A company that fails to measure quality indicators is often incapacitated in performance improvement and sustainability. Profitability is a crucial weighty pillar in the success and sustainability of any business (Gimbert et al., 2010). Needless to say, any profit-making enterprise operating on a negative budget, long after the projected breakeven period, is at convincing risks of collapse. Assessing the progress of an enterprise and the quality of the output (services or products) requires an analysis of performance measures. Without a doubt, financial measures of quality can play a significant role in assessing bottom-line performance. However, I disagree that financial measures are the ONLY measure of quality that can be linked to bottom-line performance. Performance measures that basically focus on profitability, return-on-investment and productivity have been overtaken by time (Rajnoha et al., 2016). In the contemporary business world, measures of quality go beyond the profit-making to solidify a loyal customer base, safeguarding the company reputation, and advancing productivity through research and development.
In a variety of ways, financial measures are directly linked to bottom-line performance since the net income has to be a difference of invested amount and the output value realized (Gimbert et al., 2010). Integrating technologies such as activity-based costing can help a company to improve the quality of the product by ensuring that the cost drivers not adding any value are eliminated in the line of production. Eliminating such non-value adding activities frees resources, which should be directed to value-based activities. Understanding the liquidity, solvency, repayment capacity, financial efficiency and profitability can allow a company to align its objectives towards delivering quality products and services through a more informed strategic plan (Rajnoha et al., 2016).
Other non-financial measures can influence bottom-line performance. Such measures are often emphasized in the modern business world since high returns cannot only be a result of the reduced cost of production. Increasing expenditure on matters research and development, for example, has been credited with the success of the modern giant companies. Yet, when assessing the bottom-line performance on expenditure in research and development in a company, one can write-off the performance of a company in the early stages. Other measures of quality, apart from financial measures, that should be considered include customer perspectives, company processes, and employee’s competency (Knápková et al., 2014). These factors have a direct impact on efficiency, objectivity, production, and quality, all which influence bottom-line performance.
In conclusion, financial measures are very important in assessing quality related to bottom-line performance, but in a modern business world, it would be misleading to assume a company to rely on financial measures only to improve returns. Unfortunately, you get results for what is measured, until the non-financial measures of quality are included, their influence on returns may remain obscured.
Gimbert, X., Bisbe, J. & Mendoza, X. (2010). Measurement systems in strategy formulation processes. Long Range Planning, 43 (4); 477-497, DOI:10.1016/j.lrp.2010.01.001.
Knápková, A., Homolka, L. & Pavelková, D. (2014). Utilization of balanced scorecard and the effect of its use on the financial performance of companies in the Czech Republic, Ekonomie a Management, 17(2); 146-160, DOI: doi.dx.org/10.15240/tul/001/2014-2-011.
Rajnoha, R., Lesníková, P., Korauš, A. (2016). From financial measures to strategic performance measurement system and corporate sustainability: empirical evidence from Slovakia. Economics and Sociology, 9(4); 134-152. DOI: 10.14254/2071-789X.2016/9-4/8
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