Coming Up Short on Nonfinancial Performance Measurement

Article: Coming Up Short on Nonfinancial Performance Measurement

Summary:

            In this article, the authors are putting light on the importance of non financial measures gaps along with financial accounting gaps. They are stating a view point that companies need to analyze the situations in non financial measures to ensure good financial performance. If they will not consider these non financial measures, then they cannot achieve desired results. It is evident that the importance of non financial measures is crucial for companies, then why companies ignore this. The authors believe that companies do not consider it important because they actually don’t analyze the situation in a good manner, and lose the opportunity to gain financial benefits. There is a close relationship between financial outcomes and non financial activities. The most non financial activities are employees’ satisfaction and customers’ loyalty. But companies make a mistake by developing a general model of relationship between financial outcomes and non financial drivers. The list of this general model can be long, which cannot be easily verified during the business process.

            The authors have mentioned a very good example of fast food chain to understand that what relationship is between financial performance and non financial measures. They state that if a fast food chain is looking to gain a position in the industry as leading performer in stock price and best generator of the cash flow, then a model is needed to achieve their success. This model will elaborate that non financial measures are linked to these company’s goals. The relationship model is described as if employee satisfaction has to be achieved, select better employees, then these employees will help to achieve satisfaction of customer which will result in better purchasing, growth, retention and desired cash flow. The authors believe that when companies set wrong target for their performance, then they miss the opportunity to gain better financial performance. Their recommendation is to develop a correct model, and then gather required data for this model. In next step, this data should be turned into useful information so that the process of refining the model is continued. After doing all the steps, now it’s time to take appropriate actions according to acquired findings. Then last process is to evaluate the outcomes gained from the actions performed.

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