White Paper. Business Intelligence and Performance Management. Version : Last update : Status : Authors :

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1 White Paper Business Intelligence and Performance Management Version : Last update : Status : Authors : /10/2005 Final Jan Peeters Wim Candries /

2 1 Content 1 Content Summary Definition Business Intelligence (BI) Performance Management (PM) Business Intelligence approach Collaborative Management (CM) PM: A bridge between strategy and execution How does Closed Loop PM actually work? A case study to reveal complementarity About ACKINAS Mission Goal Vision About the authors page 2/

3 2 Summary Nowadays Corporate Performance Management (CPM) has gained a lot of attention in boardrooms and executive suites. Providers of Business Intelligence (BI) software tools grabbed this opportunity to introduce their version of CPM in their quest for a bigger market share. In this paper, Ackinas will present its views on Performance Management (PM) and its relation to BI. This paper will demonstrate, based upon the definitions and objectives of PM and BI, the complementarity of both techniques. Ackinas will argue that BI does not represent the full picture of what is required for a complete PM system. More so, BI solutions were meant to report figures. These solutions focus on transactional information from legacy and ERP systems, in other words they look back and do not tell management anything on the future value creating capacity of a company. Furthermore, Ackinas introduces the concept of collaborative management (CM). A PM system can only drive continuous improvement successfully if the system facilitates collaboration amongst its participants. BI solutions offer little or no functionality here. They report but do not stimulate collaboration. Some solutions offer some add-on software to mimic collaboration but they never achieve the same result as a full collaborative management solution. Where BI builds an infrastructure on historic data in a bottom-up approach. CM analyzes the problem from the top (strategy) and goes down in a direct and structured way. These solutions establish a clear link between strategy and operations in an organization to make sure that any improvement aligns with the strategy and results in a true performance improvement. page 3/

4 3 Definition 3.1 Business Intelligence (BI) An introduction of BI seems unnecessary for this paper. BI transforms data into information via an analysis and synthesis phase. BI delivers transactional information from legacy systems, ERP systems etc BI generates mainly historic information of a quantitative nature. Information based upon processes and more qualitative parameters originate from other sources. The establishment of a BI application belongs to the activities of an IT department and involves a considerable amount of customization to fit an organization s requirements into the BI system. Once the foundations laid out, the BI environment can only be altered at a substantial cost. BI applications report information. They do not prompt collaboration. Consequently BI applications do not focus on strategy maps (multi-dimensional and cascading maps per business unit) As such, a transparent and bi-directional link between strategic objectives (strategy map) and a BI application is not always functionally available. Furthermore many organizations need to reflect on their actual usage of the BI functionality. How intelligent is their BI effort? A spreadsheet can manage variance analysis. An organization benefits tremendously from BI if the application spots trends, recognizes certain patterns or detects correlations in the different data sources of a company. 3.2 Performance Management (PM) Most Software vendors of CPM solutions aim to provide integrated applications that support all of the basic processes of Corporate Performance Management (CPM) - from the formulation of strategy, through implementation, monitoring, forecasting and reporting on progress. But for the most part, these solutions rely on the collection and the reporting of measures either by some kind of table or in a graphical 'stop-light' format. Apart from the entry of budget/forecast numbers, many of these systems are basically reporting systems. While these reports are great for telling us what happened, they are of limited value when it comes to managing the business. page 4/

5 The reason being: They inform us about what happened but this information does not disclose anything about the actions or the relationships that produced them. They are predominantly about the past and provide little or no information about what needs to happen in the future. They are an accounting-based view of the world - and not directly related to the activities of operational managers - activities that determine future results. And finally, there is no way of knowing from this report if strategy is being executed or even how successful it has been in generating the results obtained. Figure1. Ackinas CPM Model These solutions lack the functionality for senior management to communicate organizational objectives and high-level strategies. Operational managers can only build tactical plans with a clear 'cause and effect' relationship to those organizational objectives. "Organizations need a new kind of management system -- one explicitly designed to manage strategy..." (Kaplan & Norton) This is what the Ackinas CPM solution is about.it is a Strategy Management System, in fact the first solution to integrate Performance management with Process management, Risk management and Activity Based Management (Scenario Planning and cost management) page 5/

