The quick ratio measures the ability of a company to pay its current liabilities when they become due only from quick assets, which for the purposes of this liquidity test are defined as assets that can quickly be converted into cash within 90 days. [Hey, I do remember something from time as a trainee accountant in 1983!]
In today’s climate of almost pervasive digital transformation initiatives I questioned in a recent post whether such activities were working. Could they be measured yet?
The argument against is that innovation and change takes time to percolate. Perhaps, but that is a cop out. There is the equivalent of the quick ratio that can be used to test if a transformation activity is on track. A digital transformation can have many moving parts, and depending on the size and scope of such an undertaking it can be difficult to pin down exactly what is its end game.
This is where the quick ratio comes in. Can you quickly, within the first 90 days of its commencement, poll senior executives in a company and come up with a common view, lingua franca and cohesive support front for a digital transformation initiative? If not, then the initial dissidence and inertial dampeners that emerge as a result of not singing from the same transformation hymn sheet will grow exponentially during the course of the ensuing months. The resultant friction may well prevent such an initiative from achieving its desired result.
One of the sharpest analysts I’ve had the pleasure to work with, Gartner’s Mary Mesaglio, has posited a step by step Quick and Dirty Transformation Test for Executives.