Taking Data from Metrics to Analytics
9/15/2009
By David Rubin
Despite an ever-expanding universe of available information, many managers express frustration over the lack of easy access to accurate, timely, and meaningful information.
Traditionally, companies have focused their need for information on relatively simple financial and operational reporting aspects such as revenue, profit, and cash flow information—the barometers of corporate performance. Breakdowns of this information generally include current period, and year-to-date comparisons to previous periods. This information, however, is purely historical and provides little insight into the issues that may be creating a performance problem.
To bring their information platforms to the next level, many management teams have developed a “balanced scorecard”* approach—a set of metrics used to align business activities with the strategic vision of the organization. A well-developed set of performance metrics is an important and powerful management tool that functions as a compass to monitor the strategic and operational performance of a company. However, many managers who have developed a consistent set of metrics continue to search for an effective information system to distill and interpret the data. It appears we have developed what seems to be an insatiable appetite for information and we continually create more reports, run endless queries, and build hundreds of Excel pivot tables. The problem is that the world refuses to act in the predictable manner required of static information or metric systems. In the real world, we need to know what we need to know when we need to know. This is compounded by the issue that we don’t know what we need to know until we need to know it.
Although metrics may provide a warning signal of potential issues, skilled managers need to find a solution that allows them to dig into their data and leverage their experience to gain insight into trends, issues, and the root causes of problems. We call this level of information analytics. Until recently, business intelligence technologies required the development of a set of assumptions regarding the order in which a manager would drill through data to create an analytics toolset. Today, we can leverage the availability of inexpensive computing power and memory with advanced in-memory technology to drive through data in more natural ways. This allows the cost and time associated with developing powerful and intuitive information dashboards to drop dramatically.
Through analytics, managers can now inexpensively leverage data from multiple disparate sources such as enterprise risk management, customer relationship management, and human resources systems. The data can be analyzed in intuitive ways that leverage the information available and the experience of the user by letting them drill through the information in natural ways. For example, one company wanted to be able to identify the gross margin on their products based on any number of variables including actual or potential changes in raw material costs, increases or decreases in sales volume, and changes in price. In the past, this type of solution would have taken months to develop. Now this can be accomplished in a matter of days. A global professional services firm wanted insight into the performance of specific services on a global and regional basis based on a variety of currencies (something they could not achieve with traditional reporting tools). Another company wanted to determine their outstanding unbilled WIP balance trends based on a variety of variables with the objective of reducing the average unbilled WIP. More importantly, these analyses take seconds with no spreadsheets and the company can rapidly respond to competitive pressures in creative ways.
Combining traditional management information with metrics and analytics leverages an organization’s data investment, which can create a distinct advantage for the company as it is able to spot trends and issues ahead of the competition.
David Rubin is a principal at Cohn Consulting Group. He can be reached at drubin@jhcohn.com or 877-704-3500.
* The Balanced Scorecard, Kaplan & Norton, 1996, Harvard Press