Ep. 129 | Next Generation Business Metrics with Jim Deiotte
This week Jim Deiotte, Executive Director of the Master of Professional Accountancy Program at the University of California, joins Allison Hartsoe in the Accelerator. The program Jim oversees is anchored in emerging data use technologies as well as the practical, legal, and ethical uses and application of data. In this episode, Jim and Allison explore the future of business metrics that report on ESG (environment, social, and governance). This episode explores why ESG is more important than ever, the old and new ways of valuing a company, new metrics that provide a lens into ESG, stakeholder engagement, and much more.
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Allison Hartsoe: 00:00 This is the Customer Equity Accelerator. If you are a marketing executive who wants to deliver bottom-line impact by identifying and connecting with revenue-generating customers, then this is the show for you. I’m your host, Allison Hartsoe, CEO of Ambition Data. Every other week I bring you the leaders behind the customer-centric revolution who share their expert advice. Are you ready to accelerate? Then let’s go! Welcome everyone. Today’s show is about the next generation of business metrics. And to help me discuss this topic is Jim Deiotte. Jim is the executive director at the University of California Rady school of management as their graduate program in accountancy. Prior to joining the University of California, Jim was a senior partner at EY, serving as the tax and law leader of their Sub-Saharan African unit. And he was also part of the global and E M E I A leadership. Jim, welcome to the show.
Jim Deiotte: 01:01 Good morning, Allison. It’s great. And a pleasure to be here with you this morning.
Allison Hartsoe: 01:05 This is a very robust topic, and I know you have a very unique perspective that is starting to bubble up a lot. So I really want to jump right in. I’m going to start with the history, and then we could kind of move into today’s business metrics. So in 1792, the US stock market opened on the corner of wall street and Broadway as a way to measure and exchange value. And then, less than 20 years later, this became the New York stock exchange that we know today. Now that formation is over 200 years old. Could we start by briefly recapping how company value is traditionally measured?
Jim Deiotte: 01:45 Sure. I’d be happy to. Allison, when you go back to 1792, thankfully, I wasn’t around at that point in time, but I have been in the accounting profession for well over 40 years. And what I’m going to share with you this morning is really a change that I honestly didn’t expect to see in my professional career taking place. Going back into those days, basically, we measure the success of a company by looking at what we did yesterday. How do we perform? How do we utilize our assets and our talents and our people? How do we develop new products? And it worked for, as you said, close to 200 years, but we have a new dynamic taking place today. And it’s a pretty significant one. It’s one where we look at corporate balance sheets, and we see that basically 85, 90% of those balance sheets are in tangibles. These are not things that we can touch, pick up and easily move around. And so there’s a cry out there to basically saying, listen, are we managing as well as we can, should be looking at different ways of measuring our success. And more importantly, it seems to be more stakeholders that are coming at us, needing our support and needing our cooperation. Do we have an obligation, a responsibility to report to them as well?
Allison Hartsoe: 02:46 I want to start with your amount of intangibles. First. We oftentimes talk on this show about measuring customer equity and how that’s a reflection of how much the customer loves the brand, but that is inessential and intangible. And one of the articles we discussed before the show cited a statistic that for most companies in the top 10, Amazon Apple, Alibaba, Tesla, Microsoft, Alphabet, Tencent, 90% of their value remains unreported on company financial statements. What does that really mean? What’s missing.
Jim Deiotte: 03:20 It’s a great question you’re asking. Some of these intangibles are seen on the financial savings. We see it in the form of assets that are disclosed as a result of an acquisition. Goodwill is one of the ones that we see reported often out there, but one of the difficulties, one of the real challenges now of boards and really shareholders on where they want to invest their money is how solid is that balance sheet with these intangibles today? One of the transactions that we’re looking at very closely in our industry is a transaction that a few years back when general electric acquired a company called Alstom, they acquired this company for roughly $10 billion and wrote its Goodwill up to well, a number of considerably larger than that. What happened a few years later, things didn’t work out as well. And the company had to take impairment charges.
Jim Deiotte: 04:01 Those impairment charges that write down a Goodwill was actually larger than the original acquisition price. And if you can imagine this, how do you explain this to your shareholders? So this is being repeated out over and over and over again right now. There’s a lot of debate taking place in today’s newspapers regarding what kind of write-offs we’re going to see around Goodwill as a result of the COVID economic situation that we’re in. So people are really wanting to get a better insight as to what’s going on and what can I expect in the future? So this is a big deal, and we’re trying to get greater control over of those intangibles.
