Deloitte's New Report - In the Dark II
Deloitte's have just released (April 2007) their new report called "In the dark II: What many boards and executives STILL don't know about the health of their business".
This is a follow up survey of the original research in 2004 which poses the question regarding the importance of non-financial measures as well as financial measures. It points to an increasing realization that financial measures alone do not provide a comprehensive picture of the health of a company.
If you want to understand why this is the case and why non-financial measures are so important then read the postings "the efficiency myth" and "the sporting team analogy".
It was interesting to read the drivers that board members and executives saw for non-financials measures, namely threats to their organizations;
- increasing reputational risk (49%),
- increasing customer influence(40%),
- increasing global competition(38%),
- increased regulatory emphasis on non-financial measures(32%),
- accelerating innovation(29%),
- greater scrutiny of non-financial performance measures by the media(26%) and
- increasing power of NGOs, lobbyists and civic organizations(16%).
The good news was that there were some executives that spoke of non-financials measures as leading indicators that actually drove improved financial performance. An example is given by one service company of monitoring customer satisfaction and responding to a drop in the ratings before the dip is seen in financial results. Another spoke of their people metrics and how they now have 50% of performance goals based on people. They went on to say that in 2000 they had 30% employee turnover and ROE of less than 6 percent. With the increased measurement and focus on people they now have 11% employee turnover and a ROE of over 40%.
Looking at the barriers to implement non-financial measurements the following were noted;
- undeveloped tools(55%)
- skepticism (48%) skeptical that non-financial metrics affect health of company
- accountability(44%) establishing clear accountability for non-financial metrics is difficult
- Lack of Familiarity (41%) too unfamiliar with executives and board members
- Lack of Benchmarking Data (21%)
- Time Constraints (19%)
- Competitive Concerns(6%) sharing non-financial metrics with competitors for benchmarking
The second reason, "skepticism", is why this blog was started and shows we have a long way to go in breaking down these management myths.
This area is not as underdeveloped as you may think. In fact much of the information you need probably exists in your company, you just need to know where to look. I am not a big fan of employee opinion surveys or customer satisfaction survey. A much better way to measure these things is by measuring actions not opinions. Measuring activity especially from the point of view of the customer is the key
An example given in the report is one company that has set up their OTAC index - on time, accurate and complete. This activity measure the company says is an excellent proxy for customer satisfaction in their distribution business.
Measuring activity is a snapshot of reality and as more and more of our working life goes digital through technologies such as email, online forms, Word Documents, Spreadsheets, PowerPoints, Internet, Intranet, VoIP, GPS, iPod, etc the ability to measure activity increases dramatically.
The company FASTSEARCH provides an internal search engine that can look across all of your structured (databases) and unstructured (Word, eMail, etc) data. With FAST you can measure all forms of activity. What would the number of updated Resumes tell you? FAST even allows you to measure the sentiment of emails in your company. Instead of doing employee opinion surveys how about keeping track of the sentiment of emails daily! What about measuring the amount of emails that are;
- internal to internal
- internal to external
- external to internal
If the amount of internal to internal emails is increasing what do you think that means to your financial results over the next few months? Too much internal bureaucracy going on! While external to internal means that your employees are connecting more with the outside world more than likely customers! Have a read of "three types of work" in relation to where emails are being sent.
What about your website? How close are you tracking hits on that? I have inserted Google analytics to this blog and can track the number of visitors, where they are coming from, if they are new or returning and how many page views they have done. It took me minutes to set up and is free! Two years ago we sold our house and tracked the number of visitors to the Internet advertisement on the Realtor's website to gain a feel of how many people where interested in our property. We did the same for the home we wanted to buy.
The same goes for tracking activity on your Intranet site. What are your employees doing, what are they reading?
A friend of mine has a GPS jogging device that tracks more metrics than you could possibly want as he does his daily exercise. Sporting teams are putting GPS tracking devices on their players. These systems are becoming common place for business use too. Tracking delivery vans, parcels, collecting electronic signatures, time and date recordings are now becoming mainstream. My local public transport is tracked digitally telling me how long before the next train will arrive. Can you think of ways to use this data for non-financial metrics?
You see, there are many options out there when you start to think about it. As stated above the key is measuring activity, especially from the point of view of the customer and not just doing surveys.
Do you have any cool examples of non-financial measurements your company is doing?
2 comments:
Another idea on extracting knowledge that already exists is based on Google's enterprise Search Tool, GMail and Adsense.
Google offers an appliance you can plug into your corporate WAN and it will index your files for you and allow search across your enterprise with all the necessary security requirements. They also offer GMail for corporates.
As you probably know GMail scans the content of your emails and pushes ads to you based on that content using Adsense. What if in the corporate offering instead of pushing ads they pushed relevant content from across the enterprise. For example if a person sends an email about a certain project information across the enterpise could be pushed as links along side that email. This information could be based on tags/labels or be in the form of names of people that are writing about the same things, it could be about files that exist on that project, customer or group.
Dynamic community collaboration across your corporation without the hassle and headaches of trying to set up Knowledge Management Databases!
People's performance could potentially be rated along the lines of something like Google's Pagerank. The more other employees link to your work the more useful it is.
Thinking in this way about business metrics reminds me of the Heisenberg Uncertainty Principle in Quantum Physics (sorry I am an armchair physicist!).
In broad terms this principle states that when considering a pair of metrics on a particle (eg, position and momentum), as we measure one with progressively more and more accuracy, the other will be measured with progressively less and less accuracy.
A common mis-interpretation of this principle is the "Observer Effect", where the actual act of observing something actually changes the outcome. The Social Science version is the "Hawthorne Effect", where people who know they are being observed actually behave differently than they otherwise would.
My rambling point here is perhaps the laws and principles of science actually extend into the business world after all.
Could there be a "Business Uncertainty Principle", where if we focus too much on measuring staff activities such as weekly report entries and CRM inputs, then this is at the expense of other metrics such as revenue and profit?
Maybe we don't need to worry, since today's market is so full of various business models and strategies that another scientific principle, namely Evolution, will determine the most successful approach for us.
Certainly many of the ideas and concepts Rob talks about could be called mutations!
PS...
I don't wish to comment on any argument between proponents of "Business Evolution Theory" and "Business Creationism Theory"! :)
Perhaps this could be likened to "Capitalism" vs "Communism"...?
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