ACCA Strategic Professional · Strategic Business Leader · Enabling success: performance excellence
Quillon Software's board wants to monitor its CSF of 'rapid product innovation'. The CFO proposes the KPI 'research and development spend as a percentage of revenue', reviewed monthly. A non-executive director objects that this will encourage spending rather than innovation. Which weakness of the KPI is the director identifying?
The director is identifying that the KPI measures an input, not an outcome. Managers could hit the spending target without producing innovation, which encourages dysfunctional behaviour. A better KPI would measure results such as time to market or the share of revenue from new products.
- AIt is an input measure that can be met without producing innovative output, and may drive dysfunctional behaviourCorrect
- BIt is a lagging indicator that is reported too late
- CIt is a non-financial measure that cannot be quantified
- DIt is not linked to any stakeholder
Explanation
R&D spend measures effort rather than results, so managers can meet the target by spending without producing new products. This is a risk of poorly designed KPIs, which should reflect outcomes such as time to market or revenue from new products. It is clearly quantified and financial, and is reported monthly, so the other options do not fit.
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