What are Non-Financial Key Performance Indicators?
Non-financial Key Performance Indicators, which are also referred to as the intellectual capital of any company, are an increasing attribute for business drivers. It includes all knowledge, corporate reputation, relationship, information, data, skills, brands, patents, trust, or processes that are at the disposal of businesses.
Non-financial KPI refers to other measures that are being used to assess the organization’s activities and are used to achieve the organization’s strategic goals. They include customer relationships, employees, quality, cycle time. In some cases, it is called extra financial KPI because it involves every other measure used to contribute to the ultimate financial success of the organization.
Key Performance Indicator and its benefits
Key Performance Indicator (KPI), is a measure used to reflect the success and progress of an organization in relation to the objective of that organization. It is targeted towards monitoring the strategic objectives of the organization. They are used to measure business activities’ results and indicate the results of employees’ efforts.
KPIs can be financial or non-financial. Generally, financial KPIs are based on income statements and balance sheet components which also report changes in sales growth or expense categories.
There are several benefits attached to the use of Key performance indicators which includes:
- It is used to improve the execution of strategies by creating objectives with business activities and individual actions.
- If properly designed, KPIs can create a means for management and monitor the main Business activities rather than the result measures of financial success.
- KPIs support the organization’s strategic goals and describe targeted performance in measurable terms based on valid data.
- It enables managers and executives to focus on other companies’ priorities.
- It best reflects the perspective of an enterprise.
- It encourages collaboration in planning among the organization to ensure that everyone is working on a similar page.
Non-financial KPIs are usually not related to finances though they can be measured numerically. They play an important role in the success of a business. This aspect of KPI helps to achieve the financial goals of a company directly.
There are several non-financial key performance indicators that every company is advised to implement in their strategy. They include:
#1. Customer satisfaction
When a customer is satisfied, they are happy with the way their needs are responded to either through your product or service. Satisfying customers is an essential factor of any business as it keeps them coming back to you for supply.
You should also ensure that your customer lbs are carefully chosen because you may not wish to spend a lot of your products on a person who is difficult to please. You may also have to lose a customer intentionally to ensure the progress of your business.
#2. Customer retention
Customer retention is very important because it is less expensive and less task full to sell to people you already know. However, it is not the same with someone you just met and trying to build a customer relationship.
#3. Employee satisfaction
One of the secrets of successful business owners is that they see their staff as their biggest assets. It is not an easy task to hire, train and maintain staff and so they do not take it for granted. Such organizations develop a culture to motivate their staff and engage them in services that could dramatically boost their performance.
The more positive your employees are, the more motivated they are to carry out tasks assigned to them. This can also be achieved by promoting teamwork and assigning your staff the resources needed to work.
#4. Timely delivery
Timely delivery means your ability to provide the services your organization provides and accurately. Because your customers want your product or service for a reason. And few things will disappoint customers more than not delivering at the agreed-upon time. Unless you have a unique product or service. That they can’t find elsewhere. Late delivery will result in your customer finding another business to provide it.
#5. Product and service quality
When you do not deliver your product on time, the quality of your products would be greatly affected by your customers. Two main things disappoint customers which include timeliness and quality. Failing in these areas means that you can expect a high amount of customer churn. This could lead to higher costs and lower profits.
#6. Internal process productivity
Every business needs to perform core processes either better, faster, or both. Better means doing more with fewer resources. Faster means getting the most out of the resources that are already in place.
Doing either means generating a return on your business investments. To achieve this, you need to task yourself to perform better each day than you did the previous day and be better the next day that you are in your present day.
This is how you develop a continuous improvement mindset in your business. Furthermore, this is where you ask yourself if your company’s activities are focused on the right things. And doing those things the right way.
These expressions capture the essence of improving productivity within a business. So, determine what processes your business must be good at. And then set 1 or more non-financial performance measures to be great at those activities. Because improving processes reduces costs.
Importance of Non-financial KPI
Though it is a known fact that companies start their performance management initiatives just with Financial KPI, it should be noted that none of them can be acted upon.
- Non-financial KPI provides a closer link to long-term organizational strategies. Generally, this is because financial evaluations only focus on short-term performances against accounting yardsticks. Financial KPI also does not include objectives that are important to achieve profits, strength, and a long-term strategic goal.
- Those who criticize the traditional measure have a view that those who advocate for success in the industry are intangible assets which include intellectual capital and customer loyalty. Even though intangible assets are unquantifiable, non-financial data can provide indirect and quantitative indicators.
- Non-financial KPI has proved to be a better indicator of future financial performance. This is because the current financial KPI may not capture the long-term benefits of the decisions currently being made.
- Non-financial KPI can increase a manager’s performance as they provide more evaluations for the actions taken. The managers however ought to be aware of how much actions their success should be improved to maximize the effects of their performance.
There are other types of key performance indicators aside from the financial and non-financial indicators. They include the quantitative and qualitative, near-term and long term, leading or lagging, input, output or process indicators, etc.