It was during a seminar a few years ago, organized by a leading software vendor, that I listened to the IT head of a large organization, a customer, about implementation of Business Intelligence (BI) suite in their organization. This lecture was a part of the key note session and it had a large attendance. The speaker spoke at length about the project describing how they had been able to generate multiple reports for decision making. Following the talk, a person from the audience raised a pertinent question. Remarking that he did not hear any reference to Key Performance Indicators (KPIs) or its equivalent, he wanted to know if they had identified critical areas in the organization which they wanted to address with information analysis. The speaker could not adequately answer the question and admitted that they had reserved such an approach for the next stage.
I later discovered that this was nothing new and that many organizations implementing BI use it for generating standard MIS reports that they have been using for a while. Being familiar using such reports they don’t see the need for a change. The advantage they derive is easy processing of reports, greater accuracy and timely reporting. The question is if they just get a little more with this wonderful piece of software, is it really worth investing so much and going through the entire grind of implementing BI.
One of the customers that I am currently advising was going through a similar phase. On my advising them to consider BI, they promptly agreed to evaluate, negotiate and buy a package. The implementation partner they spoke to lead them through the familiar approach of taking out routine reports first. The client also seemed to agree as they as they were in a familiar territory. I had then to intervene and explain to them how BI could help them address specific business challenges rather than using this tool to generate reports they already get out of the old systems. The ROI factor hit the CFO mind and he then supported the need to define KPIs for all functions before starting with BI.
The need to define KPIs
Businesses use IT to help enhance their efficiency and effectiveness in dealing with competition and market forces and information plays a key role here. Information however needs to be targeted and this can be done only if we identify the key performance parameters that we like to be met and work out a way to need to monitor them regularly. Let us first understand what KPIs are.
A key performance indicator (KPI) is a business metric used to evaluate factors that are crucial to the success of an organization. KPIs differ for every organization, for example business KPIs may be net revenue, customer loyalty metric, customer-wise profitability, sales performance, performance against competition etc.
Before KPIs can be identified, organization should conduct an exercise defining business objectives, working out measures for success, outlining approach for remedying variances etc. KPIs help an organization assess progress toward the declared goals.
To make the information easily accessible to the senior management personnel, organizations go further and create executive dashboards. Dashboards provide a visually intuitive display of data for monitoring enterprise activity and help organizations track performance from a single screen, thus optimizing decision-making. The purpose is to offer an at-a-glance understanding of the organization’s health to executives, managers, and business users. There are frameworks which are in vogue, like creating a business scorecard to improve business performance which define the overall goals and break down those goals into a series of objectives that will enable them to meet the goals. The ‘Balanced Score Card’ framework originated by Dr. Robert Kaplan and Dr. David Norton is the most popular and this approach adds strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance.
It is important that organizations implementing Business Intelligence packages make the most of what the software offers. Companies should go beyond conventional reporting and look for strategic use of information to help meet it’s objectives and goals. Identifying KPIs and creating dashboards are some of the ways to achieve the purpose and organizations should take that path for effective use of the opportunity with them.