This paper examines customer satisfaction as a nonfinancial performance measure, with a particular focus on Chinese manufacturers. It reviews existing literature on financial versus nonfinancial performance metrics, arguing that manufacturers must move beyond ROA and ROE to capture the full picture of business health. The paper investigates how customer satisfaction is currently used—or underused—as a performance measure, why some firms resist adopting it, and what evidence exists linking it to improved financial outcomes. Drawing on relationship marketing theory, Total Quality Management, and the balanced scorecard literature, the paper identifies a significant research gap concerning qualitative studies of customer satisfaction in China's manufacturing sector and proposes a semi-structured interview methodology to begin filling that gap.
The paper demonstrates effective gap identification in a literature review. Rather than simply summarizing prior studies, the author consistently notes where previous research does not extend — specifically the absence of qualitative, manufacturer-focused, China-based studies on customer satisfaction — and uses that absence to justify the proposed methodology. This technique gives a modest-scope study legitimate academic purpose.
The paper opens with a broad argument for nonfinancial measures, narrows to customer satisfaction, then reviews evidence for and against its adoption. It proceeds through TQM and relationship marketing as supporting frameworks before closing with the research design rationale and proposed interview questions. This funnel structure — broad context → theoretical support → methodology — is well-suited to a literature-review-based research proposal at the graduate level.
Challenges to manufacturers, as well as to many other business structures, are significant and often carry a great deal of weight in decision making and future business success. Performance measures are frequently focused solely on financial outcomes — return on assets (ROA), return on equity (ROE), revenue generated over time, units sold, and cost savings from improved processes. These financial performance measures are often the core of organizational review, and yet there is significant evidence that nonfinancial performance measures are also an important aspect of doing business, especially in increasingly competitive markets.
The manufacturing sector relies on large sales to a small number of customers. Given this reality, manufacturing organizations that wish to remain viable must develop a clearer understanding of the impact of nonfinancial performance measures as a means of retaining and even growing their customer base. This research focuses on one kind of nonfinancial performance measurement: customer satisfaction. Customer satisfaction was chosen because it is one of the most important strategic analysis tools for both manufacturers and service organizations (McLellan & Moustafa, 2008). Businesses cannot survive without customers in any context.
A logical assessment of nonfinancial performance measures would appear to be a realistic focus for strategy in the manufacturing sector, as globalization and many other factors combine to alter the manner and pace of industry growth. Seeking to administer management incentives, high-quality service delivery, and employee retention through traditional financial assessments alone is clearly insufficient. It is therefore understandable why current research is moving toward application assessments for nonfinancial performance measures used in conjunction with financial ones — in order to fully understand the "balanced" process and reality of goods delivery in the manufacturing sector. Without such innovation in delivery, application, and research, the industry risks losing the incentive structures needed to sustain high rates of change and rapid expansion. Evaluating new and innovative ways to demonstrate and improve success is therefore a responsibility of research scholars, and researchers have embraced this idea by seeking a better understanding of nonfinancial performance measures in the manufacturing sector.
One of the greatest challenges of researching and implementing customer satisfaction as a performance measure is its resistance to quantification. Nevertheless, challenging manufacturers and researchers to develop a greater understanding of nonfinancial performance measures is an important aspect of improved business processes. There is significant evidence that such measures can make the difference between maintaining the status quo on sales and actually growing the business (Said, Hassab Elnaby, & Wier, 2003; Abdel-Maksoud, Abdel-Kader & Epstein, 2007). After all, who better to judge how services and products are delivered than those who receive them? Retaining and growing a customer base in manufacturing can make all the difference (Lovelock & Wirtz, 2006, p. 1). From an accounting perspective, customer satisfaction can be used as a tool to monitor and control operational processes, and it can also serve as a performance measure for evaluating and compensating employee performance.
