Business Insight
Gone are the days when it was a major exercise for Unilever to identify and assess
the performance of the 1,600 brands that comprised its global portfolio. As part
of a new corporate growth strategy, the global portfolio has been reduced to 400
key brands, and a new data warehouse has been implemented. Global, regional, and
national brand managers now have access to consistent data on sales performance
and changes in customer awareness and attitude toward each brand.
This information enables brand management to readily identify when and where to target promotional investments. Procurement directors have access to a rich data set of global vendor spend information upon which to predicate vendor negotiations. Unilever significantly increased the transparency of critical information in the areas of procurement, brand management, customer management, and finance.
The results? A €2.1 billion reduction in direct procurement costs, a global view of the health of 400 key brands, and a single view of its most strategic (and most profitable) customers. The company also gained a single-stream reporting process by consolidating three different processes for producing financial, management, and category reports. Now all reports tally, eliminating substantive reconciliation at all levels of the business.
At a time when Unilever needed to boost its share price and profitability, the transformation of its performance reporting capabilities (with Accenture's help) enabled the enterprise to achieve dramatic improvements. During a time of flat industry performance, Unilever realized both top-line growth and increased shareholder value.
A Critical and Growing Need
The need to use performance management information effectively has been articulated for years. However, we are at a pivotal point in the evolution of performance management. It is more critical than ever for enterprises to address these capabilities. Decisions made now, capabilities constructed now, will shape a company's competitive position for years to come.
Why now? Four primary drivers are galvanizing organizations to address their use of information to drive business results. First, most companies have made little progress. Their executives are deeply dissatisfied with their organizations' ability to leverage information for competitive advantage. Second, companies are experiencing unprecedented demands for accountability in the current regulatory and economic environment. They require increased insight into the real drivers of business results. Third, technology is now at the stage where it can deliver on the vision promised for years. And last but not least, their competitors are moving.
Recall the "pep" talk given to the salesmen in the movie Glengarry Glen Ross: "We're adding a little something to this month's sales contest. As you all know, first prize is a Cadillac El Dorado. Anybody want to see second prize? Second prize is a set of steak knives. Third prize is you're fired." The stakes are rising. Being unable to generate the competitive advantages that effective access to information can deliver is an increasingly dangerous position.
Organizations and their executives are deeply dissatisfied with the state of their performance management information capabilities. Corporations are increasingly awash in information, yet continue to struggle in creating real "insight" to drive performance. There are several reasons for this continued struggle. Many companies have implemented enterprise resource planning (ERP) systems in ways that have not facilitated the generation of useful information. Accenture recently conducted a survey of 163 companies that had implemented ERP systems. The mean number of instances (separate and distinct implementations of the same software across regions or business units) was eight, with 32 percent having implemented from six to more than 20 distinct instances. This distributed ERP implementation strategy has resulted in disparate, disconnected sources of operational information.
Further, with the decentralized governance of IT manifest in many companies, individual user groups have driven their own development of data warehouses and data marts, contributing to increased fragmentation of information with little progress toward a "single version of the truth." At some large companies, the data architecture is so fragmented that no one will take accountability. The response is armies of analysts using batteries of spreadsheets, manually generating performance information. The cost of this analyst function within finance alone can exceed 0.5 percent of revenue.
Also propelling the need for business insight is the regulatory and economic environment. Corporations are experiencing unprecedented demand for accountability. The Sarbanes-Oxley Act in the United States is demanding that executives understand exactly what their companies' financial results are saying and communicate these results clearly to the market. The signoff required of U.S. CEOs and CFOs is more than credits and debits. Rather, it is about understanding that reported business results are fairly represented based on personal knowledge. This translates into reporting transparency — being able to explain cause-and-effect relationships behind business results. Further, as markets continue to struggle and the investment environment languishes, companies that can increase the depth of their disclosure will create higher confidence and valuation in the market. According to a variety of analysts, as baby boomers retire and begin consuming their wealth, they will be replaced by a smaller generation, ending a savings and investment bulge. Analysts portend that we will see this in the next 10 years, putting downward pressure on stocks. Falling prices will force companies to provide even more useful information to attract investors.
