VISION AND LEADERSHIP This section analyses the disclosure of business performance within the Annual Report. Investors are increasingly demanding transparent, comprehensive information in order to gain a balanced view of the company’s performance now and in the future. GOVERNANCE Measuring progress through KPIs This year, although there has been little increase in the number of companies reporting key performance indicators (KPIs) overall, there has been an increase to 66% from 59% of companies reporting non-financial KPIs. KPIs provide investors with an insight into the key areas of focus for management and assessment of strategic success. Without KPIs, it is unclear if management has the measurement data required to ensure that it can deliver on its strategic objectives, and there are still a third of companies that fail to make the connection to KPIs acting as a key management tool to assist with the measurement of progress. This disconnect leads one to question whether stated KPIs are used internally to measure business success or if they are merely presented externally to satisfy requirements. Figure 8.1 MARKET TRENDS AND OUTLOOK How many companies specifically identify key performance indicators? 94% 65% 88% 72% 77% 55% 93% 57% Both BUSINESS DESCRIPTION 36% 3% 30% 2% 34% Just non-financial 1% 28% Just financial STRATEGY Figure 8.2 Companies demonstrating a link between risk and KPIs: Stronger links between KPIs and strategy As strategy is fundamental to the future success of any company, it is only fitting that the performance measures chosen by management represent the key actions of the business, and which relate soundly to the strategic elements, demonstrating the link between strategy and KPIs, why the KPIs have been chosen and how they impact the overall success of the business. About a third of companies still struggle with the alignment of KPIs and strategy, providing no evidence of such linkages. Encouragingly however, there has been an increase in the number of companies making reference to the relevance of strategy for each KPI, up to 31% from 24%. Only a few leading reporters 10% (10%) make reference to the relevance of risk to KPIs. Overall, KPIs should provide readers with a clear overview of performance over time. The ability of management to deliver on strategy, and to evidence KPIs in the context of other central business issues such as risk, governance and remuneration is critical to investors. The majority of reports have now introduced a KPI table, and the presentation of information is much clearer, although companies must be ’05 ’06 ’07 ’08 ’09 ’10 Figure 8.3 Companies demonstrating a link between group strategy and KPIs: RISK CORPORATE RESPONSIBILITY 24% 31% careful to ensure that moving forward their KPIs are not viewed in isolation, but as an integral element of their business approach and strategy. Many still fail to report non-financial KPIs Financial KPIs are now identified by 93% of companies and non-financial KPIs by 66% of companies, and there seems to be an increasing consistency in the types reported on across industries, which will allow for greater comparability between companies. www.blacksunplc.com © Black Sun Plc 2011 ’09 ’10 PERFORMANCE APPROACH TO REPORTING 29