Allison Hartsoe: 04:32 Yeah, that almost seems like it lends itself to a lot of creative accounting when you have so many intangibles that you’re kind of trying to account for. And along those lines, I thought it was really interesting. We discussed another article about BlackRock and their CEO, Larry Fink, and how he was saying that BlackRock is becoming a lot more customer-centric by putting all their weight behind sustainability and climate change because their investors are demanding it. I guess, on the one hand, it opens the door for a certain kind of accounting to come in and be recognized on the balance sheet. But alongside that, we’re riding with new stakeholders that come in and are now part of the balance sheet. So I think most people talk about this as ESG reporting, and this is a brand new world, or seems to be a brand new world. Can you tell us a little bit more about what ESG reporting is about and why this move from BlackRock was so significant,
Jim Deiotte: 05:27 More than happy to, you know, Larry Fink issued a letter to his investor community in January, but this was just one of the items that are really adding on to a tipping point of a considerable change on how boards are going to hold themselves accountable to not only their shareholders but also other stakeholders of that organization. We saw about a year and a half ago, summer of 2019. I think it was the group of large corporate CEOs who came out and said, listen, I think it’s time that we really challenged some of our anchoring and shareholder primacy. We really need to be starting to bring in other people that make up our social and our business models that help our companies be successful. Larry Fink basically threw in his organization, and they manage roughly $7 trillion in investment assets and things. Listen, if a company is not really thinking about the ESG environment, social and governance of the organization and reporting it continuously, we’re not going to look at them as much.
Jim Deiotte: 06:15 We’re going to basically begin to differentially invest in other places to take. And so there’s an immediate reaction out there in the community, which is yesterday, I’m dealing with cyber yesterday, I’m dealing with trade Wars, yesterday I’m dealing with COVID. Yes. And now I got this ESG thing coming up and all these stakeholders that are going to be coming after me. What does that mean? And how do I hold myself accountable? So now is the search. One of the things I’ll share with you that I think is very exciting about what’s going on is the four largest accounting firms in the world have put together. And it was recently released about a month ago with the world economic forum, a paper that basically begins that conversation and saying, we need to attach metrics to this. We need to show a consistency out there globally that companies and shareholders and investors and advisors, they can compare the organizations. And more importantly, what they’re doing are they delivering upon that promise? And that’s the importance of that reporting of what’s taking place.
Allison Hartsoe: 07:05 You talk about ESG as environment, social, and government, but the word I’m missing there is customer. Where does the customer fit in that ESG framework?
Jim Deiotte: 07:13 It’s a great question. Uh, when you sit back and you look at ESG, you, you sit back and going well, aren’t customers, a stakeholder, and the answer is absolutely positively yes. It’s embedded in that social side. It’s the relationships an organization has with its key stakeholders. You know, one of the countries in the world that have really been in this business for a long period of time is the country of South Africa. They adopted and they use it in their publicly reported stock markets, Johannesburg stock exchange, integrated reporting. They are way out ahead of most countries right now. And they’re reporting on stakeholder involvement, the real ship that’s taking place when you see this ESG, or you hear this thing about integrated reporting is this yesterday’s business was solely evaluated on what they did yesterday. You know, this is what we did. This is what we accomplished.
Jim Deiotte: 07:57 This is about now the boards becoming responsible to management that has to articulate clearly where they’re going, how they’re creating value. And this is a much more complex conversation because it’s not only where are we growing value. It’s to whom are we growing this value for. The one we’re most comfortable with is the people who make the financial funds available to the company as a shareholder. That’s not changing except for the perspective, but now we’re adding in there, tell us how you’re supporting government and regulators. Are you engaged with them? Do you know where they’re trying to take and improve society? Tell us where you are in your communities, where you’re doing business. What are you doing for your employees as things are being so disruptive with digital transformation? And last, and I don’t mean this by any stretch, least what are you doing for your customers? And now think about that. How often do we go out and articulate? I mean, absolutely articulate the level of investment I’m making in my customers, and most importantly is my customers acknowledging they know this investment was made in them. And there’s a reason they’re doing that. I’m sure we’ll hit a few of those in a few seconds. So continue.
