Content area
Full Text
IF YOU PEEK BEHIND THE scenes of a business success story, you will find an invisible advantage-one that competitors can't easily copy.
People, ideas, know-how, relationships, systems, work processes-they all drive economic performance. They don't show up on a balance sheet or income statement, but they are the manageable drivers of corporate value creation. They are the source of invisible advantage.
Intangibles let you manage in real time and anticipate problems before they arise. Look only at your financial performance, and you'll be looking in the rear-view mirror: you can see what you did last month or last year, but not what's coming down the road. Intangibles help you understand how you're doing right now-and how you're likely to do next year.
Sears measured employee satisfaction and tracked the relationship between this metric, customer loyalty, and financial performance. The company found that a 5-unit increase in employee attitude led to a 1.3 unit increase in "customer impression" (a variable related to customer retention), and that, in turn, drove a 0.5 percent increase in revenue growth.
Since 1994 researchers at the University of Michigan Business School have produced the American Customer Satisfaction Index. The models contained in the index allow companies to measure customer satisfaction, point to areas for improvement, and show a clear link between customer satisfaction and financial metrics, such as market value added, stock price, and return on investment.
The trick here, of course, is to get metrics that accurately assess the intangibles critical to success. How many companies feel comfortable with their measures of customer or employee satisfaction? How many even try to assign a value to their R&D efforts, let alone to the quality of their leadership? In our research, we asked executives in financial services whether they were satisfied...