CEOs Still in the Dark About Overall Health of Companies

Many board members and senior executives are still in the dark about the overall health of their organizations because they lack high-quality, nonfinancial information.

According to the second edition of the Deloitte Touche Tohmatsu survey, In the Dark: What Many Boards and Executives Still Don t Know About the Health of Their Businesses, developed in conjunction with the Economist Intelligence Unit, 78 percent of the CEOs surveyed say that financial indicators alone do not adequately capture their company s strengths and weaknesses. Those surveyed admit they need information on nonfinancial performance indicators, but the ability of executives to monitor their performance against them remains inadequate. The results of the second survey indicate that 57 percent of the companies surveyed are under increasing pressure to measure nonfinancial indicators, and that a growing number of companies are indeed creating significant value for their organizations by understanding their underlying performance drivers through the use of nonfinancial measurements. Customer satisfaction, innovation and employee commitment are identified as key drivers of performance among the companies interviewed. Further, 83 percent of respondents say that the market itself is increasingly emphasizing nonfinancial performance measures. The research suggests that overcoming the obstacles to monitoring nonfinancial performance appears to require significant changes in corporate governance. In terms of responsibilities, there are differences between financial indicators and nonfinancial indicators: While 80 percent of the CEOs surveyed said that the board and management should share responsibility in terms of monitoring the financial results of the company, when it comes to nonfinancial indicators, they said that the monitoring should be done by senior managers in most cases except in the case of innovation, whose monitoring responsibility should be shared.- For the CEOs interviewed, impediments to the use of nonfinancial performance metrics include underdeveloped tools, organizational skepticism, unclear accountability, time constraints and the concern that such metrics may reveal too much information to competitors. One critical element is the fact that reliable nonfinancial performance metrics are difficult to discern. The value of nonfinancial metrics is more important than just a few years ago. More companies are including nonfinancial data in their annual reports or their shareholder briefings, and compensation structures continue to involve nonfinancial targets. More than a third of the respondents 37 percent- say that company s performance is determined more by intangible assets and capabilities than by hard assets. As companies gain experience with nonfinancial metrics, they discover a wide range of predictive, forward-looking managerial tools. Fifty-four percent say forward-looking information is of greater value to management and the board than historical information. When asked to identify the triggers most likely to spur their organization to reassess how it measures and monitors performance, 54 percent of the CEOs surveyed mention a greater understanding of how to measure nonfinancial drivers of performance. Forty-five percent of them point to a sharp decline in customer retention or customer satisfaction, and 43 percent of them mention a request from a board member or the CEO for greater visibility and accountability. Despite this, tracking nonfinancial performance data remains a problem for some. While 87 percent of CEOs and senior executives describe their ability to track financial performance as excellent or good, just 29 percent of them describe their nonfinancial record as excellent or good. For them, the most important nonfinancial drivers of corporate performance are in order-: increasing risk to reputation, increasing customer influence, increasing global competition, increasing regulatory emphasis on nonfinancial measures, accelerating innovation, greater scrutiny of nonfinancial performance measures by the media and increasing power of NGOs, lobbyists and civic organizations. For full survey, read> Source: www.dmreview.coma>