Allison Hartsoe: 08:59 So the first company I worked for was called Galt technologies. And so I can’t let this one issue go. When we make a corporation responsible for so many different masters for the shareholder, for the government, for the social, for the environmental, I wonder, is this simply a reflection of this happens to be the strongest institution right now to carry the load where previously it might’ve been the church, or it might’ve been the government. Why so much weight on the corporation now?
Jim Deiotte: 09:29 I think these stakeholders have always been there. I think they’ve been ones where if stakeholders not happy with what that business has done is spoken loudly. They’ve ticketed. They boycotted, they’ve gotten in front of shareholders. The way the internet is these days can really affect the way business is being done, and commerce is happening with organizations. So what we’ve done is it’s been much more reactive. We’re basically, Oh my goodness sakes. This group is all over us. What did we do wrong? And why doesn’t my children want to buy this product then? What are we doing here? So it’s been more of a squeaky wheel. When I look at the customer stakeholder, they have the most interesting way of boycotting. They just simply don’t buy products. And the other ones, they’re out there in front of you, and they’re loud in there, but the customers just quietly disappear.
Jim Deiotte: 10:12 So engagement with the customer is one of the most important things that we can do in our business. So the shift is really not to react, but to really be proactive. And with that. And I want to come back to your question, which is just a lot of stakeholders. I mean, I’m trying to keep my employees happy. I’m trying to keep my shareholders happy. I’m trying to keep the government regulators happy around the world. I’m trying to do this. How do I go about this management of this? And you have to manage it. You really have to sit down and differentially invest. Those stakeholders that are bringing in adding value to your enterprise, particularly around its sustainability. You invest in them. Those that are basically blockers, those that are getting in the way, those that are frustration, you need to look at strategic ways of removing them. They may not be stakeholders, and they’re just simply jumping on, and you can’t satisfy everybody that basically has a or suggest that they have a claim or right to support by the organization.
Allison Hartsoe: 11:01 I love that. That’s a very powerful answer. And I think it gives corporations some guidance, and ideally, it gives them maybe through the metrics. They are also getting some guidance. Could you talk a little bit about some of the metrics that are getting developed to help corporations see this North star of where they’re healthy and where they’re not, and how they might want to measure?
Jim Deiotte: 11:23 There’s a number of different types of stakeholders that are out there, and we’re not going to spend any time on how do you satisfy the government? How do you satisfy the internal revenue service or inland revenue in the UK or any other EU regulators on antitrust and other matters regarding data? We’re not going to go into that. We’re going to say focus solely on customers right now at this point in time. And the reason is I think this is the one that is got the least amount of coverage and focus. There’s a number of things that we’re seeing emerge as a. I’ll call it a standard out there in the industry. It’s customer interactions. How often are you connected? Would they refer you to somebody else that would be interested in buying your product? So there are ones that show that you can get a temperature of a customer in terms of what they’re likely to do in terms of supporting your product.
Jim Deiotte: 12:06 Really see this going on is how are you actually engaged? How do you find out what is the future need of this organization? How do you understand some of the pains that they have that are not directly related to, for example, the product that they’re purchasing. Customers are under a lot of pressure. They’re getting pressured by people to be quote-unquote, more green friendly. Do you supply a product that is in alignment with their needs? Their current need is a windshield, but is it the type of windshield that really can help them on what they’re trying to do and achieve in the long-term? So I think what’s going to happen is the conversations really have to become much more expansive in the way we understand what our customers need, not just for today, not just for tomorrow, but what they’re seeing as their long-term challenges, really aligning with that.
Jim Deiotte: 12:47 The second thing is, and I’m talking to one of the smartest people on the planet that understands digital and technology is this. If I get asked a question by a board member, it says, Hey, listen, show me how we’re investing in our customers. Show me how you’re really determining this, that this return on investment is being accepted by the customer. They acknowledge it. They appreciate it. And if all you do is walk in there with simply a corporate survey that’s been done with your customers. That is a data point, but I think what people are looking for more independent ways of making certain that that information isn’t biased that we just ask the right customers are the ones that wanted to respond, responded. And then we are missing a whole bunch of other people. We’ve seen the difficulties of polling just in an election. I think it’s even more complex when customers are changing as well. So if you can get more independent data points that really give you an idea of where that customer is going or where they should be going and how you can influence and support them in their long-term efforts. I think you have a much more powerful relationship. And I think it’s one that’s going to satisfy boards in the future.
