The right software system can give managers the kinds of pertinent information they need to make business decisions that improve their bottom line. In today's environment of slow economic growth, increasing regulation, and unprecedented competitive pressures, insight into corporate performance is crucial. But implementing a new enterprisewide transactional system is expensive, and the companies that most need to improve their numbers can least afford large-scale software upgrades.
Some organizations are finding a cheaper way to gain the intelligence they need. They're using business performance management (BPM) software and practices to delve into their legacy transactional systems. In some cases, those systems are more than 15 years old, so they contain plenty of information. The problem is that most organizations lack the ability to retrieve what's useful. BPM takes the hundreds of thousands of pieces of "raw" data that are in a transactional system and converts them into knowledge that every manager can access, aiding them in their effort to make better business decisions each day (which is really the end value of the tool -- to make better business decisions).
With a few clicks of the mouse, a BPM user can determine how long, on average, the company takes to process an order. Or what department allows orders to linger the longest and why. Or how efficient a given shipping line is. Or whether a particular employee is performing on par. The information that's available is limited only by the user's creativity, and this intelligence doesn't require an enormous increase in infrastructure costs.
BPM Success Stories
The following three cases illustrate the benefit companies have received by layering a BPM solution on top of technology they already owned to improve the bottom line in innovative ways.
Sharpened customer focus. Two years ago, executives at Fujifilm USA decided they needed to improve the company's ability to provide proactive customer support, properly position its products in the marketplace, spend marketing dollars effectively, and manage brand recognition. Multiple vendors were capturing enormous amounts of information about Fujifilm customers' buying habits, but managers couldn't effectively access those databases.
Scott McNulty, the company's director of business development, had a BPM solution developed to complement Fujifilm's existing technology infrastructure. The BPM system integrated internal marketing and customer service data, along with information on the company's external business partners, to create an all-encompassing view of Fujifilm's customer experience. The tool helps the company drive revenue in a focused manner because it links customer buying patterns to sales. This insight enables managers to not only improve customer service and brand loyalty but also to better target their marketing dollars.
Among other capabilities, Fujifilm can now find commonalities between successful rebate programs in its different markets so that management can effectively predict which approaches will succeed in the future. The company can even proactively generate individual sales by focusing on specific consumers just before they make a repeat purchase. This BPM system has revolutionized the rebate marketplace, but the most obvious indicator of its value is in the reports it produces: They present financial and nonfinancial performance information in a way that is usable at the corporate conference table.
Better supervision of operations. At the United Nations Joint Staff Pension Fund (UNJSPF), one of the largest pension-fund organizations in the world, management wanted to provide excellent service to their 130,000 clients, who reside in nearly every country in the world. Before the installation of BPM software in 2002, however, UNJSPF lacked easy access to key information about those clients. Managers didn't even have a clear sense of how long the organization took to process retirement cases. They relied on a homegrown transactional system that was difficult to extract summary and performance information from but would have been very expensive to replace.
The organization's budget was tight, so it jumped at the chance to install a BPM system that would provide analysis capabilities and save more than $400,000 compared with a new transactional system. As a result of the implementation, UNJSPF has visibility into every transaction that affects its pension fund and can proactively monitor monthly fluctuations in currency in every country throughout the world. It can also monitor customer satisfaction in ways it never could before.
The BPM software can identify the average time employees take to process a request, as well as what's preventing a request from being executed. Managers can see the average processing times by organizational unit, member organization, case time, and case type -- to name just a few areas of analysis. The team can evaluate its own performance and move from a high level -- which reflects opportunities for improvement in internal processes, identifies over- and underworked sections, and pinpoints poorly trained member organizations -- to the lowest level, which reflects how an individual case is being handled by a particular employee.
The organization's legacy system always worked, but the process of extracting key information was too cumbersome for managers to effectively use data they needed to assess performance. The BPM solution enables UNJSPF to better control, monitor, and supervise staff responsiveness, which results in improved customer service.
Advanced profit analysis. In 2003, executives at a large logistics corporation (which shall be called "Logistics USA") wanted to analyze the complex relationship between the company's profit, each of its customers, and the hundreds of retail stands across the country that are the final destination of the products the company transports. The firm had an ERP system that would have cost millions of dollars to replace. The system processed each customer order and tracked it through delivery, but it couldn't provide in-depth reporting. It wasn't tied in to Logistics USA's accounting software, and it didn't produce summary performance reports.
These shortcomings prevented the company from analyzing the tremendous amount of detailed information that it collected at facilities across the country as warehouse workers scanned truck, pallet, and employee bar codes when shipments moved into, out of, or through each location. Management wanted access to information about which facility each product passed through, which employees handled it, the workload of the company's third-party transportation vendors, and the efficiency rate of each route.
Logistics USA installed a BPM system to enhance insight into its operations. Now managers can track every shipment's path through all the facilities it hits before getting to its final destination, and they can see how long the journey takes. They can easily view scorecard performance on a daily basis and can anticipate shipment failures while something can still be done to prevent them. If heavier-than-usual shipments are coming in for delivery on a specific route, a supervisor is alerted to the potential overload ahead of time so that resources can be reallocated to deal with it. Underlying data can show where routes are likely to fail and whether the problem is high volume or a single large, heavy shipment -- information that enables the supervisor to make a better decision about how to handle the problem.
Managers can reduce expenses in the same proactive manner, identifying underutilized trucks and canceling or consolidating routes. Once the BPM system improved visibility into the whereabouts of goods, executives realized that two of the company's vendors weren't moving products in a timely manner. This key information enabled them to terminate the two relationships and reward a reliable vendor. These simple decisions increased productivity by 30 percent and saved the company thousands of dollars. Overall vendor performance increased across the company's network, and managers can now easily see how their vendors are doing.
