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By Adrian Henriques, Professor of Accountability and CSR – Middlesex University

Traceability matters

‘How far can you trace your responsibilities?’ is not only a difficult philosophical and moral question, it is also a practical and even a commercial one. Before looking at the commercial issues, it is worth a very quick detour to think about the moral philosophy: everything we do both relies on and also sets off an endless chain of consequences. It is very hard to trace the consequences of our actions very far, but in so far as we can, we are held morally accountable. And of course, we are also held accountable for what we intend to do and the consequences we try deliberately to bring about.

What has this got to do with the commercial world? Quite a lot, since the expectations of the public regarding what companies are responsible for has been rising inexorably over recent years. Driven in part by consumers, but also by environmental concerns, companies are these days expected to take responsibility not only for what they buy and the associated supply chains – but also for what they sell and the associated ‘demand chains’. In short, the entire value chain is fair game.

Where the consequences are most serious, these expectations have also been codified in law. The recent Modern Slavery Act in the UK and the Dodd-Frank Act in the USA are examples. While the Acts focus on transparency, they provide a powerful incentive for companies to change their supply chain management processes.

More widely, without knowing where the parts of a product come from – and where they go after manufacture and use – it is not possible to put in place fully robust processes to determine what their impacts may be. And without that, in addition to the increase in commercial risk, corporate strategies for responding appropriately to environmental and social impact become haphazard.

Where customer health and corporate reputation are at stake, traceability is taken seriously. For example, a significant part of the fresh produce sold by supermarkets can be traced back not only to the farm where the plants were grown but sometimes to a small number of rows of plants in a particular field.

Other industries also currently go to great lengths to trace their products in use, especially when they are expensive. Rolls Royce knows where its thousands of engines are located at any point in time. That is largely because the engines are extremely expensive and incur great costs when they are idle or out of service. Similarly, for radioactive products, the impacts can be very severe, so tracing may go right through to ‘final’ disposal.

Unfortunately, the globalisation of world trade has compounded the problem of tracing supply chains for many products. As a result, very few products or their components can, in fact, be traced fully to their raw material source – or to their final disposition after use. This lack of traceability exposes businesses of all kinds, from primary producers through to retailers, to compliance, reputation and financial risks.

Assessing traceability

Currently, there is no feasible, credible and widely accepted framework for assuring the source or destination of materials, components and ingredients throughout a value chain. Indeed the length and complexity of the global supply chains of the modern world may seem to make the task of achieving full traceability impossible.

Since traceability systems almost by their nature require co-operation and communication across organisational boundaries, standards have an essential role to play. Yet the overall picture of traceability standards is fragmented.

There is a considerable degree of standardisation around the marking of products (through bar codes, for example) which enable traceability. However organisations that have a measure of vertical integration in their operations may develop proprietary traceability systems. And sometimes different industries each have their own traceability systems. While this may be a valid response by the organisation concerned, it deepens the overall global fragmentation.

In some areas, such as aspects of the IT systems needed to support traceability, there are more general standards. And there are plans to develop an ISO ‘chain of custody’ standard. These, however, focus on specific kinds of operational implementations of traceability, not on the full picture. A chain of custody standard, for example, may set out the various ways in which a sequence of owners of goods should relate to each other in order to capture the identities of the product’s owners as the product progresses through the supply chain. But it is not designed to answer the question ‘how far can you trace the product along the value chain?’, except in a rather roundabout way.

On top of that, new technologies are being deployed (or old ones re-purposed) that can dramatically help with traceability. These include DNA testing, RfID techniques and isotopic analysis. But without a framework to understand the traceability implications, it will be hard to make best use of them in a value chain context.

So to sum up, what could a general traceability framework or standard do? The value of a general traceability standard or framework would arise from:

  • The need to compare and facilitate the integration of the existing traceability landscape into a demonstrably effective traceability system
  • Cost-savings over the implementation of traceability independently in new areas
  • As part of due diligence, the assessment of the level of traceability achieved by a given traceability system
  • The economic and social benefit derived from sharing good practice and encouraging traceability across increasing areas of economic activity.

