How do we measure corporate effectiveness?
Many see the use of short-term financial results as the benchmark of effectiveness. Companies are measured on a quarterly basis to highlight their performance. So much attention is paid to quarterly results because we think financial profitability is the key indicator of a company’s success. After all, if a company is making money, it must be effective. However, the short-term view does not necessarily recognize the true effectiveness of a company.
You may be surprised to learn that while I’m AW’s chief financial officer, I subscribe to management guru Peter Drucker’s (no relation) definition of effectiveness: “Doing the right things well.” Overall corporate effectiveness, he says, is based on five areas of performance:
- Customer satisfaction
- Employee engagement and development
- Social responsibility
- Financial strength
These dimensions were used by his Institute to rank the “Management Top 250.”
Corporate effectiveness is created through the interaction of the five areas of performance—not financial strength alone. It makes sense, when you think about it. Few companies or organizations will survive—much less succeed—without satisfied customers, engaged employees, a reputation for leading their industry or being a good corporate citizen. But with these factors in place, financial strength is sure to follow. And that makes this CFO very happy.