I think we’ve been duped: you, like me, have probably been told somewhere along the line that ‘accounting is the language of business.’ It’s not.
I think we like to think it is. I think we feel good that we can say that about our chosen profession. But I think we do a disservice to ourselves and our customers by subscribing to this notion.
You might have heard that joke about the helicopter pilot that got lost in the skies above Seattle — it was a foggy day, and visibility was very low. He circled and circled, but couldn’t seem to get his bearings. Then he pulled alongside a window of one of the taller skyscrapers, and had his co-pilot scrawl a question onto a poster board and hold it up to the cockpit window: “Where are we?” The folks inside quickly found some flip chart paper, wrote up their reply, and held it up to the building window: “In a helicopter.” The pilot immediately headed north, took two quick turns, and set the chopper down back at the landing pad. Stunned, the co-pilot finally managed to ask, “What … how…did you know to do that?” “Well, I knew we were at the Microsoft building, and it was a just a matter of making a few turns to get home,” the pilot replied. “But how did you know we were at the Microsoft building?” “I knew because the engineers there gave me an answer that was technically correct, but completely unhelpful.”
That’s what I’m concerned we’re graduating out of accounting schools: students that know all the rules of GAAP, but no idea what it means for business. Perhaps that’s what the 150-hour requirement was meant to address, but I’m not sure it’s had its intended effect.
The other day I was watching the 2013 commencement address for Rice University, given by Neil deGrasse Tyson. (Okay, you know you’ve watched some strange things on YouTube too.) You may recognize Mr. Tyson from public television science specials — he’s an astrophysicist and currently the director of the Hayden Planetarium, among other honors. It’s a fascinating talk that I recommend you listen to in its entirety, and I want to hone in on a particular point he makes starting at 15:20 — that our nation went to the moon because of the collaboration of many disciplines: engineers, lawyers, artists, scientists, mathematicians, etc. — “an entire participation of culture.”
Unless we can see the big picture and our relation to it, we will fail to find our place in the future and cede it to another. Business is risk, experimentation, economics, entrepreneurship, human anthropology, relationship building, pricing, value searching, literature, language, teamwork, vision, and more — the stuff of the human experience. You can’t find that written in a financial statement. And yet we’re taught to take as true that the balance sheet, income statement, cash flow statement, and notes give you a complete economic picture of the entity.
Accounting statements are the recording of the result (and not even all the results, if truth be told). But business is not the result: it’s everything that came before. The income statement will tell you what happened, but it won’t tell you what the business model is, if it can work, what the alternatives are, or what people might value. But that’s what should be occupying the entrepreneur’s mind. Accounting is the after effect, the shadow, the trail behind, not the trail ahead. Let’s not hoodwink ourselves into believing that if you understand the accounting, you understand the business.
Harvard Business School Professor Clayton Christensen wrote an interesting book entitled, How Will You Measure Your Life? In a blog post about it, he makes the point that many big companies fail to successfully navigate through disruptive change because they confuse ‘marginal costs’ and ‘full costs.’ To be honest, I had to read the blog post a few times before I started to get what he was saying. But the point he gets at, is that not understanding what wasn’t in the accounting statement, is what caused Blockbuster to make a fatal miscalculation, and end in bankruptcy, while Netflix ate its lunch.
So how does this change the way we practice accounting? Maybe we can begin by subordinating accounting statements and the accounting function to a broader vision of the company, recognizing how it interplays and and integrates. When we review financial performance, we can begin with questions about how things are going in general and the state of the strategy, before we even get to the numbers. When we talk about the numbers, we should be continually pointing off the pages to what isn’t displayed there. And when we guide decisions about the future, we should be sure to base them on future realities, not past realities. In short, instead of talking the language of accounting, we can start talking the language of business.
Bonus reading: Oh, and if you’re interested to check out two alternative models in the making, surf on over to B Corporation and Integrated Reporting.
(As originally posted on the Thriveal blog.)