Published in DM Review Exclusive Online Content in August 2004.|
Printed from DMReview.com
Maximize Business Performance: Industry Dashboards to the Rescueby Craig Schiff
One of the large business performance management (BPM) vendors recently ran a "Dare to Dashboard" challenge. The point they sought to make was that with their software, setting up a dashboard is quick and easy. That may be true, but setting up a dashboard is not the difficult part. Populating it with relevant metrics is a different story. A dashboard is mainly an interface, a display vehicle for your scorecard of key metrics. Figuring out what to include on your scorecard - now that's tough.
Many good articles have been written about what makes a key metric and how to determine key metrics for your organization. The problem is that the authors don't know your organization. The senior executives who need to define the company strategy, goals, drivers and key metrics that follow are usually tied up with more pressing business matters. Even if you could get them to spend the time to focus on this, there may not be universal agreement. So what can you do? Simply abandon all hope for an executive dashboard? Fortunately, a relatively new invention, the "industry dashboard," may just save the day.
Before we look at the specifics of industry dashboards, let's step back and review some dashboard basics. An executive dashboard sits at the top of a BPM system as the presentation front end, displaying the key metrics on which the company wants everyone to focus. This on-screen display of metrics often resembles the driver's console in a car. It is intended to give you a quick snapshot of the current status of your business, including recent positive or negative trends. It may contain gauges and indicators that resemble a speedometer, gas level indicator or odometer. These gauges and dials typically represent several key performance indicators (KPIs) of strategic importance.
The underlying idea is that with one quick glance, a manager can grasp what is really going on in her business, be warned of new problems and react quickly. The dashboard of today is more real-time, interactive and accessible than the old executive information systems of yore that they most closely resemble.
Dashboards and scorecards are related but quite different. A scorecard is a collection of metrics, and the dashboard is one way to display scorecard-type information. A balanced scorecard is a scorecard organized into four distinct perspectives of a company's business operations (learning and growth, business process, customer and financial).
We said the dashboard should contain KPIs, which are often confused with metrics, so let's clear that up. A metric is simply a measure of anything, such as the number of cars passing through a fast-food restaurant. A KPI is a metric that matters strategically, such as the number of parents badgered by their three-year-olds to spend money at the fast food restaurant due to an aggressive promotional campaign underway with a new media partner. There are plenty of metrics that don't matter much, or that cannot be used effectively. Relevant KPIs will enable you to take specific, corrective actions if needed to adjust future performance. Irrelevant performance metrics are a waste of time and money, and shouldn't have a home on your dashboard.
If you are implementing a balanced scorecard, there are other considerations. Kaplan and Norton, the grandfathers of the balanced scorecard phenomenon, have stated that, "The measurements on a balanced scorecard should consist of a linked set of objectives and measurements that are consistent and mutually reinforcing. The metaphor should be a flight simulator rather than a collection of indicators on a dashboard."
The dashboard, by the same token, should not be a hodgepodge that lumps together competing interests of different departments. It should represent the overall strategy, and nothing else.
Additionally, the KPIs on the dashboard must be chosen for "action-ability." Test the proposed dashboard by asking this tough question about each KPI, "How will that measure be used?" The response will often be that it is to ensure performance stays within an acceptable range. In that case, follow up with, "And if we're out of range, what action would we take to correct that variance?" This action plan is very important. Measurement without action provides little value. It is pointless and embarrassing if company meetings take place around dashboards where most of the dials show variances in blazing red, but are shrugged off or ignored. If that happens, then you've missed the real business drivers - or the people in that room don't feel ownership of these measures.
Dashboards are most useful when they present leading or current indicators, not lagging indicators. Financial metrics are typically lagging indicators, but executives place much more trust in financial measures. Non-financial measures are more likely to show what's coming down the road, but managers are often unwilling to risk their careers based on a non-financial indicator. Dashboards are made for "managing ahead," but the users need to have a certain degree of trust that they present valid information.
How do you do dashboards right? People close to the strategy within your company should take part in determining the KPIs. Your industry counterparts have probably already done some of the work and tested KPI sets that are relevant and valuable to you. Which brings us back to the industry dashboard. What is it? An industry dashboard comes pre-populated with best practice metrics for your industry. A couple of important facts are feeding this trend. It is difficult for many companies to devote the executive time it takes to properly evaluate and develop a corporate scorecard. On the other hand, approximately 70 to 80 percent of the key metrics for a company are nearly identical to those of other companies in their industry. The more regulated the industry, the more metrics they have in common. What an industry dashboard does, then, is enables you to jump-start your dashboard initiative. With much of the foundation work complete, you can now focus your attention on the smaller group of KPIs that are unique to your business based on your competitive situation and growth stage. You can see an example of an industry dashboard at http://www.bpmpartners.com/indexpack.shtml.
The industry dashboard also has a lower total cost of ownership when compared to buying a generic product and populating it yourself. Whether you use your own personnel or consultants, the industry dashboard (being partly pre-populated) is a tremendous savings in time (and therefore dollars) when it comes to determining KPIs and programming them into the dashboard.
While there are major advantages, the industry dashboard is not for everyone. Large, complex organizations may not be satisfied with the pre-built metrics. For small to mid-size companies, however, with its speed of implementation and lower cost, the industry dashboard is often the ideal solution. For the larger companies, it may serve as a prototype, a comparatively low-cost way to test the viability of an executive dashboard in their organizations before making a major investment in lengthy executive sessions, consultants and software to build a custom solution for their company.
What's next? Current dashboards often measure performance by comparing actual results to plan data. If the key metrics in your industry become standard and consistent, then it will be easier to benchmark your performance against competitors. Today's industry dashboards for healthcare and financial services are the most developed because both are industries with consistent, widely accepted measures. Over time, other industries will be added.
In summary, don't be put off by the difficulty in implementing the scorecard that feeds an executive dashboard. With the increasing availability of industry dashboards, more companies will be able to get the benefits they offer. It will no longer be a game reserved for the few that have the time and resources it takes to do scorecards right.
Craig Schiff, a pioneer in business performance management, helped create and define the space known first as analytic applications, then business intelligence and now BPM. He has published several articles, spoken at numerous BPM conferences. He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Schiff may be reached at email@example.com or (203) 359-5677.
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