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Agile Finance Revealed: The New Operating Model for Modern Finance
Learn how finance agility can give your organization a competitive advantage.
CFOs are under increasing pressure to measure, invest in, and grow the value of intangible assets.
Intangibles now comprise 84% of corporate valuations on the S&P 500 index—up from just 17% in 1975, according to The Digital Finance Imperative, a global research study sponsored last year by Oracle and conducted by the American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants.
Unfortunately, traditional financial key performance indicators (KPIs) aren't much help when it comes to measuring the worth of, say, customer satisfaction or employee engagement. So CFOs are searching for dependable ways to gauge the value of such assets, manage their performance, and drive new strategies to grow their value.
That requires a new generation of KPIs that can reliably connect non-financial indicators gleaned from data collected throughout the organization to bottom-line financial performance. Those connections are not always easy or obvious.
So how can CFOs move forward? Begin with simple KPIs, said Richard Wong, vice president of finance at LinkedIn, to the report's authors. Then use your findings to evolve more complex—and more intangible—KPIs over time.
For each industry and individual company, the connection between intangibles and economic performance can vary widely, but a consensus is emerging among high-performing CFOs to focus on five areas:
- Talent pool: "Agile finance leaders have identified the lack of talent or skills as the biggest obstacle to finance transformation," the AICPA/CIMA study found. And more than 80% of agile finance leaders surveyed measure their organization's talent pool. By partnering with HR leaders, CFOs can identify workforce KPIs and, together, help drive the company's differentiated strategy.
- Customer experience (CX): More than 80% of agile finance leaders include customer experience KPIs in their own suite of metrics, according to the report. Measures include customer satisfaction, net promoter score (a gauge of customer loyalty) and industry benchmarking. The goal for CFOs: demonstrate the connection between customer experience and financial KPIs, then use that information to drive more effective CX strategies.
- Business process efficiency: Across industries, businesses are busy digitizing and optimizing business processes, yet many fail to measure the return on investment in automation. By measuring and monitoring the ROI of these efforts, CFOs can provide direction on where to invest next.
- Brand reputation: Brand is a key driver of company performance and value. It is hard to assign a single financial number to a brand's reputation, but by tracking online customer reviews, employee retention and customer churn, CFOs can start to connect brand reputation with financial performance.
- Competitive intelligence: More than half of agile finance leaders say they monitor KPIs related to their competitors. While CFOs have long monitored competitor data available from public financial filings and market reports, they are increasingly turning to competitors' nonfinancial KPIs as well. Common targets include online reputation, comparative advertising, content marketing and talent recruitment.
With effective KPIs backed up by a modern, cloud-based ERP and performance management system, finance can truly become the new digital guidance system for the enterprise.
For more, be sure to check out the updated insights from newly published research by the AICPA, sponsored by Oracle.