Day by day, experience confirms that the value of companies goes beyond the value shown in their accounting books, which is reflected in a set of Financial indicators.
There are multiple examples of companies in which their physical assets represent a very small value in relation to the value of the company, example of them are Coca Cola, Amazon.com, etc. In the new processes of buying and selling companies, we have seen how, more than their tangible assets, what companies buy are the brands, the markets, the capacity of their distribution processes, which is not shown in the statements. However, they represent a much higher portion of a company's book value.
Most companies religiously present their financial statements month by month, which are analyzed by management, seeking to find the triggers of the success or failure of their business.
Financial statements, also known as income statements, show a series of values, most of them important to accountants and financiers, which reflect past performance, hopefully what happened a couple of days after the end of the month, and in the worst case three months later.
This income statement, in addition to reflecting the financial position of the company, is implicitly showing what was the performance of management, which can do little to change what has been done, except for those wonderful makeup that accountants usually do, to put the information stakeholder disposition.
If the value of companies no longer resides in their tangible assets, it is not healthy to spend valuable time on a purely accounting point of view. Managers must devote their attention to the indicators that show how value is being generated for the company, managing those vital causes that will have an effect on financial results.
These causes are found in the way in which the relationship with customers is managed, the only ones who can contribute to the generation of income. They are in those critical processes that transform intangible assets into results with clients and finances. The causes are also in the alignment of those assets that create value for the company, such as the knowledge, skills and competencies of human capital, the quality of the information capital and of course the organizational capital, a product of the quality of its leaders.
Today's management must value the time it takes to manage its tangible assets to focus on transforming its intangible assets and thereby generate real value that can be reflected in its financial statements. The most valuable asset of the company is its human resource, as long as it is aligned with the generation of value, otherwise it will be an additional expense or a physical asset, subject to deterioration, depreciation and replacement.
Management needs other types of indicators, in addition to financial ones. You need to know the loyalty of your customers, the growth of the brand, the value that the information you have provides, the satisfaction of your staff and how this is reflected in higher sales. It is necessary to know the capacity of your processes to anticipate the changing needs of your customers, as well as to respond to the promise made to the customer, directly or indirectly with your advertising and messages.
Managers focused on financial indicators are driving their companies to suicide. In addition to historical information to make short-term decisions, they require information about the future of their activities, the way the organization is developing its strategy and how its customers perceive it.
Having financial indicators is important, but it is not enough.
Gilberto Quesada, consultant and president of Grupo Kaizen SA, www.grupokaizen.com
