Advice and Information for Finance Professionals
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Finance Topics & Trends
March 7, 2016
The Quality of Decision-Making is Strained in the Digital Age
What is the quality of decision-making in your business?
How confident are you in the data used to support business decisions? And who are the most influential decision makers?
The digital age is transforming how companies create value, with a massive shift from tangible assets (real estate, property, equipment) to intangible assets (intellectual property, brand reputation, customer satisfaction). During the 1980s, intangible assets accounted for about 30% of the market value of S&P 500 companies; today, it’s closer to 84%.
What does this shift mean for finance departments?
Recent CGMA® (Chartered Global Management Accountant) research indicates that finance leaders are in danger of ceding their influence to other lines of business. How to counter this trend, and ways to measure what matters most, are topics that CGMA and the Argyle Executive Forum will address in an upcoming webcast, along with executives from American Express, Yahoo and Oracle.
The Role of Finance in Measuring New Value Drivers
CGMA® and Oracle wanted to answer the question, “What is finance’s role in measuring and monitoring the new value drivers in today’s digital economy?” We sought to understand how engaged finance teams were with sales, marketing, and other lines of business to measure customer-facing value drivers, given their overall impact on value creation.
The CGMA® survey asked respondents to rank what they considered the most important drivers of business value today. Of the top five, three are customer-related:
- Customer satisfaction – 76 percent
- Quality of business processes – 64 percent
- Customer relationships – 63 percent
- Quality of people (human capital) – 61 percent
- Reputation of brands – 58 percent
After establishing the top value drivers, we wanted to discover which teams are responsible for providing key performance indicators for each value driver.
Not surprisingly, accounting and finance teams focus primarily on financial measures. And although CFOs have a wider span of influence than their colleagues in the C-suite, the finance function seems to have low engagement in producing non-financial measures about intangible assets.
They Who Own the Data Drive the Decisions
The departments most likely to provide the KPIs needed to manage value drivers in the digital age are the teams that own the data—namely, marketing, sales and customer service.
Finance teams lag behind other areas in adopting new technologies and measuring new KPIs. Line-of-business units report more frequently on customer relationships, buying behavior, brand value and other intangibles—the assets that now make up 84% of a typical company’s value.
So does this mean that finance is irrelevant?
Not yet. But finance leaders who don’t take a more active role in measuring intangible assets risk being sidelined by other lines of business, and losing their place at the strategy table. High-quality decisions are data-driven, and the teams that own, measure and report on the KPIs that drive company value will end up leading the decision-making.
A few finance teams are already taking steps to play a more active role in analyzing digital KPIs. Finance professionals, by their training, are analytical and business-savvy, and can see opportunities that marketing or sales leaders might miss. By taking on the role of business partner and advisor, finance leaders are working closely with other lines of business to spot patterns in the data and recommend appropriate course changes.
American Express and Yahoo will be sharing their best practices in a conversation with CGMA®, the Argyle Executive Forum and Oracle. Join us March 16 for The Rise of the Digital CFO to learn how to measure what matters in the digital age.
