www.hbr.org
A R T I C L E
Coming Up Short on
Nonfinancial
Performance
Measurement
by Christopher D. Ittner and David F. Larcker
Included with this full-text Harvard Business Review article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
1 Article Summary
2 Coming Up Short on Nonfinancial Performance Measurement
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
10 Further Reading
Product 5380
Coming Up Short on Nonfinancial
Performance Measurement
The Idea in Brief
The Idea in Practice
COPYRIGHT © 2003 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.a
c
fo
g
ti
s
B
W
th
w
d
p
n
p
u
H
p
n
p
a
By filling in gaps left by financial accounting,
nonfinancial measures (such as customer loy-
lty and employee satisfaction) promise to
omplete the picture of your company’s per-
rmance. This fuller picture, the theory goes,
ives you and your employees the informa-
on you need to achieve your company’s
trategic objectives.
ut few companies realize these benefits.
hy? They don’t identify, analyze, or act on
e right nonfinancial measures—those that
ill advance their strategies. And they don’t
emonstrate clear connections between im-
rovements in nonfinancial activities and fi-
ancial outcomes, such as profit or stock
rice. Results? Misdirected investments and
nfulfilled strategies.
ow to realize the promise of nonfinancial
erformance measures? Identify the major
onfinancial drivers of long-term economic
erformance for your firm. Then measure—
nd act on—the drivers behind those drivers.
DOING IT WRONG
Not linking measures to strategy
Few companies tie measures to strategic
goals or develop a causal model linking non-
financial drivers and financial performance.
Consider this exception: A fast-food chain
aimed to be its industry’s premier cash-flow
generator and lead stock-price performer. The
company defined a causal model