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leads to more sales. If this technology also leads to a higher-cost product, and
customers are very price-sensitive, then the new technology nonfinancial control
could lead to worse financial performance.
Failing to Set Appropriate Performance Targets

The third common area of weakness in the use of nonfinancial controls is
somewhat related to the second. Our example with technology shows this relationship
well. For instance, managers might not have validated the link between better
technology and downstream customer purchasing preferences; or, technology might
have been important, but only up to the point that it did not affect product price. So,
while technology was a valid part of our nonfinancial controls, we also need to
consider the appropriate level of technology—that is, set the right nonfinancial
objective for level of technology, customer service, or whatever nonfinancial control
is of interest.
You can imagine that a firm might want to set high goals, and therefore
control, for such things as customer satisfaction or employee turnover. But you can
probably also imagine what the costs might be of getting 100% customer satisfaction
or zero employee turnover. At some point, you have to make some cost-benefit
decisions unless your resources (time, money, etc.) are unlimited.
Failing to set appropriate performance targets can take on another form. In
such cases, instead of setting inappropriate nonfinancial controls and related targets,
[4]
the organization simply has set too many. This can happen when a new control
system is put in place, but the old one is not removed. Just as often, it can occur
because management has not made the hard choices about which nonfinancial
controls are most important and invested in validating their usage.
Measurement Failure
We have seen so far that the first three common failings are (1) failure to tie
nonfinancial controls to the strategy, (2) failure to validate the relationships between
nonfinancial and financial controls, and (3) failure to set the appropriate nonfinancial
control targets. The fourth failing is somewhat technical, but it also relates to validity
and validation—that is, in many cases, an inappropriate measure is used to assess
whether a targeted nonfinancial control is being achieved.
This can happen for a number of reasons. First, different parts of the business
may assess customer satisfaction differently. This makes it very hard to evaluate
consistently the relationship between customer satisfaction (a nonfinancial control)
and financial performance. Second, even when a common basis for evaluation is
used, the meaning may not be clear in the context of how it is measured. For
example, if you created a simple survey of customer satisfaction, where you were
scored on a range from 1 (satisfied) to 7 (unsatisfied), what does each individual
score between 1 and 7 mean? Finally, sometimes the nonfinancial control or objective
is complex. Customer or employee satisfaction, for instance, are not necessarily
easily captured on a scale of 1 to 7. Now imagine trying to introduce controls for
leadership ability (i.e., we know if we have strong leaders, they make good choices,
which eventually lead to good financial performance) or innovativeness (i.e., cool
products lead to more customer enthusiasm, which eventually leads to financial
performance). Such intangibles are extremely difficult to measure and to track.

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