There is a disturbing yet common misconception among Fortune 500 and Fortune 1000 companies that the majority of employees understand the financial roles they play in their organizations. According to a recent survey by training, performance enhancement and professional skill consulting firm Novations, there is an increasing need for financial literacy development in Corporate America where this erroneous perception exists, particularly at the manager level.
“It didn’t matter what the industry was, whether it was blue-collar or white-collar, that perception existed,” said Richard Adams, senior vice president, Novations. “People really don’t have a strong grasp of basic financial literacy and therefore translating that into business terms and business results, what role they play in supporting the organization on that side of the business.”
More than 600 respondents from a variety of industries including agricultural, automotive, banking and retail completed the 10-question survey. “The importance of financial understanding comes in a lot of different ways,” Adams said. “In principal, our belief is, if you have your employees more aligned with an understanding of what the organization is trying to achieve overall financially, then the likelihood of meeting those objectives is greater than if they are not in line with that understanding. For example, if you have a shift of manufacturing employees working a line and they have some wastage, whatever that might amount to. Unless they understand the overall financial position, they’re not going to understand how that wastage ties into the organization’s overall bottom line, which could amount to many millions of dollars or in some cases hundreds of millions of dollars if that same action around wastage is carried over into all shifts.”
If an employee understands the role that he or she plays in the way that the organization makes money, the likelihood of that employee being more productive and generally operating at a higher performance rate is far greater than if they just come to work everyday and do their job in isolation to results beyond their sphere of influence, Adams said. The survey highlighted misconceptions as well. For example, 34 percent of respondents answered that retained earnings are the most important to the daily operation of the business, when in fact they are just a paper record of the business’s historical financial performance. Some 41 percent of respondents believed that the bottom line of business operations relates to gross profits, but gross profits simply tell a company how much its product/service is costing by calculating the profits earned on sales after production costs have been deducted.
To combat this potentially performance-stifling knowledge gap and to improve the financial knowledge base in a needy enterprise, Novations has created an educational program called The Accounting Game, which teaches accounting concepts in a one-day instructor-led program using game boards for participants to be moved around throughout the day in conjunction with work on individual balance sheets. Concepts covered in The Accounting Game include how record transactions affect financial statements, distinguishing between expenses and expenditures, and how they affect profitability, using ratios to analyze and improve profits, and understanding what profit is and how to improve it.
Understandably, senior-level executives might be a bit reluctant to admit any gap in their financial skill set and may be too skittish to even acknowledge a weakness with numbers, but The Accounting Game is user-friendly. “We’ve created a format where those people can feel comfortable learning about finances and the way that the balance sheet, the income statement and the cash statement all tie together in a way that’s meaningful,” Adams said. “They can retain the learning and apply it in their own operating environment. We normally work with one of the financial executives in the organization to see what key areas they want us to focus on in terms of grounding the learning and bringing the learning home. We’d talk through that so the participants get the information in the program to tie back to what they’re doing at work.”
In addition to creating a learning environment where participants feel safe learning and have fun, The Accounting Game’s format encourages a quick transfer of skills using tools that accelerate learning and emotional literacy. And, the game ties financial lessons into each participant’s work environment using a terminology translator, where one of the instructors takes the content of the game and ties it back to the participants’ specific organizational terminology.
“We’re facing a changing learning environment,” Adams said. “We’ve worked with organizations where once we have them understand the way wastage affects their own team key performance indicators and how that translates up to the top line of the organization, they’re much more in tune with the way the organization is working and the role they play in that. There’s a whole continuum of learning that’s wrapped around our philosophy about having people understand the roles that they play in how a business works.”