New book gives a revolutionary perspective on business reporting

Many in the global business community have been shocked by the wave of accounting disasters that have been revealed over the last few years, with Enron as only one of thousands of cases. What is going on? Is our venerated accounting system as bad as it seems in shedding light on the true situation of companies? How much is Sarbanes-Oxley going to help, if at all?

Zuhair Suidan interviewed Hans Johnsson, co-author with Erik Kihlstedt of a new book, Performance-Based Reporting, that presents a revolutionary new approach to business reporting and analysis.

ZS: What is the main message of your book?
HJ: In short, we need a new business reporting and analysis system. The accounting system we have used, practically unchanged from the 15th century, was developed from the beginning as a way to report past transactions. It has never been a good platform for decision-making about the future or to indicate company success or failure. Today, in what we call “the fourth economy” it is less relevant than ever, since most of the important drivers of company development are not even considered in accounting.

ZS: Some years ago, we heard about “the new economy”, but what is “the fourth economy”?
HJ: “The new economy” was a loosely defined term for what some people felt was happening in the business community. “The fourth economy” is more strictly defined, around three broadly acceptable characteristics of business and the economy at the beginning of the 21st century:

1. Fast, unpredictable change, “The Age of Discontinuity”, rather than “business as usual”
2. A new driver of value-creation in companies and societies, “minds in interaction”, rather than physical assets, and
3. The Network Society, rather than fix hierarchies and companies as “legal boxes”

Companies today must be able to handle these characteristics in their strategic planning. None of them are reflected or supported by accounting data.

ZS: So what do you suggest, instead of accounting?
HJ: We have developed, and carefully tested, in 1,500 companies over twenty years of practice, a new way to look at companies. Instead of loooking at past transactions, our methodology provides a systematic assessment of present conditions for company survival, growth and earnings capacity.

ZS: Can you give us an example or two or where this has been implemented successfully?
HJ: A recent case is an international shipping supply company which made an analysis of one of their business areas and found it gave an entirely new view of the company. They have now come back and ordered an analysis of the other business lines in the company. Another case was a company president who had worked for the company for seven years but said he learned more about the company´s situation in the short analysis session than he had learned in all the years he had worked for the company. Cases like these come up practically every time we implement a review.

ZS: But you still need to keep accounting for tax reporting and other legal reasons. Will your system add a new expensive model to present systems?
HJ: What has happened is that the costs of running accounting systems have increased substantially, also by the Sarbox legislation, at the same time as the usefulness of accounting data has all but disappeared. We propose that companies draw conclusions of this and reduce their accounting expenses to the minimum required by the laws, and use more meaningful systems for governance, stakeholder reporting, due diligence, and other strategic decision making. The system we advocate can be introduced at low costs and in a step-by-step process.

ZS: What are some of the steps a company needs to take to implement the new analysis and reporting structure?
HJ: It is, in fact, quite easy. The system provides a computer-supported process in which the whole management team goes through a company-adapted question-and-answer session, usually performed in one or two days. The end result of that session is almost without exception that the management team reaches unity on its strategic issues, and adopts an action plan, where every player sees his or her role towards a common goal. In cases where the company has several business lines, the process can take a little longer, and actually, in such cases, the process often leads to a realignment and restructuring of the business lines and the organization of the company. The steps the company needs to take come out very clearly in the form of check lists which create a platform for follow-up.

Click here to get the book on Amazon