6 In this paper, Ackinas discusses in detail the relation between Performance Management (PM: as a part of CPM) versus Business Intelligence. 4 Business Intelligence approach All providers of BI solutions promote some kind of a (C)PM (Corporate Performance Management) solution. Basically they build an add-on on top of their existing BI suite. They all use a reporting engine to produce what is in their view a Balanced Scorecard. Far from Balanced, they report KPI s based upon transactional data. In other words the scorecard lacks about 50 to 60 % of a Balanced Scorecard. As such a scorecard based upon a BI solution delivers a more refined report of the already existing chain of reports. The BI solution(s) do not establish a top-down model (from strategy to operations or processes). Their offering sometimes includes a strategy map but the map is not an integral part of their scorecard platform. Consequently their offering lacks the flexibility to built dynamic multi-level strategy maps per vertical or horizontal organizational unit. BI platforms do not facilitate collaboration. These platforms are meant for reporting not for continuous improvement. But how intelligent are organizations coping with BI? Does it make sense to report exclusively on output measures? What about input (quality of materials), in-process (lead-time) and outcome measures (profit, customer expectations)? Many organizations do not fully understand the power of BI. They simply overlook the power of analyzing input and output measures together with the output parameters. In order to analyze a problem correctly, top management needs to identify and focus on relevant problems. How will BI point this out without a link to a Balanced Scorecard and strategy map? All BI vendors point out the advantages of the drill-down capabilities of their solution. Does this make sense if you do not understand exactly where to drill? Will you find the root cause of the problem without looking into the input and process figures? page 6/

7 CM and BI have a clear future together. Collaboration will prevail since it offers a more complete and efficient platform to identify a problem (BSC) to locate its operational source (process management) and to analyze its root cause (BI). CM Engaging people to improve business performance Era of Collaboration Sharing insight Era of Intelligence BI Automating the enterprice Era of Applications ERP, CRM Managing the data Era of Databases RDBMS Figure 2. Evolution towards CM CM complements any BI offering. The coexistence of these two platforms will deliver the best results for an organization that focuses on strategy and continuous improvement. 5 Collaborative Management (CM) What exactly will your company do about the loads of information from BI? If a group of people needs to achieve something they need to collaborate. Strategy execution can only succeed if people in an organization collaborate over the organizational boundaries. Collaboration requires the correct information, empowerment to act and commitment to work towards common goals. Collaborative Management (CM) delivers the instrument to everyone s desktop to take matters into their own hands. CM promotes continuous improvement throughout the organization without the loss of oversight. page 7/

8 CM software simply puts a management and control layer on top of the analytical level that provides more insight into the transactional level. Clearly, CM does not replace BI, it complements and enhances the BI offering. Ackinas deploys the QPR Collaborative Portal application to build a bridge between strategy and execution. Figure 3 displays an illustration of this concept: Figure 3. QPR Collaborative Management 6 PM: A bridge between strategy and execution An organization aims to improve its market value, increase shareholders wealth and demonstrate stakeholders well being (i.e. CSP: Corporate Social Responsibility). Actual financial reporting focuses on past performance and does not stipulate the future value drivers of a company. More so, financial reporting demonstrates results but does not detail how these results where achieved. Financial reporting does not reply to the following questions: What are the value drivers of our strategy? Are our objectives clearly set and performance measures defined? Are people accountable for performance measures? Do we review and communicate on a regular basis our strategy? Who was responsible and how did that person contribute to the shareholder value? How did the organizational unit contribute to the plan? To answer these questions in a proper way, an organization requires more than only page 8/

