Why CEOs require better measures of customer value

Three-quarters of the world's CEOs say more emphasis should be placed on measuring the value of non-financial assets such as customer relationships and ’human capital’ – the value added by the knowledge and personal contribution of employees.  

In the wake of the financial crisis, three quarters of the world’s CEOs say more emphasis should be placed on measuring the value of non-financial assets such as intellectual capital and customer relationships to drive long-term performance, according to research from the American Institute of CPAs and Chartered Institute of Management Accountants. But just 51% of nearly 300 CEOs surveyed in 21 countries say their organizations currently measure the value of non-financial assets well or very well. And only 12% now turn to their finance teams for help with the task.

Rebooting business – understanding the human dimension

The research was conducted by Oxford Economics for the new global Management Accounting professional body (CGMA), a joint venture by AICPA and CIMA. The Chartered Global Management Accountant (CGMA) designation aims to set a new global standard for management accountancy around the world.   The results are reported in the accompanying paper – Rebooting Business: Valuing the Human Dimension.

“One of the key struggles faced by CEOs is building sustainably for the future in the face of a fixation on financial, short-term gains,” said Charles Tilley, Chief Executive of CIMA. “Our research shows there is an unmet need in the measuring of non-financial information within organizations. Management accountants, who have the depth and breadth to understand the business from multiple perspectives, can help businesses succeed in troubled times and create long-term sustainability.”

Offering the perspective of a global executive, Douglas Flint, Group Chairman, HSBC Group Holdings, said, “I think from the board’s perspective, management accounting is the most important aspect of the finance function … boards, investors, management want to know why the numbers are what they are, not what are the numbers.”

Measuring the value of non-financial assets

Additional results from the research include:
  • Non-financial value.  CEOs say that customers and employees contribute most to the value of the company. Approximately 85 percent say that customer relationships contribute significantly and customers will be their most important stakeholders going forward; 81 percent say that knowledge and human capital contribute significantly to the overall value of the business. These should therefore be the primary areas of focus for developing measures of value and it is crucial that companies are able to report this value effectively.
  • ‘Short-termism.’ There is widespread feeling that investor and shareholder demands are inconsistent with growing a sustainable business, with 60 percent of CEOs agreeing to this statement. Furthermore, 76 percent agree that the current financial reporting system promotes excessive focus on financials and does not allow them to demonstrate the broader value of their business. More than two-thirds of CEOs, or 69 percent, think investors’ focus on short-term rewards makes it difficult to plan for the long term.
  • Greater transparency. According to 87 percent of respondents, transparency is an opportunity -- but also a juggling act. Approximately 70 percent agree that it is difficult to find the right balance between being open and protecting commercially sensitive information.
  • Executive collaboration. Leading CEOs believe that new ways of working are required and expect new levels of collaboration between executive teams, external experts and other stakeholders.  CEOs want help in pulling things together – connecting the dots – and are clear that they need the right people to help them do this.
The Oxford Economics research is based on an online survey of 280 CEOs from over 21 countries, followed up by findings from interviews with 17 global business leaders whose organisations collectively employ 2.1 million and have market capitalization of $1 trillion.

Their overwhelming response was that the human dimension of businesses – for example customer and supplier relationships, talent development as well as intellectual capital – will be the focus over the next 18-24 months.

Overall the CEOs surveyed consider that the first challenge is to understand value – where it comes from and how much there is of it. As the report says: “They see people’s ideas, skills knowledge and relationships representing the unique value of their companies.” They acknowledge a clear imperative to go “way beyond the financials” … surely a striking conclusion from a new accountancy professional body.  They “need people who are equipped for this task and able to develop he tools that can make the difference”. 

Maybe the new best friend of the contact centre planner or analyst is the corporate management accountant!

The full global CEO survey report is available at http://www.cgma.org/Resources/Reports/DownloadableDocuments/CGMA_launch_report.pdf

More information about the CGMA can be found by visiting www.cgma.org.

Report by Paul Smedley
August 2012.

About the organisations

Chartered Global Management Accountant (CGMA)
Two of the world’s most prestigious accounting bodies, AICPA and CIMA, have formed a joint-venture to establish the Chartered Global Management Accountant (CGMA) designation to elevate the profession of management accounting. The designation recognizes the most talented and committed management accountants with the discipline and skill to drive strong business performance.

Chartered Institute of Management Accountants (CIMA)
The Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body of Management Accountants, with more than 195,000 members and students operating in 176 countries, working at the heart of business. CIMA members and students work in industry, commerce, the public sector and not-for-profit organizations.

American Institute of CPAs (AICPA)
The American Institute of Certified Public Accountants (AICPA) is the world’s largest association representing the accounting profession, with nearly 377,000 members in 128 countries and a 125 year heritage. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting
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