According to Valenter and Vitoriano in their book Operations Research and Enterprise Systems (2018), “Performance measurement is at the core of management systems.” They argue that performance measurement is crucial in the development of setting strategic plans, assessing objectives and supporting decision-making processes.
However, performance measurement systems for SMEs are often challenging to implement because the traditional tools are more directed towards large companies. SMEs have different priorities that often result in simpler structures. This isn’t necessarily a bad thing, but it does mean that performance measurement systems generally see the least amount of investment, making the following issues more likely to crop up as SMEs grow.
- Individualized management
- Few shared responsibilities
- Limited resources i.e., experienced workforce
- Firefighting mentality
- Informal Strategies
- Limited market
While it’s true that smaller businesses tend to have fewer resources to invest in market research and extensive system planning; implementing non-financial performance measurement systems can mitigate many of these challenges.
Non-financial performance measurement refers to strategic functions such as customer satisfaction, employee satisfaction, environmental performance, and social performance. The focus remains on business processes, daily activities, and highlighting the strengths and weaknesses of the business. While financial performance planning will show you the end result, non-financial performance planning will tell you how and why you got there.
Designing a Non-Financial Performance Measurement System:
1. Set Realistic KPIs: SMEs can measure non-financial performance by formalizing daily processes that impact Key Performance Indicators (KPI’s). A good KPI is clear, measurable, timely, and realistic, and can be monitored by team leaders to track performance. Some businesses use the Likert scale, a questionnaire-based psychometric scale.
2. Align with Business Capabilities: Business capabilities can be defined as “a set of related business processes, people, and physical assets that deliver value directly to customers, or are needed to run the business”. Along with the Likert Scale, it is important that businesses also evaluate KPIs against business capabilities to incorporate performance limitations that are determined by gaps in process, lack of flexibility and limited resources.
3. Address Challenges: Once managers have evaluated team performance against KPI’s and business capabilities, they will be able to address deficiencies, implement a reward system to encourage high performance, and develop a planning process that aligns team performance with business objectives.
Performance measurement systems are essential because they outline a business’s strengths and weaknesses, measuring how well an organisation is advancing towards achieving objectives in relation to the competition. The ideal non-financial performance measurement system addresses flaws right away while being aligned with business capabilities and KPIs. This system offers the best of both worlds, complementing the flexibility of SMEs while retaining the formal work processes of larger companies.
Book an appointment with us here, to discover how you can adopt a non-financial measurement system for your business.