FSN White Paper
Delivering Strategic Advantage using Business Intelligence
11th February 2008 |
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Introduction
The broadening and deepening of information requirements, together with accelerated timescales for reporting means that developing robust performance management systems is a high priority for most businesses. Yet over the years, the delivery of Business Intelligence has often been poorly understood. As many organisations have found to their cost, the notion that superior business performance can be delivered with specialised software tools alone is severely misguided.
However, as the BI market matures realisation is dawning that achieving enhanced business performance and enduring business change requires a more holistic approach. It must be driven from the very top of the organisation and supported by robust, methodologies. BI should not be treated as a “one-hit” project. It is a living, breathing organism that must become an accepted part of the corporate DNA. Successful delivery needs a clearly articulated strategy with a common and widely communicated set of performance indicators.
Adopting the right approach
Performance Management projects are challenging to manage.. The pre-packaged nature of financial applications sets obvious boundaries and expectations for project delivery. By contrast PM projects are much less codified and more fluid. For the unwary or inexperienced this may lead to ‘scope creep', budget overruns, delays and often failure. A defined starting point, agreed set of deliverables and ongoing measures of success are more important here than in most areas.
Like all major initiatives there are some common threads that can be learnt from other complex projects. The engagement of the board and senior management signals the importance of a project and is a pre-requisite for success in this sphere. Senior management not only have the authority to apply resources on a major programme but they should have the vision necessary to recognise that PM projects are business (rather than IT) led and that winning ‘hearts and minds', i.e. the cultural and organisational changes needed are probably more important to success than the technology employed
As a result of the potential for fluid boundaries and therefore the need for strong expectation management; a thoroughly dependable methodology, with tight project management and skilled resources need to be deployed. This needs to be executed by people with an inherent and deep appreciation of the unique skills required for implementing performance management solutions.
So what are the special needs of these projects?
Business strategy
Strategy development is a curious mixture of science and art, fact and insight, knowledge, experience and creativity. Also, in today's complex businesses it draws on the skills of management from across the enterprise and in all functional areas. After all, strategy has implications for the development of human capital, information technology, product development and financial management, as well as the use of all other assets and resources owned by a company. This in turn means that if strategy is to be delivered successfully by an organisation it must be clearly articulated and communicated throughout the business. In other words, the strategy must be widely understood at all management levels so that operational plans and day to day activities are aligned with corporate goals and objectives.
Communication in the strategy process is no longer confined to management, employees and internal stakeholders. Changing attitudes to corporate governance and corporate social responsibility coupled with demanding legislation to protect shareholders means that management are now formally accountable to a wider set of external stakeholders. It is now incumbent on management to ensure that strategy development and communications follows a robust and auditable process so that resources deployed in the business are strategically aligned and management actions can be justified, if required, to an external audience. Effective Performance Management is an encapsulation of this; i.e. it tells you where you are going, how you want to get there and the measures that indicate success or failure.
Articulating performance measures
Clearly there is no substitute for face to face communication when rolling out a strategy across an enterprise, particularly when presenting the broad thrust of a strategy, with its main mission and objectives. Soundly delivering a strategy requires a different order of capability; one in which the organisations' objectives are distilled into critical success factors which are controllable, measurable and actionable.
Crafting a suitable set of performance measures is a significant challenge in even the best managed organisations. The majority of businesses suffer from a surfeit of measures and find it difficult to home in on the measures that truly reflect business performance. This is especially true of complex organisations whose activities span a variety of businesses. Too many measures, so called “Key Performance Indicators” (KPIs) mask genuine performance because the cause and effect relationship between them is obscured by too much detail. The idea is to develop the equivalent of the fighter pilot's “Head up” display, which tests the condition of a wide range of systems and processes but displays only the bare essential information necessary for the crew to deliver its mission.
The drive for non-financial measures in particular is growing as businesses and the wider market place begin to recognise that measures, such as customer satisfaction, product innovation and service quality are often better determinants of value creation than traditional financial measures.
All of this underlines the need for a much more cohesive and cross-functional approach to business intelligence where performance across the organisation is more transparent and employees are aware that actions in one area can have consequences in another. This requires careful planning, business knowledge and skilful implementation.
