 The CFO has significant fiduciary responsibilities for reporting the firm’s financial results. In reporting results CFOs have typically worked with:
- Business indicators that are lagging rather than leading.
- One size fits all (GAAP) instead of indicators tied to mission, vision, and values.
- Financials that generally ignore non-financial measures, as ties to critical success factors are considered unclear.
- Reports that are periodic and standardized instead of custom and on-demand.
- Focus that is on historical rather than real-time data and future trends.
- Books that are cost-basis versus value-based.
- Financial indicators that guide decisions without comprehensive measures.
- Forecasts that are backward-looking, not forward -looking.
Companies create sustainable economic value by developing and executing superior strategies which guide the organization towards delivering valuable products and services. In order to support effective management control the CFO must be concerned with business indicators that define value creation, value preservation, and value realization.
The CFO recognizes that a broad range of financial and non-financial measures are useful for managing the company. In determining the true value drivers of the business an understanding of financial and non-financial information is essential, as is an understanding of tangible and intangible value (intellectual and competitive). And, an effective communication of value to the public and investors is critical, as differences in perceived value based in information gaps can have a significant impact on company market value. However, effective tools for accomplishing this aspect of the CFO's mission are generally lacking.
Value networks provide a powerful way to visualize, analyze, and manage tangible and intangible value drivers that are crucial for comprehending and improving company value creation. Shifting to a value network-centric perspective helps a CFO to more effectively balance and structure the financial funding options, resources, and risks of the business. Not only does operational transparency significantly improve, but the probability of predicting potential risks and breakdowns is increased.
With value network-based scoring systems, business performance can be assessed more reliably. The causes of variance at various levels of the organization, such as financial or operational performance, can be better understood. Monitoring internal and external facing value networks enables a CFO to improve approaches for managing cash balance management, liquidity, cost of capital, capital expenditure, and strategic investments.
Implementation of the value network perspective in financial environments is typically based on linking the ValueNetworks.com intelligence to the business data warehouse and key transactional systems. The configuration is accomplished based on historical data analysis and targeted surveys and interviews to understand how operational performance is achieved. Analytics reveal value flows as they occur and ensure that these are funded appropriately, instead of through existing funding channels where there are often high levels of value leakage.
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