Learn how an organization’s success is determined without financials.
The easiest way to define non-financial performance measures is to explain what they aren’t. Non-financial KPIs are not expressed as monetary values—in other words, they aren’t directly associated with dollar signs. They focus on other aspects of the business and are often leading (forward-looking) measures, whereas financial KPIs are lagging measures.
While it’s true that non-financial KPIs aren’t associated with finances, that doesn’t mean they can’t be numeric. These types of measures can be either quantitative or qualitative. Many organizations view employees’ “soft skills” as the biggest contributors to non-financial performance, which can be measured in various ways.
There are two primary reasons non-financial KPIs are important. First, they help explain and provide context for financial KPIs. As we previously mentioned, financial measures are typically lagging indicators, which are fairly easy to collect and analyze because they are backward-looking. Lagging measures report what has already happened, such as revenue generated or orders fulfilled for a specific time period.
But finances don’t always provide the full story. Why did sales revenue drastically drop in May? Why did the operating cash flow jump in Q2? Non-financial performance measures can fill in the gaps and give answers on monetary fluctuations. For example, if marketing efforts missed the mark one quarter, you can expect sales to be slow the next quarter.
Secondly, non-financial KPIs are easier to link to certain aspects of your overall strategy. More specifically, most organizations don’t have finance-based mission and vision statements. If your mission is to provide the best customer service in the industry, revenue numbers aren’t a good way to track that—but something like customer satisfaction scores are.
There’s no doubt that tracking financial KPIs is critical and (arguably) the top priority for some organizations, but that doesn’t mean you should overlook other KPIs to keep things simple when managing performance. Companies need to track non-financial performance measures because they:
Taking the Balanced Scorecard approach, there are four perspectives involved in strategy management: customer, internal processes (operations), learning and growth (HR), and financial. Below are 15 examples of performance KPIs, organized by the three non-financial perspectives:
Remember to track the non-performance measures that best fit your organization’s needs. There are hundreds of KPIs to choose from—focus on the ones that make the most sense for your strategy.
Ted is a Founder and Managing Partner of ClearPoint Strategy and leads the sales and marketing teams.