Is Accounting the Language of Business?
Traditional thought perpetrated from Academia is that accounting is the language of business. The story goes that everything about a company, its areas of investment, costs, assets can all be distilled from financial reports and accounting documents. Due to highly standardized requirements such as GaaP and IFRS, accounting is a language that can convey a lot of information about an organization. But is accounting the language of business?
First, what are the ingredients of accounting reports? Accounting reports are simply a way to logically organize lots of data into a way that is standardized, digestible and transparent (to those who speak the language). Each line on a financial report can show a number that is made up of thousands or millions of individual transactions. Those transactions are… data. So I would contend that accounting is not the language of business. Data is the language of business. Accounting is a specific dialect that excels at portraying financial results and positions in a standardized and organized way.
Information Wants to be Free
If an executive wants to know which of her marketing channels are bringing in the most valuable customers, she can’t go to a Statement of Cash Flows or Balance Sheet. She needs to consult her database or marketing dashboards. If an executive wants to analyze the impact of server uptime on customer satisfaction, he can’t go to the Income Statement. Operations data and customer behavior data need to be analyzed and correlated to find hidden trends and patterns that may not be readily apparent. Financial statements are incredibly aggregated and limited by their nature. As a result many fairly high level aspects and sectors of the organization are not reflected by accounting data alone.
Ask Not What Your Data Can Do For You, But…
According to surveys by 160 Wall Street buy and sell side institutional investors and analysts conducted by KPMG in Q4 2015, 54% said that they believe data and analytics will impact the competitive dynamics of industry sectors in the next three years. 45% of these investors and analysts said they are likely to change their valuation or investment opinion of these businesses based on their data and analytics within the next 2 years. Yet 56% of companies have not articulated a data & analytics strategy to the investment community.
If data is the language of business, it does not enjoy the status and level of attention warranted and has not fully been integrated into the fabric of business strategy. The companies that do so are enjoying much better growth (according to 2013 survey by The Economist Unit). Data is a tool, an asset, a liability and a way of thinking. Perhaps the most valuable part of data is its ability to take the subjectivity out of decision making. When executives and managers have a difficult decision to make, going to the data can remove the guesswork and vastly increase the likelihood that the decision is the correct one. If the decision turns out to be incorrect, at least there is a well documented methodology and data driven reasoning behind the decision. According to a study on big data use in the decision making process by the Harvard Business Review, “companies in the top third of their industry in the use of data-driven decision making were, on average, 5% more productive and 6% more profitable than their competitors” even after controlling for several confounding factors. Strategic decisions need to use all of the available data. Focusing only on accounting data can leave out key connections, context and information that may lead to the wrong decision.
Sorry Accountants, Data is the Language of Business
In order for anything to be called the language of business, it must go far beyond merely portraying financial positions. It must be inclusive of the stories, challenges and realities of all areas of the organization. The only entity flexible, ubiquitous and inclusive as that is an organization’s data in its entirety, without caveat or restriction. So I hate to break it to accountants, but data is the language of business and accounting is a subset of that. But hey, that means accountants are specialized, and that is the name of the game in today’s diverse, technology driven environment. So sleep well at night accountants.