One of the more compelling reasons for companies to actively pursue the development of business performance management capabilities is that technology is now at the stage where it can deliver on the vision promised for years. Integration technologies such as Kalido and Informatica have advanced to the point where they can more easily establish a common performance management language without remediating frontline transaction systems and compromising flexibility at the local business level. Business analytics applications now contain out-of-the-box functionality with the richness to develop metrics management, deliver online self-service reporting, and support an intuitive discovery process through drill-down and information exploration that is useful to frontline managers and executives alike.
Lastly, your competitors are moving. Leveraging information to derive business insight is becoming a significant competitive advantage. While there are far more instances of companies that have not made substantive progress than of progressive companies that have developed the capability to leverage information to their advantage, there are examples that should give executives pause:
- A global downstream oil producer was operating in 125 countries with several
hundred separate operating companies having their own IT systems and reporting
tools. It was unable to report consistent and timely information across operating
units. By developing a performance management capability, key management information
such as customer profitability could be segmented to support better business
decision-making at a country level while enabling data to be aggregated for
regional and global reporting. As a result of improved customer profiling
and reporting, the business unit increased its profitability and delivered
overall savings of $140 million annually to the parent company.
- Based on this success, the company applied the concept to its retail division,
where it was experiencing intense competition for fuel sales and eroding profit
margins. Non-fuel sales needed to be increased to generate higher margins
and growth. However, disparate IT systems made the company unable to access
product performance or category management information. By implementing a
common reporting solution, category managers got a standard view of sales
from thousands of retail sites. The results revealed that 20 percent of non-fuel
items generated 94 percent of sales. Armed with these data, the company achieved
a 10-percentage-point increase in non-fuel sales and gross margins.
- In the aftermath of a major acquisition, another global oil producer needed to integrate its existing lubricants business with the newly acquired company. At the same time, it wanted to shift management focus from cost-plus to a value-based approach similar to that used in consumer packaged good companies. By deploying a performance management capability, the company created a common information resource while maintaining regional autonomy for local reporting requirements. A centralized reporting solution was implemented rapidly across the global organization to meet the information requirements of the finance, supply chain, and marketing functions. Web-based tools were used for the business units to submit data and for general administration. Standard and ad hoc reports enabled consistent and comparative analysis of key measures so that the merged business could be managed effectively, both globally and locally. A successful integration of the two businesses after the acquisition realized significant synergy savings.
The Continued Evolution
Companies are coalescing around a vision for management information that has a variety of common elements. Generally agreed-upon characteristics of an effective decision-support capability start with housing information using a common taxonomy at a level of common use. A major chemical company worked to define common units of measure, product codes, customer codes, and other key data elements globally. This enabled the company to define economic value created by products in geographic regions by key customers and by a variety of other dimensions.
Commonality must be supported by processes used to compile information so that it is trusted as accurate. Tight integration with source systems, strong central governance, and internal controls are all part of ensuring that when end users access information, they believe it to be true. Too often, review meetings start with a discussion around the veracity of the performance at hand. Moving up the hierarchy of needs requires organizations to construct information-aggregation processes that ensure integrity. High-integrity information enables an organization to divest of competing sources of the same topical information. Eliminating redundant data marts and reporting processes ensures that management is working off of a single version of the truth, a critical but elusive capability for many companies.
Lastly, information is aggregated to benefit decision-makers. Given that decision-making happens at all levels of an organization, an effective performance management information environment provides broad access to a wide community of users through self-service and intuitive portals that facilitate the discovery process without extraneous aggregation effort.