9 financial reporting. These questions do not only treat the past performance but look also into the actual and future performance of a company. Ackinas believes that the introduction of Performance Management provides a more objective view of the value drivers of an organization. Performance Management facilitates strategy deployment throughout an organization and aligns the organization in the execution of the strategic objectives. A Balanced Scorecard (BSC) communicates the strategy throughout the organization, becomes therefore part of the daily actions and involves employees actively in the execution of the strategy. A BSC enables a clear communication of group and even individual targets. A BSC invites every user to focus and prioritize on those areas that need his/her urgent attention and therefore increases efficiency. A BSC implies a higher motivation from all your employees since they better understand their role in the overall strategy. Their direct responsibility for one or more indicators correlates positively with their commitment to your strategic objectives. Yesterday Financial goals BI Today Customer experience Business processes Tomorrow Learning & Growth BI? Figure 4. A balanced view of the value drivers and current BI coverage. Targets are set in a balanced way, urging the responsible person to swiftly react on the appropriate level. A Balanced Scorecard also reveals the true business drivers and helps to focus on what needs to be done. A balanced view stipulates for a sound mix of control measures and steering measures (preferably % leading indicators). Control measures or lagging indicators dominate most of the existing (BI) scorecards. These indicators are historic of nature and can be easily extracted from existing legacy or ERP systems. While these measures provide insight in the past performance of your business, they do little or nothing to predict the future performance of your business. On the other hand steering measures or leading indicators guide your organization from point A to B with ample opportunity to bypass roadblocks or traffic jams. The nature of a steering measure increases the reaction time necessary to make a sound decision considerably hence improving the quality of your decision. Any F1-pilot understands that a look in his rear view mirror (control measure) will not guide him in a safe manner to his destination. Therefore he needs steering measures. The regular analysis and review of the BSC will call for actions and collaboration around Strategic Initiatives (continuous improvement), which are initiated and executed to page 9/

10 improve performance. The feedback and lessons learned will be available to everyone involved in the execution of the strategy and can lead to new measures and strategy improvements, which closes the performance management cycle. page 10/

11 7 How does Closed Loop PM actually work? 1. Detect Performance problems in strategy map 2a. Evaluate strategic initiatives(projects) to locate problem 2b. Evaluate process activities to locate problem 4. Drill down: analyze BI data for root cause 5. Define & execute action plan 3. Focus & prioritize on KPI Figure 5. Closed Loop PM. Management drives the business based upon a lot of signals, information and gut feeling. A strategy map demonstrates the relationship(s) between the critical success factors (CSF) and the strategy and highlights the performance of the different elements. With a simple view of the map (1), senior management detects a problem or a negative trend. Further evaluation of strategic initiatives (or projects) and/or operational processes (2a-b) points them to the exact measure (KPI: Key Performance Indicator) that requires their attention. This way, senior management immediately focus and prioritize on the key issues in their organization. An employee responsible for a KPI may further dig into the root cause of the problem without consulting a BI application. In large or complex organizations, a problem may page 11/

12 need more in depth analysis or drill down to the root cause of the issue. With the QPR Collaborative Portal you then have the opportunity to dynamically link into BI reports for more detailed information (4) on the strategic initiatives or process indicators. The BSC informs you that you have a problem, the direct link to strategic initiatives or into the Process Management application shows the exact location of the problem and BI delivers the detailed analysis into the root cause via standard reports. If you recognize the nature of a problem you can act upon it and draw up an action plan (5) and execute it together with the relevant people in the organization. The communication about indicators and the launch of actions within one and the same environment creates a powerful platform for continuous improvement. Not one single BI solution can match the reach and range of this collaborative management model. page 12/

13 8 A case study to reveal complementarity STRATEGY Feedback Strategy Execution Scorecards Evaluation & Communication Call for actions Improve Performance Process Improvement Human Resource Management Financial Management Supply Chain Management Customer Management Figure 6. PM continuous process As stated before, Ackinas argues that BI and CM complement each other perfectly. In this case Ackinas will explain in detail how Ackinas views performance management as a continuous process and an opportunity to improve. Senior management must use their BSC as a GPS to support strategy execution. Evaluation and communication play an essential part in this model. If you detect a problem and focus on it (BSC) then you need to analyze it and communicate with your team in order to find the root cause of the problem. Senior management will issue an action plan to remedy the problem and improve the performance. Many companies treat a BSC as the latest nice to have and overlook to call for action. Worse, they treat the symptoms while overlooking the root cause of a problem. With PM a BSC informs the user on the exact nature of the problem. Each KPI has a responsible manager attached to it. The evaluation and communication part benefits tremendously from automatic alerts when a KPI has changed color or passed a predefined alarm level. The Collaboration portion initiates actions with deadlines attached to it. Any party involved may view the progress in the actions and comment on it attach documents (i.e. lessons learned) or provide links to useful intranet sources. BI produces a stream of incomplete (control) information with no direct clear path to strategic objectives. The intelligent nature of the information depends on the transactional data from ERP and legacy systems. Evaluation and communication will page 13/

