MGS Business Intelligence Business Performance Management Apr 16, 2015

MGS 8020 Business Intelligence Business Performance Management Apr 16, 2015

BPM Architecture and Applications
Agenda Business Performance Management BPM Methodologies BPM Architecture and Applications Appendix

Business Performance Management (BPM) Overview
A real-time system that alert managers to potential opportunities, impending problems, and threats, and then empowers them to react through models and collaboration BPM and BI Compared BPM is an outgrowth of BI and incorporates many of its technologies, applications, and techniques / BPM is part of the daily work of managers BPM is an enterprise wide strategy that seeks to prevent organizations from optimizing local business at the expense of overall corporate performance Summary of BPM processes BPM encompasses a closed-loop set of processes that link strategy to execution in order to optimize business performance, which is achieved by: Setting goals and objectives Establishing initiatives and plans to achieve those goals Monitoring actual performance against the goals and objectives Taking corrective action

Business Performance Management (BPM) The Big Picture
Business Strategy Business Objectives Business Metrics Key Process Indicators 1. Balanced Scorecard: Financial Customer Internal Business Process Learning & Growth Business Analysis: Workout Sessions Catalyst Sessions Leadership Planning SOAR Planning Service/ Process Design Strategic Initiatives Process Improvement Lean/ Waste Reduction Just Do It 2. Strategic Improvement Goals: Based on Key Process Indicators Tied to Business Metrics 3. Prioritize Opportunities 4. Identify Specific Projects, Resources Design for Six Sigma Master Black Belts Black Belts PMO MBB, BB, PMP Core Six Sigma Green Belts 8-D, KT Problem Solving BB, GB or Trained Team Ldr Lean Thinking Kaizen Six Sigma Select Tools Trained Team Alternate way of viewing the big picture: Strategize Plan Monitor Act and Adjust These four steps map onto the four steps listed in the slide 4

Strategize: Where Do We Want to Go?
Strategic planning Tasks common to the strategic planning process: Conduct a current situation analysis Determine the planning horizon Conduct an environment scan Identify critical success factors Complete a gap analysis Create a strategic vision Develop a business strategy Identify strategic objectives and goals Critical success factors (CSF) Key factors that delineate the things that an organization must excel at to be successful in its market space Strategic vision A picture or mental image of what the organization should look like in the future

Strategize: Where Do We Want to Go?
Strategic planning Strategic objective A broad statement or general course of action prescribing targeted directions for an organization Strategic goal A quantified objective with a designated time period Four sources for the gap between strategy and execution: Vision People Management Resources

Plan: How Do We Get There?
Operational planning Operational plan Plan that translates an organization’s strategic objectives and goals into a set of well-defined tactics and initiatives, resources requirements, and expected results Tactic-centric plan—tactics are established to meet the objectives and targets established in the strategic plan (used by best practices organizations) Budget-centric plan—a financial plan or budget is established that sums to the targeted financial values Financial planning and budgeting An organization’s strategic objectives and key metrics should serve as top-down drivers for the allocation of an organization’s tangible and intangible assets Resource allocations should be carefully aligned with the organization’s strategic objectives and tactics in order to achieve strategic success

Monitor: How Are We Doing?
A comprehensive framework for monitoring performance should address two key issues: What to monitor How to monitor Diagnostic control system A system that has inputs, a process for transforming the inputs into outputs, a standard or benchmark against which to compare the outputs, and a feedback channel to allow information on variances between the outputs and the standard to be communicated and acted upon Pitfalls of variance analysis The vast majority of the exception analysis focuses on negative variances when functional groups or departments fail to meet their targets Rarely are positive variances reviewed for potential opportunities, and rarely does the analysis focus on assumptions underlying the variance patterns

Monitor: How Are We Doing?
Diagnostic Control System Schematic Business Strategy Critical performance variables Goals Inputs Process Outputs Adjustments

Act and Adjust: What Do We Need to Do Differently?
Hackett Group’s benchmarking process divides planning and management reporting into four subprocesses: Strategic planning Operational and financial planning Reporting Forecasting Each subprocess is evaluated in terms of five dimensions of efficiency and effectiveness: Strategic alignment Partnering Process Technology People and organizations

Act and Adjust: What Do We Need to Do Differently?
The Hackett Group’s benchmarking results indicate that world class companies: Are significantly more efficient than their peers at managing costs Focus on operational excellence and experience significantly reduced rates of voluntary employee turnover Have hybrid sourcing strategies that combine shared services and outsourcing Provide management with the tools and training to leverage corporate information and to guide strategic planning, budgeting, and forecasting Closely align strategic and tactical plans, enabling functional areas to contribute more effectively to overall business goals Paucity of analysis The overall impact of the planning and reporting practices of the average company is that management has little time to review results from a strategic perspective, decide what should be done differently, and act on the revised plans