Many companies have yet to achieve these basics. However, leading practice continues to evolve. Increasingly, technologies are available that enable companies to leverage information delivery techniques, such as alerts and data visualization, which increase the speed of recognition and assimilation. Companies also are developing performance management capabilities that support a cascading metrics approach; they're hardwiring strategy to operations with information architecture constructed around a common view of how the business is to be managed. Corporate strategy is manifested in how frontline operations are measured. Information is increasingly forward-looking, with everything positioned in terms of where we will be rather than where we have been.
Content is evolving as well. The line is blurring between financial and operational information, embedding in information delivery tools the ability to rapidly derive cause-and-effect relationships between business drivers and business results. No longer is the P&L important; the drivers behind the P&L are what is measured and managed. As information services evolve, the potential to include external information increases, providing both information and context. Managers should feel differently about a 500-basis-point drop in operating margin if they know that five of their top competitors experienced a greater decrease during the same period. The power of infusing a company's internal information with external information that measures shifts in cross-company supply chains, industry direction, and competitors' positions has the potential to be the single biggest evolution in management information since the development of the database (see Figure 1).
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Figure 1: Critical Performance Information Components
The ability to leverage information to create insight into business performance will create competitive advantages in cost structure, go-to-market strategy, and supply chain management that separate successful businesses from those getting the steak knives, or worse. Business insight is the capability of efficiently organizing and analyzing financial, operational, and external information, enabling decision-makers to understand and act, before their competitors, to create sustainable shareholder value.
Executives use enhanced information capabilities to add value in all key management processes. Strategic decision-making occurs with more accurate and relevant information. Organizations are better aligned through the communication and monitoring of key value drivers. Product portfolios and profitability are optimized. Customer offerings, product cross-selling approaches, and pricing strategies are tailored according to superior segmentations and analyses of sales information and customer behavior. Marketing effectiveness is improved based on the impact of a customers' lifetime value. Credit policies are better managed on the basis of customers' total global relationship with the business. Supply chains become more visible, allowing global and regional sourcing strategies to be pursued. Working capital and taxes are minimized and global foreign exchange positions optimized.
Responding to the Challenge
How do companies begin to develop the capability to better leverage information and create competitive advantage? With a focus on business value. The first, and perhaps most important, best practice for achieving business insight is to base the design of business insight capabilities on a rigorous analysis of what drives value in your organization. What information needs to be at the fingertips of decision-makers to keep them better informed, help them make better decisions faster, and to support tactical performance reviews?
In many organizations, technical architecture and data availability determine what information decision-makers have access to. However, the best results are achieved when the decision-makers' information needs drive the information strategy, rather than the information that is readily available to IT. The information needs of critical management processes come first, followed by what content to include (see Figure 2). The process of analyzing your competitors, for example, could include not only the traditional competitive wins and losses but also market dynamics and industry trends — valuable external information that provides context for future action. The information needs of each management process and the resulting content required drive the most appropriate access and delivery channels and, finally, data management and technical architecture. Value comes first, with technology being an enabler, not a destination.
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Figure 2: Value-Driven Information Architecture Development
For companies that have yet to develop business insight capabilities, there are a number of responses.
First, respond with urgency. Management needs to take decisive action, making tough decisions, driving development and adoption of a common framework for performance management, isolating those elements that are truly business-unit or region specific, and standardizing cross-company. Demand adherence to a corporate standard and create governance structures to manage data standards, IT development, and other critical success factors.
Second, respond with entirety. Address the entire management cycle. Integrate strategic planning, business planning, and target setting with performance management. Companies must become more disciplined in holding the organization accountable for stated operating objectives and the capability developments associated with investment. This implies that performance management is grounded in targets, plans, and initiatives built into business plans. Companies that develop performance information capabilities divorced from planning processes miss the opportunity to strengthen accountability and focus. Many mid-level managers complain of having to prepare voluminous reports in response to seemingly random corporate queries. If, rather, there is agreement on what will be measured at each level of the organization, and those measures cascade from and relate to the corporate strategy, and they are the basis for both planning/forecasting and performance reporting, management discussion and query tends to have greater focus and impact, and responses require less organizational effort.
