If there's one thing corporate leaders understand, it's how to monitor the financial vital signs of the business—the sales, earnings, and other figures that tell them whether they're hitting their financial targets. But a recent report by Deloitte Touche Tohmatsu suggests that they don't have nearly so firm a grasp of the non-financial indicators of their companies' well-being.
According to the report, In the Dark II: What many boards and executives STILL don't know about the health of their businesses (a followup to a 2004 survey), corporate leaders acknowledge that financial indicators alone do not provide a complete picture of a company's soundness. They admit that they need to make use of non-financial measurements as well, but they also say they're having a tough time obtaining solid data on the "softer" aspects of their business, like customer satisfaction, product innovation, employee commitment, quality of governance, and impact on society.
It's not that they don't see any merit in monitoring the non-financial vital signs. More than half the survey respondents say they're aware that some companies are deriving significant value from using non-financial measurements to assess their performance. And they agree that companies are under pressure to step up their use of non-financial performance metrics. As for the sources of that pressure, they point to factors like increasing global competition, growing regulatory emphasis on non-financial measures, increased scrutiny by the media, and the rising power of non-governmental organizations (NGOs), lobbyists, and civic organizations.
"The survey reveals a critical disconnect between rhetoric and reality in the boardrooms and management circles of some of the world's leading companies," said Deloitte CEO William G. Parrett in announcing the survey's results. "The attitudes of CEOs toward understanding the value of non-financial indicators and measuring performance against them are more positive now compared to the last survey, but it seems executives and boards are not yet prepared to take the next step and act."
The good news, then, is that the corporate leaders who responded to the survey at least recognize that there is a problem and that they need to do something about it. They know what they should be measuring. And they know why they have to do so. Why, then, are they finding it so difficult to marry those thoughts with action?
The research findings themselves provide a clue to the answer. Only 29 percent of the respondents describe their companies' ability to track non-financial performance indicators as "excellent" or "good," compared with the 87 percent who give themselves high marks for their ability to monitor financial performance. That's something that can be remedied, of course, but it brings up that dirty word of management theory—change. Change is needed, and that means forcing people out of their comfort zones. That's never an easy thing, to be sure. But it's hardly a valid excuse for failure to act.
Perhaps CEOs need to spend less time in the boardroom and more time on the floor and out in the field. They could probably learn a few things from logistics professionals, who have become adept at measuring how well they're meeting customers' expectations and how their operations compare with those of their competitors. And thanks to factors like globalization and emerging technologies, they also understand how to manage near-constant change.
When the day is done, success is indeed measured by whether a company has made money and is profitable. Those metrics, though, only reflect the success of the end game. There are a lot of other factors that have to be considered before you ever reach that point, and they're not all just about the money.