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The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Creativity is central to the human condition and gives rise to innovation and entrepreneurship in a range of domains and activities. Human beings are also deeply territorial – constantly creating and deconstructing homelands in a Phoenix-like dance through time. In Anthony Powell’s masterly opus on what it is to be English, A Dance to the Music of Time, the participants tread and re-tread over the same spaces as they attempt to make sense of their existence. In the Star Trek world of ‘boldly going’ it was claimed that space was the final frontier, but in its geographical and temporal senses, space is the first frontier we attempt to account for and create around, however unwittingly. In our dance to the current mood music, creative accounting and how we manage, operate and occupy our work spaces are pertinent. The frontiers of what is efficacious in the two areas appear to be cyclical and not particularly structural. Enron became synonymous with everything that is destructive about accounting, and the de-humanising environment of call centres with the zeitgeist of work organisation.

The Enron sign.
Picture © STANANDLOU, used under Creative Commons licence.

Accounting is a framework for evaluating resource allocation and management in organisations. It is not objective reality, whose methodologies and methods lead to optimal and efficient outcomes. This would only be the case if we lived in a world of efficient markets in which all prices equated to values. This world would correspond to the Arrow-Debreu Theorem, named after the two Nobel prize-winning economists, in which all market exchanges are matched by underlying contingent commodities within a general equilibrium framework. Differences in time and place, and thus transaction costs, are not a consideration within this framework, so the accounting profession is stuck between the Charybdis of efficiently measuring values of organisational assets and the Scylla of differences in the time and place in the transactions of these values through market exchange.

Some siren voices may claim that the profession deserves everything it gets given scandals like Enron and the recent financial crisis, as well as the tax avoidance schemes which reached their zenith in the UK in the 1970s. However, accounting isn’t the agency of these outcomes, it’s the result of unintended consequences and perverse outcomes of the structure of regulation and regulatory changes. The ingenuity of ways in which regulations can be bypassed and turned into market opportunities is manifold and legion, but you cannot regulate away creativity and innovation, unless one starts to distinguish between good and bad parts of this human condition. So, what is the distinction between good and bad creative accounting? The length of a piece of string or when the ‘perps’ get caught? As for tax avoidance schemes, well we could ‘eat the rich’, and then send the accountants and other ‘creatives’ like management consultants and advertising agencies to another galaxy on the pretext of the earth exploding, but then financial products would be created on the transactions in human flesh and ‘marked to market’ at, say, Smithfield, the meat market in London. Getting rid of one form of accounting and its creative variants would then just generate others. The creative frontiers for accounting are set by the statute and international standards. These frontiers are really thresholds, the negotiation of which can lead to deviant behaviour – which is perhaps also one of the properties of the human condition.

The question of organisational deviancy is one that arises from why firms appear to spend so much time, energy and resources in managing property. The fundamental reason is that land is both a fixed and variable form of capital and gives rise to a set of uses and values, and most of our net worth is tied to property. At the philosophical level, John Locke developed the genesis of the idea of property rights as the foundation of the modern liberty. In the hands of the Peruvian economist Hernando de Soto, these rights are the basis of sustainable economic development. So property matters.

There is also the issue of power and prestige concerning property. The management of a mutual society may look down in pride on their provincial locale as they survey it from the heights of their new building. No self-respecting bank in 1980s London was complete without occupying a building with an atrium and an internal galleria. The question of architecture has external and internal dimensions. Externally, the need for signature architecture with a Gehry, Foster or Pei designed building seems central to corporate image. Internally the complex socio-psychological relationships of workers to their spaces cuts across the human resource management, finance and estate management functions. For the latter, maximising personnel in minimum space is rational, but the ebb and flow of movement and work patterns means that open plan or Dilbert-like booths are not optimal solutions. The way in which workers seek to humanise their work spaces suggest that the deep territoriality in all of us isn’t restricted to the home, but the challenge is to manage the challenge that status being often linked to a spatial hierarchy. Many firms claim that employees are their most valuable asset, but if they don’t creatively account for and put their spatial resources where their mouth is, this claim will not stand scrutiny. If you want to stifle workers’ creativity and innovation in solving business problems, then housing them as automatons in a single open space will suffice and no amount of virtual working will change this. There are creative solutions, but these are not cheap as the frontiers between private and public spaces in the workplace are constantly crossed and re-crossed.

At the banal level, accounting for the creative frontiers of managing financial and work space resources is a question of races and riders. The bottom or winning line, however, will only reached when it is recognised that these organisational imperatives are part of complex systems in which creative spaces develop and thrive.

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About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

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In times of economic crisis, repetitive negative media reporting can dampen consumer demand and seriously erode business confidence. As with other discretionary costs many businesses begin to question the value of their advertising. The Lord Leverhulme cliché re-emerges:

"I know half of my advertising spend is wasted but which half’. In recession should advertising expenditure be curtailed or aggressively used to boost demand?"

Current declining media revenues indicate companies are cutting back as recession bites, arguably putting sales and industry jobs at risk. Advertising spends can be an indicator of how confidently marketers believe in their brands. Weighing up product, targeting and competitive ramifications, they must decide whether to pull back spending or push harder.

At risk are market share, visibility, customer loyalty, even shareholder confidence in the organisation. Short term battening down hatches, hoping it all will blow over, can be costly. However, studies of previous recessions suggest that continued advertising spending increased sales, market share and brand reputation in the long term.

Advertising plays an important catalytic role in building brands, sales, jobs and funding media. Its power lies in accentuating the positive, now a scarce commodity. Nonetheless the ad industry is often charged with creating false needs and overconsumption, perhaps questioning the value of advertising in terms of its potential to be both a wasteful activity and efficient economic force.

