Engaging with Finance Language
I think it is extremely valuable for people more broadly to understand the language of finance. Finance and accounting has challenges and I think that people outside the areas sometimes don’t engage enough. Outsiders might have a foggy intuition of problems in finance but without a clear understanding of what exactly the problem is it is hard to push effectively for improvement. It is with that in mind that I especially welcome Jonathan Knowles’ work reaching out to designers to explain the financial context of the businesses that they work in.
The Problem Reporting on Design Efforts
The difficulty of reporting on the benefits created by good design will be familiar to any who have considered the challenges of reporting on intangibles more broadly. Knowles notes “the shift in sources of value creation from physical products to services and experiences has caused an increasing divergence between the book value of companies and their market value” (Knowles, 2017, page 22).
Knowles shows great charts on intangibles by industry and country. This is hard to measure perfectly but suffice it to say intangibles matter to all firms, (although more so to packaged goods companies than utilities), and in all countries (with Switzerland and Sweden leading the pack).
Knowles notes the challenge of current accounting rules where purchased brands are capitalized but not internally generated brands — and how these leave companies with an “odd mix of disclosures. The balance sheet for Procter & Gamble does not show a value for Tide or Pampers (both homegrown brands), but does for Gillette.” (Knowles, 2017, page 26).
Real Economic Assets
Good design, however, makes a difference to sales. Good design is a real economic asset and treating it simply as an expense does not accurately capture what is happening in a firm. Designers, and others who create intangible assets, need to understand the language of accounting so they can push back when their efforts are counted as expenses (and not investments) — at least in internal records.
“By using the language and concepts of business my hope is that we can finally lay to rest the lingering attitude that design is a cost center and the prejudice that something cannot be an “investment” if it does not give rise to an accounting asset” (Knowles, 2018, page 27). I couldn’t agree more.
Read: Jonathan Knowles (2017) Do You Speak Finance? Design and Business Value, DMI, Vol 28, Issue 4, pages 22-28