Challenges faced by Modern Finance - Measuring value of the intangible

Sathya Prasad Rai, Director - Sales, Oracle India

Headquartered in Redwood City, CA, United States, Oracle offers a comprehensive and fully integrated stack of cloud applications, platform services, and engineered systems to industries in more than 145 countries around the globe.

For the past decade or so, the way we measure the value of our business has transformed entirely. Earlier, only the tangible assets like hard cash, inventory, machinery and office buildings were valued. Not anymore. Now real business value is also based on company’s intangible assets, things which do not exist physically but are vastly valuable – these would include a company’s intellectual property, brand, human resources and more.

The basic change in the understanding of value has presented some unprecedented challenges for finance departments. If finance people need to measure the true value of their business, then they need to accurately measure and report the intangibles. This requires understanding what these assets are, establishing KPIs against them and measuring the performance of these assets. This data must then be reported in a transparent and clear way to investors, shareholders, customers and other relevant stakeholders. All this is easier said than done.As a recent report from Chartered Global Management Accountant highlights, some finance teams may struggle to measure their intangible assets in this way. For instance, only 25 percent of respondents netted out as positive of their business’ ability to assemble and analyze data on customer sentiment (a net positive score was calculated as the percentage of respondents selecting high scores minus the percentage selecting low scores).

 We can safely conclude that if finance is to accurately understand the value of their business then data management is crucial. Finance must be able to effortlessly draw on information from all lines of business and operations, and bring this data together in a single source of truth. Moreover, for finance to be able to create a compelling narrative around this data it must work hand-in-hand with all lines of business managers to understand the full implications of what the data is telling them.  Finance will be the centre of the business, which will be the connecting point for all the departments and stakeholders in order to find, understand and report on value. For this change to happen, even the finance needs to change the way it works. The days of spreadsheets and manual processes are over for the ‘last mile’ of reporting. If the value of assets are to be measured accurately, the back and forth between finance and business managers must be kept to a minimum, as not only does it delay reporting but it provides scope for errors to slip in to the process. Instead, finance needs a system that can provide workflow and security (to ensure only those who have access to sensitive data can see it) while guaranteeing that data is automatically kept current and correct.