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Levers of Control, Balanced Scorecard 1, Non-Financial Performance Measures - Article Example

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Levers of Control, Balanced Scorecard 1, Non-Financial Performance Measures

The writers say that there are still a lot of firms which do not realize the importance of nonfinancial performance measures and have no such procedures to measure them, on other hand there are many others which only use off the shelf procedures and frameworks for measuring it and do not dig deep to track the activities which actually affect the framework. Companies make many mistakes in using these off-the-shelf and even their own frameworks one of which is that they do not link the measures to the strategy and don’t know that which nonfinancial performance measure they should track. In their research they found that only 30% firms have developed their own causal models which develop cause-and-effect relationship between chosen drivers of strategic success and outcomes. Second mistakes the companies make is that even after developing causal models they do not validate the link between the selected measures and strategy, i.e. afterwards they do not examine the results to verify that if their selected measure is actually contributing towards the goal or not, or to what extent it is effective for achieving goal, so that it may be weighed accordingly and thus they remain fail to determine the relative importance of each measure and resultantly they fail in proper allocation of resources. During their research they found that out the firms that develop causal models, only 21% of them validated the link between measures and strategy. The third mistake made by the firms is that they do not establish right performance targets. Because right performance is only beneficial or fruitful upto a certain extent and after that point it produces diminishing or even negative returns, so it’s very important to set a level for right performance so that resources are not wasted into non-productive or counterproductive activities and may be directed towards more productive factors. Fourthly, about 70% of the firms that build causal models and validate links between selected measures and strategy and set right performance targets, adopt such metrics to measure the results which lack statistical validity and reliability. To solve the four problems discussed above writers have lined a six step procedure according to which; firstly, a causal model should be developed on the basis of the hypothesis in the strategic plan. Secondly, firm should pull up the useful data from already available data and by using all of the available data and systems of all of the departments. Thirdly, collected data should be turned into information by using different statistical tools and models. Fourthly, ongoing reassessment of results should be done regularly and causal model should be refined accordingly because effectiveness of different activities goes on changing with the passage of time and new activities/ factors keep on emerging. At fifth, results and conclusions of data analysis should be used in decision making and for future planning. Finally, results and outcomes should be assessed to see the effectiveness of action plans. The writers are right in concluding that nonfinancial performance measures are more effective if they are based on more sophisticated qualitative and quantitative inquiries into the factors actually contributing to the economic results. The article “How new top managers use control systems as levers of strategic renewal” ...Show more

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Summary The article “Coming up short on non-financial performance measurement” by Christopher D. Ittner and David F. Larcker is about use of nonfinancial performance measures which reflect a realm of intangible value, are handy for managers, employees and investors for achieving their goals and ultimately affect financial results of the organization…
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