Allison Hartsoe: 13:44 Well, and it’s so interesting about the influence and support of a dynamic movement. I might be interested in one element today and another element tomorrow, but some elements I think are long-term. So the health of the planet could be a long-term value versus a short term, this technology and behind versus that technology. So I think you’re right in terms of the focus on customer and product innovation, leading to a direct connection between the board and the metrics. I want to come back to the metrics that people have today. A lot of people just use net promoter score or other very soft metrics. What you’re talking about is more independent ways to value the customer voice, or perhaps to value the corporation. Can you talk more about some of these test metrics that companies are trying out in order to measure their business in a future-forward fashion?
Jim Deiotte: 14:38 If I sit back and I take a look at the end of the day, the customers is one of our core stakeholders. The customers, the one that really brings the funds in. The other ones are what the other stakeholders really helped strengthen our platform that we do business on. So the more I understand, the more I can get into the understanding of the challenges that, that customer’s dealing with, what they’re going on, the better off I am in terms of being able to meet their needs, maybe ahead of time, maybe it’s me that’s sitting down with customers and saying, you know, this product that we’ve been selling for a long time or the service that we’ve been providing, we really need to help you take it another direction. And that form of engagement, it’s a much more intimate. It’s a much more trusted relationship that you’re getting, but it’s something that really gives you more of a direction and where you’re actually trying to partner with that customer on how both of you can advance successfully in the future.
Jim Deiotte: 15:23 I think one of the things that companies are doing, and they’re not doing it enough, and they’re definitely not doing it enough in a transparent way, is it’s a conversation on their sustainability. So if I may, if I sat down with one of my most important customers today, and I had a conversation and saying, listen, we’ve been looking at, we’ve been studying your business. We’ve been studying where you’re getting your customers. We’ve been studying this, we’ve been studying this, we’ve been studying this, and we’re not here to tell you how to do your business, but we’re getting worried. We’re getting concerned about your own sustainability. We’re not certain you’re seeing all these changes that are taking place. We wanna engage with you. We want to have a conversation with you. We want to work out a solution with you because you really are a valued customer of ours, both immateriality and length and trust.
Jim Deiotte: 16:03 So I think it’s a different type of conversation that’s going to take place where everybody’s looking at that value chain that they’re part of looking back at them, where am I getting my stuff? And more importantly, where’s my stuff going to, and I don’t think that form of engagement. I don’t think that form of information is readily out there. I think this is a different type of question being asked because we have never really gone in articulated in a public way. How are you investing in that customer? If I value as a great customer relationship, Allison, and I may show it by delivering my product faster, giving you a better price, giving you a better volume, getting my best people. There’s a lot of things that I can deliver it, but not often when you sit back and say, I’m going to make an investment in you, what are you talking about? What kind of investment in you? I’m going to spend more time with you, and I’m not looking for anything. I want to help you. I want to share with you the insights we have. I want to share with you the knowledge we have today.
Allison Hartsoe: 16:51 So that sounds like a metric about stakeholder engagement, where the organization’s approach to stakeholder engagement might be around the frequency of engagement by the type of stakeholder group and their processes of how they ensure the reliability of that information. So that could be one of our metrics is stakeholder engaged.
Jim Deiotte: 17:09 I’m going to give you a really good example, Allison, when you asked the question, tell me, where are you on your journey of digital transformation? We will see the eyes glaze, which is what we got new apps. And we’ve been doing this, you know, they’ll talk about the physicality of digital transformation. What this is in this fourth industrialization is how do you use this smart tech? How do you use in what you’re currently doing, and how do you use information really make create better insights for better decision-making? If you’re in back of a customer, if you’re dependent on a customer, that’s not digitally transforming. I hate to say it instinctively you know that customer’s not going to be there. You’re going to start buying down.
