The Right Stuff

November 3, 2008 from Business Finance – “…For many years, companies focused their reporting and analysis efforts on accounting measures and some high-level operating data (units produced, utilization rates, or number of employees, for example). As corporations have broadened the scope of their automation in recent years to include customer relationship management, supply chain management, and other externally facing and operating functions, they have been collecting a much wider and deeper range of data that can be used to measure performance…

The traditional reliance on accounting information as the basis for management reports produces information mostly about the past. Thus it is not surprising that our benchmark research finds that only 20 percent of participants said that they get enough information about leading indicators that will help them to anticipate business issues or opportunities, 60 percent reported that they do not get enough, and 20 percent are not getting any. Creating leading indicators usually requires a combination of operating and accounting information…

One common reason why most companies do not go beyond a historical, inward focus in their reporting is a set of constraints that have been internalized to the point where they have become habit…

They also may not have an IT infrastructure that makes doing this feasible. In far too many cases, information is held in separate systems that don't interoperate easily or is fragmented…”

180 View – We agree that organizations should generate ratios on their leading indicators but we don’t think the problem is mostly about habit/stagnation or lack of IT infrastructure. We think the problem is more about organizations that don’t know the difference between a leading and a lagging indicator. And even if they did, it’s not just a question of integration. It will often require investment in ways to gather the information such as conducting customer satisfaction surveys that have nothing to do with ERP systems.