Let's Talk About KPIs...

As someone passionate about accounting and the art of recording, measuring, and providing transparency to the financial and economic performance of companies, it is impossible not to recognise the contribution that the adoption of metrics brings to the planning and management of businesses and the realisation of an entity's strategic objectives.

However, the improper use of metrics can result in value destruction and poor execution of company strategies.

One concern with the uncoordinated application of KPIs is the excessive simplification of organisational complexity and performance. According to research by Spitzer, D. (2007), simplistic metrics can overlook qualitative and contextual aspects that are relevant to businesses.

Kaplan, R. S., and Norton, D. P. (1992) concluded in their research on the BSC that excessive focus on immediate performance metrics can compromise long-term sustainability. A recent study by Professor Khaladdin Rzayev from the University of Edinburgh found that one reason for the decline in the number of companies accessing the capital market in the UK is that investors are overly focused on short-term targets, which contradicts the strategic objectives of corporations.

Another sensitive aspect addressed by researchers Bevan, G., and Hood, C. (2006) is dysfunctional behaviours and manipulation. This is also discussed in the IBGC's board member training course, particularly regarding how pressure for results can lead management to prioritise activities that "improve" KPIs without adding real value to the company.

Marr, B. (2015) warns that for KPIs to make sense, the metrics selected by companies need to be aligned with corporate strategy. According to Harvard Business School, 90% of companies fail to execute their strategy. Another 2022 study by McKinsey found that 70% of executives dislike the strategy execution process, with one of the biggest complaints being the disconnect with operations. Therefore, alignment between strategy, operations, and metrics is crucial.

Parmenter, D. (2015) highlighted that the lack of adaptation of KPIs to changes in the business environment, which can occur frequently depending on the sector, can make them obsolete or irrelevant.

Metrics are and will continue to be relevant in the context of business and performance measurement. However, balanced adoption and periodic review of measurement criteria and quantitative and qualitative aspects are essential for sustainable success.