Businesses have long relied on financial professionals to measure value and provide feedback on business decisions.
The role of finance and accounting is at the heart of measurement, transactions and the value of expression through concrete figures. For many years, this system has worked well, because business models focused on tangible issues, operations and properties.
However, more and more business models are born of technological problems, and converge towards something that is more futuristic, values-based and intangible. In this climate - economic value and knowledge - traditional measures are no longer applicable.
There is a disconnection
There is a fundamental change that occurs between the time the finance and accounting have been and where it goes. Business models today are based on the creation of value to intangible assets. In the knowledge economy, organizations use their unique skills to meet the needs of their clients - this is where their value. Disconnection occurs when funding continues to try to measure value and success in a traditional way. The shoe no longer fits.
So how do CEOs make business decisions when they can not rely on traditional measures like finance and accounting have always been used? And how do financial executives find new ways to measure the value of making better decisions? In essence, how to navigate companies in the new normal value of the economy?
Creating a new package
Finance and accounting should make some adjustments to better supporting organizations operating in the value-based economy. These companies need a new set of tools: a new way to measure value and success, and to make decisions. There are three key steps to building this new toolbox in your organization:
1. Identify new key performance indicators
To understand and manage the value of your intangible assets, it is important to measure. This means identifying a new set of key performance indicators (KPIs). Although KPI must evolve, its application is an important starting point for controlling the company and its progress.
The ICP for intangible assets must consider some key elements: they must be measurable, have an impact on the activities and be linked to the specific data. According to a recent study by the American Institute of CPA (AICPA) and the Chartered Institute of Management Accountants (CIMA), key performance indicators identified by companies measuring intangible assets are as follows:
- Quality of data
- The return on invested capital (ROIC)
- Employee productivity
- Experience and customer satisfaction
- Employee Engagement and Withholding
- Competitive activity
- Pipeline and customer retention
- Brand awareness and equity
However, another ICR to consider include:
- Supply of talent
- Social commitment
- Social sentiment
- Effectiveness of Digital Marketing
2. Connect the key performance indicators to assess factors
It is important to also understand the value drivers behind the KPI is measured. In other words, how does this KPI really affect the business?
Organizations today have to demonstrate the market the way they are different, and the customer is usually at the beginning and end of the value chain. Therefore, most value drivers must relate to the customer in one way or another. Therefore, according to the same research mentioned above, the top five factors to consider are:
- Customer satisfaction
- The quality of business processes
- Customer relations
- Quality of people (human capital)
- Brand reputation
3. Measure, measure, measure
In order to measure intangibles, companies have to establish links between financial results and prefinancing measures that they can use as main indicators, usually on the basis of a causal relationship or correlation. Going back to the first step, this means that your key performance indicators should be linked to the data, and you should be able to collect and analyze these data accurately to measure the value of your intangible assets. With advances in large data, there are now many more tools available to assemble, track and analyze intangibles than ever before.
For example, companies can use social analysis tools as a means to measure the equity of their brand or
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