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Controlling Non-Financial Performance as a Key to Improved Productivity

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Essay title: Controlling Non-Financial Performance as a Key to Improved Productivity

Controlling non-financial performance as a key to improved productivity

Metapraxis (1998) a consulting firm states in one of their publications that “Performance measurement is a key to business success” [1]. Horngren, Stratton and Sundem (2004) state that “Effective performance measures are essential for almost any organization” [2, p385]. The fact that performance measurement is key to organizational success, is undisputed by every author, what different authors bring to light is what to measure and in what way.

Traditionally financial performance indicators were always measured to try and find the pulse of a business. Financial performance is unquestionably important, but as businesses became more modern, more competitive, managers started to see that a big part of what influences financial performance indicators are non-financial performance measures. Metapraxis (1998) highlight this saying that “Customer satisfaction (…) also has to exist before purchases are financially consummated.” [1], which is only one of the examples that one could find as to why non-financial performance indicators influence financial indicators and why it is good business to measure them.

In many companies, like at Satcom, financial indicators are the rule of thumb to assess how well the business is doing. At Satcom, even more bluntly probably than in other companies, the fact that non-financial indicators were never looked at, can also be pinpointed as one of the reasons as to why the business is failing.

Mattison (1999) from the Foundation of Performance Measurement suggests that looking at financial indicators “encourages management to take a number of actions which focus on the short term at the expense of investing for the long term” [3]. Furthermore, Kaplan states that "(...) if senior managers place too much emphasis on managing by the financial numbers, the organisation's long term viability becomes threatened" [4], which clearly shows that non-financial performance indicators are extremely important to highlight problems in a part of the business that is as critical to the success of the organization as the financial aspect: “people”. People are central to the development of organizations and without them organizations cannot grow.

Mattison (1999) says that non-financial indicators relate to the following functions:

• manufacturing and production;

• sales and marketing;

• people;

• research and development; and

• the environment.

All of the above business functions are as crucial to the success of the business as the handling of financial functions, in fact they are interdependent.

To measure both financial and non-financial performance indicators, Horngren, Stratton and Sundem (2004) talk about the “balance scorecard [as a] performance measurement and reporting system that strikes a balance between financial and operational measures, links performance to rewards, and gives explicit recognition to the diversity of organization goals” [2, p395].

The balance scorecard seems to be a system which has a equilibrium between financial and non-financial performance indicators, that give managers a broad view of the business all across

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