## **Learning Outcomes**

After completing this article, you will be able to describe the limitations of financial performance indicators in the service sector, explain the role of non-financial and multidimensional frameworks (such as the Balanced Scorecard and Building Block Model), and identify key customer-centric metrics relevant for modern service organisations as required for ACCA Performance Management (PM).

## **ACCA Performance Management (PM) Syllabus**

For ACCA Performance Management (PM), you are required to understand how to assess organisational performance—especially in service sector and customer-focused environments—using frameworks that go beyond financial indicators. Specifically, your revision should cover:

- The limitations of financial performance indicators (FPIs) in service organisations
- The importance and application of non-financial performance indicators (NFPIs), such as customer satisfaction, quality, flexibility, and innovation
- The structure, use, and interpretation of multidimensional performance frameworks (e.g., Balanced Scorecard, the Building Block Model)
- How to select and use customer-centric metrics in performance measurement
- The challenges of target setting in qualitative areas and interpreting performance in context

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Why are financial performance indicators often insufficient for evaluating performance in service sector organisations?
2. Name four lenses of the Balanced Scorecard and give one metric suitable for each in a retail bank.
3. What is a “non-financial performance indicator” (NFPI)? Provide two examples relevant to customer service.
4. In Fitzgerald and Moon's Building Block Model, what does the “quality of service” dimension refer to, and how can it be measured?
5. Explain one problem with setting targets for qualitative customer-focused objectives.

## **Introduction**

Many service sector organisations operate in competitive markets where success is not measured only by profit or cost. Increasingly, businesses seek a broader approach to performance measurement—one that captures what matters to customers and other stakeholders. This article covers the shortcomings of relying solely on financial metrics and introduces you to non-financial performance indicators and multidimensional frameworks such as the Balanced Scorecard and Building Block Model. You will also learn about typical customer-centric metrics in the service sector.

> **Key Term: non-financial performance indicator (NFPI)**
> A measure of organisational performance that is not expressed in monetary terms, often focusing on qualitative or operational aspects such as customer satisfaction, service quality, or innovation.
>
> **Key Term: multidimensional performance framework**
> A model that uses a range of financial and non-financial indicators across several categories (dimensions or lenses) to assess organisational performance comprehensively.

## **Why Financial Indicators Alone Are Not Enough**

Traditional performance evaluation often focuses on financial performance indicators (FPIs) such as profit, return on capital, and cost efficiency. For service organisations, this approach has major limitations:

- Service outcomes are often intangible and measured in terms of customer experience, quality, or reliability rather than directly in pounds or dollars.
- Many key objectives—such as improving customer satisfaction or employee morale—cannot be quantified financially in the short term.
- Solely financial measures can drive short-termism or manipulation, risking reduced service quality or damaged customer relationships.

## **Using Non-Financial Indicators in the Service Sector**

NFPIs are designed to capture the operational realities of service organisations. They typically include measures such as:

- Customer satisfaction or retention rates
- Service quality (e.g., error rates, complaints, response times)
- Flexibility (e.g., range of services offered, customisation ability)
- Resource utilisation (e.g., staff productivity, capacity usage)
- Innovation (e.g., number of new services, improvements made)

> **Key Term: customer-centric metric**
> A performance indicator focusing on how well a business meets the needs, expectations, and preferences of its customers, such as satisfaction rate, complaint resolution speed, or net promoter score.

## **Multidimensional Performance Frameworks**

Modern frameworks structure performance measurement across multiple dimensions that reflect customers, processes, and sustainability—not just finance.

### **Balanced Scorecard**

The Balanced Scorecard (BSC) assesses organisational performance across four key lenses:

1. **Financial:** How do we look to shareholders? (e.g., profitability)
2. **Customer:** How do customers see us? (e.g., satisfaction levels)
3. **Internal Processes:** What must we excel at? (e.g., service delivery speed)
4. **Innovation and Learning:** Can we improve and create value? (e.g., staff training levels)

Each lens is linked to specific goals and indicators—the mix encourages a balanced approach to target setting and performance evaluation.

### **Worked Example 1.1**

A hospital wants to evaluate its performance using a Balanced Scorecard. Suggest a suitable metric for each lens.

> **Answer:**
>
> - Financial: Cost per patient case
> - Customer: Percentage of patients rating care as “excellent”
> - Internal Process: Average time to admit a patient
> - Innovation and Learning: Number of new treatment protocols introduced per year
>
> **Key Term: Balanced Scorecard**
> A framework for measuring organisational performance across four lenses: financial, customer, internal business process, and innovation and learning.
>
> **Key Term: Building Block Model**
> A multidimensional performance framework for service businesses, structured around six dimensions: financial, competitiveness, quality of service, flexibility, resource utilisation, and innovation; plus standards and rewards for effective performance management.

### **Building Block Model (Fitzgerald and Moon)**

Especially useful for service businesses, this model uses three “blocks”:

- **Dimensions (6):** Financial performance, competitiveness, quality of service, flexibility, resource utilisation, and innovation.
- **Standards:** Targets set for each dimension—should be achievable, fair, and owned by those responsible.
- **Rewards:** Incentives for staff to meet or exceed the agreed standards—must be clear and based on factors staff can control.

### **Worked Example 1.2**

A national car dealership uses the Building Block Model for performance appraisal. Suggest a measure for each “dimension.”

> **Answer:**
>
> - Financial performance: Net profit per dealer
> - Competitiveness: Local market share (%)
> - Quality of service: Customer complaint rate
> - Flexibility: Ability to customise deal packages for customers
> - Resource utilisation: Vehicles sold per employee
> - Innovation: Number of new sales programmes launched

## **Customer-Centric Metrics in Practice**

Commonly used customer-focused metrics in service organisations include:

- Customer satisfaction score (CSAT)
- Net Promoter Score (NPS)
- Complaint rates and average resolution time
- Average wait or response time
- Repeat business and retention percentages
- Percentage of service delivered on time/in full

> **Exam Warning**
> In service businesses, over-reliance on financial measures can hide problems with customer satisfaction, quality, or competitiveness. For full exam marks, always show how non-financial and multidimensional frameworks provide a more complete assessment.

### **Revision Tip**

Non-financial performance indicators must be relevant, measurable, and linked to strategic objectives. In questions, always explain why you selected particular metrics for the service sector context provided.

## **Summary**

Non-financial and multidimensional frameworks are essential for evaluating service sector performance. Approaches like the Balanced Scorecard and Building Block Model ensure customer needs, process quality, innovation, and staff utilisation are measured alongside financial outcomes. Customer-centric metrics are particularly important for monitoring satisfaction and loyalty—central to long-term organisational success.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The main limitations of financial indicators in service and customer-focused organisations
- The definition and examples of non-financial performance indicators (NFPIs)
- The role and structure of multidimensional frameworks (e.g., Balanced Scorecard, Building Block Model)
- How these frameworks incorporate customer-centric metrics and qualitative aspects into performance management
- The importance of carefully selecting NFPIs and targets for service sector exam scenarios

## **Key Terms and Concepts**

- non-financial performance indicator (NFPI)
- multidimensional performance framework
- customer-centric metric
- Balanced Scorecard
- Building Block Model


Non-financial and multidimensional frameworks - Service sector and customer-centric metrics