I thought it was high time the air got a little clearer regarding this whole metrics business. After all, which metrics to use and their relative importance is the universal question I can count on being asked by every manufacturer I visit.
There is no such thing as a "non-financial metric". If it isn't financial then who cares? The business exists to make money and all we care about is measuring how things impact our ability to do so.
What we have are a lot of financial metrics, and a lot of other things that are equally financial, only accounting hasn't figured out how they relate to money yet. Make no mistake, however. Things like on time delivery, employee turnover, cycle times, quality results and all of the rest are very much financial. If they had no impact on sales or costs no one would care about them.
The big problem isn't that accounting hasn't figured out how to dollarize them. No, the problem is a belief in many organizations and among many managers that, if we can't dollarize them, they can't be as important. In too many companies, numbers without dollar signs in front of them aren't viewed as bearing the same weight as those that do have them.
In this we are guilty of the self-centered arrogance of know-it-all teenagers. Armed with few life experiences and exposed to few places and cultures beyond their own neighborhood, they often go forth preaching to their parents, naively laying claim to the high moral and philosophical ground. Their views are often silly due to their vast ignorance of the world, but they don't know what they don't know, and operate on the assumption that anything they don't know is unimportant.
The same is too often true with management. We cannot calculate the precise financial impact of changes in employee turnover rates or fluctuations in delivery performance, so we assume it must not be as important as concise cost figures. Too often, proposals to improve performance to these critical things accounting should know how to dollarize but doesn't are shot down because the people proposing the improvement cannot do accounting's job for them – that is to devise ways to determine a financial return from improving these measures.
Shame on managers who play along with this thinking. The existence of critical non-financial metrics is merely proof that management has more work to do, but certainly not proof that these things are not critical drivers of financial results.
While touring an aluminum extruder a few months ago I asked an operating manager why he thought accounting is so hung up with direct labor. His answer: "Because it's easy to count." He is absolutely correct. Accounting systems count the things that are easy – purchase prices and direct labor. The rest they either fudge with allocations or ignore all together, like delivery performance and quality levels. That is no way to run a business. The fact is that, in many cases – most cases probably – the things too difficult for accounting to quantify have a lot more to do with whether the company is going to succeed or not than the things accounting can dollarize.