How does the lack of non-financial operational performance measurements negatively impact business performance

Measuring performance in business terms most certainly conjures up a financial equation in my mind more than anything else and I am sure that the same goes for many other business professionals.

Sliwka (2002) makes a valid point that “managers work too hard on operational issues and do not spend enough effort on strategic activities”. He goes on to point out that the reason for this is most often because managers spend their time on improving immediate business relations which reflect short term financial gains, securing their managerial position and to show constant achievements in their position.

Personally, I would compare this to majority of my experiences in purchasing second hand vehicles (of which I have done a few times), the sales person is very focused on selling a vehicle now to get his commission at the end of the month that he will say just about anything you want to hear in reference to the car you are wanting to purchase (a nice way of saying, he will lie about the car to make the sale), after the sale has gone through and you find out about the lies; they couldn’t be bothered to even respond to your enquiries. Perhaps an extreme scenario but that is what the effect of a lack in nonfinancial operational performance measures can be. Unsatisfied customers who do not return and a poor reputation due to poor long term service.

Said, HassabElnaby and Wier (2003) have researched the effects of implementing a nonfinancial operational performance measure and have found that improvements lie in both current and future stock market performance, but only partially improve accounting performance. Of course this is, as always, subjective and dependent on a variation of issues such as the firms characteristics itself.

Ironically, the implementation of nonfinancial operational measurements should be considered against the costs and risks imposed on the manager the measures are being implemented on (Said, HassabElnaby and Wier, 2003). I agree with this as focusing too much on nonfinancial performance measures could adversely affect financial performance due to the lack of concentration on those measures. As with anything; one needs to use their knowledge of the organisation at hand to assess the amount of focus each task requires.

References

Said, A, HassabElnaby, H & Wier, B (2003) ‘An Empirical Investigation of the Performance Consequences of Nonfinancial Measures’ Journal of Management Accounting Research, 15, pp.193-223, EBSCOhost Discovery Service [Online]. Available from: http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=11734673&site=eds-live&scope=site (Accessed: 19 December 2010).

Sliwka, D (2002) ‘On the use of Nonfinancial Performance Measures in Management Compensation’ Journal of Economics and Management Strategy; Fall2002, 11 (3), pp.485-509, EBSCOhost Discovery Service [Online]. Available from: http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=7188663&site=eds-live&scope=site (Accessed: 19 December 2010).