Performance Measurement
Performance measurement system A system that assists managers in tracking the implementations of business strategy by comparing actual results against strategic goals and objectives Problems with existing performance measurement systems The most popular system in use is some variant of the balanced scorecard (BSC) BSC methodology is a holistic vision of a measurement system tied to the strategic direction of the organization and based on a four-perspective view of the world: Financial measures supported by customer, internal, and learning and growth metrics The drawbacks of using financial data as the core of a performance measurement Financial measures are usually reported by organizational structures and not by the processes that produced them Financial measures are lagging indicators, telling us what happened, not why it happened or what is likely to happen in the future Financial measures are often the product of allocations that are not related to the underlying processes that generated them Financial measures are focused on the short term and provide little information about the longer term

Effective performance measurement Basic ingredients of a good collection of performance measures Measures should focus on key factors Measures should be a mix of past, present, and future Measures should balance the needs of shareholders, employees, partners, suppliers, and other stakeholders. Measures should start at the top and flow down to the bottom Measures need to have targets that are based on research and reality rather than be arbitrary

An effective performance measurement system should help: Align top-level strategic objectives and bottom-level initiatives Identify opportunities and problems in a timely fashion Determine priorities and allocate resources based on those priorities. Change measurements when the underlying processes and strategies change Delineate responsibilities, understand actual performance relative to responsibilities, and reward and recognize accomplishments. Take action to improve processes and procedures when the data warrant it. Plan and forecast in a more reliable and timely fashion

BPM Methodologies Balanced scorecard (BSC)
A performance measurement and management methodology that helps translate an organization’s financial, customer, internal process, and learning and growth objectives and targets into a set of actionable initiatives The meaning of balance BSC is designed to overcome the limitations of systems that are financially focused Nonfinancial objectives fall into one of three perspectives: Customer Internal business process Learning and growth In BSC, the term balance arises because the combined set of measures are supposed to encompass indicators that are: Financial and nonfinancial Leading and lagging Internal and external Quantitative and qualitative Short term and long term

Balanced Scorecard Perspectives
1. Financial: How do we look to our shareholders and how should we look? 2. Customer: How do our customers see us and how should we appear? 3. Internal Business Process: What should we do that is excellent and how are we doing? 4. Innovation and Growth: Can we continue to improve and add value through employee and organization innovation and learning? Aligning strategies and actions - BSC enables an organization to align its actions with its overall strategies through a series of interrelated steps: Identify strategic objectives for each of the perspectives (maybe 15 to 25 in all). Associate measures with each of the strategic objectives; a mix of quantitative and qualitative should be used. Assign targets to the measures. List strategic initiatives to accomplish each of the objectives (i.e., responsibilities). Link the various strategic objectives through a cause-and-effect diagram called a strategy map 17

BPM Methodologies: Strategy Map
The economic model of key levers driving financial performance The identification of targeted customer segments and their value proposition The process-focused view of the business using the value chain The intangible assets necessary to drive performance Financial Perspective Return on Investment A Strategy Map is a visual display that delineates the relationships among the key organizational objectives for all four BSC perspectives Revenue Strategy Productivity Strategy Sources of Growth Sources of Productivity Customer Perspective Price Quality Time Function Image Relationship Internal Process Perspective Build the Brand Make the Sale Deliver Product Service Exceptionally Learning & Growth Perspective Technology Infrastructures Staff Competencies Climate for Action + MGS 8020 Methods of Business Intelligence 18

BPM Methodologies Six Sigma
A project-based performance management methodology aimed at reducing variation (thus defects) in business process opportunities Lean A value-stream-based performance management methodology aimed at reducing non-value-added waste in a business process opportunities Lean Six Sigma A hybrid methodology combining the business process improvement tools and techniques of Lean and Six Sigma to accommodate business needs in broader range of applications than each methodology can individually accomplish

BPM Methodologies Lean Six Sigma The DMAIC performance model
A closed-loop business improvement model that encompasses the steps of defining, measuring, analyzing, improving, and controlling a process Limitations of Lean Six Sigma The lack of integration among the various Lean Six Sigma projects across the enterprise The failure to institute the roles required to support the methodology Not every business problem lends itself to the DMAIC approach Six Sigma Limitations of Six Sigma The lack of integration among the various Six Sigma projects across the enterprise

System architecture The logical and physical design of a system A BPM system needs three components in order to contribute to the successful implementation of strategy: Database tier Application tier Client or user interface Database tier designs include: Transactional data stores Application data marts Centralized data warehouse

BPM applications: Budgeting, planning, and forecasting Profitability modeling and optimization Scorecard applications Financial consolidation Statutory and financial reporting BPM user interface The user interface is the bridge between the BPM applications and the end user The Web browser is currently the primary tool for accessing information in a BPM system Spreadsheets are a popular alternative when a rich user interface is needed to support the analytical and computation needs of the user BPM interfaces should provide is guidance to the end user

