Many companies experience the roadblock of data scatter when trying to develop their performance management program. But corralling your systems and people to come up with systematic process and approach for extracting the right metrics is often a challenge.
Companies depend on their ability to understand and utilize critical data. While effective data warehousing can help a company better manage its data, most have not learned to unlock the hidden potential of information technology (IT) systems to collect, organize and extract key data. As a result, most companies experience "data scatter" when it comes to critical performance metrics, because data is scattered throughout the various functional silos and systems across the enterprise.
Various studies confirm that many companies often fly blind when it comes to supply chain performance information. Research shows that only 20 to 25 percent of managers have what they would describe as the full measure of supply chain information needed to aid in decision making. And a study by Bain & Co. revealed that 44 percent of respondents admit to having little or only basic data.
Key Challenges to Overcome
At the heart of most companies' data scatter troubles is the inability of the company to combine disparate data into a "single version of the truth" on which all people agree and trust. This can lead to a company's inability to effectively manage performance. For example, a large distributor of high-tech equipment has a traffic manager that may believe they are shipping 87 percent on time, while the distribution manager believes that on time performance is more likely around 96 percent.
A second key challenge many companies face is measuring too many things without having a good summary-level view in essence, not being able to see the forest for the trees. All too often companies end up measuring everything that moves without learning anything about how the business is really doing. While detailed-level metrics and data captured from transaction systems enable root-cause analysis to solve problems, companies need to balance this with aggregate "roll up" views and the critical few metrics for the CEO and management.
Technology a "Nice to Have" Building Block
Unfortunately, many companies dive straight into a technology solution to solve their problem of data scatter, often thinking they can "extract" data into flashy scorecards that will help improve performance visibility. However, relying solely on technology as the panacea for a company's performance measurement solution is naïve. According to a Michigan State University study, three of the top four drivers of supply chain excellence are related not to technology but to alignment of organization and to performance measurement. While addressing the business alignment issues in the development of a performance measurement program, therefore, organizations can also define the requirements for a performance management IT solution.
Most business people lack the needed skills to understand and utilize the data generated by their business systems. IT resources can help extract, organize and analyze critical data so that employees improve the business, but the blind spot for most businesses results from the assumption that IT resources can act as key business partners for taking the performance measurement program to the next level. In fact, the program should include metrics for IT performance.
The bottom line is that any performance measurement initiative should be managed as a business project that may include an IT solution. Successful performance management initiatives should, first and foremost, be driven by the company's overall goals and objectives, and they should foster a culture where employees at all levels actively use performance data and metrics to drive improvements in the business. A key starting point for any organization is to ensure objectives are consistently defined and universally shared. These objectives should be supported by performance measures that are universally defined. From the start, business requirements for an IT solution should also define how the detailed transactions will be used and aggregated for each level of the company.
Four Steps to Averting Data Scatter
Companies can use the following four steps, discussed in detail, as a tool to dig out from underneath their piles of data.
1. Eliminate Organization Barriers
For many companies, performance measurement issues go far deeper than simply trying to more effectively leverage IT systems. In many cases organizational dynamics are the core barrier to successful performance measurement program. If this is the case, the company needs to focus on understanding and overcoming the people issues, political issues and policy issues that prevent defining a single truth on performance management to which people will agree and trust. Corporate cultural issues are often the greatest barriers to achieving partnerships internally and externally.
One example of organizational barriers to performance management is that of local suboptimization in which employees suboptimize for departmental objectives, often to the detriment of the larger organization. For instance, a procurement manager goes with a low-cost supplier to meet department cost reduction goals without first understanding if there are quality tradeoffs that will perhaps decrease the throughput at manufacturing. A company that experiences such cultural and organizational hurdles needs to make drastic changes in corporate culture to foster teamwork. Internally, no matter how performance measures are collected, no single measure can exist that will measure cross-functional objectives. A policy is needed from the top that requires departmental collaboration. A cross-functional leadership team then needs to be charged with developing measures that relate to broader interests.
Once a company has overcome its organizational barriers, it can then begin to look toward technology to enhance its performance management program.
2. Corral Your Systems
Once a company has clearly determined goals and objectives and has selected the right metrics to support the business, it needs to assess the current systems architecture in light of the performance measurement program. This begins with analyzing the source of the information required and the complexity of integrating the data to support the need to roll up and drill down in one performance management system. Given the requirement to universally define and share metrics, IT should plan for an integrated data repository of detailed transactions and complex data calculations.
A primary reason for data scatter is that most companies do not have performance metrics from integrated software running their business. Instead, companies rely on performance metrics drawn from many different systems, like enterprise resource planning (ERP), customer relationship management (CRM), warehouse management systems (WMS) and transportation management systems (TMS) to name a few.
To make matters worse, many companies augment these execution systems with offline metrics tools such as spreadsheets, databases and flat data files. While each system and offline tool provides important information about a company's performance, the downside is that the data is defined, collected and stored in different ways.