In addition to cross-functional dependencies, KPIs need to be vertically aligned so that there is an unambiguous link from strategy, right down to operational performance measures at the lowest level of granularity. Each successive layer or role type should be monitored against the KPIs that are relevant to its function and role, safe in the knowledge that their KPIs are consistent with the overall business strategy. In this way, management can ensure that behaviour, actions and business decisions at every level of the organisation are aligned with the strategy.
Broadcasting the message
In recent years information systems have played an increasingly important role in enabling 'downstream' strategy activities, such as enterprise planning, budgeting and forecasting. The advent of web based systems has allowed organisations to implement these applications cost effectively although they have tended to be deployed only at a divisional level rather than an enterprise-wide level. In isolation, these systems fulfil a useful local function but do not support strategic alignment.
In parallel, centralised planning tools have allowed organisations to model different scenarios once the strategy has been set but often this activity has been conducted in a vacuum. The plans have neither been coupled with the strategy in one direction nor linked with operational budgets and plans in the other. It seems that systems have not allowed management to close the so-called, 'strategy gap' i.e. the disconnect in communications between strategy development and operational plans.
Closing the strategy gap takes considerable management resolve at the highest level of the organisation. Without corporate-wide sponsorship business intelligence projects of this nature are doomed to failure – simply too limited in scope to be effective or reduced to a technical implementation devoid of essential organisational change, this can be avoided by understanding all the implications of such a change prior to embarking on a significant project.
The organisational change component should not be under-estimated. The implementation of new methods of performance monitoring and measurement is often viewed with suspicion and the broader implications for reward systems needs to be carefully explained.
Embedding best practice
Strategically aligned performance measures provide the framework for a complete performance management culture. In broad terms, such a regime allows management to set high level targets for the organisation which are subsequently broken down into shorter term targets to be compared against actual performance. Constant monitoring, analysis and reporting provide valuable insights into performance, allowing management to take remedial action where necessary to bring the organisation back on track. As the measures are strategically aligned it follows that delivering the short term objectives ensures that the business is delivering on its strategy in the longer term.
A performance management culture is normally described as a series of interrelated processes. This is sometimes called a “closed loop”, since the insights gained during the execution of the process is used to refine the strategy – which is where the cycle started. In fast moving marketplaces strategies have to be constantly monitored and reviewed. A closed loop performance management regime allows management to have its finger on the pulse the whole time – trimming its sails as appropriate.
Regardless of the way that a performance management culture is described; a key consideration is that all of the processes in the closed loop can share the same data. Whether one is referring to a KPI such as “Revenue per Employee” in a budgeting application, a scorecard or a report, the definition and provenance of the underlying information is the same.
Here it is important to appreciate the difference between one-off data such as “sales for July” and metadata i.e. the structural information that describes an organisations cost centres, account codes and reporting entities. It is vital for the consistency and comparability of reporting that there is a common understanding around the metadata used to describe the organisation right across the performance management environment.
Common performance management processes
Long term planning and scenario modelling sets the scene for the performance management cycle. The period covered by the long term plan depends on the nature of the business, for example an oil exploration company may look out 20 years whereas a fashion retailer may barely look beyond 18 months. Normally constructed at a relatively high level these long range forecasts then need to be embedded in annual plans and forecasts.
The KPI's developed should percolate not only financial plans but also operational plans so that, for example, the human resources plan is configured to meet the recruitment needs of financial targets and capital expenditure plans mandate adequate office space and IT infrastructure. |
| Performance management is in fact a series of interrelated business processes. |
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Capturing actual performance in a performance management regime can be especially challenging. It often has to be sourced and transcribed (mapped) from a wide variety of ERP and other operational systems before it can be used for comparison in budgets and forecasts. Sometimes the information is brought in via consolidation systems but with the increasing requirement for non-financial information much of the data needed no longer resides in an organisation's ERP systems.
Data quality remains one of the greatest stumbling blocks to the implementation of a competent performance management system. Data has to be consistent and accurate if users are to have confidence in the process.
Gaining insight into performance
Over the years, increasingly inventive and creative methods have been developed for gaining insights into business performance. The customary ‘slicing and dicing' of data has its limitations since the onus is often on the enquirer to determine what areas of performance to probe. Furthermore, the pendulum of performance management has swung away from an analysis of mere historic performance towards a much more concerted effort to predict future outcomes.
Legislation across the world is driving management boards to issue statements about their organisation's longer term prospects for success and its ability to deliver on their strategy. The ability to accurately predict performance and deliver on expectations is becoming critical to maintaining and enhancing share price. The markets punish the share price of organisations that fail to deliver in accordance with their own expectations!