Adrian Henriques is Professor of Accountability and CSR at Middlesex University, UK

 

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Darren Baker

By Darren Thomas Baker, author

What is the next approach to diversity management?

It was a rather grey, humid early summer morning in New York City when I met a friend for brunch close to Times Square. My friend is a very successful and passionate global diversity consultant who supports organisations in the design and implementation of inclusive leadership and behaviour change programmes. We obviously spoke much about diversity and the current challenges in the UK vis-à-vis the US. It seems such a foretelling conversation now in light of the widespread race riots towards the latter part of 2014, arguably the result of the continued socio-politico-economic exclusion of racial minorities in the US. Another contemporary tension concerns same-sex marriage in the US. In the UK, same sex marriage was legalised in March 2014 whereas many states in the US seem reluctant to grant this (Human Rights Campaign), with even reports of proposed oppressive and frightening legislation in some states advocating the re-introduction of LGBT pro-discrimination laws (Pink News, 2015). These examples and others highlight the tensions and paradoxes facing the effective management of diversity and equality for organisations across multiple geographies. Despite two to three decades of equality management in some regions of the world, why is it that we still hear of persistent glass ceilings, ‘sticky floors’, sexism, homophobia and racism to name but a few?

Organisational diversity practices are closely tied to legislative demands at the national and supra-national level. In the US, diversity management is linked to affirmative action, which emerged from the Civil Rights Movements of the 1960s. Affirmative action is considered a relatively radical approach to equality, as in the US it demands that employers take ‘every opportunity to employ individual applicants from specific minority groups’ (Executive Order 10925). The EU has, in contrast, adopted a more ‘liberal’ approach focused on removing the obstacles to a meritocratic culture. The response by organisations operating in the EU, therefore, has been to implement HR policies that set expectations on behaviours through, for example, ‘codes of conduct’ or reflecting these in their organisational values. However, HR policies and procedures largely fail, often miserably, to grapple with the underlying causes of discrimination in organisations, such as ensuring that competencies and processes for reward, promotion and effective decision-making are disentangled from gendered stereotypes (Collinson et al, 1990, Managing to discriminate). There has also been an over-emphasis on inclusion as an outcome rather than as an approach to the under-representation of minority groups in organisations. This is a serious problem as focusing on inclusion as an outcome rather than as an enabler to diversity can dilute group identities and individualise discrimination.

However, things are changing in the EU and there is now significant pressure brewing regarding imposing 40% quotas on non-executive boards for all member states (EC Press Release). There is compelling data to suggest that more radical approaches specifically the implementation of quotas and targets are more likely to guarantee the representation of minority groups within positions of power within organisations. In the case of the impact of gender quotas on boards in Norway, the study by Wang and Kelan (2013) shows not only an increase in the representation of women on boards but also a trickle-down effect throughout the organisational hierarchy. This supports organisations in the development of a robust diversity ‘succession pipeline’.

Transforming diversity management

Neither radical nor liberal approaches seem to deliver separately. So what’s in store for diversity management over the next few years? From these criticisms, a new ‘transformational approach’ to diversity management is emerging. The approach seeks to challenge both structural and cultural inequities within organisations. First, it transforms the business practice of an organisation, such as its procurement, decision-making, recruitment, training and career planning activities. Second, the approach drives cultural and behavioural changes particularly around implicit bias, inclusive leadership, conflict resolution and leveraging critical and diverse thinking. This is based on research that highlights how changing organisational structures can catalyse the effectiveness of cultural initiatives (Kalev et al., 2006).

I leave you with three questions to contemplate:

  • How far have you really come in the representation of minority groups throughout the organisational hierarchy?
  • Are you spending too much time on PR activities that look and sound good, but engender very little long-term change within the organisation?
  • How can you redefine your diversity and inclusion strategy so to create greater change within the organisation, ensuring legal, ethical and social expectations, and increase your financial return on diversity

For further reading, please see my forthcoming chapter:

Baker, D.T. and Kelan, E.K. (April 2015) The Policy and Practice of Diversity Management in the Workplace. In: Managing Diversity and Inclusion: An International Perspective. Sage Publications.