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Jim Deiotte: 18:11 Yeah, today’s wall street journal. There’s an announcement of another group that’s buying now bankrupt. What was it? Uh, radioshack, again, they’re being bought again. Radioshack doesn’t exist. You can’t go to radioshacks. They’re being bought because it’s a hundred-year-old enterprise that has an E platform that still has value in it. And people are still trying to figure this stuff out on how to manage these relationships and how to gain greater insights on it. You will see a number of bankrupt companies that are going to happen this year, and people are going to be buying the data. They’re going to be looking for the information they’re trying to getting a pulse on. What was the IQ of that organization? Is it entirely gone? And how can I maybe grab some of that information and, again, grow my own insights out there? So this area is one of those ones that if you are doing business with customers that really can answer, or if they can’t even answer what the definition of digital transformation is, you really need to have a one-on-one with them and saying, listen, we really like you.
Jim Deiotte: 19:02 You’re our customer, after all. Can we help you out? Can we sit down and have a conversation with you? We really want to help you because we’re dependent upon you at the end of the day.
Allison Hartsoe: 19:10 Sure, so measuring customer lifetime value, measuring customer equity is always a great metric to throw in there. Are you saying there aren’t metrics yet that business are testing out in order to try to bring in all of this goodness of what they’re responsible for all the ESG? Are there metrics that they’re using, or aren’t there?
Jim Deiotte: 19:30 Well, think about this again, I’m sitting down in this new world, and I’m going to sit down and articulate. These are my customers. These are the retail chains that I support. These are the distributors are my products that I take to. These are my key relationships that are out there. And here’s how I’m investing in that. A lot of people are uncomfortable about putting that in a public domain. This is an area that’s uncomfortable for organizations to sit down and do that.
Jim Deiotte: 19:52 So you barely have the conversation taking place, let alone what I’d call the development of those metrics that you could sit down and say, Hey, are we actually making this investment? And do we do a good job? And by the way, do we grow the capital with this relationship because of those efforts? It’s just simply all evolving right now. I think that’s the big challenge that we have as we look at ESG’s triple bottom line, integrated reporting. It really is creating those statistics that are out there that say, this is actually going to work. I’ll leave you with another thought on this. There are ESG funds being built all over the US and all over the world at this point in time. These are funds representing companies that are quote-unquote ESG friendly. These are, in theory, the ideas. If I want to be feeling good about myself and get a greater return with a company that’s really out there ahead and understands this, I’m going to invest in an ESG fund.
Jim Deiotte: 20:38 So you have a portfolio of companies. One of the largest companies, one of the darlings of ESG, was Pacific gas and electric, but it’s now in bankruptcy. Just because you are ESG and your reporting that way doesn’t necessarily mean you’re going to be successful. But more importantly, is people are now asking the question, how did that company get into the ESC fund? You know, what metrics were they sharing with us that would suggest they really are ESG aligned and friendly and supportive. And it’s just asking you those questions. Now, I’m not suggesting that this company wasn’t and shouldn’t have been in that fund. What I’m suggesting is that people are having difficulties of splitting. Is this a marketing thing that’s going on? Or is this truly, is this truly a company that’s embracing this concept of stakeholder engagement and looking at different ways of creating value, both for the financial owners and other stakeholders within that organization?
Allison Hartsoe: 21:25 So, Jim, we’ve been talking a lot about the customer side of the equation, and there are multiple stakeholders that a business is responsible for. And I want to get to the metrics. So are there specific metrics that a company should be thinking about or maybe are even being tested now to help respond to the different stakeholders of which customer is part of that? Now we’re always passionate about customers, but I understand that businesses have a much broader view in this future-forward reporting. What kind of metrics are starting to bubble up?
Jim Deiotte: 21:58 It’s a great question you’re asking. And it’s one, actually, if you put a mirror to the situation if you’re not asking that of your customers, it means you’re not asking that question of your suppliers as well, and that’s a weakness within your organization. So it really is take a look at what are you valuing in terms of the relationships that you’re procuring your goods, your services from. So one of the ones that’s out there, and it is out there in a pretty consistent way, is net promoter score. These are independently verified. Would you recommend so-and-so to the, your product, your service, what you’re trying to do? And that’s a really good one. It’s one that you should be using in terms of evaluating your own performance. But it’s also very important in terms of what the way you’re looking at the people that the organizations you’re buying your product from. Social engineering or social, uh, called social span, what your involvement is, is another one where people are going to be asking you, tell us about the stakeholders in the communities that you’re supporting.
