Question

a) Why would a company want to use non-financial measures of quality?

b) List two examples of non-financial measures of quality in the customer, internal business process, and learning and growth perspectives (2 from each perspective, not 2 total). As part of your answer, be sure to explain how each example relates to quality.

Answer 1

(a): A company will want to use non-financial measures of quality because of the fact that financial data has its own limitations when measuring the performance of a company on the basis of quality. There are inherent inadequacies in the financial performance measures of quality and hence using non-financial measures of quality ensures that quality is closely linked to long-term organizational strategies. The inherent inadequacies present in the financial performance measures of quality is that the focus is usually on annual or short-term performance. Achieving the longer-term strategic goals is not focused on and the focus is mainly on short-term accounting performance. Lastly non-financial measures of quality are better at adjusting for external factors like recession, war, floods etc.

(b): Two examples of non-financial measures of quality in the customer perspective are customer satisfaction and customer retention and churn. Customer satisfaction is related to the degree of value addition for the customers and experience of the customer. Customer retention is how many customers continue to buy from you and churn is the number of existing customers who are no longer buying your products or services.

Two examples of non-financial measures of quality in the internal business process perspective are on time rate and efficiency measure. On-time rate is the percentage of time products that were delivered promptly as scheduled. Efficiency measure is the measure of efficiency and differs as per the industry type. For instance in manufacturing industries it will be calculated by computing how many units are produced every hour.

Two examples of non-financial measures of quality in the learning and growth perspective are employee productivity rate and internal promotion rate. Employee productivity rate is a metric of workforce efficiency that is measured over time. Internal promotion rate refers to successful retention and growth of top performers.