The numbers no CFO should ignore

The numbers no CFO should ignore

This article originally appeared on WSJ's CFO Journal (may require subscription). 

Every chief financial officer pays close attention to value-creating assets like factories, equipment, and patents. Remarkably few, however, have developed rigorous gauges to assess the worth of customers, despite their position as the ultimate source of value.

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If a hard asset like a machine is somehow impaired, a CFO must reflect the asset’s lower value on the books. The same applies to a contract or piece of software. If customers, on the other hand, suddenly decide they hate doing business with your company, this asset is clearly impaired—but the CFO may not even know about it until too late. And even if the CFO does know, finance has no responsibility to reflect this value change on the books. 

Maybe that approach was sufficient in the past, but in today’s world customers blog, tweet, and text about their experiences in real time. Online reviews and critiques overwhelm carefully crafted advertising messages. Bank of America and Verizon, for example, ran into firestorms of protest over new fees and were forced to retreat. Netflix reversed course from its plan to split streaming and DVD-by-mail services after a massive wave of resistance and attrition. Countless other companies—airlines, insurers, cable providers, rental-car companies, hospitals—have seen the apparent financial benefits of added fees, burdensome contracts, inscrutable pricing policies and other customer-unfriendly practices wiped out by social-media-fueled revolts.

In response, a handful of CFOs have begun tracking customer attitudes and actions with the same care they devote to financial measures. They have rigorously linked customer feedback to business outcomes, and as a result have come up with new criteria for investment decisions.

Read the full article here (may require subscription).