Sustainable success of business in India.

Public Service Commission preparation

Business leaders today need to achieve success in the face of fierce global competitive pressure and uncertainty. The paradox of our times is that focus on securing economic returns has become the least reliable way of achieving business success. The very drivers of value creation are changing as key links in the value chain, such as natural resources and human talent, become scarce. CIMA and Tomorrow’s Company have started a unique journey to explore the future and purpose of business, researching the development of leadership, future talent, the co-creation of value, business accounting, sustainability and integrated reporting.

Irrespective of the size and nature of an organization, the board should aim for the long-term, sustainable success of the company. They are engaged in approving, monitoring and determining the short and long-term strategy of the business, an effective business model and, most importantly, the risk management strategy of the business. The ability to make quality decisions regarding strategic development, risk assessment and risk mitigation, appropriate resource allocation, and talent management are some of the key skills that leaders of today must demonstrate. A board leading by example, and aligning the short and long-term business strategy to the vision, mission and values of the organization, will successfully influence customers, stakeholders, management and shareholders.

This unprecedented change in the demands of leadership over the last 10 – 15 years has been created by social and technological change, by globalization and a growing concern for the future of our planet. We are now at a turning point in the 21st century. The context in which companies now operate is a triple context – where future and enduring business success will rely on understanding and responding to the links between the economic, social and environmental sub-systems and the opportunities.

Thus, there is an increasing requirement for leaders who will prioritize the stakeholders of their organisations (customers, employees, suppliers, the community, the planet, and the shareholders), rather than personal reward, and personal power and prestige.

‘The Invisible Elephant & the Pyramid Treasure – Tomorrow’s Leadership – the transpersonal journey’ – is a new report co-created by LeaderShape, CIMA and Tomorrow’s Company. It has been developed from 13 years of experience of working closely with senior leaders. It sets out a journey towards the type of leadership that is a better fit for this future.

The CIMA Strategic Scorecard framework takes into consideration the external environment, strategic risks & opportunities, options available, implementation strategy and, most importantly, the business model. It enables one to drive a sustainable business model. The scorecard was developed to help company boards oversee strategy more effectively. The business model is then set in a broader dynamic context. Companies must understand how the external environment and the associated risks and opportunities impact on their model.  They must generate and evaluate a range of strategic options, and then graduate to effective implementation.

Corporate sustainability is imperative, and finance professionals have the potential to become key players. They have the power to encourage the board and senior management to commit to sustainability by providing reassurance, and proof, that it can be measured and monitored, and by advising that sustainability can be taken into account clearly and consistently in day-to-day decision making.

A recent study, compiled by Accenture on behalf of CIMA, is based on two surveys – one an Accenture survey of 85 decision-makers in the field of sustainability performance management (SPM), the second, a CIMA survey of over 800 finance and sustainability professionals. It also includes interviews with senior executives at global healthcare giant, Novo Nordisk, and leading international bank, Standard Chartered, which focus on challenges in valuing sustainability, integrating sustainability management and reporting, and driving business performance through sustainability.

The ensuing report, ‘Sustainability performance management: How CFOs can unlock value’,  highlights how sustainability has the potential to drive business value; unlocking lucrative new revenue sources, driving out costs, increasing efficiency and enhancing brand value. A sustainable approach delivers competitive advantages, builds strong and lasting customer relationships, and creates long-term stakeholder value.

For a business leader to make the decisions needed to build a sustainable business model, he needs to be supported by management information that combines both financial and non-financial data. Integrated reporting supports the need for a concise, clear, consistent and comparable reporting framework, structured around an organization’s strategic objectives and its governance and business model. It supports the information needs of long-term investors, showing the broader and longer-term consequences of decision-making. It reflects the interconnections between environmental, social, governance and financial factors in decisions that affect long-term performance and condition, making clear the link between sustainability and economic value. It provides the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making.

A successful business is a cumulative effort of careful analysis, long-term planning, robust execution strategy and implementation.  CIMA works towards training successful management accounting professionals for the business needs of tomorrow.

Management accounting tools such as the balanced scorecard highlight the areas that companies must address to maintain sustainable business models and to manage the link between the short and long-term. Management accountants have a key role to play in providing and analyzing data around the key drivers of long-term business performance and in designing performance management systems that encourage the desired behaviours.

Courtsey: Charles Tilly, CIMA article at NW18, CNBC INDIA