PRODUCTIVITY SPECTATOR: What's missing from your financial reports

Telstra's 2012 Productivity Indicator report released last week reveals that only 20 per cent of companies adequately measure productivity. For such an important measure of performance and competitiveness, this is a disturbing yet unsurprising finding. No wonder Australian business is under the pump. If we're not measuring the right things then how can we make informed decisions and put in place the right initiatives and interventions?

Part of the problem may stem from insufficient capability and a lack of appreciation of the importance of "production accounting” at the middle and top levels of our organisations. Production accounting involves reporting and analysis on product and service unit pricing and unit costs, price and volume variance, cost-to-serve and cost-to-make, demand and supply forecasting, cycle times, fault and error rates, capacity and utilisation efficiency rates, and so on.

It's all too apparent that too many organisations are neither reporting nor acting on a "production” view of the world. Instead, organisations are devoting most of their resources on financial and management reports that do little more than report actual, forecast and budget information against profit and loss statements, balance sheets and cashflow statements. Don't get me wrong, these are important and necessary, but I sense we have moved the reporting needle too far in the direction of financial, regulatory and compliance reporting at the expense of deep and insightful operational performance reporting.

Take a look at any public company annual report and you will see hundreds of pages of financial and regulatory reporting and commentary. Also consider your own management, board or audit committee report. To what extent are these reports were devoted to a genuine analysis of how well the organisation is performing at an operational level? Have you read a management report recently that gave you insight into how productive your organisation is today versus last year?

While the need to improve productivity reporting may seem obvious, the concern is around a lack of capability and capacity to achieve a turnaround in a rapid amount of time. This emanates from a limited exposure and training in the basic principles of manufacturing and production accounting.

As we have migrated to a much heavier services based business sector (i.e. 70 per cent of the economy), a significant portion of the thousands of accountants we employ in Australia each year simply have not been exposed to the right environment or training to prepare deep and insightful operational reports. We have a generation of accountants working hard for their employers, but they have rarely had to prepare a volume and unit price/unit cost variation report, benchmark their operations at a detailed unit cost level against a local or global competitor, and provide detailed insight into where genuine productivity improvements can be made. Without the right data, properly employed, Australia's productivity challenge cannot be met.

If I'm wrong with this view and this is being done in a widespread manner within our two million businesses across Australia, then we have a bigger problem. And that is: our senior leaders are not listening to their accountants.

Neil Plumridge is the managing partner of Ernst & Young's Oceania Advisory team. Neil and his colleagues work with client teams to achieve performance improvement. For more information, please contact the author at neil.plumridge@au.ey.com or on Twitter @NeilPlumridge.

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.