2015: Year of the Robot?

accapr —  12 January 2015 — 2 Comments

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By David Poole, CEO of Symphony Ventures 

Automation of business processes through Robotic Process Automation and Artificial Intelligence is the subject of a great deal of speculation. Is the accounting profession on a collision course with these game-changing technologies? Is the future bleak or bright for today’s Accountant?

In the recent ACCA white paper, Digital Darwinism: Thriving In The Face Of Technology ChangeFaye Chua and her contributors make some very insightful predictions about the emerging role of technology in accountancy. The chapter on Artificial Intelligence (AI) and Robotics offers an interesting view into the potential role process automation can play in improving systems, reducing costs, and increasing accuracy. As an accountant by training, I am fascinated by what the future holds for this industry.

While far from envisioning a world where mechanical robots can credibly take over the complex and intuitive role of the accounting professional, I believe software robots, or Robotic Process Automation (RPA), are indeed capable of handling labour-intensive tasks in a highly efficient manner. These software robots don’t sit at a desk, but toil quietly behind the scenes, easing the burden of routine monthly tasks including data collection, reconciliations, complex journal entries, compliance testing and master data management (to name but a few). Once ‘taught’, they faithfully follow the processes accurately and reliably until told to stop. They don’t mind working 24/7 or skipping lunch breaks. They never quit, and a fleet of them can upskill as fast as you can say ‘copy/paste’. Millions of bits of data can be processed, analysed, and computed more quickly and efficiently by a handful of digital accountants than by dozens (even hundreds) of junior assistants.

An inevitable trend

The fact that robots can access multiple systems at once and make complex calculations means that as long as a process can be documented and the data is digital, the software can do the work.  The accounting world is well served by very good ERP and finance software which has automated many accounting tasks and created enormous value over the past 20 years. However, there are still a very large number of accounting staff and, some might say, more now than prior to the advent of ERP systems. It’s these human roles that are the target of robotic assistants.

So, how, you might ask, do you take advantage of this trend rather than being thrashed by it? It’s an important question, because automation in accounting is inevitable, and having a plan is critical.

Planning for Automation in Accounting

Your goal in the early days should be to gain a comfort level with automation and introduce it in ways that encourage adoption (rather than resistance).  One such area is for Digital Labour automation to take over the most onerous of tasks so that accountants can focus on the high-value work that best takes advantage of their background and knowledge. This will also create more fulfilling roles for junior staff as they can focus on analysis rather than process. Conservative estimates have such automation infiltrating most accounting offices within the next five years.

The robots can either work as assistants to teams of accountants, making them far more efficient, or can take over entire tasks and work independently in the background. For instance, it’s possible for robots to manage bank reconciliations in real-time and then escalate complex issues as they arise to a human colleague. And, as some have foreseen, the robot may then learn how to solve that problem independently next time it arises.

Areas of Opportunity

Once a comfort level has been achieved, one need not look far to find ripe areas of opportunity for automation. Firstly, look for areas where interfaces with business systems are either nonexistent or only partially implemented. This is robot nirvana. Robots are very efficient at completing integrations extremely quickly, cheaply, and often more reliably than building interfaces to legacy systems. For example, collecting, summarising, and posting sales data, order data, commitment data and so on.

Secondly, there is an ever increasing demand for analytics and reporting to add value to the business.  Robots can rapidly access data from multiple accounting and business systems and present results and insights to a human colleague. For the time being, robots are not as capable at interpreting the results of the analysis in the context of a specific business or industry. However, it’s only a matter of time before even the most nuanced and complex cerebral tasks are being automated as well – thanks to Artificial Intelligence software development being one of the hottest and fastest growing areas of R&D.

