Contact: Vessa Playfair
Deloitte
Director of Communications
(02) 9322 7576

Contact: Devena Kukulj
Deloitte
Media and Communications Manager
(02) 9322 7910

Contact: John Meacock
Deloitte
Managing Partner, NSW
02 9322 5949

A global survey of directors and senior executives, backed up by an Australian poll of leading Chief Financial Officers (CFOs), has again highlighted the growing importance of quality non-financial information, such as operational performance and customer satisfaction in predicting the overall health of organisations.

The second global Deloitte survey, “In the Dark II: What many boards and executives STILL don’t know about the health of their businesses”, highlights the change that is being forced at the top by the growing influence of the internet on customer behaviour as well the increased regulatory and shareholder scrutiny of non-financial risks.

The survey highlights how some of the globe’s leading boards and their senior management are increasingly linking strong financial performance to a good understanding of the forward looking picture provided by a range of non-financial drivers. The survey also finds that for many organisations their ability to track these indicators is poor.

Deloitte Managing Partner, NSW, Mr John Meacock said that while the value CEOs place on non-financial indicators has grown since the first survey (2004), it seems many are still not prepared to take the next step and put in place a reporting regime that provides the flow of non-financial information expected by boards.

“The survey reveals a critical disconnect between rhetoric and reality in the boardrooms and management circles of some of the world’s leading companies,” Mr Meacock said.

“With 78 per cent of the global CEOs surveyed saying financial indicators alone do not adequately capture their company’s strengths and weaknesses, it would seem vital for CEOs to have accurate non-financial metrics if they’re to fully understand the health of their business.

“Globally 87 per cent of CEOs and senior executives described their ability to track financial performance as excellent or good, yet only 29 per cent described their non-financial record as excellent or good.”

The results of the Deloitte poll of 21 CFOs from some of Australia’s leading companies held in May 2007, supports these findings.

“All the Australian CFOs surveyed stated that non-financial metrics are important in determining a company’s overall health, yet almost half said their non-financial information was average to poor and none has excellent information,” Mr Meacock said.

Key non-financial performance measures

“Of the Australian CFOs polled, 30.5 per cent said that customer satisfaction was the most important non-financial measure they tracked,” said Mr Meacock. “It was also identified as an area where better quality information was required.”

“Its importance reflects the speed and ease with which customers can now access information about the quality of products and services via the internet.  This gives customers tremendous power and makes tracking and monitoring customer satisfaction critical in predicting future performance.

“Employee commitment was also cited by the Australian CFOs as a critical risk area, with better quality information also required. This response reflects the war for talent in the Australian labour market and the importance of people in driving organisational performance,” said Mr Meacock.

“Other information gaps identified by the Australian CFOs included customer satisfaction and measuring an organisation’s greenhouse footprint. 

“The latter is an area that may increase in importance following the Council of Australian Government’s decision to introduce mandatory greenhouse gas reporting for many Australian companies in 2007-08.

“Despite mounting evidence of the importance of tracking non-financial performance data, the global survey shows that actually putting it into practice remains a problem and much work still needs to be done,” Mr Meacock said. 

Deloitte Enterprise Risk Services partner, Phillip Roy said the soon to be released revised ASX Principle 7 is likely to recognise the importance of holistic measures, including non-financial performance measures.

“As the research highlighted, CEOs are under increasing pressure to measure these indicators, with 83 per cent of respondents saying that the market itself is increasingly emphasising non-financial performance measures,” Mr Roy said.

“In addition, over a third of respondents (37 per cent) said that a company’s performance is determined more by intangible assets and capabilities than by hard assets.  

Key impediments

“Globally, key impediments to the use of non-financial performance metrics include underdeveloped tools, organisational scepticism, unclear accountability, time constraints, and the concern that such metrics may reveal too much information to competitors. One critical concern is that reliable non-financial performance metrics are difficult to establish,” Mr Roy said.

“In Australia 60 per cent of CFOs cited underdeveloped tools as the reason why non-financial information is not being produced.” 

Mr Meacock said the global research highlighted that consistently tracking issues such as employee engagement, innovation, or customer satisfaction is viewed as more complex, whereas financial metrics are more familiar and quantifiable to many.

“Clearly this reticence needs to change, as business leaders can improve performance and decision making with a more balanced mix of financial and non-financial measures,” Mr Meacock said.

“While it is encouraging that awareness of the importance of non-financial information has grown, it is clear that a lot of work still needs to be done if companies are to fully understand the health of their businesses.

“Organisations that embrace the challenges of developing non-financial information will be better positioned to develop an edge over their competitors, improve performance, and ultimately contribute to bottom line results and shareholder value,” Mr Meacock said.

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