To date, few organizations have recognized and leveraged the potential that business intelligence (BI) offers to support the Balanced Scorecard (BSC) and other business-sponsored Performance Management (BPM) programs. Many organizations approach BSC/BPM as business initiatives and support the business performance metrics associated with these programs with manual methods, commonly Excel spreadsheets. Why should your BI program be involved in supporting BSC/BPM initiatives? Manual methods of measurement are limited: they can be expensive to operate, cannot support complex performance measurement, are error-prone, and do not provide the analytic capability to drill into causes of non-performance.
Manual Metric Cost Considerations:
While manual measurement appears “cheap,” organizations often spend more than $1 million per year on manual measurement once the labor cost of manual data gathering methods is included. Using BI approaches to automate metrics can substantially reduce this cost.
Manual Metrics are Limited:
Many of the most effective ways of measuring business performance require complex logic that cannot be done using manual approaches. For example, consider a manual process to measure your organization’s progress in acquiring new, high-value customers. While BI approaches can handle the complex logic associated with this metric, manual methods cannot. Many organizations stick to simple, ineffective metrics because their manual processes cannot support complex but more effective metrics.
Manual Metrics and Information Quality:
Manual measurement introduces errors, resulting in low-quality information. This is due to several factors. One explanation is that human beings make errors. If data is being downloaded into Excel and calculations are being made by a number of different individuals, mistakes will be made. It is difficult to enforce definitional standards across multiple people involved in manual measurement. And, if your organizational unit is responsible for measuring its own performance, it is only human to interpret the data associated with performance measurement in ways that will make that performance look good. Automation via BI eliminates human errors and thereby supports standardized, high-quality measurement.
BI can support BSC/BPM programs with improved measurement and provide supporting analytics. For example, if your organization does not achieve its target for acquiring new, high-value customers, BI can provide analytics to answer the question, why not? BSC/BPM programs must measure performance and provide insight regarding the reasons for lack of performance. In this example, BI analytics might reveal that competitor pricing in certain markets is why new customer acquisition targets have not been met. The understanding of causes provided by BI analytics enables management to decide what corrective actions to take.
To date, few organizations have recognized and leveraged the potential that BI offers in supporting BSC/BPM initiatives. However, those that have are leaders in their industries. These companies recognize the value of strategic alignment as envisioned by the Balanced Scorecard. They bring this alignment to life by using BI capabilities to leverage information for optimal strategic advantage. Most organizations have not yet begun to exploit the full potential of information-based competition.
By Nancy Williams, Vice President of BI/DW
© DecisionPath Consulting, 2011