Blog Post

Information Management

What is hidden beneath the surface matters

For years, we have been tracking performance of thousands of corporations. The challenge today for investors is ability to find diamonds in the rough. Metrics used to measure corporate performance are dated. Fundamental metrics are important. You need the fundementals to measure value creation. The problem is that the fundementals are changing. If you do not update the metrics you use to assess performance, you will miss the market. This is happening today everywhere.

Corporate responsiveness is declining. Ability to assess and respond to emerging opportunities depends on information management practices. Corporate decision making is slow. Insight needed to guide decision making is hard to find. Outdated legacy systems have become burdensome. This heightens level of uncertainty. Indecision driven by uncertainties impacts operating performance. This fact alone impacts value creation. The impact can be substantial. What is not recognizable on the surface matters. There are lasting implications for what lies hidden below the surface.

Recently, I have noticed changes in the hedge fund market. Many of the old reliable funds have failed to deliver returns. There is good reason for this. Things have changed. It is dangerous to rely on dated metrics to guide decision making. Stock pickers research corporate filings. Analysts talk to management teams. Equity hedge funds research how industries change. The problem, fluctuation in stock prices have not changed based on fundamental metrics. Entire sectors of the economy rallied on expectations for economic growth. Expensive stocks with strong growth prospects have sold off. Algorithmic trading, volatility and central bank bond buying has affected trading. These changes raise havoc on investors who track balance sheets.

The point is - business as usual strategy is risky. It is important to look below the surface to understand value creation. The illustration above highlights the importance of measuring value creation to forecast performance. There are reasons why corporations perform they way they do. To understand why and how, you need to look below the surface. Agility and innovation depend on ability to extract insight from information assets. You need to measure corporate effectiveness to monitor value creation. There are a series of new metrics you need today to assess true operating performance. Without them, you will miss the market. Know them and know how to track them and you will get an edge on the market.