Typically and traditionally most of the business companies are using financial measurement of their performance particularly the financial output: revenue and profit. And this normally is extended to the executive management level and individual employee level. While these still remains true and important in many scenarios, the non-financial operational performance measurement are becoming more and more important especially when we entered into the information age. The companies are running different and new business models in this relative new circumstance, particularly the software companies and online service companies. Financial measurement normally focuses on,

• Annual or short term performance against accounting (Knowledge@Wharton, 2000);
• Tangible assets;
• Past financial performance not future financial development;
• Particularly in satisfying the shareholders not stakeholders;
• Financial figures not business capability and competency.

In summary, the traditional financial measurement is more focusing on what the company and its employees have done. This is indeed very important to be taken as a new baseline to reflect and move on. This is also a very important measurement to provide incentive to those employees who work on jobs like sales, market which directly related to revenue. But only measuring the financial result will not keep these companies competitive in their business environment, and even will cause management make wrong or short term decision which may be very harmful to the future of the business.

Non-financial measurement

To a typical software company, the intangible assets and the overall employee capability are the core competencies to help them survive in the very competitive business environment. Besides the financial figures, they also need to make sure the right investments are made to keep the company and its products competitive.  In summary, there are several key things they need to pay attention and invest on what the company and its employees can achieve,

• Long term organisation strategy;
• Intangible assets;
• Future financial success;
• Not only satisfying shareholders, but stakeholders (like employees, customers);
• Sustainable development like the company and managerial capability.

To small companies, the edge of financial and non-financial measurement might be blurred as they need to more focus on short term success to make sure they can survive into next level. But to big companies, they will need to take both measurements, since many divisions are critical but not producing revenue but costing company huge money. Many modern companies now have separated R&D, legal, finance, HR, facility, support and IT departments which are not making money but spending money. But without these departments, the business will not be able to survive in longer term.

Conclusion

Measurement is important to development, without proper measurement the development can’t be indicated. The world and the business environment keep changing every day, every hour or even every minute, so it is important that business operation is kept tracked and measured by both financial and non-financial measurement to stay overall high operational performance and competencies. The non-financial measurement is very essential to the business success in the information age.

References:

Knowledge@Wharton (2000), ‘Non-financial Performance Measures: What Works and What Doesn’t’ [online]. Available from: http://knowledge.wharton.upenn.edu/article.cfm?articleid=279 (Accessed: 9^th July, 2011).