Customer satisfaction was chosen as the focus of this work because it is one of the most important factors of business success for both manufacturers and service organizations. The two main research questions are: How is customer satisfaction currently used as a performance measure? And why is customer satisfaction adopted — or not adopted — by companies to judge performance? Answering these questions requires creative research, as very little exists on customer satisfaction as a performance measure in the manufacturing sector specifically, despite numerous calls across other industries to apply it to improve practices, product quality, customer retention, customer attrition reduction, and the development of performance-based employee compensation packages (Smith & Wright, 2004).
The majority of previous studies are quantitative and based on service organizations such as banks, hotels, and communications companies. Some previous studies suggested that customer satisfaction would improve financial performance in the long run, as satisfied customers are more likely to repurchase. Yet in the manufacturing sector, customers take longer to repurchase than in service contexts; therefore, manufacturing organizations warrant separate study to better understand how customer satisfaction can become part of standard performance measurement in this sector.
Though there are some conflicting findings regarding whether customer satisfaction improves performance, most research has identified a positive link between using customer satisfaction as a performance measure and better firm performance. Some marketing studies have demonstrated that higher customer satisfaction increases customer retention, reduces price elasticity, lowers marketing costs, and increases repurchase and referral intentions — all of which improve a company's financial performance. However, some researchers have suggested that higher customer satisfaction could actually reduce financial performance. For example, higher satisfaction may result from lower selling prices and reduced profit margins (Anderson, Fornell, & Lehmann, 1996). In addition, while prior studies suggest that the overall use of the balanced scorecard improves financial performance, its effects remain ambiguous and warrant further study. This work does not focus on a balanced scorecard approach for two reasons: its application is still not well understood, and it is not widely applied in China's manufacturing industry (Lusk, Halperin & Zhang, 2006).
There is a frequently made argument that customer satisfaction and customer loyalty are two of the most important aspects of sustained financial performance (Kaplan & Norton 1992, 1996, 2001; Jones & Sasser 1995; Heskett et al. 2003; Reichheld 1993, 2001). Yet most current and historical research rarely breaks down what defines customer loyalty or how to achieve it. There is also very limited research focused directly on the manufacturing sector, and regardless of China's prominent manufacturing position, no known research focuses on China's manufacturing sector and the role of nonfinancial performance measures such as customer satisfaction and customer attrition. Managers in China and elsewhere need to understand why customers remain loyal — but more importantly, they need to better understand customer satisfaction as a driver of long-term financial success (Smith & Wright, 2004).
Findings on whether managers actually act on customer satisfaction data are conflicted. As some studies suggest, managers tend to act in the company's best interest when customer satisfaction is used to evaluate their performance (Franco-Santos, Lucianetti, & Bourne, 2012). Other studies stress that customer satisfaction itself cannot be reliably measured — for example, customers may not accurately assess product quality, leading them to report satisfaction or dissatisfaction for incorrect reasons (Jones & Sasser, 1995). Managers who perceive themselves as being measured by an unreliable indicator may not act in the company's best interest, and may overlook customer satisfaction as a necessary performance measure altogether (Ferreiraa & Otley, 2009; Ittner & Larcker, 1998). Without this external perspective, along with attention to innovation and learning, organizations risk building products that are undesired or underutilized while neglecting those that warrant greater emphasis — or producing goods at a quality level below what customers actually want.
Furthermore, without attention to the customer satisfaction dimension, companies may fall into the trap of assuming that the lowest-cost product is the best product to offer. Focusing solely on internal measures risks devaluing products that customers seek out and appreciate, potentially for reasons that financial data alone cannot capture (Wober, 2002, pp. 28–30). Said, Hassab Elnaby, and Wier agree, stressing that firms need to examine how such measures — especially when used as incentives — form an integral part of measuring real business standards. The nonfinancial performance measures they consider include customer and employee satisfaction, quality, market share, productivity, and innovation. As they conclude:
"Our findings support the contention that firms that employ a combination of financial and nonfinancial performance measures have significantly higher mean levels of returns on assets and higher levels of market returns. Although we find evidence that the adoption of nonfinancial measures improves firms' current and future stock market performance, we find only partial support for accounting performance improvements. Overall, the results indicate that the association between the use of nonfinancial measures and firm performance is contingent on the firm's operational and competitive characteristics." (2003, p. 5)
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