In the dark II: What many boards and executives still don’t know about the health of their businesses
Business leaders have long understood that what you measure is what you get. Money drives markets, so the financial measurements that drive company valuations produce the precise sort of return-focused behavior expected by most investors.
Few would deny this, but are metrics such as cash flow, sales or earnings the true determinants of corporate performance or a means of scoring the success of less financially focused business activities and strategies? It is from this perspective that business executives, always in search of a competitive edge, are asking increasingly sophisticated questions about performance measurement.
In 2004, Deloitte Touche Tohmatsu (DTT), in cooperation with the Economist Intelligence Unit, examined these issues and published the findings in a report titled “In the Dark: What boards and executives don’t know about the health of their businesses.” In March and April 2004, the Economist Intelligence Unit surveyed 249 senior executives and board members around the world and interviewed a number of corporate directors in North America, Europe and Asia. The report concluded: “While the overwhelming majority of board members and senior executives say they need incisive non-financial information on their companies’ key drivers of success, they largely find such data to be lacking or, when available, of mediocre to poor value.”
Almost three years later, Deloitte and the Economist Intelligence Unit worked together to see whether things had changed and conducted the research along much the same lines as before. A global survey fielded in December 2006 obtained responses from 175 senior executives and board members. Then, through January 2007, in-depth telephone interviews were conducted with senior executives and board members at large companies.
Some key findings include:
- Existing performance measurement frameworks are inadequate, and the majority of executives perceive a growing need to better understand the underlying drivers of their performance through non-financial measurements.
- Though companies are aware of the pitfalls of focusing exclusively on financial performance, the ability of executives to measure and monitor performance through non-financial measurements appears to be inadequate. Companies either do not have or are not sharing critical nonfinancial performance data with their boards.
- Despite the dissatisfaction with the quality of non-financial measurements of performance, current impediments to the broader use and greater sophistication of non-financial performance metrics include undeveloped tools, organizational skepticism relating to the value of these tools, unclear accountability for nonfinancial performance, time constraints and the concern that such metrics may convey too much information to competitors. When asked to identify the triggers most likely to spur their organization to reassess how it measures and monitors performance.
- Nevertheless, in time a growing number of companies will improve the quality of their non-financial performance measurements and adopt them more broadly in the enterprise.
Read the Press Release www.deloitte.com/rs/pressrelease/inthedark or download the full report below.