Page 168 - 6484

retaining employees (meaning that turnover is high), it might be incurring higher
recruiting and training costs and lower customer satisfaction, as a result. Some
possible nonfinancial controls are described next.
Examples of Nonfinancial Performance Controls

• Human Resources
o Employee satisfaction
o Average tenure
o Turnover
• Marketing
o New products launched
o Customer satisfaction
o Brand power
• Production
o Number of defects
o Product returns
o Capacity utilization
• Purchasing
o New products introduced by suppliers
o Quality of purchased inputs
• Research and Development
o New patents
o Number of employees with PhDs
• Customer Service
o Average complaint response time
o Average wait time
Common Mistakes with Nonfinancial Controls
In a review of current nonfinancial control practices, Harvard professors Chris
Ittner and David Larcker commented, “Tracking things like customer satisfaction and
employee turnover can powerfully supplement traditional bookkeeping.
[1]
Unfortunately, most companies botch the job.”
Ittner and Larcker somewhat cynically conclude their study by stating, “The
original purpose of nonfinancial performance measures was to fill out the picture
provided by traditional accounting. Instead, such measures have become a shabby
substitute for financial performance.” However, research also shows that those
[2]
firms that put these nonfinancial controls in place, and can validate them, earn much
[3]
higher profits than those that don’t. With the aim of working toward an
understanding of how to put such controls into place, let’s first look at common
mistakes that organizations make.
Not Using Nonfinancial Controls
While poorly conceived and implemented nonfinancial controls are certainly a
cost for organizations, such ineptness is no defense for not including them in every
modern organization’s system of controls. If management were a poker game, then
the ability to use nonfinancial controls would be a table stake in the game—that is,
you only get to play if you have skills with them. The world is simply changing too
fast, and competitors’ capabilities are evolving too quickly, such that managers who

168