Third, respond with vision. Develop a three- to five-year target information architecture for your business to support decision-makers' information requirements, then be prepared to adapt the plan as the business evolves. Be able to dissect and articulate the plan for various components. Armed with a performance management framework and prioritized view of information, have an end state in mind for how the enterprise will manage data. What will be held consistent corporate-wide rather than allowed to vary by business or geography? How will data ownership be assigned in the organization and what processes are required to maintain quality, controls, and integrity? Have a view as to how legacy applications will integrate with a central data store. What integration technologies will be required? Develop an understanding of what performance management applications will be employed and how they will interact with the data repository. Will you need an activity-based costing engine to derive product and customer profitability, or will more simplistic allocation schemes be employed? How will your planning applications integrate with your performance reporting applications? Have a plan for how information will be distributed throughout the organization. How will standard reporting be automated and pushed out to the organization? How will online analytical processing (OLAP) technologies be employed to streamline and support high-powered analytics? Only by having a vision that informs investment in specific capabilities, coupled with a coherent program that governs project direction toward a common goal, will you create an integrated information architecture that dramatically improves the organization's access to and use of information (see Figure 3).
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Figure 3: Components of Information Architecture
Lastly, respond with action. Start taking the steps now to move your company in the right direction. A number of short-term actions can be taken to begin developing the competence in managing an enterprise performance information capability.
Begin by moving the organization toward common management metrics and planning processes. Establish corporate key operating metrics. Drive management discussions around these metrics, and demand that individual components of the business use metrics aligned with the stated corporate metrics. While this concept has been an established leading practice for over a decade, many companies have yet to take this crucial step.
For performance reporting and analytics, determine the most urgent management process information needs and start there. For some organizations, procurement processes yield significant, measurable value from improved information. In the Unilever example, customer and product profitability were determined to be of high value as well. Create a positive case study within a specific management process to serve as an internal reference for the power of improved decision support.
With your data architecture, begin the process of creating a common taxonomy. Start with the most valuable elements, such as customers. Launch projects to standardize data companywide and institute organization control and data ownership. Drive consolidation and rationalization of data stores, controlling the rampant development of data warehouses and data marts. Constrain IT budget expenditures that do not align with the target end state. This may mean forcing individual user groups to postpone the gratification of constructing their one-off reporting tools.
Drive toward an integration standard. Select, pilot, and demonstrate the power of an integration technology. In operational applications, allow for variation across division and geography where required, but control nonessential variation in application development and data structures.
These short-term measures can begin to shift the organization's thinking about the management of information and create the discipline associated with leading practice performance information.
Looking Forward at Last
For far too long, performance management and reporting has been a backward-looking exercise or a guessing game. Finance executives have analyzed the impact of prior decisions and results to determine how future plans should be developed to improve results or decrease risks. They have monitored trends for key business drivers and attempted to identify the causes of variance in operating performance.
Business insight allows you to look ahead. In the near term, you can easily identify trends, key drivers, and other factors that influence chosen business strategies. You can make capital allocation decisions to develop an investment portfolio aligned with your strategies. Longer term, a robust business insight capability delivers even more, placing CFOs front and center as the chief executive's primary strategy resource. Based on corporate positions and projections of the major factors driving strategy, you can create long-term business strategies. Business insight enables you to choose appropriate industries in which to compete, and it enables you to identify the major factors that will influence your company's ability to grow, compete, and remain profitable. Equally important, you can develop credible early warning systems that identify challenges when company positions are incorrect.
As the chief financial steward of a nimble organization, you will more effectively deliver the critical information that decision-makers and frontline operators need to make faster, more effective decisions. Based on better insight into internal and external business circumstances, your company will understand, act, and prevail, conquering competitors and creating significant (and sustainable) shareholder value.
