Business Intelligence Network - The Vision for BI and Beyond

Business Performance Management: From Mice to Lions

Published: August 11, 2005

Converting business insight into action with value-driven metrics.

Business insight in itself does not translate into competitive advantage. The ability to convert business insight to action, however, empowers managers to transform their corporations from mice to ferocious lions with the ability to create barriers to entry for other players. Such transformation requires managers to ask comprehensive questions and to take action on their analysis. The use of business performance management applications can help managers measure their business. They can effectively highlight stars and identify laggards in their business; thereby, helping managers to make necessary adjustments to their overall business dimensions and support their business strategy.  

After consulting for 7 years, I have met managers who are satisfied with superficial knowledge of their business. In the retail space, for instance, managers have been too keen to simply evaluate profit margins for products sold in their stores. Based on their analysis, they will increase shelf space for products that yield the highest profit margins. On the surface, there is nothing wrong with this strategy. However, evaluating profit margin by itself does not give the complete picture. Factors like the amount of time that the product sat on the shelves, needs to be a part of the analysis. When profit margins are reviewed in conjunction with shelf time, vis-à-vis other products in the dataset, the strategy described earlier may no longer appear to be consistent with increasing profitability—as a product with a lower profit margin, but shorter shelf life, can make up the loss on margin by increased sales volume.

Limited insight transcends vertical and corporate bounds. As I learn more about managing a consulting business, I have been forced to look beyond consultant training (measured in test scores) and consultant utility (measured in hours billed) as a credible measure of overall business health. I have been required to evaluate the customers themselves. A case in point is measuring Days Sales Outstanding (DSO), where the consulting company measures the amount of time the client takes to pay for the consulting company’s service. The larger this value becomes, the risk of not getting paid at all becomes higher. By virtue of understanding that the cost of doing business with some clients is higher than other clients, any consulting manager would make resources readily available for the less cash-intensive client, than those that pay in 90 to 120 day cycles, or not at all.

As corporations navigate through increasingly competitive landscapes and compliance demands, assessment of overall corporate health must evolve. The need for well-defined metrics will, as always, need to be consistent with corporate goals. Such goals and metrics are evolutionary, and must follow the methodology discussed below:

1. Assemble a forum to define key metrics to measure key business areas (i.e., sales, cost of doing business, etc.).
2.  Select a BPM application or platform that allows users to create scorecards that will maintain the metrics they have defined.
3. Managers and analysts ask if metrics tell the complete story—in other words, what other measurements are critical to measuring their business.
4. Compare metrics results to corporate goals; ensure that the two are properly aligned.
5. Define actionable items. For instance, introduce more favorable rates for clients that pay within 30 days in the services model. 
6. Review how much each actionable item helped bring the corporation closer to the goals it defined for itself at the onsite of the projects.
7. Assess whether the goals of the organization are consistent with the resources it has available.
8. If all is fine, you’re ready to set new goals/targets for the corporation for further growth.  

Good managers have always been responsible for generating growth in their business. To ensure they direct their efforts efficiently, managers are forced to ask comprehensive questions of their data. The methodology discussed above defines a framework for value-driven metrics, and should get managers thinking about what measurements have not worked in their previous analysis, and how to incorporate those measures into their current analysis. When such a proactive approach is taken to evaluate the overall of the corporation, companies will be will able to direct their energies to more productive endeavors.