OLAP Engines Power Savings Potential
Behind the scenes, the critical component for gaining visibility into performance information stored in disparate systems is usually an online analytical processing (OLAP) engine. Tailored BPM solutions often need to utilize data that resides in a variety of applications, ranging from simple flat files to relational databases to outdated mainframe software. OLAP technology is built to access information from a wide array of transactional systems, with varying data structures and designs, and consolidate that information so that it fits into one consistent format. This makes the data an appropriate input for a BPM software system.
OLAP has primarily been used and implemented by IT developers; although the technology has been available on the market for some time, traditionally it has not been used as a tool for supporting business decisions due to the need for more focus on the demands of businesses and the technical expertise required to implement it. However, new methodologies for using OLAP software focus on business needs and allow business intelligence (BI) consultants to capitalize on the technology's flexibility.
For instance, on a quest to increase its national coverage, Logistics USA has grown through acquisition. When it purchases a smaller organization, it slowly integrates that company's operations into the Logistics USA transportation network, while keeping the acquired business's procedures and IT infrastructure intact. To integrate the data from the acquisition's IT systems into its BPM reporting framework, Logistics USA layers OLAP software on top of the acquired organization's disparate data sources. This approach rapidly assimilates important information about the acquired company into the monitoring and reporting structure that Logistics USA managers are already familiar with, while allowing employees in the newly acquired company to continue using the systems they're used to.
This is a win-win situation. For corporate executives, the ability to quickly and effectively manage new operations in the same way they manage their older businesses, even though they may be unfamiliar with the IT systems and people of the acquisition, is a competitive advantage. And customers of the acquisition receive stable service throughout the merger period because employees don't face changes to their transactional system. For both Logistics USA and the acquired organization, it's business as usual.
Used in conjunction with BPM software, an OLAP engine can give decision-makers the information they need while postponing or even sidestepping altogether the expensive proposition of integrating two transactional systems. OLAP can also save companies money by finding the "dirty" (or irrelevant) data residing in each application, highlighting it, and cleansing it from the system.
Both Fujifilm and Logistics USA decided to add OLAP technology to their BPM solution because they needed to extract transaction information from all parts of their IT infrastructure. Through the combination of improved data reliability, provided by the OLAP software, and better analysis of that data via the multidimensional BPM tool, both organizations were able to create daily reports that offer insight into performance in many areas of the organization, or perform active analysis for greater insight as needed. Supervisors can monitor employee, warehouse, and facility performance and evaluate delivery routes, vendor performance, and customers' buying patterns.
ROI Hinges on Choice of Metrics
Clearly, a company must implement the right set of software products to get a straight view of performance data hidden in diverse legacy systems. However, a low-tech component of BPM implementations requires as much attention as the software-selection process. For BPM to provide the benefits that make it worth the investment, it has to focus on the right data. That means executives must choose the right performance metrics.
To identify the factors that truly drive corporate performance, managers first need to clarify the company's goals. After they agree on where the company is headed, they must determine what aspects of organizational performance can give them an accurate picture of achievement in terms of those goals. Only after figuring out, from a business-management standpoint, which metrics best connect with strategy should a company take a technical look at its available data and decide how to create the equations and reports its BPM software will generate.
The metrics used in the BPM tool should combine historical reporting, a look at current performance, and expectations about future opportunities -- improving chances both to succeed and to prevent failure. They should cover most areas of the business and extend beyond typical financial reporting. When a company selects its ideal metrics, it will find that they typically fall into one of three categories: For some measures, the company will already have access to all the data it needs to evaluate its performance. These metrics will obviously be integrated into the reporting model. For another group of measures, the company will determine that some of the required data is available and that it can obtain the remainder by modifying processes or capturing new data, either in its legacy system, a new database, or the BPM software itself. If the value of the metric exceeds the effort needed to generate it, the company will add the metric to its BPM initiative. Finally, an organization will probably find that its transactional systems contain very little of the data required to monitor some of the metrics it identifies as useful. If the effort to generate the data is greater than the value of the metric, then the company should discard that measure.
The metric-development process can be time-consuming, but it's necessary. For Fujifilm, UNJSPF, and Logistics USA, the move from the way they used to do business to the realm of "performance management" wasn't exclusively about technology. All started the upgrade process by focusing away from the daily grind of generating historical performance reports and instead asking themselves specific questions: Where are we trying to go? How will we know when we get there? How will we measure our progress? How can we get our company to come along on the journey?
Creative answers to these questions enhanced the value of the companies' new BPM practices and technologies. For example, when Logistics USA examined the factors that most affect its performance, it identified proper staffing of truck drivers as a key to achieving high on-time delivery rates. When a supervisor can easily see the impact of absenteeism, days off, and hours worked on the number of drivers required each day to cover the required delivery routes, the organization's proportion of on-time deliveries improves. Plus, if human resources can keep an eye on hiring to ensure that the company has enough truck drivers to meet the demands of growth and turnover in each of its facilities across the country, long-term higher performance is possible. BPM makes this possible by placing this information at the fingertips of the supervisor and HR department, pointing them toward problem areas and prompting them to take action.
The right combination of technologies makes tracking these metrics easy, and for businesses with tight budgets, BPM is often a major piece of the implementation puzzle. Many companies are using performance management applications to extend the useful lives of their traditional transactional systems. BPM software replaces guesswork with fact-based validation of financial and nonfinancial performance, and it does so at a price that's affordable for many companies. The implementation of a BPM application may not be a long-term solution to a transactional system's shortcomings, but in tight economic times it can serve as a cost-effective way to give managers access to data that they can use to move the company toward better performance and growth.
David F. Giannetto is director of the enterprise performance management practive at Cohn Consulting Group, a division of J.H. Cohn LLP.