The Numbers

As accountants, it’s important that the numbers add up – that this is not just a management fad. Well, they do. All of the tasks described above can today be achieved at a fraction of the cost of employing humans. A single software robot can cost a small percentage of an FTE and yet perform the tasks of multiple humans, work longer hours, and do so with far more consistent results. They can also do so in a format that is highly compliant and auditable. Obviously the set up and implementation of a digital workforce is not straightforward and requires professional help and advice. Typically, however, even with the upfront investment and time taken to implement such automation, it is not uncommon to see a break-even within one year and a 3-4x payback on the initial investment over a period of three years.

With such a clear business case, the march of the robots is inevitable. The question is not ‘if’, but ‘when’ will you need to take a long hard look at the potential of Robotic Process Automation and Artificial Intelligence in your finance function? Many organisations are creating specific automation budgets for 2015 to start to develop their knowledge and capabilities around these new technologies.  The potential across the organisation, not just in finance, will be material in the coming years. Automation projects truly are transformational, but without the huge systems and wholesale restructuring that went along with ERP-grade transformations of the past.

The robots are indeed coming. The value they bring is real, and the competitive advantage they enable is significant. So make 2015 the year of the robot, and begin investing in the future of your profession and your firm.

Palma Michel

By Palma Michel, former CFO headhunter and founder of the Mindful Leadership program at BeYoCo 

The world as we know it has changed dramatically since 2008 and there has been more volatility in the past eight years, than over the past 30 years. It sounds like a cliché but we live in a world of constant change, increased complexity and uncertainty. Applying yesterday´s business solutions and behaviours to today´s and tomorrow´s problems does no longer work. It is no longer about “what” someone does but “how” they go about it.

In order to initiate or guide skilful change we need to be present to what is here, not what we thought would be here or to what was here yesterday. We also need to be able to hold ambiguity and be comfortable with the unknown.

What typically gets into our way to do this is our nervous system. We evolved in circumstances that did not change as intensely as the circumstances we find ourselves in today.  Back millions of years in evolution, our reflexive bottom-up mind or reptilian brain (amygdala) favoured short-term thinking, impulse and speedy decisions. Whenever the amygdala perceived something as a thread this led to a fight, flight freeze reaction. While this was useful when our ancestors were attacked by a tiger, fast forward to now, the problem is our amygdala still goes off when it perceives something as a threat, which typically happens when we are faced with an unknown situation; but it could also just be a full inbox, a budget meeting, etc. The other problem is that fMRI scans show, that what mostly switches on our amygdala are not even external circumstances but our very own thoughts. Our amygdala is also much faster in brain time than our executive brain and as a result we often react to what we think is here and fall into habitual reactive patterns instead of being able to respond according to what the situation requires.

According to Professor Jeremy Hunter from the Peter F. Drucker Graduate School of Management, contemporary management education has largely overlooked creating an educational process as systematic as accounting and financial analysis for managing oneself. Professionals are left to fend for themselves to know how to skilfully handle and transform the inner forces of emotions, physical sensations, thoughts and beliefs.

Neuroscientist Richard Davidson and his team suggest that mindfulness training can change our in-built response to pressure and demands; by strengthening our executive brain (the left side of the prefrontal cortex) as well as the white matter between the amygdala and the executive brain. By dampening down the amygdala, the prefrontal cortex is able to quiet signals associated with negative emotions, enabling the brain to plan and act effectively.

As such mindfulness practice is not a nice to have but a core capacity for managing today. Mindfulness training in the business world means examining our underlying assumptions and what we are doing while we are doing it – moment by moment. With mindfulness we begin to uncover the workings of our own mind, seeing how the filters of our mind effect our focus, engagement, perceptions, decisions and strategies.

Mindfulness training can be a capacity to effectively meet adaptive challenges, which are those challenges that require us to do something different and to develop a new way of operating in the world. Training in mindfulness helps us to say no to impulse and regain our capacity to be present in the midst of the current environment.

