The ‘Integrated Reporting’ movement encourages companies to communicate a holistic picture, one that is broader than offered by traditional financial reports. Integrated reports cover strategy, governance, performance and forecasts and can help both external stakeholders and leaders within the organization to understand the business and its future prospects.
However, for the leaders within the organization it is equally important that they understand what the traditional financial reports are saying. While the organization must maintain a healthy, confident, profile for its customers and employees, the managers need to understand what’s really going on – and if your role in the business is non-financial, it can be difficult to assess just how well the company’s actually doing and get to grips with the accounts.
As with any professional discipline the principles and concepts underpinning accounting can be obscure and arcane – a cynic might say purposely so to discourage the non-financially literate. According to Dr Jenny Chu, Academic Programme Director, Cambridge Judge Business School. “You’d be surprised how many people who have reached senior positions in organizations and either don’t have a baseline knowledge of finance, or believe certain financial terms mean one thing, when in fact they mean something completely different.”
“There’s no shame in that if you’ve never had the opportunity to learn it – the language around finance can seem impenetrable – but if you can acquire a bit of an understanding it will help you to understand your company better, communicate across the organisation and, if you need to, make much better informed business decisions,” she says.
Judge’s ‘Finance & Accounting for Non-Financial Managers’ program introduces the basics of accounting and financial analytics, exploring how these integrate into an organization’s overall strategy and explaining the potentially baffling terminology. “These concepts underpin and inform business decisions,” says Chu. “If you understand that, you can use that knowledge to dig deeper into your own organization, to challenge and to question from an informed standpoint.”
Being informed at this level managers are able to contribute more fully and with more confidence to strategic decision making. They are able to communicate better with their finance colleagues to find relevant financial information, able to understand profitability ratios, investment decisions, performance metrics, and business valuation principles.
This level of understanding greatly enhances a managers ability to have an impact on the value drivers of the business. Furthermore from a future career perspective it can lay the foundation for achieving a full understanding of the more complex financial issues, that they will come across as they take the most senior leadership roles.
Applied effectively Integrated Reporting can be a catalyst for strategic change and a keystone of corporate sustainability. And the same can be said about financial literacy. Organizations whose leaders can balance their understanding of strategic and operational management principles with a true understanding of the principle of accounting and finance are well placed to grow and thrive.
The more people who understand how their organization’s finances work, the better for everyone, says Chu. “If everyone knows broadly what’s going on there’s more opportunity for open discussions and better communication between departments. Financial planning is the language of business – things are much easier if we can all speak that language.”