Tag Archives: value

Short-term focus of management ain’t due to accounting

CFO.com had a provoca­tively titled article this morning that just shouted out for a retort: “Is Accounting Blocking R&D Invest­ments?

Now how could accounting be doing that? Why, because senior management is preoc­cupied with meeting short-term quarterly earnings targets, and are cutting back on longer-term focused R&D investments!

I thought this was just an overzealous headline writer, out to get clicks (mission accom­plished!) and perhaps the article itself would walk back the ridiculous premise, but instead it doubled down:

The accounting treatment of R&D as a period expense and the overem­phasis many public-company execu­tives place on EPS. Many execu­tives pay lip service to the long term benefits of R&D. But in reality they base the size of their companies’ R&D budgets primarily on a single period’s EPS dilution. Thus, they are only looking at a tiny fraction of the value equation.

It’s gotta be up to management to teach the market how to appro­pri­ately value their company, and it’s gotta be management that shares a long-term vision of sustainable profitability to share­holders. This short-termism simply has to stop.

It isn’t the accoun­tants who are pushing for quarterly earnings reports. I’m sure accoun­tants would love to spread out the reporting, it would make their lives a lot easier not to have to calculate myriad accruals on a quarterly basis only to reverse them after.

Value, real lasting value, not just for share­holders but employees and commu­nities, is built over the long haul.

E&Y: Internal Audit should drive strategy

BusinessDay, a South African business news website, published a recent article refer­encing an E&Y study involving “more than 100 industry analysts from more than 20 disciplines”:

Organ­i­sa­tions need to break out of the compliance cocoon and evolve into a fully fledged leadership role that delivers real value to the business. In the current economic climate, the biggest risk for most companies is not a failure to meet compliance require­ments, but a failure to meet strategic targets.

The study also assessed last year’s top 10 business risks. In it, the analysts ranked the after­shocks of the credit crunch and the deepening global recession as the most important business risks, displacing regulation and compliance from the top spot.

Still more evidence that the Internal Audit profession demands an expanding skill set and well-rounded people with experience in more varied aspects of business. Auditors are going to have to continue to push themselves outside of their comfort zone in order to provide the greater value that share­holders require of the function.

How does your IA department stack up?

Value creation mode isn’t just from 9 to 5

I was recently asked what I thought about value pricing as it relates to profes­sional services firms. The billable hour is typically how firms price their engage­ments, but the idea of value pricing is gaining momentum and accep­tance is growing.

I believe in a compet­itive market, value pricing would occur naturally. Misin­for­mation from vested interests in the status quo and profes­sional inertia are slowing the evolution of the audit market into one priced on value.

That being said, value pricing is the only way a product like an audit should be priced.

When I’m truly creating value, it doesn’t occur according to the clock. I’m not neces­sarily in “value production mode” from 9AM to 5PM, Monday to Friday. Eureka moments occur in the middle of the night when I’m getting a glass of water, or when I’m shampooing my hair in the morning.

They follow no schedule, and they take no time to create. They are split-second flashes of inspi­ration that can transform the quality of an audit, but for which the widely used time-based model attaches no value.

Further, the value of individual audit tests stems from the design of the test, which may take time but certainly isn’t defined by it. Actually performing the test will take time but it is only worth the results it provides. A five hour test may be better than one that takes an hour, but there are no guarantees.

The greatest advantage for firms is growth through retaining current clients and earning new ones through referrals. But a secondary incentive will be growth by retaining the best staff and motivating them to develop profes­sionally and build strengths they’re passionate about into niches.

Value pricing for clients is one thing, but firms will need to push to establish its concepts within an existing culture. There is still a strong belief that hours worked equals audit “production”. The firm that is value priced both exter­nally and inter­nally will get the most out of it.

The value of blog postings and comments

It was a long time ago in internet years that I started reading Dave Winer’s blog, Scripting News, and even longer since I started reading Jakob Nielsen’s writings on his site, useit.com. These two are truly pioneers of the digital age, with Winer instru­mental in the devel­opment and promotion of RSS and Nielsen writing the book(s) on web usability.

Winer recently discussed why he doesn’t allow comments on his blog, which morphed into a full-blown exami­nation of whether the ability to comment on posts is what defines a blog.

Do comments make it a blog? Do the lack of comments make it not a blog? Well actually, my opinion is different from many, but it still is my opinion that it does not follow that a blog must have comments, in fact, to the extent that comments interfere with the natural expression of the unedited voice of an individual, comments may act to make something not a blog.

He makes a compelling argument, as previ­ously I was in the camp that believed a blog must have comments, else it was but a mere shadow of a ‘true’ blog. His main point was that everyone can comment on what he writes by linking to it on their own blog, rather than appending their thoughts to the end of his post. Those responses are much more valuable and meaningful, since it will filter out the abusive comments and be more constructive.

Jacok Nielsen’s latest article talked about (to be blunt) how useless most of the blogs out there are because they rarely, if ever, offer something new and valuable to their readers. Most blogs just link to the inter­esting stuff, and Jakob was lamenting the fact that so few blogs make the effort to create the inter­esting stuff rather than just linking to it.

Blog postings will always be commodity content: there’s a limit to the value you can provide with a short comment on somebody else’s work. Such postings are good for gener­ating contro­versy and short-term traffic, and they’re definitely easy to write. But they don’t build sustainable value.

This one really had me thinking for days last week about what I’d done with my blog since February 2006, whether I was creating sustainable value with it, and what I could improve or change to make the stuff I write better. I like to think with this blog it’s a mix of short-term, newsy posts and long-term stuff that would continue to attract readers long after it vacated the home page.

I did a lot of thinking this week about where I want this domain to go in the future and how it was going to get there, and where it has already been and how that turned out compared to my expec­ta­tions. You’ll probably begin to see the results of my medita­tions very soon, as I transform this space into something more repre­sen­tative of my various interests.

Now that’s a niche

There’s a particular blog that only discusses the idea that accounting firms, and indeed all profes­sional services firms, should “trash the timesheet” and implement “value pricing.”

The basic concept is sound: Timesheets treat the chargeable hour as the measure of the firm’s services’ value, which distorts its true value to the client and further commodi­tizes the work we do. Value pricing looks at our services from the client’s point of view and tries to determine what the work is worth to them, and pricing to that.

But it just occurred to me that this blog has such a small niche. It’s a firm’s blog, and they’re definitely leading the charge for value pricing for profes­sional services, but I can’t help but wonder if they’re eventually going to run out of stuff to blog about!