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Nonfinancial Performance Measures and Promotion-Based Incentives

Major Points

Dennis Campbell was the main proponent of the study and the author of the article. He entitled the article as Nonfinancial Performance Measures and Promotion-Based Incentives. The article was made available through the publishing arm of the Journal of Accounting Research and printed in the United States of America (Campbell 297). The major points were made known in the summary of the study’s purpose and results. These are related to principles discussed under the management control system framework that helps guide executives when it comes to promotions decisions. Campbell highlighted the sensitivity of the decision-making process after the proponent introduced financial and non-financial performance measures as critical factors affecting promotions-based judgments.

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Source of Inspiration

The author was inspired to find out the mechanisms that triggered decisions related to promotions and demotions within a business enterprise. Campbell wanted to figure out the impact of financial and non-financial performance measures when it comes to decisions related to promoting employees. Campbell also pointed out that a great deal of research material exists with regards to the use of incentives that company executives are utilizing in order to decide the outcome of performance evaluation protocols. However, there is a dearth in research material when it comes to the function of nonfinancial performance measures in promotions decisions (Campbell 297). Campbell also pointed out that due to the pragmatic role of promotions within business organizations, characterized by the matching of skills and increase in pay and rank, it is not prudent to make the assumptions that executives are only looking at the financial aspect of the business operation. He made the assumption that executives are expected to use nonfinancial data in order to figure out if the candidate for promotion deserves not only a boost in earnings but also equipped with the skill set required for the role of managers and consultants. Nevertheless, Campbell also revealed that although he believed in the value of non-financial measures in the executive-type of the decision-making process, he also cited the reluctance of corporate leaders to use this type of evaluation protocol. The author said that executives made commentaries regarding the perceived unreliability of the said measurement framework (Campbell 299). In other words, executives are not comfortable with the subjective nature of nonfinancial performance measures.

Accomplishing the Goal

The author was able to support his assertions when he collated information regarding the executive decisions that were made within a Quick-Service-Restaurant, one of the largest U.S. based fast-food retailer (Campbell 299). He discovered that managers in the said QSR store were promoted not only on the basis of financial performance but also on non-financial performance measures. Campbell highlighted the fact that the decision-making process was aided by studying the quality of the manager’s performance in relation to employee retention and service quality. In other words, promotions decisions were not only made on the basis of store revenue after a certain period of time, it was also made on the basis of how the store was managed. More importantly, the company also valued the ability of managers to reduce the turnover rate as demonstrated by the importance given to a manager’s ability to retain employees and reduce the turnover rate.

Major Concept from ADM4345

The author utilized concepts like nonfinancial and financial measures. In the context of Management Control Systems, these two concepts are integral when it comes to generating ideas, insights, and conclusions regarding the efficient use of human resources, finances, and non-monetary resources for the purpose of accomplishing the goals of a particular business organization (Campbell 300).

In this particular context, the article was helpful in appreciating the value of the proper utilization of resources through the use of specific performance measures. For example, the insights regarding the effectiveness of the QSR’s work environment was partly the result of the effective decisions that were made in promoting people and matching them to a role that fits perfectly with their current skill-set and experience.

Additional Understanding

The article was helpful in terms of increasing the level of understanding regarding management control systems, especially when it comes to the use of financial and non-financial performance measures. One of the most notable contributions in the field of management or MCS was the realization that although business leaders usually demand to see the hard figures, such as, the financial performance of a business unit, the decision to promote or demote leaders requires access to information that is not measured in terms of revenue and losses. These are measurement frameworks that are generating intangible data describing the non-financial aspect of the business process (Davila et al. 385). Thus, it is good to know that it is not enough to focus only on the monetary aspects of a business enterprise. This assertion is supported by the discovery that promotions were oftentimes made on the basis of how people responded to the leadership initiatives of a particular manager.

Practical Implications

The article highlighted the importance of giving value to non-financial performance measures. This is a practical implication especially if viewed from the perspective of employee retention rates. Those who are less experienced when it comes to human resource management may ignore the high turnover rate within the company. Those who are not yet aware of the financial burden triggered by a high turnover rate may simply attempt to remedy the problem by hiring more workers and restarting the training process all over again. However, an overview of MCS principles and a deeper knowledge regarding the impact of employee turnover will reveal the ugly truth regarding the failure to retain employees. It becomes plain to a seasoned executive that a high turnover rate translates to significant losses for the company (Davila et al. 385). Thus, instead of just focusing on the demand to enhance the organization’s revenue streams, the company’s long-term goal must also include the added capability of nurturing and growing leaders from within, and this is only possible by reducing the turnover rate to a manageable level.

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The limitations of the study are listed as follows: it is not prudent to make a generalization due to the nature of the QSR business, and because Campbell studied a business model that was affected by geographical locations. Campbell’s conclusions were based on the study of a corporate organization focused on a QSR-type of the business framework, thus it is not possible to make generalizations on behalf of other industries operating under different sets of circumstances (Campbell 303). For example, those working in a business organization that values selling may not adhere to the principles that were discussed in this article. In addition, it is not prudent to make generalizations using insights from a business model that is affected by geographical locations. Campbell highlighted a unique feature of the QSR establishment that promotes managers not only on the basis of performance measures but also as a result of the need to open a new store in a specific location.

Works Cited

Campbell, Dennis. “Nonfinancial Performance Measures and Promotion-Based Incentives.” Journal of Accounting Research, vol. 46, no. 2, 2008, pp. 297-331. Web.

Davila, Antonio, et al. Performance Measurement and Management Control. Emerald Group Publishing, 2012.

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