The demise of household name retail stores, banks and traditional media may reflect the evolutionary reality of the market and changing consumer expectations. Advertising insights and creativity remain as essential as ever to reflect the zeitgeist. Innovative new digital technologies, social networks and so forth make advertising effectiveness increasingly measurable, arguably less wasteful.

The sad fact is recent irresponsible and unethical business practice seems to be institutionalised. The culture of steroidal market growth, overproduction, overconsumption, overpayment, over looking; has inevitable consequences and externalities: (credit crunch, fuel crises, global warming, pollution, stress, obesity, etc).

Eventually everybody hurts in the interconnected age.

Eventually everybody hurts in the interconnected age. Social responsibility and sustainability are not fashion items, practitioners must reflect on whose interests are being served. Moral muteness and myopia are no longer excusable; clients and agents need to walk the talk. Advertising has an instrumental role to play but must make nobler moves not try to get ‘more bangs for their buck’ using cheap, deceptive, misleading or offensive tactics.

The current global belt tightening echoes the World War era in the UK when advertising focused on public morale, resource management and regulation of behaviour. Brands survived by adopting utilitarian, anti-waste, less frivolous appeals.

It may be that a return the organic wartime marketing diet could yield sustainable green shoots where ‘less is more’. It may be naive to expect a paradigm shift to a lean yet agile responsibility culture where business uses advertising to promote and share ethical values over sharevalues.

Perhaps the big challenge of the recession is not the value of advertising but the values of advertising. Responsible marketers and advertisers are conscious of consequences, doing things right and doing the right things.

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Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

It’s not surprising that the Money Programme has chosen to highlight the importance of the curry industry to the UK’s economy. Across Britain, Indian food has become a mainstay of consumer meal choices, whether in the form of takeaway food, chilled ready meals or the dining experience offered by Tiffinbites.

In her article on food acculturation (what happens when individuals with different food cultures come into contact, and create changes in the original food culture pattern of the people concerned), food researcher Janet Mitchell rightly pointed out that while British food is traditionally seen as sausages, joints of beef, stews and pies, the reality is that new dishes have replaced the old. What was once seen as ‘foreign’ food is no longer classed as exotic or unusual.

What was once seen as ‘foreign’ food is no longer classed as exotic or unusual

Back in 2003, a BBC survey of the nation’s 10 favourite dinners revealed curry and rice and spaghetti bolognaise to be the country’s most loved meals. When it came to the list of favourite convenience foods, most of the dishes mentioned were also of ethnic origin, particularly Indian food. The transfer of immigrant dishes to a host culture depends upon a number of things, which not only include the availability of the ingredients in shops, but also factors such as the popularization of dishes in restaurants, the influence of the media, and the social ‘rules’ associated with eating at home.

In Western society we lead increasingly busy lives, and as we search for solutions to the time pressures of work and home, many of us have used convenience products to help manage our lives. Convenience food has enabled consumers to cope with the conflict and tensions that sometimes arise between preparing food from scratch and ‘fast food’. Recognising the many roles that women and men have to manage inside and outside the home today, marketers have responded by developing a range of convenience foods that take away some of the pressures we face around mealtimes and eating.

Chicken curry.
[Image © copyright Photos.com]

However, convenience food, such as the Indian takeaways, chilled ready meals, and dining out options mentioned in the Money Programme do more than ‘save time’ for consumers. In the past, convenience food was considered to be a poor substitute for ‘proper’ food, however research shows a far broader acceptance of convenience food today, albeit one that varies from country to country.

Studies in the Netherlands found convenience food is a regular part of everyday meals, in Italy it is seen as a good quality shortcut to delivering traditional family meals, and for the UK and Ireland, takeaway is often used as a treat for the family, especially at weekends.

Consumer behaviour theory tells us that food and its consumption play an important part in the construction of our identities. It creates part of the image we like to portray to other people and how we see ourselves. However, convenience foods have not been something that people have always wanted to be associated with since they are seen as contributing to an unhealthy lifestyle.

Organisations such as the Food Commission, who campaign for wholesome food, suggest many are high in sugar, salt, saturated fat and additives, all of which are considered to be contributors to the increasing incidence of obesity, diabetes and heart disease. However, some marketers have successfully repositioned many of their products to reflect greater tradition and quality. As the Money Programme demonstrates, the Tiffinbites selling point of “less than 10% fat” is targeted at the health conscious eater, as their cooking process uses little oil, no ghee, lean meat, and fresh spices.

Broader foreign travel and experience has evolved more adventurous food preferences among many consumers, and homemade is no longer viewed as ‘authentic’ compared to the convenience versions of various ethnic foods. Even the celebrity chefs recommend convenience solutions to home cooking, with Jamie Oliver’s Ministry of Food cookbook highlighting Patak’s curry pastes.

Food is a key part of our leisure time, and although cooking is still popular, it can be at odds with our desire for convenience or intentions to make ethical or healthy choices. Most family meals are still eaten together, but the increasing popularity of convenience food, snacking and eating out, and the decline in cooking skills and knowledge among UK consumers, has led to concerns about the demise of the family meal.

However, recent research that we have done has shown that in fact many convenience foods on the market today enable consumers to balance busy lives while creating wholesome, nutritionally balanced meals. Convenience foods take away much of the unpleasantness of preparation, remove the need for special skills, and the increased sophistication of the convenience sector in the UK. This is illustrated by Pataks, Noon Products and Tiffinbites, and has reduced perceptual barriers to convenience food for busy people.

We can now substitute the more time consuming stages of a meal with convenience ingredients, reassured that making that choice doesn’t compromise the quality of the end result. We may not always eat a proper meal, but convenience food allows us to eat properly.

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• What do your food choices say about you?
• Can fast food ever be healthy?
• Food Commission