The whole environment for performance reporting is now much more demanding. BI and performance management systems now have to cope with the demands of accelerating reporting timescales, the broadening of statutory disclosures and the increasing complexity of accounting standards.
But there are other pressures on the performance management cycle as investors and other stakeholders become more risk averse. Performance now has to be set more firmly in the context of risk, for example, environmental risk, reputational risk, operational risks and hazards. The new discipline of governance, risk and control (GRC) is seeping into performance reporting so that predicted performance and risk are assessed hand in hand.
The potential ease with which performance management applications can be rolled out across an enterprise means that it is more achievable to engage with different functional areas of a business. In the past, considerable reliance was placed on the finance function (and satellites of it working in subsidiaries) to monitor and interpret performance. However with the capability placed in the hands of end users from a variety of business disciplines it is possible to harvest more rounded insights into trends and factors affecting business performance.
Choosing a partner
Few organisations have all of the skills and experience necessary to deliver complex enterprise performance management projects and may not have developed appropriate methodologies.
The implementation of a project goes far beyond the technical competence of delivering software or building reports. In many cases performance management projects require a leveraging of the business and industry knowledge within the organisation with the project, process, technology and change management skills of an appropriate partner. Provided there is a an agreed plan for skills transfer; a collaborative approach such as this enables the appropriately knowledgeable resources to be deployed at the right point whilst ensuring that the organisation remains self sufficient at the conclusion of the project. It is essential that a strong relationship continues between the business and the partner after the initial project completes. The business environment will undoubtedly change and with it some of the solution requirements, these implementations are not fixed, transactional systems but essential elements of the organisations DNA.
Although vital to success, finding the right partner can be challenging. Part of ensuring success is to resourcing these projects is to think well ahead, working with an appropriate partner– at least six months before the project and to look creatively at resource plans, breaking down the projects into process, technology and change management threads that allow you to identify the scale of the project, the broad tasks and durations. This is not a commodity environment and whilst there are inevitably there are competitive situations arise, will the Board evaluate in a years time if the selected partner was the cheapest or the best value? Keep an open mind about resourcing. In a rapidly changing world project roles and responsibilities are in a constant state of flux – consultancies, software houses and sub-contractors all jostle for position. The key question is can you work with a partner? Do they have an understanding of your priorities and goals yet have a robust framework for delivery? Are they a business partner and sounding board or merely technicians? Considerations such as these should be at the top of your agenda.
Summary
It may seem obvious but driving strategic advantage through an organisation requires, first and foremost, absolute clarity around strategic objects and how success in delivering that strategy can be measured. In the best performing businesses, strategy is clearly articulated and widely communicated throughout the organisation so that individuals understand their role in delivering it and can make decisions that are strategically aligned.
Nevertheless, decision making should not be made in a vacuum but as a part of closely interlinked performance management framework in which information is freely shared between core performance processes and in which performance targets can be set, monitored, analysed and reported.
Technology has an important part to play in propagating the strategy through the organisation and allowing users at all levels of the organisation to make informed decisions, monitor their performance and analyse results using the tools with which they are comfortable.
But rolling out a group-wide performance management system requires careful attention to organisational issues supported by Board level sponsorship to ensure, for example, that performance measures and related reward systems are understood and that conflicting KPIs are eliminated. Above all, the recognition that technology is merely an enabler, rather than a means of effecting organisational change is the first step in ensuring that a Business Intelligence initiative will deliver dependable strategic advantage.
However, choosing the right implementation partner is paramount. Few organisations have the skills, resources and methodologies to undertake enterprise wide projects on their own. The key to success is to engage a partner that is business led yet understands the process, people and technology challenge of BI programmes. They should work collaboratively, providing challenge and guidance in equal measure but within a dependable framework for delivery that provides the skills transfer necessary to leave your organisation self sufficient and confident about the way forward.
Acknowledgements
FSN would like to thank COA Solutions, a leading UK supplier of integrated business management and information systems, ( www.coasolutions.com ) for their assistance in compiling this whitepaper. |
| About FSN Publishing Limited |
FSN Publishing Limited is an independent research, news and publishing organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University , a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.
He has recently published his latest book, “Fast Close to the Max ®”
Gary.simon@fsn.co,.uk
www.fsn.co.uk
Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document.
© FSN Publishing Limited. All rights reserved 2008. |
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