14 never be as thorough and complete compared to a complete PM solution. BI focuses on variance analysis consequently reducing the evaluation and communication step to a mere symptomatic activity. Our example describes an organization that detects an issue with its sales activity. The strategy map has indicated not sufficient revenues for the last quarter. A further analysis of the Sales KPI details an issue with the sales team process. Sales Revenue of Sales Team Last Quarter Salesperson 1 Salesperson 2 Salesperson 3 Salesperson 4 Figure 7. KPI Sales Revenue The KPI sales revenue displays the control indicator of the sales revenue for your sales team of four people. A BI solution informs management that salespersons 1 and 2 are in serious trouble where salesperson 3 might have an issue. With PM as the following figure demonstrates, management understands immediately that they must focus on salesperson 2, since salespersons 1 and 3 have already defined an action to remedy their problem. Obviously, the trend information confirms the declining results of salesperson 2. Sales Revenue of Sales Team Last Quarter Salesperson 1 Action defined to remedy problem Salesperson 2 Salesperson 3 Action defined to remedy problem Salesperson 4 Figure 8. Sales KPI Evaluation This way the CM solution immediately reduces the discussion to salesperson 2 where the BI solution needs to dig deeper into the sales reports. The BI approach will scrutinize the customers of salesman 2 and the products sold per product family and geographical spread. In fact, they will not analyze the salesman s performance. page 14/

15 The CM solution has defined a problem with salesperson 2 and clicks on the relevant KPI to view the link to the sales process. Prospection Visit Proposal Closing Salesperson 1 Prospection Visit Proposal Closing Salesperson 2 Figure 9. Sales Process In the case of salesperson 1, management notices that he has problem with closing a deal. All other Process Indicators are green. For salesperson 2, all indicators are red. Going to the root cause (the beginning of the process), the sales process reveals that salesperson 2 lacks the required skills to prospect successfully. As such CM allows you to spot a problem and to point to the exact location of the problem. BI does not look into processes. But BI may assist management with the analysis of salesperson 2 s time registration to find the root cause of his problem. If the figures are available in BI, they could reveal the man s true problem. Of course, the owner of the KPI can simply ask salesperson 2 what he believes is the root cause of the issue. CM provides upfront a direct route to the solution of the problem. CM focuses directly and prioritizes i.e. salesperson 2. BI drills down and reveals too much detail before they find out there is a problem with the sales team. But BI will never locate the problem and relate it to a certain process step. Senior management might even decide to lay off one or two salespersons based upon the BI information. The process information on the other hand informed the management team to focus their remedy on the appropriate process step (prospection, closing) in order to turn their investment (salesperson 2 & 1) into a success. page 15/

16 9 About ACKINAS 9.1 Mission We help businesses and social profit organizations to grow and develop in a sustainable way. For businesses 'growth' means: more revenue and higher profit. For social profit organization 'growth' means: more impact on the community and higher satisfaction for all stakeholders. 'Sustainable' means that the approach to continuously improve the people, the processes and the systems is embedded in the organization. We help organizations to increase their maturity on corporate performance management. 9.2 Goal Goal of Ackinas is to be recognized as a group of senior professionals who help to increase the maturity of strategy-focused organizations. 9.3 Vision We help organizations to translate strategic objectives in initiatives and action plans We teach people how to manage their work based on measures other than revenue and profit. We implement management techniques that help our customers to improve their people, their processes and their systems. We implement tools that help our customers to embed these management techniques in their organisation. page 16/

17 10 About the authors Ir. Wim Candries, Managing Partner Ackinas: Wim Candries started his career in production and logistics in the food industry. As a senior consultant he specialized in the development and implementation of performance management systems in businesses as well as in non-profit organizations and government. As an instructor, he teaches courses and coaches executive workshops on PM. Jan Peeters, Partner Akinas: Jan Peeters has built up an extensive experience and business knowledge in the Supply Chain field with strong focus on emarkets, eprocurement, Electronic Data Interchange (EDI), messaging and e-business working as an account and project manager. He has had a lot of exposure in business development and worked closely with clients to build the value proposition of many projects. He gained experience on assignments in the Automotive, Logistics, Transport, Distribution, Telecommunications and Banking sectors. Prior to joining Ackinas, for almost three years, he has performed various jobs in consulting and the IT domain with large multinational corporations. Currently he focuses on business development of the PM model with different industries. page 17/