Laying the Foundation

The truth about performance improvement (second in a five-part series).

Your company's just getting started with a new, far-reaching performance improvement initiative, and everyone's excited about the fancy new dashboard that displays scorecards, traffic lights and warning indicators. But what's behind all those clever gauges and alerts? If you don't know, you could be making decisions based on incomplete data. For the best results, focus on advanced analytics, data integration and information architecture first – and then bring in the dashboard.

According to some estimates, spending on performance management initiatives reached close to $23 billion in 2006. Despite the large amounts of money spent on dashboards, scorecards, business intelligence and analytic applications, many companies are not reaping the full benefits of their initiatives.

What factors are preventing their success? Results from a recent survey of 1,100 business professionals designed to assess the current state of performance management initiatives suggest a combination of cultural and technological issues are to blame.

The first article in this series, published in the fourth quarter 2006 issue of sascom, touched on both sets of issues and introduced the main themes of the research, including alignment and collaboration. This article will focus on the ways in which technology can affect performance management success.

The survey results reveal three important lessons with regard to technology and performance management:

• The foundation of an effective performance management initiative is an appropriate infrastructure. 
• The use of analytics dramatically improves the success of performance management initiatives.
• Maturity in the use of information drives the performance management effort.
  

First things first
There is no perfect formula for performance management success, but you can't make good decisions based on incomplete or inaccurate information. Yet eight in 10 companies surveyed are measuring performance against goals before summarizing and consolidating information. Likewise, two-thirds of respondents are identifying and prioritizing improvement opportunities – many before performing foundational activities like integrating data from ERP systems, and cleaning and rationalizing data.

Is the pressure to show value and report progress compelling these companies to measure performance before addressing more important issues, such as data integration and data quality? To answer that question, consider these findings: More than one in four companies surveyed cite data inaccuracy as a major obstacle to performance improvement. Yet, among those, only 47 percent perform data cleansing and rationalization. Only half are integrating data from across the company. More than a third struggle with access to information. How reliable can the results of measurement activities be when the data inputs to the process are inaccurate and incomplete?

Over time, many organizations have established large infrastructures, and many have adopted multiple systems from various vendors to solve individual departmental issues. These systems cannot talk to one another, and data is held hostage in multiple areas of the company. The inability to integrate across these systems can bring performance management efforts to a screeching halt. Without a full view of company information, efforts to manage performance are meaningless.

To be successful in their efforts, companies must address these infrastructure issues first so the information populating the performance management systems is both accurate and complete.

Invest in analytics
Across industries, research consistently confirms the value of analytics to enhance the use of company information. Survey respondents who have implemented analytics technologies such as data mining and forecasting report achieving greater success with their performance management initiatives than those who have not, specifically in the areas of innovation, competitive advantage and agility. In fact, success in these areas nearly doubles when respondents have employed predictive analytics. 

The good news is that more and more companies are taking the critical step to wean themselves from simplistic spreadsheet analysis to tackle the tough issues using advanced analytics. As opposed to other methods that provide historical, rear-view mirror results, analytical approaches inform organizations about the future. For example, businesses can understand what will happen next, how changes in business drivers will affect results, why customers behave a certain way, and so on. 

Bottom line: Adopting predictive technologies as a component of performance management can help speed the time to achieving desired results. See the chart on the previous page for proof. In every category, companies that use analytics are getting more from their performance management initiatives than those that are not.

The complete foundation
The study also supports the notion that a company's use of information has a direct impact on its success in achieving results.

Overall, the survey responses indicate that companies more mature in information use understand the importance of data integration and quality, and the value of sharing and collaboration, and they have established an infrastructure to support their goals. In addition, these companies are typically early adopters of technology and have evolved beyond just operating their businesses to innovating new business ideas.

The more mature a company is in its use of information, the more effective it will be in its performance management initiatives. But how can a company accelerate its maturity in this area? Follow the three-phase methodical approach to performance management introduced in the first article of this series.

According to the survey, companies that follow this sequential approach – first building a foundation for reporting, then measuring and managing information, and finally working to improve performance – are more likely to see positive results from their performance management efforts.

Not surprisingly, the foundational tasks associated with the first step all contain a strong technology component:

• Summarized reporting of information.
• Consolidating of financials.
• Integrating data from ERP general ledger systems and similar systems.
• Data cleansing and rationalization.

The message is clear: First, establish your infrastructure and then begin measuring, managing and improving.

If you're ready to tackle steps two and three, watch for the third article in this series, coming in the second quarter 2007 issue of sascom. In it, we'll describe a clear measurement process for performance management and lay out the dos and don'ts of performance management success.