IT leaders need technology architecture with a data collection process that can tap into the disparate systems to extract and organize detailed performance measurement data. Depending on the systems environment, a data warehouse that is either custom built or bought may help corral disparate systems. It must be able to address the organization's need for actionable information. The performance measurement team should include a community of business leaders and users to drive a solution design that supports balanced measures from detailed transactions, promoting agreement and trust. With strategic management in mind, business leaders need to drive each other toward business process measures.
3. Unlock the Potential of Existing Systems
Another inhibitor is that many companies are not fully leveraging and exploiting the technologies they do have. This is especially true when it comes to ERP systems. Many organizations are excited about the prospect of acquiring the latest business best practices when implementing an ERP system, but in the process of making the systems overhaul, customized business practices that are understood by the organization and encoded in the legacy system are not transferred into the new system. At the same time, a new set of business practices are encoded without an equivalent organizational performance measurement overhaul. The result: Users often work around the system to get their job done, creating incorrect and incomplete transactions.
A new opportunity to unlock the potential of existing systems is heralded by the Sarbanes-Oxley legislation. Data scatter will be a barrier that organizations must overcome for their financial function to measure performance. Chief financial officers and presidents in manufacturing and financial services are leading the charge to adopt holistic performance measurement tools, processes and methodologies. The organizational performance measurement champion needs to leverage this wave of change to document how systems are integrated into the business processes.
The key is to first partner with finance, and then go beyond financial data and change performance measures to align with the organizational strategies. With clearly stated business objectives, detailed transactions can be identified and audited to ensure completeness and accuracy. Detailed transactions only need to be systematically gathered if they support the creation of measures of success. As the business defines its targets, it will need to ensure that actual measures can be calculated. Through Sarbanes-Oxley compliance, existing systems have to be unlocked and can be used to find the underlying reasons for missing targets.
4. Leverage Technology to Enhance Your Performance Measurement Program
Organizational culture, especially finance and accounting, must be leveraged in order to create value through performance management tools with drill-down capabilities to transactional data. These tools can support the many things that need to be measured while aggregating up to strategic measures that tie to financial performance.
In order to define the summary-level view that business leaders need, start by partnering with finance to create one measurement tool. Performance measurement programs are typically financial budgetary metrics with additional best practice process and strategic metrics. Finance may already be reviewing the performance management process for compliance.
Performance management solutions should be automated to ensure their completeness and accuracy. Organizations are revising performance expectations and have a need for solutions that can more frequently roll in new targets and actuals. In order to ensure the quality of data, work with finance to create an audit trail. Information that is not based on an online source system should be avoided, as it creates breaks in automating summary-level views. In order to manage the scatter of data, create an integrated data repository to manage detailed transactions that support the metrics that business leaders have defined.
While IT solutions can greatly enhance a company's productivity and reporting capabilities for its performance metrics program, it is far better to defer decisions about IT spending until key elements of the performance measurement program are in place. This approach will address the difficulty of combining disparate data into a "single version of the truth" to which all people agree and trust.
However, once a company has the basics down, investing in technology can greatly improve the efficiency and ease with which it extracts and uses data in its performance measurement program. Unlock the hidden potential of IT systems to collect, organize and manage detailed data while measuring everything that has been agreed upon with a good summary-level view for the corporation.
SIDEBAR: Make vs. Buy Decisions
To help overcome data scatter problems, a company can either turn to in-house efforts or use formal software packages. The IT leaders need to determine their capacity to develop solutions or to integrate new packaged solutions. A performance management system may be one of the few remaining chances to develop a competitive advantage based on a company's unique business practices.
If a company has already bought packaged solutions, most systematic processes are common to anyone who owns the same software. Further, packaged software is often the source of data scatter. However, it should be noted that packages can often speed up the implementation of new capabilities.
While many companies choose to adopt in-house solutions to solve data scatter problems, others are turning to business performance management (BPM) software as the answer. The Boston-based Aberdeen Group estimates that the BPM market will hit $5 billion by 2005, up from $2.2 billion in 2001. That growth will be driven in no small part by technology that can extract data from ERP systems and translate it into the chart-of-accounts language, transform data from a transactional to an analytic environment and provide managers with better insights for more accurate decision-making than ever before. Another reason for growth in the BPM market is that these systems are becoming increasingly easy to use.
About the Authors: Kate Vitasek is managing partner of Supply Chain Visions, a consulting firm specializing in supply chain strategy and education. She is on the Executive Committee for the Council of Supply Chain Management Professionals. You can contact her at 425-985-6396 or [email protected]
Hubert Goodman Jr. has been the director of Business Intelligence for a Fortune 1000 company and has designed data warehousing solutions since 1998. You can contact him at (812) 525-9539 or [email protected]