Maximize Organizational Performance

Maximize Organizational Performance

Article published in DM Direct NewsletterSeptember 21, 2001 Issue


By Greg Wynne
Ever try to put together a puzzle when some of the pieces were missing? Today, some corporations are attempting exactly that.
More than ever, sustaining competitive advantage requires a close focus on business performance - the more control companies have over their performance, the better their chances of success. However, if there are missing pieces of information, difficulties in integrating enterprise data will frustrate efforts to develop a realistic picture of business performance. By integrating the factors that impact organizational performance, Web-based balanced scorecard applications position companies for establishing enterprise-wide strategic initiatives and evaluating their success.


Any formal approach to business performance starts with definition and measurement. Traditionally, financial systems almost exclusively focused on external financial reporting, defining performance in terms of profit/loss. The data for the financial results came from the company's financial systems - information in other systems was largely ignored. Figures were tailored for external audiences and had no basis for informed internal decision making. If a company did access information sources in addition to financial information, traditional processes were ineffective in integrating and displaying the data.
Achieving a Balance
The concept of the balanced scorecard revolutionizes traditional performance measurement and corporate decision-making systems by providing the big picture of company performance from key angles. Originating from the work of Dr. Robert Kaplan and Dr. David Norton, the balanced scorecard is a corporate performance measurement practice that incorporates four major perspectives: the employee learning and growth perspective, the internal business process perspective, the customer's perspective and the financial perspective.
Financial performance is important, but solid financial improvements result from improved effectiveness of employee learning and growth, internal business processes and customer service in that order. It is these three perspectives that build upon each other to drive healthy financials.
Companies that address any given corporate goal from all four perspectives have a balanced approach and, therefore, a greater chance of success and growth. Clearly, companies must go deeper than financial performance to affect financial results. By focusing on more than one perspective, organizations can address significant questions that indirectly affect finances such as: what is my turnover ratio, how much delay is there from order to shipment, what is the average hold time for customer support?
Maximizing the Balanced Scorecard
The most effective balanced scorecard applications today are Web deployed. From a company intranet to a pure Internet solution, Web-based applications provide for the most diverse data collection and evaluation. These applications can gather, arrange and display custom data views in real time from any PC or workstation. In addition, business intelligence can appear on every desktop - portals allow delivery based on the role of the employee.
Today's technology boosts the benefits of the balanced scorecard exponentially by integrating and automating data retrieval from the diverse areas of an organization. Management can most easily align performance with corporate strategies when the relevant data is displayed from a desired angle according to user-specified criteria.
The success of Web-deployed balanced scorecard applications also stems from ease of use. People with very little training can take advantage of valuable information that affects their performance and rewards. Internet/intranet balanced scorecard deployment is key to widespread alignment with corporate goals, providing the information access and internal communication essential for employee management.
Motivating Employees
Every employee can make the balanced scorecard a part of the work process. A successfully deployed scorecard gives employees a measure of how they are doing against the company's larger goals.
For example, an employee packing stock for shipment can quantitatively see how he has a direct positive impact on market share by exceeding quotas for shipping each day. The management hierarchy for this employee starts with measurable but high-level goals and objectives such as increasing profitability, expanding customer base and so on. However, his balanced scorecard shows him and his manager a ground-level view of how his specific activities contribute to top-level initiatives.
There are two significant management benefits for employee accountability using a Web-based balanced scorecard. The first is exception-based reporting. Problems gain visibility quickly at higher management levels because balanced scorecard statistics are available almost immediately. In addition, analytics help pinpoint possible causes of a problem whether it is the employee, the product, demographics or other factors.
The second main benefit is that a balanced scorecard is extremely effective in giving employees accurately measured and delivered incentives to work toward for the greater good of the company. Many companies will increase their employees' sense of ownership and participation by setting up performance-related incentives. The employee making shipments in the earlier example might have a bonus tied to exceeding his quotas. By viewing his progress in a Web-based balanced scorecard application, this employee knows what to do to reach specific goals generated by management.
Using Web technology to distribute balanced scorecard information boosts the employees' personal stake in the company. For example, everyone wants the company stock to go up. Given the scorecard, employees can access up-to-date information on how they affect shareholder value.
Measuring Success
A Web-based balanced scorecard for customer performance can access a variety of key indicators that provide a complete picture of a company's performance with respect to its customers. Such performance indicators might include profitability by customer and channel, cost-to-support by product and customer, revenue by channel, opportunities in pipeline by territory, customer defection and repeat customer rates, average ROI by campaign and many more.