Performance Dashboards
Dashboards and scorecards both provide visual displays of important information that is consolidated and arranged on a single screen so that information can be digested at a single glance and easily explored

Architecture of a Performance Dashboard
Business Architecture Integrated BI capabilities Monitoring (dashboards, scorecards, KPIs, alerts) Analysis (dimensions, hierarchies, slice/ dice) KPI = key performance indicator Business architecture is the infrastructure to maintain the performance dashboard, ensuring data is collected and incorporated, and Planning Reporting (mgmt, ops reports) Common BI architecture/ BI platform (security, metadata, file formats, services) Common data-delivery architecture (data warehousing, data marts, distributed queries, manual) MGS 8020 Methods of Business Intelligence 25

Simplistic sample scorecard
Quality Drilldown Productivity Drilldown Skip Dashboard 26

Dashboards versus scorecards Performance dashboards Visual display used to monitor operational performance Performance scorecards Visual display used to chart progress against strategic and tactical goals and targets Performance dashboard is a multilayered application built on a business intelligence and data integration infrastructure that enables organizations to measure, monitor, and manage business performance more effectively (Eckerson)

Dashboard design Three types of performance dashboards: Strategic dashboards Operational dashboards Tactical dashboards “The fundamental challenge of dashboard design is to display all the required information on a single screen, clearly and without distraction, in a manner that can be assimilated quickly" (Few, 2005)

What to look for in a dashboard Use of visual components (e.g., charts, performance bars, sparklines, gauges, meters, stoplights) to highlight, at a glance, the data and exceptions that require action. Transparent to the user, meaning that they require minimal training and are extremely easy to use Combine data from a variety of systems into a single, summarized, unified view of the business Enable drill-down or drill-through to underlying data sources or reports Present a dynamic, real-world view with timely data refreshes, enabling the end user to stay up-to-date with any recent changes in the business. Require little, if any, customized coding to implement, deploy, and maintain

Business Activity Monitoring (BAM)
A real-time system that alert managers to potential opportunities, impending problems, and threats, and then empowers them to react through models and collaboration BAM depends on a wide range of technologies working in concert including: ETL technology Process modeling technology Rules engines Messaging servers in-boxes, portals, dashboards, and Web services

Business Activity Monitoring (BAM)
Benefits of BAM Real-time data access in a usable format Access to tools to collaborate and model the problem, leading to a quick solution BAM Issues Executives fail to consider the readiness of technology or of the business processes they want to monitor Change management issues are paramount Effective BAM requires working closely with the business units to identify the key indicators (CSF) and analytical techniques that provide reliable early warnings of impending issues Executives must let the responsible managers on the frontlines deal with their problems and issues in a timely manner before reacting

Metrics attributes (K. H. Rose, 1995)
Customer-centered indicators that provide value to customer (quality, dependability, timeliness) associated with internal work that address system cost, waste reduction, team work, innovation, customer satisfaction Measure performance across time (trends, not snapshots) Provide information directly at level they are applied (no further processing) Linked to business mission, strategy, and actions Contribute to organizational direction and control Collaboratively developed by those who provide, collect, process and use the data 32

Example: Business Intelligence Evolution
MGS 8020 Methods of Business Intelligence 33

An EIS is … An EIS is a special type of DSS designed to support decision making at the top level of an organization. An EIS may help a CEO to get an accurate picture of overall operations, and a summary of what competitors are doing. These systems are generally easy to operate and present information in ways easy to quickly absorb (graphs, charts, etc.). The EIS will allow the executive to drill down from any figure to see its supporting data. The executive can select a level of detail (for example, sales by state) if further investigation is needed. This top down approach should lead to better decisions. It is not a substitute for other computer-based systems. The EIS actually feeds off these systems. It does not turn the executive suite into a haven for computer “techies”. It should be viewed by senior management as a trusted assistant who can be called on when and where necessary. 35

Types of information executives use
Accounting systems that relate revenue to specific operational areas are more important than traditional accounting systems. Information about markets, customers and suppliers is valuable in determining strategy. The information required is often spread across several computer systems and located throughout the organization. The information used is often short-term and volatile. Information that represents key business performance indicators (metrics) 36

EIS hardware components
An EIS requires no specific or unique hardware. A key issue is to be sure that the EIS components optimize and conform to the organization’s computing resources. The system must be configured so that the resources are well-matched to the executives using them. 37

EIS software components
In contrast to hardware, software is usually highly specialized to the problem domain. This specialization is often achieved by using off-the-shelf components for the EIS backbone, and customized modules to meet specific needs. Lotus Notes is a good example. It can be used alone, or can accommodate third-party plug-in modules. SAS is another robust system. [SAS interactive tour] open the interactive tour choose sampler choose “Dashboards” 38

