Failing to see the bigger picture

Apr 04 2007 by Nic Paton Print This Article

If the numbers stack up it's all too easy to assume your organisation is doing OK. But boardrooms often fail to see the bigger picture because they overlook less tangible indicators such as customer satisfaction, employee engagement and innovation.

Top executives too often have tunnel vision when it comes to gauging the health and performance of their organisations, becoming obsessed with crunching the numbers while overlooking critical non-financial information.

A study by Deloitte Touche Tohmatsu has found many board members and senior executives are leaving themselves in the dark about the overall health of their organisations either because they don't have access to, or don't care about, high-quality non-financial information.

This was despite the recognition by more than three quarters of chief executives that financial indicators alone did not adequately capture their company's strengths and weaknesses.

Key non-financial performance measures included customer satisfaction, innovation and employee commitment, concluded Deloitte, all areas much harder to measure than the pure financials.

Top executives readily admitted they needed information on non-financial performance indicators, but more often than not lacked the ability to monitor these areas of the business, Deloitte found.

"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 chief executive William G. Parrett.

"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 (in 2004), but it seems executives and boards are not yet prepared to take the next step and act.

"The majority of companies said they are under increasing pressure to measure these indicators, but the quality of non-financial performance information they receive is inadequate to meet their needs," he added.

More than half of the companies polled said they were under increasing pressure to measure non-financial indicators, with more than eight out of 10 saying the market itself was increasingly emphasising it.

Nearly nine out of 10 chief and senior executives said their ability to track financial performance was "excellent or good".

But when it came to non-financial indicators, this dropped to just 29 per cent.

For these, increasing risk to reputation, customer influence, global competition and regulatory emphasis on non-financial measures were all key indicators that they felt they needed to be monitoring.

Other areas included accelerating innovation, the growing scrutiny of non-financial performance measures by the media and the increasing power of NGOs, lobbyists and civic organisations.

"Boards and management teams by their own admission see that the information they need is not the information they are receiving," said Parrett.

The main barriers to monitoring such non-financial information include underdeveloped tools, organisational scepticism about its worth, unclear accountability, time constraints and the concern such metrics may reveal too much information to competitors, said Deloitte.

But the critical element was the belief that reliable non-financial performance metrics were difficult to discern.

"Consistently tracking soft issues such as employee engagement, innovation or customer satisfaction is viewed as more art than science," said Parrett.

"On the other hand, financial metrics are more familiar and quantifiable to many. Clearly this reticence needs to change, as business leaders can improve performance and even financial results with a more balanced mix of financial and non-financial objectives," he added.

But in time a growing number of companies would improve the quality of their non-financial performance measurements, he predicted.

"It is a matter of understanding that a more balanced mix of financial and non-financial objectives can improve performance and even financial results," Parrett concluded.