Question

As part of performance management, organizations will use a mixture of financial performance indicators and non-financial ones. Develop a catalogue of different aspect of organisations performance and nonfinancial performance indicators that may be applied.

Answer 1

Traditionally, most companies analyze performance solely based on financial measures. Although these measures are objective and quantitative, they are historical in nature. Moreover, they are better at providing short-term forecasts than long-term predictions. Although these lagging indicators are important in tracking what has been done, companies should also focus on leading indicators (indicators of future success). The balanced scorecard (BSC) and similar holistic techniques provide this broader focus.

The BSC gives companies a simple tool that shows them specific financial andnonfinancial indicators. It is a strategic measurement and management system that translates a company’s strategy into four balanced categories. The financial perspective measures the past performance of a firm. The customer, internal business process, and learning and growth perspectives drive future financial performance.

Companies use the BSC as a management tool to:

• Clarify and communicate strategy
• Align individual and unit goals to strategy
• Link strategy to the budgeting process
• Get feedback for continuous strategy improvement

To develop its strategies effectively, a firm needs to analyze its internal strengths and weaknesses and then analyze its external opportunities and threats. Combined, this effort is called a SWOT analysis. effort is called a SWOT analysis. Strengths include the organization’s core competencies (special skills). Weaknesses are characteristics that place the company at some disadvantage. Opportunities are chances to increase revenues or profits, and threats are elements in the environment that may provide trouble for the company. Analysis of these factors helps a company determine its key performance indicators (KPIs).