In a complex and rapidly changing world, we were interested in understanding which areas CEOs want to better measure and which areas they want to better communicate to the multiple stakeholders who interact with their organisations. We found that the key metrics CEOs would like to improve are the ones traditionally seen as 'harder' drivers of business success like innovation and risks, while the areas they want to better communicate are emotional, 'softer' issues around values and purpose.
But customers are seeking information about both the ‘hard’ and ‘soft’ drivers of business success. Indeed, real-time dashboards created and managed by users themselves are becoming feasible, raising expectations for more fresh and relevant information and ways of viewing it.
Ultimately the CEO must deal with matters of the head and the heart, the rational and the emotional. Our research suggests that there is much room to improve on both the assessment and communication of key business areas, including of course, core financial data.
How should business be doing more to measure impact and value as stakeholder expectations evolve? We put this question to CEOs and the top-two areas they identified brought to mind the fabled Chinese character for crisis – a combination of the symbols for risk and opportunity. Over half of CEOs (55%) cited the need to measure innovation, with the measurement of risk coming a close second (53%). This complex, combined theme resonates in many CEOs' responses – they recognise the world has changed and that they must deal both with the new while protecting the old; they're forging ahead to serve multiple stakeholders while focusing on delivering a profit for shareholders and better convenience, price and functionality for customers.
With most companies not yet having cracked the code on measuring innovation, it's little surprise that this is the area most CEOs want to better measure. And it could help explain why CEOs struggle with how to optimise the societal value of R&D and innovation.
A large part of the challenge lies in the adoption and use of technology. There's a digital divide between those organisations that have grown up in the digital world, and everyone else. ‘Digital native’ companies have a comprehensive set of online data about their entire business, with feedback response loops at every point of their processes. They are, indeed, constantly managing metrics, making them very effective at process change and quick, effective execution – a key driver of successful innovation.
And it’s not simply about digitalisation and moving everything online, but continuously generating, collecting, analysing and reporting information, with coverage that’s both deep and broad.
It's clear that CEOs recognise the importance of data and analytics, with most citing this as the technology that they think provides the highest return for stakeholder engagement. The thirst for better speed and accuracy in this more dynamic environment is growing and new competitors who start with a fresh, faster measurement system are driving entire industries forward at a quicker pace.
Getting a good grip on measuring innovation and people processes is fundamental. But as customer expectations change, CEOs also recognise the need to widen the scope of what they measure to include stakeholder inputs that lie outside their immediate business environment.
Seventy-two percent of CEOs – spread across all regions – say their company reports on both financial and non-financial matters. In five years’ time, 81% think that the most successful organisations in their sector will be doing this. And 76% say that business success in the 21st century will be defined by more than just financial profit.
The ability of companies to consider non-financial indicators of success is testament to how dramatically the field of sustainability reporting and measurement has grown in the last 15 years. Going forward, the adoption of the United Nations’ Sustainable Development Goals will help drive the measurement of a wider range of impacts. Technology and data again are key: digitising and instrumenting business processes can improve efficiencies, recognise and account for hidden costs, and create greater transparency around areas like resource consumption and waste generation.
Existing frameworks for reporting on environmental, social and governance (ESG) standards are an important starting point to improve the visibility of corporate actions for customers and other stakeholders. The Global Reporting Initiative (GRI), for example, provides sustainability reporting guidelines, while the International Integrated Reporting Council (IIRC) supports integrated reporting for annual reports, and the Sustainability Accounting Standards Board (SASB) is aimed at sustainability content for regulatory financial filings for US-listed companies.
Moving forward, companies will need to call on a broader (and more detailed) set of tools to measure indirect value.
Non-profit organisation B Lab, for example, which certifies companies that use their business as a force for good – so-called B Corps – provides detailed and standardised impact assessment indicators and a customised platform for measuring those impacts. Another approach is PwC’s own Total Impact Measurement and Management (TIMM) model that integrates sustainability, economic and tax indicators to evaluate an organisation’s total impact. This helps decision makers understand the net effect of their actions and assess the trade-offs they have to make.
Of course no one is saying it is easy to apply robust methodologies to measure indirect value. No matter what tools are used, some things may not lend themselves to precise metrics. Yet without attempting to measure more of these areas, there’s simply no way that companies can effectively allocate finite resources in a cost-effective way to address the things that their customers increasingly want them to address.
As the divergent world brings firms into competitive markets that may have very different rights, expectations and relationships with society, it makes sense that leaders want to make sure that their organisation is very clear on what they stand for, and their distinctive advantage. We think this is why purpose/values (59%) and business strategy (54%) are the top-two areas that CEOs want to better communicate.
This set of priorities also makes sense in our ever more transparent world. If, for example, information is withheld, either inadvertently or deliberately, there’s no guarantee in today’s digitally connected society that it won’t come to light and be broadcast globally. As Nigel Wilson, CEO of UK-based financial services provider Legal & General puts it, “... business just needs to become much more transparent, much more open and have a higher level of engagement.”
The stakes are rising as more and more people rely on the information companies put out to buy products or accept job offers from them, or do business with them. Businesses must have the controls and processes in place to be able to communicate dependable and consistent information and messaging across a huge range of areas, including marketing materials, contracts, annual reports and financial filings. Consistency, however, doesn’t mean uniformity. Opinions may be shaped by global trends but they also reflect local sensibilities.
The fact that nearly half (48%) of CEOs are making major changes to how they manage brand, marketing and communications is a testament to the increasing awareness companies have of these challenges. There are of course limits to what can and should be communicated. But that line is shifting ever outward at a time when more people are asking more detailed and informed questions of companies than ever before. Companies must find the right balance if they are to improve transparency – and ultimately trust. Measuring and communicating risk and growth, as well as the company’s values, purpose and strategy provides a useful balance.
Have you worked out what’s important to measure in your organisation to reflect what you’re in business to achieve?
Is your reporting team at ease with navigating the complex multiple standards around the world for wider non-financial reporting requirements?
How are you measuring the impacts (both positive and negative) of organisational culture and behaviours?
How is your organisation making sure that it’s measuring the right things in the right way in order to use data about non-financial impacts in decision-making?
How are you ensuring that your business is communicating the information your customers and other stakeholders want?
Are there valuable intangibles that you haven’t found a way to measure yet, which you think you should measure? And are there things that you think shouldn’t be measured at all?