Jim Deiotte: 22:50 Let us see the involvement of your executives and your people. Are they on boards? Are they involved in the community? How much time is committed to the community to help out, maybe with local school matters or environmental matters within your community? So there’s a scoring that will be created around those lines, stakeholder engagement, the measurement of it. I don’t think it’s the measurement. I think it’s the quality of that stakeholder engagement. I think it’s identifying clearly, you’re a supporter of us, and we want to make sure that we understand your concerns and cares. And again, it’s within your employees, it’s in within government, it’s within your supply chain. And again, your customers, the most important one, you have to be engaged and has to be a quality of engagement. And the more you can get it supported by third parties getting involved and providing that independent thought and confirmation, that’s just simply going to be more powerful.
Jim Deiotte: 23:35 The last one is your R and D. If you’re not looking at the people you’re supplying and they’re not doing any research and development or development of their products and services better, your strength is going to be earned by their weakness. And so it goes the same way. So companies are looking at these and saying, tell us about how you’re investing in your people. How are you getting them ready for digital transformation? How are you using our information better? Are you protecting the private information that we’re giving you, and how do you do so, give me comfort around that? So I think these are some of the measurements that you’re going to start seeing more and more frequently. And as people become more familiar with it as a test that first and second generation of these ideas, it’s going to get better and better over time. Again, I think the most important one is how the world, I know who my stakeholders are, let those stakeholders know, let them also know that you’re making an investment in them begin that process of mutual engagement on how do we best serve each other and then document it and look for ways of making improvements on it going forward.
Allison Hartsoe: 24:28 And you know, the thing that I love about when you talk about these measures over time, to me, that means that every metric that comes into the business reporting at the top is trendable and probably trendable, and sliceable through the rest of the organization so that when you have these probably a small number of key metrics, you’re very much looking at how they’re moving over time. The question I would worry about is if I’m the CEO of a new company that’s using this metrics approach, you can’t always have everything go up into the right. And yet wall street hammers, absolutely hammers companies when they don’t hit one of those metrics going up into the right. Are companies starting to see that, how are they dealing with this vulnerability? I’m exposing all these metrics that I may or may not be good. And how is the market going to respond to me?
Jim Deiotte: 25:19 I’ll begin it with just, it is a different type of reporting. So when I look at integrated reporting that’s taken place, they are required, not just your financial statement results of what yesterday was, not just an opinion on the controls you have in your organization for better decision-making. But what they’re looking at, they’re saying, can you articulate clearly, can you share with the world your business model. How do you create value? And people are very nervous about that because it’s, this is how I make my money. If my competitors knew that, I’m worried about that. So that’s a problem. The second one is they have to sit down and they have to share both in short term, medium-term and longterm. These are some of the business decisions ahead of us, and that’s scary, but I also have to go and articulate what are the consequences of inaction or action?
Jim Deiotte: 25:59 So, for example, if I make a strong play, I’m a bank, and I make a stronger play on engagement with our customer base using technology tools that are 24 seven. One of the adverse effects might be, I may not need as much square footage in my branch offices. I may not need as many branch offices I made in order to spur that change. That’s uncomfortable. This is very uncomfortable, but here’s why this is really important though, is we’re talking about managing a different type of asset today. These are intangible assets. They can disappear quickly. And so if you’re not thinking about this thing differently, you can wake up one day as GE had a Duke right off Goodwill, and it happens very quickly. And so these are the challenges. And if we use the methods of measurement, if we use the managerial approach that we’re using yesterday, we’re going to fail to protect our intangibles.
Jim Deiotte: 26:45 And so people are really saying, I hate to say this. You’ve got to be more transparent. If I have a business model that creates value, and I’m part of an ecosystem. And the other members of that ecosystem don’t know I exist. And I don’t know, we have a relationship with them. I’m in a weakened situation. I have to know who those stakeholders are. They have to know who I am, and we have to be having a conversation together to be stronger together. Again, it’s building a stronger business, a stronger ecosystem for that industry, a stronger community. And you create, again, the bottom line of a more sustainable enterprise.
Allison Hartsoe: 27:14 Well, and we always felt that customer equity essentially leads you to a more sustainable enterprise. But what I’m hearing behind what you say are two other things really is that there’s a lot of speed. So once you create that exposure, then it’s more like the company is saying, yeah, this is what we already know, but you don’t know what we’re doing the next time. So we’re moving so fast. And that what we expose in that transparency component is really just what’s happening now and maybe in the immediate future, but it’s not what we’re thinking about internally. So the speed with which a company is comfortable with change is moving. And the innovation alongside that, I think, is also moving. So there is this element of I’m not showing everything, but I’m certainly showing the values through the transparency in the reporting. But as a definition, if I’m going to do that, I can’t be just doing the same thing every day. Otherwise, the competitors are going to catch me.
