This paper examines the role of non-financial performance measures in management accounting, arguing that effective organizational evaluation requires a blend of financial and non-financial metrics. Drawing on the balanced scorecard framework, the paper outlines four measurement dimensions — financial, customer, learning and growth, and internal business processes — and illustrates their application through examples from Southwest Airlines and FedEx. The paper concludes that recognizing the causal relationships between non-financial inputs and financial outcomes is essential for aligning employee and managerial performance with broader strategic goals.
The paper effectively uses illustrative case examples — Southwest Airlines and FedEx — to support a broader theoretical argument. Rather than simply describing the balanced scorecard, the author shows how real companies operationalize non-financial metrics, demonstrating applied understanding of management accounting concepts.
The paper opens by introducing performance measurement broadly, then narrows to the balanced scorecard framework. It moves into personnel and production measures before applying these ideas to FedEx's "People, Service, Profit" philosophy. The conclusion synthesizes the argument by emphasizing the causal relationship between non-financial activities and financial outcomes. This four-part structure mirrors the progression from theory to application common in management accounting essays.
Performance is measured in a number of ways. Financial performance is common, but there are other measures of performance as well that can be utilized. Internal performance measures are common to most businesses and can vary in terms of their focus — efficiency, productivity, and managerial accounting measures are all frequently employed. Department measures focus on how well a particular unit performs. Gjerde and Hughes (2007) note that the balanced scorecard is a common method of measuring the internal performance of a department. The balanced scorecard uses four different types of measures, of which financial is only one. Learning and growth is another, as is the customer perspective. The fourth component of the balanced scorecard is "internal business processes" (BSI, 2011). Thus, non-financial measures such as customer satisfaction, employee satisfaction and training, and efficiency measures that form the basis of the internal business processes dimension are all of critical importance.
Personnel measures, as noted in the balanced scorecard, revolve around the principle that the higher the quality of the employees, the better the organization will perform. To that end, measures such as education level, training level, employee satisfaction, and average tenure all cover areas that can be expected to contribute to overall corporate performance. Production measures are also important for most firms. The underlying theory of production measures is that, as long as they are aligned with strategy, excelling at these measures will translate into financial performance. As Mudde and Sopariwala (2008) note, Southwest Airlines uses several non-financial measures of internal performance in its evaluation process. These include revenue per passenger mile, fuel costs, market share, and other volume and non-volume-based costs.
If we take FedEx as a company, it has as its motto "People, service, profit." This implies that the company should maintain a number of non-financial performance measures. The average tenure of workers is important because the company believes it drives service quality, given the strong relationship between front-line workers and customers. In addition, service measures such as customer satisfaction are also regularly gauged. Production measures — especially those related to efficiency and airplane load factors — are also critical in decision-making at the organization. The "People, Service, Profit" philosophy illustrates clearly that FedEx recognizes the link between non-financial measures and financial outcomes. The company explicitly measures performance in non-financial terms specifically because it believes that its financial performance will benefit from focusing on those measures.
You’re 63% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.