EIS limitations Cost: a 1991 survey showed an average development cost of $365,000 with annual operating costs of $200,000. Proportion still holds today, but higher $$. Technological limitations: the EIS needs to be seamlessly integrated into the company’s current IT architecture, so it is a formidable challenge to the designer. Organizational limitations: the organizational structure might not be right. 39

Organizational limits
Agendas and time biases: the EIS represents only part of executive’s total agenda, and it may become easy to be overly reliant on it. Managerial synchronization: heavy reliance on the timely, ad-hoc, EIS reports may disrupt stable, well-established reporting cycles. Destabilization: fast EIS response may cause the executive to react too swiftly, leading to less stability in the organization. 40

EIS may fail because … Lack of management support Political problems
Developer failures Technology failures Costs Time 41

EIS of tomorrow The intelligent EIS: advances in AI technology will be deployed in the EIS The multimedia EIS: multimedia databases will allow future integration of text, voice and image The informed EIS: future EISs will make wider use of data external to the company The connected EIS: high-bandwidth communication allows greater interconnectivity 42

Performance Management: The Balanced Scorecard
Purpose of Balanced Scorecard: A method of implementing a business strategy by translating it into a set of performance measures derived from strategic goals that allocate rewards to executives and managers based on their success at meeting or exceeding the performance measures. 43

Performance Management: The Balanced Scorecard
Reasons for the Need of a Balanced Scorecard Focus on traditional financial accounting measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves. Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly. (Example: controls in jet cockpit for pilot) Too many measures, such as hundreds of possible cost accounting index measures, can confuse and distract an executive from focusing on important strategic priorities. The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy. 44

Incentive Compensation for Executives with the Balanced Scorecard
Executive Bonus Pool is designed as a percentage of Base Salary The bonus pool represents potential earnings from the bonus for an executive if all performance measures are achieved Partial success with meeting performance measures results in the allocation of a bonus representing a lesser amount of the total potential bonus. Example: The bonus pool for a CEO equals 100 percent of salary. Range of bonus equals 0 to 100 percent of salary depending on success of CEO performance. 45

Example: Automobile Company Balanced Scorecard Reward Matrix for Bonus
Category Measure Weighting Financial (50%) EVA 25% Unit Profit 15% Market Growth 10% Customer (20%) Customer satisfaction survey 10% Dealer satisfaction survey 10% Internal (20%) Above average rank on Process industry quality survey…… 10% Decrease in dealer delivery cycle time……….. 10% Innovation (10%) Suggestions/employee 5% and Learning Emp. satisfaction survey 5% 46

The Balanced Scorecard
Critical Thinking Questions 1. What happens to the balanced scorecard when the strategy changes? (example: moving from a “growth” to an “extract profits” strategy) 2. How should resistance by executives or managers to new measures be handled? 3. What if executives or managers sub-optimize and only focus on categories in the reward matrix with the largest payoff – such as EVA and Customer Satisfaction? 47

Integration into Strategic Planning
Define Key Strategic Performance Metrics Articulate Core Issues and Strategies Identify Strategic Improvement Goals (SIGs) Identify and prioritize specific improvement projects to impact the SIGs Create active Lean Six Sigma projects Margin Improvement Earnings per Share Growth Revenue Growth Define Key Strategic Business Performance Metrics New Service Development Marketing Effectiveness Brand Management Market Shares Growth Product Reliability Manufacturing Productivity Supply Developing People Articulate Core Enterprise Issues and Strategies Identify Strategic Improvement Goals Grow Revenues in key markets by 20% by Q3-03 Improve yield on product x by 10% by YE 03 Reduce cycle time on key process Y by 15% by YE 03 Develop & produce product Z by Q3-03 Identify and Prioritize Specific Improvement Projects Lean Projects “Just Do Its” DFSS DMAIC Create Active Six Sigma Projects MGS 8020 Methods of Business Intelligence 48

Key Challenges with Integration
Be sure to deploy plans from the top down, so that employees understand that top leadership vigorously and enthusiastically support Six Sigma objectives Put effective communications channels in place so that deployment plans and objectives are communicated to all parts of the organization in clear, consistent, and frequent ways Be certain that you put adequate leadership ground forces in place to help Six Sigma project teams punch through organizational roadblocks from successful project launches to completion Assign specific financial goals to each Six Sigma project that the you undertake Put effective training in place MGS 8020 Methods of Business Intelligence 49

Leadership Challenge Disciplined, structured logical techniques, along with knowledge sharing with coaches, and measurement will bring positive results The results are enhanced if management steps up and supports it’s people The results are even better if management breaks down barriers and creates a culture where it is unacceptable to have process knowledge and not share it The results are phenomenal if management focuses the work in areas that are important to customers MGS 8020 Methods of Business Intelligence 50

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