By Andrew Burgess, Director, Source

As a sourcing advisor, I’ve been telling anyone who will listen that the robotic automation of business processes is set to fundamentally change the nature of the BPO market. The stark truth is that, to date, most of the real-life success stories have been in industry verticals such as telecoms, so, if robotic automation is to really live up to its full potential, then it should be able to have a significant impact on those generic business processes that are carried out across all industries, in particular finance and accounting, specifically accounts payable (AP).

To date, the biggest improvements in AP processing have been down to three approaches:

  • Getting manual information into the system electronically e.g. scanning and optical character recognition
  • Automating the processing as much as possible through workflow
  • Standardising the data fields to improve interfaces e.g. electronic data interchange

Through our research at Source, we believe that robotic software automation presents significant further opportunities in a number of areas, including: cross-system manual processing, data gathering and reporting, reconciliation of matching errors, monthly account closure, bulk data updates and ERP IT processes. Some of the key ones are discussed below.

Cross-System Manual Processing

Typically, humans are used to providing a flexible interface between a number of different systems that are used in a process – this is colloquially referred to as ‘swivel chair processing’ – data is read by the human on one system or screen and keyed into another system, sometimes with additional steps inbetween.

Middleware can provide solutions to these interfaces but they are typically expensive and complex to implement. Software robots provide a much simpler implementation of the interface, carrying out exactly the same steps as the human but at a fraction of the price. This requires no or minimal system intrusion and provides 100% consistency with the process requirements.

For example: Barclays Bank work with robotic automation software has resulted in a £175 million p.a. reduction in bad debt provision in their Accounts Receivable function and over 120 FTE saved.

Reconciliation of Matching Errors

One of the most manually intensive processes in the finance function, and in AP particularly, is the reconciliation of errors due to incorrect matching of data between documents. Because this process requires inputs from different systems is inherently non-standard in each case and can require some judgement, it is usually carried out by humans.

By using inputs from other data sources, processing different matching options far faster, and applying semantic reasoning, robotic software automation can replace much of the reconciliation task, thus significantly reducing the number of people required.

For example, the excess queue procedure at the Co-operative Bank is carried out daily to accept, reject and return direct debits, cheques and standing orders. Overnight BACS (Bankers’ automated clearing services) processing results in a daily ‘queue’ of customers with payments due to leave their accounts and with insufficient funds to meet these payments. A nine-person team in the bank would have the daily responsibility of manually reviewing the 2,500 or so higher risk accounts. The automation of the entire procedure means that the bank now has a ‘virtual’ team of 20 people completing the workloads by 11am each day instead of a team of employees working to meet a 3pm daily processing deadline.

Monthly Account Closure

The monthly account closure is typically a complex process involving many data inputs, plenty of reconciliation and some elements of judgement. The number of people involved in the process is typically very high, and the time taken to close the accounts has a direct impact on the financial position of the company, but must be 100% accurate.

Previously, much of the reconciliation work has required human input across many data sources – robotic software automation combines a number of the approaches already mentioned into one critical process. By being able to access multiple data sources, make fast but relatively complex decisions (and to do that 24×7) software robots can significantly reduce the labour required, and the time taken, to close monthly accounts.

For example: a group of 250 NHS trusts have automated their month-end-close process. The process initially took 15 people 12 days; but it is now down to 2 people and half a day through automation.

With a software agent costing around one-third of a typical offshore Business Process Outsourcer FTE, and one-ninth of an onshore FTE, there are clearly some significant benefits to be gained from exploiting this new technology. Therefore, I would suggest a consumer of BPO services should be considering an ‘automation strategy’ as the best way forward. At the same time, I would urge the software vendors and BPO providers themselves to focus attention on this potentially huge opportunity. If you’d like to attend a free event on 27 November 2014 and hear from four speakers who have implemented RPA in their own organisations, then visit: http://www.source.co.uk/opinion/automation-blog/item/208-event-the-naked-truth-about-robotic-process-automation