Balanced scorecard customer analyses help measure success and provide direction. Action based on these analyses can increase and maintain the customer base, help develop effective marketing campaigns, maximize quality and profit, increase on-time deliveries to customers, improve customer interactions and more effectively target employee training.
Similarly, by tapping into an effective analytic system, top management can draw from quantitative and qualitative performance data to make corporate-level decisions. Web-based balanced scorecards address critical success factors to help organize and clarify strategic thinking and build consensus on strategic direction. The results are clear communication of success measures, alignment of behavior on priority initiatives and support for organizational learning.
Integrating Performance Metrics
Maximizing the benefits of a balanced scorecard requires proper sourcing of data from the ground up to support effective Web-based deployment and data availability from a single source of truth.
Addressing Enterprise-Wide Data Collection
When companies set performance objectives, whether for profitability, productivity, customer satisfaction, employee retention or other factors, the required performance measurement data is not specific to any particular part of the organization. Its scope is enterprise-wide.
Collecting information from disparate, largely independent enterprise management systems is a challenge. There might be one system for supply chain management, another for financials, another for HR and yet another for customer relationship management all on different platforms with different databases. Performance monitoring involves integrating performance metrics from all applicable systems to achieve solid balanced scorecard results. The goal: to seamlessly combine data to deliver a single source of corporate truth.
Gathering Data with EPM
A new approach, known as enterprise performance management (EPM), provides a means for data collection far superior to traditional systems. An EPM system gathers information from different areas of a company's operations and uses sophisticated business analytics to provide the big picture of enterprise performance. Balanced scorecard is the measuring and monitoring component of EPM, providing organizations with key performance indicators drawn from the EPM system.
An EPM system works by providing a central repository - the enterprise data warehouse - containing performance- related information from the entire organization. An architecturally sound, well-constructed data warehouse provides important, lasting business benefits.
Using appropriate extract, transform and load (ETL) software, the enterprise warehouse gathers information from heterogeneous sources including transactional and nontransactional systems. Potential sources include data in enterprise resource planning (ERP) systems, financial data, enriched analytic information from other data warehouses and external benchmark information or third-party survey data.
Organizations must establish processes that improve data quality in the enterprise warehouse without impeding data loading activity. Such quality measures involve identifying and correcting data that does not match established business rules.
Enterprise warehouse data is useful in loading individual data marts, which contain a subset of the data organized for a particular analytic application or applications. Loading these data marts directly from source systems allows data integration at the enterprise level. Using the enterprise warehouse results in a unified, common data model and a source of consistent, up-to-date data for all applications.
Conducting Analyses and Sharing Data
All analyses are performed against the data in the warehouse, possibly via a data mart, using analytic applications. Whether broad strategic applications or process-specific applications, they all rely on the same underlying data model. An open model supports the widest possible variety of end-user tools for access and analysis. To ensure the right balanced scorecard information gets to the right people, companies might combine analytic applications with desktop reporting tools.
By integrating a Web-based balanced scorecard with the rest of the analytics system, companies can draw information into a single strategic framework for at-a-glance evaluation. For example, if profitability shows a failing grade on the scorecard, a company can integrate all analytics, underlying reports and business rules to determine the factors involved.
It is crucial that the balanced scorecard is fully integrated with analytics to form a complete EPM system. If data is not shared or is shared inconsistently, a skewed scorecard or conflicting reports result. In some implementations today, executives are accessing completely independent systems, so analysis shows something entirely different from the balanced scorecard. Metrics and business rules definitions must be shared among the analytic system, any existing decision-making system and the balanced scorecard.
Getting the Big Picture
By optimizing balanced scorecard with Web- based, enterprise-wide deployment and by supporting data acquisition with a solid EPM foundation, organizations effectively evaluate business performance against agreed targets and strategies. Informed, tactical decisions result from rapid, integrated data access.
Instead of focusing on a single metric at a time, increasing numbers of organizations are using fully integrated, automated balanced scorecards to successfully align employees with overall business objectives. As a result, these companies manage financial performance effectively and are increasingly competitive in a challenging marketplace.
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Greg Wynne is director of product marketing, Enterprise Performance Management, for PeopleSoft, Inc. He can be reached at gregory_wynne@peoplesoft.com.
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