Jim Deiotte: 28:09 One of the areas that I enjoy, just keeping a strong tab on what’s going on, is mergers and acquisitions. One of the things that we try to squeeze out in a deal is basically fulfilling the synergies that we thought we were going to have an entering an acquisition or combination. When I look at the area around the sales, where we expect, because of combination, we’re going to grow more. We’re going to have more profit where we’re going to do all this. It sounds great in the proposal, sounds great in the press release, but the complexity of creating those synergies with respect to the combining of customers, as a, combining a platforms of information that we share, and we utilize the combining of a brand effect, and how do we go about really making decisions as to do we collapse a brand? Do we add more to it?
Jim Deiotte: 28:47 There’s a lot of complex issues that take place in there that we see in the M and A be thinking about this as this, I’m building my own company, and I’m really happy with what we’re doing, but can I do the things out there that somebody at some point in time is going to really like what we’ve built and I’m not talking about just Goodwill, I’m talking about they can see what I see the value of my customers, that they understand that I can be integrated, that I can transfer. I can share that these insights carry over. That’s creating value for your enterprise for the longterm. That’s creating a saleable value for in the future. And right now, executives aren’t thinking that way they’re dealing with. I get my supplies. I got to get them in. I got delivered my product. I got to hire a new person.
Jim Deiotte: 29:23 They’re not sitting back and thinking if I were to be an attractive suitor at some point in time, what would they see in terms of our customers? Or would my purchase price just end up in this? I use the term glob of Goodwill, which to me, is almost impossible to manage. So I think this focus in this intensity on the customer focus is really going to become it’s already big, but I think it’s really going to go up another gear to us become more and more familiar with tell us what you’re doing around this stakeholder and tell us how you’re creating value between the two of you.
Allison Hartsoe: 29:51 Well, and I think that becomes most obvious when the example you talk about is about radio shack, where somebody bought that company for the data assets. And I’ve heard a similar case around Caesars entertainment were in bankruptcy. The people who were part of the bankruptcy proceeding said, Hey, you left this huge asset out of the amount that we should be getting value from. And it was the value of the loyalty customer base. I was like, wow, these are now things that people are seeing as tangibles or valuable.
Jim Deiotte: 30:21 Allison, you’ve been in this business a really long period of time. And you understand the quality of information, the algorithms that produce an insight, that combination is complex to put together. It’s a very difficult task. If I can basically leverage into the experiences, the experiments, the efforts of successes and failures of a failed company, I can learn from some of the things that they did or didn’t do. That’s a value to me to understand what they’re trying to do. Right now, when we sit down and we engage with people that are looking at more and more activities being switched to automated decision-making using machine learning and AI, the what-ifs, what question didn’t we ask, what algorithm changed did we consider, and I’m looking for that information. We’re looking for that information. And so I think, again, the more information that can be shared within your sphere, both supportive of the spires that you have coming into your business and with your customers, the more that conversation is there and you get in sync. Then the only difference, the only real question, is the allocation of value to you versus everybody else that’s really serving the customers that they’re ultimately serving.
Allison Hartsoe: 31:15 I love it. I love it. We’ll take this down to the tactical level. Let’s say that I’m convinced, and I want to be a forward-looking company. I want to help guide my management team into more of a long-term approach. I want to start reflecting to different stakeholders. What should I do?
Jim Deiotte: 31:32 I think you have to simplify the challenge. There’s a lot of different little twists in little steps out there that can frustrate people. It’s not salad. Nobody has to do this, but we shouldn’t get necessarily started right now. We’re getting ahead of the car. No, I think this is a change that’s occurring. And it’s one that you need to really begin to educate yourself as to where it might possibly go because it’s not the reporting. It’s the cultural shift that takes place within the organization that matters. The second thing is, look at deals today. What’s going on. Most of these transactions are being bought are considerable. Then the percentage of the acquisition that’s going to fix assets like building and inventory and other assets is really pretty small. 85% of it’s going to intangible. If that’s being the case, look at the key intangibles that are there, a workforce in place, research and development and process, and let’s put down their customers.
