Traditional Accounting Based Measurements and Their Limitations
Neely (1999) suggests that traditional financial measures of performance are criticised because they:
- Encourage short-termist actions
- Lack strategic focus and fail to provide data on quality, responsiveness and flexibility
- Encourage local optimism by measuring what can rather than what should be measured
- Encourage managers to minimise the variances from standard rather than seek to improve continuously
- Encourage local optimisation by measuring resources separately
- Fail to provide information on what customers want and how competitors are performing.
There is general criticism that financial measures of performance focus on past events rather than the future and that they show the result rather than the cause of management action.
Eccles (1991) cites several reasons why traditional measures of performance should be changed. Among these are:
- The changing nature of work
- Increased competition
- The power of information technology
- National and international awards
- Changing external (stakeholder) demands
- Proliferation of improvement initiatives.