C-suite leaders and directors don’t have to dig around in our proverbial toolkit before pulling out our favorite tool for evaluating organizational performance: financial metrics. That’s because, historically, financial metrics have really been the only tool we’ve relied on—for good reason.
Financial metrics are readily available. Their impact on the short-term health of a company is well understood, and their standardized nature makes them handy tools to compare performance across businesses.
This approach, although logical, is also shortsighted. Financial metrics help us understand the current performance of a business but fail to adequately capture the long-term health of a business, where it is going and how well-positioned it is to meet the longer-term needs of its customers, employees and jurisdictions where it operates.
The Complete Guide to Non-Financial Performance Measures
In today’s data-driven business environment, metrics and key performance indicators (KPIs) are essential for organizations looking to track progress, optimize processes, and accelerate growth.
While financial metrics like revenue, profit, and return on investment have traditionally been the go-to measures, non-financial performance measures are gaining more prominence These provide crucial insights beyond monetary factors to assess the broader health and success of a company
This guide will explore what non-financial measures are, why they matter, different types of non-financial KPIs, and tips for implementing them effectively. Let’s get started!
What Are Non-Financial Performance Measures?
Non-financial performance measures evaluate aspects like operational efficiency, customer satisfaction, product quality, innovation, and other indicators that affect financial outcomes but are not direct monetary metrics
Also referred to as “operational KPIs,” they provide key data points beyond purely financial numbers to create a holistic view of organizational performance. While money matters, non-financial factors often drive financial results.
Some examples of non-financial KPIs include:
- Customer satisfaction scores
- Employee turnover rates
- Internal process cycle times
- Product defect rates
- Market share percentage
By tracking metrics like these, companies gain broader insights to inform strategic decisions. Non-financial KPIs fill in the gaps that financials alone may miss.
Why Are Non-Financial Measures Important?
There are several compelling reasons why non-financial performance measures matter:
Lead Indicators
Many non-financial KPIs are “leading indicators” that signal future performance. For instance, poor product quality today will likely reduce sales tomorrow. Non-financials like defect rates provide an early warning system.
Strategic Alignment
Non-financial measures directly connect to long-term strategic goals that are rarely financial, like improving customer satisfaction or sustainability. They ensure strategies cascade through objectives and metrics at all levels.
Earlier Intervention
Since many non-financial KPIs act as leading indicators, they allow for earlier identification and intervention on emerging issues before problems escalate.
Greater Control
Non-financial factors are largely within a company’s control, whereas financials depend somewhat on external market forces. Actionable processes improvements can be made based on non-financial data.
Fuller Picture
Financials only reveal part of the story. Non-financial KPIs fill gaps and provide context for better interpreting financial results. The full picture aids decision-making.
For these reasons, incorporating non-financials is crucial for performance management.
Non-Financial vs. Financial Performance Measures
While both are important, non-financial and financial KPIs differ in some key ways:
| Non-Financial KPIs | Financial KPIs |
|---|---|
| Leading indicators | Lagging indicators |
| Operational metrics | Monetary metrics |
| Focused on customers, processes, employees | Focused on profits, expenses, revenue |
| Within company control | Partially dependent on external factors |
| Measure means | Measure ends |
| Qualitative or quantitative | Purely quantitative |
Financial and non-financial measures should complement each other to monitor organizational health from multiple perspectives.
Categorizing Non-Financial Performance Measures
Non-financial KPIs fall into four main categories:
Customer Perspective
How customers perceive your brand, products, and services.
- Customer satisfaction
- Net Promoter Score
- Customer retention rate
- Customer complaint rate
Process Perspective
The efficiency, effectiveness, and quality of internal systems and processes.
- Cycle times
- Process cost
- Product defect rate
- On-time delivery rate
Learning & Growth Perspective
How people, culture, and capabilities drive organizational success.
- Employee satisfaction
- Turnover rate
- Training effectiveness
- Internal promotion rate
Innovation Perspective
How innovation sustains competitiveness.
- R&D spending
- New patents filed
- Product releases
- Process improvements
Aligning metrics across these perspectives provides comprehensive performance insights.
15 Key Non-Financial Performance Measures
Here are 15 important examples of non-financial KPIs to consider tracking:
Customer Metrics
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Customer satisfaction score: A metric gauging how satisfied customers are with your products or services. Often measured via surveys.
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Net Promoter Score (NPS): Measures customer loyalty based on how likely they are to recommend you to others.
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Customer retention rate: The percentage of customers retained over a given period of time. Signals customer loyalty.
Process Metrics
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First call resolution rate: The % of customer inquiries resolved in the first interaction. Shows service efficiency.
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Production defect rate: The % of defective products manufactured. Monitors quality standards.
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Cycle time: The time required to complete a business process. Assesses process efficiency.
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On-time delivery rate: % of orders delivered on schedule. Indicates supply chain performance.