Jim Deiotte: 32:19 I mean, these are a couple of the key ones that are out there. The workforce in place, in an era where we’re trying to be creating more nimble organizations that’s not necessarily something that you’re trying to build a lot of, but you should have in mind on it, do the right thing to grow your people and your talent. If I look at research and development, again, that’s something that I’m going to do. It’s the right thing for my organization. If I’ve done it the right way, it will be recognized by a potential buyer. It’s the customer side. It really is sitting down and saying, do we have everything in place to really begin that process of building that engagement? That’s provable. A third party can come in and look at it independently, saying, these relationships are tight for us to go and basically replace your customer lists.
Jim Deiotte: 32:54 It would take us four years, five years, but if I can get that handover done and I basically have no erosion, or I can slow down the period that I lose those customers or portion of that customer base, that’s a synergy and a combination. That’s a thought that I think current leaders need to have. So going back to what you said, it basically is to begin to educate yourself on what these changes are and reporting, understand it’s about going to the world, going to your stakeholders on how you create future value. Number two is to simplify it, take a look at the key four intangibles that are out there and just simply ask the question. I think I’m investing in those. I think I’m growing those. How do I make sure that that is the case? And again, obviously, I look at the other stakeholders that are involved. They’re part of that foundation, but the stakeholder that matters to me most is my customer. They’re the ones that are bringing money into my organization, in addition to the investors that are hoping to make money from that effort. So I just don’t think enough time has been spent with customers and understanding the value that they can confer. And with this flow of data that’s happening out there right now, I think you can really solidify and prove out greater portions of value on your customer relationships.
Allison Hartsoe: 33:52 Yeah. I love it. Are there specialists out there that talk about ESG reporting?
Jim Deiotte: 33:57 Well, remember right now, the concept is not brand new, just because Larry thinks that we ought to do that. It doesn’t mean that people haven’t been looking at this for a considerable period of time. The concept of triple bottom line, the concepts around integrated reporting, they’ve been out there for a number of years. It’s just that it’s getting critical mass where people are saying it’s time. We have to look beyond just the shareholders. We have to be able to hold ourselves accountable on a larger stage with more stakeholders that are involved. So that change is starting to occur out there. And so expertise is flowing into it. If I were to be very candid, there are groups out there that are providing advice and counsel on ESG, but it tends to be, and I’m gonna say it this way. It tends to be advisors to private equity or investment funds or pension funds on which companies are that there’s not as much particularly in our marketplace today that are spending time working in helping boards, helping officers, helping line managers really understand what this is about and really breaking down some of the things that they want to do that would really align towards getting better at this kind of reporting and accountability.
Jim Deiotte: 34:54 So it’s still growing. It’s just simply, that’s something that is just hitting that tipping point, it’s going to become larger, and people will jump into it again on the investor side, there’s a little bit more strength there on the, Hey, I got to do something tomorrow side. Yeah. That group is relatively small, or they’re focusing on the largest companies in the country and not really focusing on small and medium-sized enterprises. And that’s a mistake. That’s the group that actually needs this.
Allison Hartsoe: 35:15 Yeah. You hit on one of my favorite words, which is alignment. And I think that’s what this all comes down to is regardless of what metrics you pick and how you choose them, the end effect should be the alignment of the organization to get all those orders rowing in the same direction. That alone is such a big challenge, but to solve for it gives you that speed and gives you that beautiful equity that we’re all after, whether it’s environmental, social, customer governance, whatever, those alignment pieces are, I think what we’re really all looking for out of corporations today.
Jim Deiotte: 35:50 Could not agree with you more.
Allison Hartsoe: 35:51 Very good. All right. Well, as always, Jim, it’s been a pleasure talking to you and discussing this very rich subject. As always, everything that we’ve talked about is going to be at ambitiondata.com/podcast. Jim, thank you for joining us today and sharing these deep thoughts and this perspective that I think is so often missed in the analytics space. It’s really valuable. I really appreciate it.
Jim Deiotte: 36:17 Allison, it’s been my pleasure to be here with you this morning, and thank you again for inviting me in.
Allison Hartsoe: 36:21 Remember everyone. When you use your data effectively, you can build customer equity. It is not magic. It’s just a very specific journey that you can follow to get results. See you next time on the customer equity accelerator.