I've been writing about this before. No organization stands on its own. In fact, an organization as such can be defined as a unique collaboration between stakeholders to achieve goals, that none of them could achieve by themselves. Yet most performance management initiatives focus only on "how do I optimize my performance?" instead of also recognizing stakeholder contributions: "how do my stakeholders contribute to my performance, as well?" This question can only be asked, I always add, if you are also prepared to ask the opposite question: "And how do I contribute to my stakeholders' performance?" Stakeholders include shareholders, customers, employees, regulators, business partners, suppliers and society at large.
Recently I spoke with a large global industrial manufacturing company, who wanted to reflect this reality, even in their financial reporting. Their financial consolidation system produced, next to all traditional reports, also the following report:
Generation of value added |
| |
| Net sales | |
| Procurements | |
Produced added value | Net sales - Procurements | |
Distribution of value added |
| |
| Wages and Salaries | |
| Taxes and indirect employee costs | |
| Financing expenses | |
| Dividends | |
Distributed to stakeholders | Total | |
Retained in business | Produced added value - Distributed to stakeholders | |
It looks like an ordinary P&L statements, but it has an interesting twist. It is a Stakeholder Profit and Loss statement. It first of all calculates, in a classic way, the added value of the company. This is defined as the net sales minus the procurements. Then it shows how the added value is distributed over the various stakeholders, being the employees, public sector, creditors and shareholders. This is their slice of the pie. Lastly, the traditional result is profitability, how much of the added value is retained in the business, to create sustainable growth. This is a great example of taking a more stakeholder oriented approach, creating a win-win mindset. It shows profitability cannot exist without the contributions of employees, society, shareholders and other stakeholders.
The next step would be to compare the distribution of value added with the collection of value added, what did the stakeholders contribute to the company. Together this would create a new performance indicator: Return on Stakeholder.
Interesting Profit and Loss statement, or should it be called Profit and Profit statement?
