The Metrics that Matter. Understanding your leading indicators for better results

Transcription

1 The Metrics that Matter Understanding your leading indicators for better results

2 MEASURE WHAT MATTERS According to a recent Gartner survey 80 percent of companies only measure results. In other words, they measure past performance by looking at the results in the financial statements. But they don t know what impacted these results, or what is best done to improve them going forward. Does your company analyses or reports allow you to ask why did this happen? and which area of my business needs most attention, if I want to improve profit? If yes, congratulations on being a modern, data-driven business! If not, keep reading, and we ll give you a few hints on how to reach that end-state. 2

3 WHY BUSINESS ANALYTICS IS STILL A TOP PRIORITY According to Gartner, executives still report a huge gap between the information they need and the information they get. Business Intelligence is high on the agendas of modern executives. At the 2014 Gartner Business Intelligence & Analytics Summit, Gartner Analyst Michael Smith reported that a survey of CEOs and Senior Business Executives in North America had shown that their two top technology investment focus areas were: Business Analytics (71%) Enhanced Business Reporting (56%) There can be a number of different factors that are driving executives to make the investments in Business Intelligence, but one main reason stands out. According to Smith, executives still report a huge gap between the information they need and the information they get. They get the results -- and the data that looks into the past without allowing them to understand what in their internal processes and external environment they need to focus on -- to improve for the future. The data they get describes what happened. But it doesn t predict what will happen. And it doesn t prescribe which actions to take. In most cases, data is already being registered and logged through decentralized transactional systems such as the ERP solution or the CRM, marketing, or warehousing solutions. Information is managed by each functional area, but it may be siloed and not accessible for executives to understand right away. And it may not allow for analysis across the diverse transactional solutions within the company. This requires a dedicated setup that is built for analytics. But how do you differentiate which data is most valuable for you to use? 3

4 DATA, DATA, EVERYWHERE! BUT WHAT DATA TO USE? For all of the good that data can do for businesses, there s one major issue that it presents: information overload. Many companies try to focus on too many different metrics without focusing on those that truly matter. They have an ocean of data inside the company from every transactional system that s supporting the business processes. In our experience, marketing departments typically have three to five different systems and manufacturing departments have even more. As the big data tsunami overflowed the media and blogs over the past years, many companies try to grasp what to do with all that external data that is becoming available. Some companies have started to collect external data, but are not yet properly utilizing it. According to Gartner, the confusion around big data is so apparent that they indicate companies will delay spending on analytics and Business Intelligence in general until they figure out how to handle data better. Actually, most of big data investments made to date have been big data services, such as consultancy projects to clarify what they should be examining. And only 8 percent of respondents in a recent Gartner survey of CIOs say they have deployed big data investments. But big data -- or any data for that matter -- doesn t have to be a daunting task if you start from within. The big data confusion delays analytics spending. This is a costly mistake. 4

5 LAGGING AND LEADING INDICATORS LAGGING AND - THE LEADING DIFFERENCE INDICATORS BETWEEN THE DIFFERENCE LOOKING BETWEEN BACK LOOKING AND LOOKING BACK AHEAD AND LOOKING AHEAD Think of the data that makes up your Business Intelligence as being made up of Think cause of and the effect data that factors. makes Those up your two factors Business are Intelligence lagging indicators as being and leading made indicators. up of cause The and difference effect factors. between Those them two isn t factors complicated, are Lagging but it is critical. Indicators and Leading Indicators. The differences between them are: Lagging Lagging Indicators = Effect = These are made up of accounting and historic measures. These are In other made words, up of accounting these are the and financial historic ratios measures. you build In other based words, these are on the the financial income statement. ratios you build based on the income statement. Leading Leading Indicators = Cause = These are also historic, but look at internal processes and external These are events also that historic, occur but prior look to at revenue. internal Some processes examples and external of what events they that occur are prior include to revenue. the number Some of qualified examples sales of what leads, they time are to include market, the number conversion of qualified ratios, sales employee leads, time satisfaction, to market, etc. conversion These are ratios, the employee indicators satisfaction, you should etc. These worry are about the indicators if you want you to improve should focus results. on if you want to improve results. 145 Departures 99 Delayed Why the big difference? According to Smith, 80 percent of current Business Intelligence content is made up of lagging indicators. However, all of that current Business Intelligence content should actually be made up of leading indicators. Why the big difference? One word: value. Lagging indicators are valuable if you only want to look at current conditions, but it s important to look at future projections in order to better guide a company toward greater success. Leading indicators give a company the ability to look into the crystal ball and take proactive instead of reactive action, which can save both time and money. 5

6 DETERMINE YOUR END GOAL As with anything else in life, the way to successfully move forward, even with developing KPIs and identifying leading indicators, is to first determine your end goal. That can be anything from increasing revenue to reducing costs. Next, consider what in your internal and external environment can truly impact whether you are capable of reaching those objectives. Internal Has to do with the internal processes of the business (product design, corporate vision, etc.). You most likely own this information inside your company solutions already. Otherwise, it is time you start tracking and registering. External Has to do with economic factors outside of the company that still have an effect (the needs of customers, competitor actions, etc.). The data needed to understand the external indicators is what s traditionally referred to as big data or external data sources. Don t worry too much about whether it s big or small data; worry about what impacts your company. 6

