Traditional accounting based measurements, Operation Management

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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.

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