ACCA Strategic Professional · Strategic Business Leader · Enabling success: performance excellence
Kestrel Retail's board wants performance indicators for a new strategy of becoming the most innovative player in its sector. It is considering the number of new product lines launched, percentage of revenue from products under two years old, and net profit margin. Which statement best describes how these should be classified and used?
The new product launches and the share of revenue from recent products are leading, largely non-financial indicators of innovation, whereas net profit margin is a lagging financial outcome. Using them together links strategic drivers to financial results and tests whether innovation pays off.
- AAll three are lagging financial measures and should be used identically
- BThe first two are non-financial or leading indicators of innovation, while net profit margin is a lagging financial outcome measure; together they link drivers to resultsCorrect
- CThe first two are inputs that should be excluded because they cannot be linked to strategy
- DNet profit margin is a leading indicator because it is calculated each month
Explanation
Launches and the share of revenue from new products show innovation activity and are drivers of future results, so they act as leading indicators. Net profit margin is a financial outcome measure and so lagging. Combining them shows whether innovation drivers translate into profit. Calculation frequency does not make a measure leading.
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