Data Architecture for Performance Management
Apply technology to deliver the right information to the right person at the right time
by Janaki Akella and Chris Barlow
Posted November 28, 2003
The cost of doing business is coming under close scrutiny, forcing business unit leaders to eliminate waste, run operations more efficiently, reduce variance from forecasts, and improve performance while keeping a close watch on customer satisfaction. These leaders need more information than ever before, and they are turning to their CIOs to get it to them. They need information that will help them measure the performance of the business, identify problems and opportunities, set policies, and take corrective actions. They don't need stale data (anywhere from a day to a month old, depending on use) or data not granular enough to attribute by product or region, or data so disparate that apples-to-apples comparisons are impossible.
However, many companies continue to rely on data needing a considerable manual intervention before it is useful, with the result that business performance measurement and management are often ad hoc. For instance, a multibillion dollar, multinational company did not know how many employees it had at any given point in time, how the numbers had changed in the last quarter, and where to target a reduction in force to decrease operating expenses without affecting the business.
Another large company didn't know what the previous quarter's overall baseline expense was by functional area. This business had grown through acquisitions, and the companies had disparate IT systems, nonstandard processes, and no notion of an integrated information architecture. Now the CIO is faced with these challenges: how to generate the information required to measure and manage business performance, and how to deliver it to the right people when they need it.
CIOs can overcome challenges like these by addressing requirements in three areas: identifying the information that managers need, selecting the most appropriate technology to deliver it, and managing the information for business success. (See the sidebar, "Checklist for Providing Performance Management Information.")
The Right Information
A recent survey by Financial Executives International identified the top three business gaps related to the lack of enabling technology solutions for performance measurement and management: 1) inability to make informed decisions based on a company's performance; 2) lack of mechanisms to measure customer and product profitability; and 3) operational efficiency and alignment.
Performance can be managed by determining which key indicators measure the performance of the business. Key performance indicators (KPIs) should reflect changes in the key underlying performance, and they need to target a range of decision makers in the organization.
When KPIs are clearly defined and the information is delivered to the people who need it, businesses can take targeted action to improve performance. For example, executive management at an insurance company could look at net new business per month to measure performance. A deviation of the actual versus planned net new business indicates the likelihood of meeting annual targets and helps management set or change policies to ensure the target is met. If planned net new business deviates significantly from actual, the middle management can more deeply assess this KPI by determining the new business per regional field office (RFO).
Going more deeply into the organization identifies agents within the problem RFO that has low sales, and then breaks down the problem as either number of leads generated per sales agent or the close rate of the sales agent. This level of granularity helps management take targeted corrective action, in this case by targeting marketing performance. Without this targeted information, management might have focused on other, less effective actions to deal with the problem.
KPIs become meaningful and effective only when IT and business unit leaders collaborate to develop the right approach and deliverables. First, the business unit leaders in each of the major functional areas—HR, finance, sales, marketing, and operations—identify the reports that they currently use, the performance drivers, and the precise KPIs (numerator, denominator, units) that would be helpful to them. Then IT architects and programmers identify the source of each piece of data to compute this KPI, recommend the presentation format, and guide the actual definition based on packaged software that is readily available, the current IT landscape, ease of implementation, and completeness of information. Then, after the KPIs are identified, management formulates the target levels for those KPIs by looking at a combination of industry benchmarks, historical performance, and strategic aspirations.
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