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Non-Financial Performance Indicators

Updated on October 26, 2012

Performance measurement plays many significant roles in running a business organization or any other organization. Translating business strategy in to desired actions and expected results, communication and monitoring of progress of these actions and expectations and providing feedback to take corrective actions are all controlled through performance measurement. Even motivating employees through performance based reward schemes, is based on performance measurement.

Business managers traditionally used performance measures based on financial accounts for all these purposes. However with the introduction of new competitive business concepts such as customization, quick response to customer expectations, new manufacturing techniques like just in time, flexible manufacturing systems, total quality management, performance measures based on financial accounts have become no longer sufficient. Therefore, a range of non-financial performance measures have been introduced to overcome the limitations of financial performance indicators.

Market Share

Market share is a performance indicator that could possibly be included in the list of financial measures. It is often seen as an objective for an organization in its own right. However it must be judged in the context of other measures such as profitability and shareholder value. Unlike many other measures, market share can take quality in to account. Gaining market share, must be seen as a long term goal of business organizations. However, market share can be acquired only within limits if a monopoly situation is to be avoided.

Customer Satisfaction

Customer satisfaction cab be linked to market share. If customers are not satisfied they will take their business elsewhere. Then the company will lose market share and go into liquidation. Measuring customer satisfaction is difficult to do formally. The reason is that the inputs and outputs are not readily defined or measurable. Customer satisfaction can of course be measured indirectly by the level of sales and increase in market value.

Competitive Position

The performance of an organization must be compared with that of its competitors to establish a strategic perspective. A number of models and frameworks have been suggested as to how competitive position has to be determined and improved. A manager needing to make decisions must know by whom, by how much, and why he is gaining ground or being beaten by competitors. Conventional measures such as accounting data are useful but no one measure is sufficient. Instead an array of measures is needs to establish the competitive position. The most difficult problem to overcome in using competitive position as a success factor is in collecting and acquiring data from competitors.

Risk Exposure

Risk can be measured according to finance theory. Some risks like exchange rate risk and interest Rate risk can be managed by the use of hedging mechanisms. Shareholders and companies can therefore choose how much risk they wish to be exposed to for a given level of return.

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