7 80 PERCENT OF BUSINESSES ONLY MEASURE RESULTS, BUT THOSE WHO UNDERSTAND THEIR LEADING INDICATORS HAVE BETTER RESULTS Look at the table below and think of each row as a connected string of events that each impact the final goal. What in your external environment impacts the results? Non financial metrics. What in your internal environment impacts the results? Non financial metrics. Financial, historic data External leading indicators Internal leading indicators Results/Objectives Lagging indicators Consumer index Google trends Google ranking Visitors Conversion ratio Qualified leads per sales reps Revenue Costs of goods sold Currency fluctuation Inflation Discounts Promotions Price changes Contribution margin Taxes Supplier compliance Commodity prices Overhead Procurement Fill rate Costs Customer satisfaction Competitor prices Market growth Employee retention Sales person productivity Basket size Profit Data sources: Big Data, Social media, Public data Data sources: CRM, Google Analytics, Marketing Automation, CMS, HR, Warehouse, Manufacturing, excel Data sources: ERP Once you ve prepared the string of events that will most likely impact your final goals, you ll have a great starting point for identifying which data sources to include in your Business Intelligence solution. Map the indicators to the data sources where they belong. Those are the data and data sources you should worry about connecting in an analytical environment. Measure what matters. 7

8 WHAT CAN LEADING INDICATORS DO FOR THE BOTTOM LINE? The old adage you have to spend money to make money couldn t be truer when it comes to investing in Business Intelligence and analytics. When you have the right information and understand what truly impacts success and failure in your business, the investment brings dividends quickly and abundantly. Leading indicators are truly valuable for businesses of any size because they: Define what s critical for businesses. Direct where investment is needed. Direct where focus is needed. Act as a big data filter - only worry about what matters. Point you to company-specific data sources that are relevant. Business Intelligence and analytics is what one insurance company uses for comprehensive competitive analysis. This lets them analyse big data outside their company and discover trends daily so they can adjust their prices for optimal competitiveness and profit. It s also what a clothing retail company uses to closely monitor what s hot and what s not in stores throughout Europe. The precise control of inventory, turnover, and production has delivered improvements to the company s bottom line by an estimated 30 percent. 8

9 HOW DO YOU MOVE FORWARD? TWO WORDS: ACTION PLAN Having the information that you need is great, but that s not the end of the process. That information needs to be used to move forward and create an action plan. We recommend six steps for developing that plan. 1. Identify your ultimate business goals. This exercise will help you understand your lagging indicators and provide you with a starting point. 2. Brainstorm the internal and external factors that could possibly affect your goals. Allow yourself to put everything on paper without limitation. 3. Prioritize indicators based on your existing knowledge and data. 4. Group your indicators according to similarities or the business processes that they support. 5. Find the right Business Intelligence solution and strategy that empowers you to analyze all your data, measure your objectives, and achieve your goals. (Remember: 80 percent leading indicators and only 20 percent lagging indicators.) 6. Embrace self-service analytics so everyone in the organization is able to strategically plan and track leading indicators to achieve their specific role/department objectives, tied directly to the company s goals. $ 9

10 THINKING BIG AND ACTING SMALL You might be looking at all of this information and thinking that this is a daunting task, but it shouldn t be. Start by thinking big and acting small. Becoming an intelligent business isn t about building thousands of reports, but rather finding what s important to you and your business. We like to look at a company through a maturity model we call the TARGIT Journey. This is where we guide you from initially streamlining your data to turning it into easy-to-use, visually engaging analyses that can then be used by everyone from the CEO to a salesperson, and even by external business partners and customers. 10

11 We want you to be comfortable with your data while getting as much actionable information as you can from it along the way. Our best advice is to start with the internal data, and work your way to the external data sources as you get to know the ins-and-outs of your own business. THE NEXT STEP Ready to take the next step towards growing your business into a more efficient and profitable organization? Take time to visit for information about how our Decision Suite software can tame your data and enable you to fully understand your leading indicators. It s one of the best business moves you can make. 11

12 BRAINSTORM, PRIORITIZE, GROUP Print out and use this space to map out your leading indicators and business goals. It s time to take action. What in your external environment impacts the results? Non financial metrics. What in your internal environment impacts the results? Non financial metrics. Financial, historic data External leading indicators Internal leading indicators Results/Objectives Lagging indicators Data sources: Data sources: Data sources: ERP 12

13 TARGIT IS BUSINESS INTELLIGENCE AND ANALYTICS SOFTWARE MADE FOR ACTION Gather Your (any) Data Learn From Your Data Share Your Data Act On Your Data SQL, ERP, CRM Dashboards > Review your KPIs against your goals. Storyboards > Motivate employees by showing progress on display TVs. Alerts > Get a heads-up when metrics deviate and action need to be taken. Anywhere. Excel, External stats Analytics > Understand what happened, why it happened, and what s coming next. s > Improved collaboration with one-click distribution of analyses via s. Intelligent Wizard > Tell the system what you want. The BI Wizard tells you what you want to know and remembers your preferences. Google Analytics, Social media Reports > Build reports in less than one minute with one-click-to-analysis integration. Batch report scheduling > Customize where your reports go and distribute them automatically. In-Memory Analytics > Analyze the crucial data that doesn t live in your data warehouse. Mobility/Web/desktop > Access your data when and where you need it. 13

14 ONE SOLUTION TO COVER ALL ANALYTICS AND REPORTING NEEDS TARGIT is designed for your entire organization, from the CEO who follows the key metrics, to financial workers who need accurate reports, to sales managers who need performance analytics and customer insights, to marketing who cares about the cost of leads, to IT who wants data security and smoothly integrated data processes. TARGIT has everybody covered. In fact, TARGIT is the most widely deployed solution in the market, and customers rate TARGIT higher in usability than any other solution. That s why TARGIT is designed to get you from dashboards and reports to analyses with only one click. Add to that the integration tools that prepare your data for analysis in less than a day and the intelligence that lets you use natural language to ask for the report or analysis you want. TARGIT takes you from observation to action faster than any other tool on the market. TARGIT gives you the courage to act. We believe that data should be connected and available to decision makers when and where they need it. There is always one more question to ask of the data you see, and if the answer is not immediately available you run the risk of having to act on intuition.