Employee Metrics
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Employee satisfaction: An index measuring employee happiness and engagement, often via surveys.
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Employee turnover rate: The rate at which employees leave a company. Highlights retention issues.
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Training hours per employee: Training investment indicates employee development focus.
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Internal fill rate: % of job openings filled by internal candidates. Shows talent development success.
Innovation Metrics
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R&D spending: Investment in research & development for future competitiveness.
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New product revenue %: Revenue driven by new product launches. Shows innovation ROI.
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Process improvements: Number of processes improved for greater efficiency.
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Patents filed: The number of patent applications. Indicates innovation output.
Tips for Implementing Non-Financial KPIs
Follow these best practices when establishing non-financial performance measures:
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Tie metrics to strategic objectives – KPIs should track progress towards broader goals. Align departmental measures with organization-wide strategy.
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Limit number of metrics – Avoid “metric overload” by picking the vital few tied to top priorities. Too many KPIs is counterproductive.
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Fit metrics to use case – Design measures that best fit their intended use for tracking, decision-making, or external reporting.
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Make metrics “SMART” – The best KPIs are Specific, Measurable, Actionable, Relevant, and Time-bound.
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Automate data collection – Minimize manual tracking by pulling metrics directly from systems where possible.
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Set clear targets – Establish numeric goal levels to give metrics context for performance evaluation.
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Monitor regularly – Continuously monitoring KPIs should inform decisions, not just retrospectively.
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Keep metrics current – Adjust measures to stay relevant as strategies and priorities evolve. Retire ineffective KPIs.
An effective performance management system requires both financial and non-financial KPIs to monitor all aspects of an organization. Non-financials provide the crucial leading indicators, operational insights, and strategic alignment that financials alone cannot deliver.
However, non-financial metrics must be carefully designed and maintained based on best practices to drive actionable improvements. Their true value comes from how they inform leadership decisions and strategic planning.
In today’s highly competitive and fast-changing business landscape, data-driven non-financial performance measures are vital for leaders seeking to boost growth, maximize efficiency, and gain competitive advantages. The time for a simplistic focus purely on financials is over.
Today’s Business Landscape Requires An Expanded Tool Set
An effective evaluation of a company’s strength requires an honest assessment of risk factors like cyber, talent, climate, sustainability and ethical business practices. While these factors are harder to quantify, ignoring them is a mistake. At a time when companies need to stay nimble to quickly respond to new regulations, be aware of heightened stakeholder expectations and evaluate performance liability beyond financial results. Executives and board members need a clear, consistent view of everything—financial and non-financial—to understand and mitigate risk. MORE FROM
Issues of talent, environmental impact and sustainability are already part of the conversation for executives and boards and are increasingly a subject of auditors’ investigations. Social impact offers an important view of a company’s priorities, while steady and ethical governance speaks to the organization’s ability to weather long-standing or emerging challenges. As increased regulation brings increased liability, the ability to measure and report outstanding governance practices to boards and beyond will be critical.
Cybersecurity, too, is a vital component of a company’s well-being. Today, a strong business can be crippled with devastating financial and reputational damage if it cannot protect itself and its data assets. The anxiety induced by the potential consequences of a data breach is magnified by the fact that many directors (38%) identify cyber risk and data security as the issue most challenging to oversee, according to Diligent Institute data. Yet, interested parties often have no way to evaluate the strength of an organization’s cybersecurity program. Sharing too much could create vulnerabilities for an organization, while transparency about a bad cybersecurity score could make it a target.
The Securities and Exchange Commission (SEC) recognizes this, which is why it is mandating board oversight of cybersecurity. These regulatory requirements have not gone unnoticed among board directors, with 47% of directors currently engaging in education programs to prepare for the disclosures.
5 APM – Introduction to Non Financial Performance Indicators (NFPI)
What is the difference between financial measures and non-financial measures?
Unlike financial measures, there are no fixed ways to measure non-financial data. Thus, different companies could use different ways to measure the same non-financial measure. This makes the comparison of non-financial measures difficult. Often companies adopt non-financial measures just for the sake of adopting them.
What are non-financial measures of performance?
Non-financial measures of performance are aspects of a company, product or team that you can evaluate to determine their success outside of their monetary value. They include key performance indicators (KPIs) that relate to operational efficiency, customer satisfaction, company culture and public engagement with company products.
What are non-financial performance metrics?
Non-Financial Performance Metrics are indicators used to measure a company’s performance in specific areas, such as customer satisfaction, employee engagement, and environmental sustainability. Unlike financial metrics, which are typically measured in monetary terms, non-financial metrics are often qualitative and subjective in nature.
What are the disadvantages of non-financial performance measures?
Although there are many advantages to non-financial performance measures, they are not without drawbacks. Research has identified five primary limitations. Time and cost has been a problem for some companies. They have found the costs of a system that tracks a large number of financial and non-financial measures can be greater than its benefits.
