Business intelligence and analytics has risen in prominence. You can land a job as a data scientist in the Finance team. Finance-centric software vendors offer graphical, data visualization functionality embedded within their ERP or planning and consolidation software product. Powerful, self-service, stand-alone analytics and visualization software is available. The essence of the analytical tool is communications for decision making.
A valuable dashboard provides insight, encourages collaboration, and translates strategy to operational items. It focuses attention on where the work takes place.
The challenge is how do you make an analytical solution that engages C-Level leadership and operations (do the work) teams?
“You stop sending me information, and you start getting me some.” — Gordon Gekko, Wall Street, 1987
Let’s break it down further.
Make it important. Graphically presenting monthly financials data is informative from an accounting perspective. Financials may contain accruals and adjustments that are important for financial reporting, but say little about the firm’s vision and objectives. In fact, it leaves unanswered what operational activities are needed to achieve the objective. Financials most likely ask the reader to make the mental link to what moves the business forward.
What is missing are measures that connect valued business objectives that drive performance and allows organizational ownership. A better approach: look to the firm’s critical few strategic objectives and enabling initiatives. These are the priorities and activities that are needed to achieve the strategy. They can create clear organization ownership and are directly linked to strategic results.
Make it relevant. Understanding how to measure the objectives and initiatives progress and track it by a responsible team is crucial. Suggestion: use a cause and effect (Fishbone) diagram to decompose the objective. The objective is the “fish head” — which is the outcome or effect. The primary causes are the major bones. For example, a service type project may have primary causes: Labor, Equipment, Supplies, and Methods (Systems). Now identify sub-causes (e.g., reasons) for each major cause. Brainstorm. Sub-causes should be aligned with someone’s area of responsibility or span of control. Tag the reasons as controllable or not-controllable. Tag the reasons with a specific data source. Lastly, you may want to prioritize the causes. Caution note don’t over decompose the sub-causes to the level of minutiae.
You have now created a business model hypothesizing what causes (reasons or influencers) lead to the effect (objective, initiative, project or the desired outcome). The business model operationalizes strategic objectives. The model links critical operating activities to strategic objectives. Leadership and operational teams now have a common, shared view of the business activities.
Example: Leadership for a trucking / logistic company prepared a 3-yr strategic plan and illustrated their vision using a cause and effect strategy map. A central theme to the strategy is improving revenue contribution from their trucks and trailers. (which will eventually impact profit) It looks this:
Let’s focus on the objective, “Optimize Truck/Trailer Capacity”. Leadership assigned, Capacity Utilization % as the metric. The utilization % formula will emphasize cargo capacity.
Capacity Utilization % = Freight Tons / Trailer Capacity (tons)
A fishbone diagram identifies factors impacting Capacity Utilization %.
A couple of call out items.
First. The capacity utilization % metric formula is simple math, but we can see that there are sub-causes that influence utilization. At this point, creating a complex formula may not be a value-add task. What is important is to recognize the sub-causes are integral to achieving the strategic objective. However, the sub-causes may be useful in setting contributing objectives for subordinates.
Second. A target should be assigned for the main metric, i.e., Capacity Utilization %. Each sub-cause illustrated in the above diagram will need a contributing target if used to identify contributing critical success factors linked to the main objective (Capacity Utilization %)
The grid below contains a view of measures and targets that may be critical success factors and contributory to the main objective.
Let’s test the example.
A trucking / logistic company’s leadership is examining month-end results. Consider this sample operating statement.
Reviewing actual results, while freight revenue dollars increased over budget it is unclear if the variance is due to price or volume. Likewise, Labor, Fuel and R&M are greater than budget. It is not possible to determine if the overages can be attributed to traffic volume or unplanned repairs or commodity (gasoline) prices. Even drilling down by geography / operations offices does not provide performance clues. To gather better insight, leadership must dig deeper into operational drivers.
Here is a sample shipping route: All customers are serviced on the route; trailer load volume capacity is not fully used, and load weight capacity is not fully used; after the final delivery — the trailer returns empty.
Operating results for the route are:
Capacity Utilization metrics are below the target of 90% for the specified route. (See Row 11 and Row 12 above.)
The leadership team is faced with the following challenges while satisfying the customer objective, “Keep our service commitments”.
- Evaluating trailer options to better align load capacity utilization on the outbound route
- Evaluating backhaul (customer) opportunities to minimize deadhead (empty transit miles).
- Evaluating route and trailer assignment options in the event not all customers have scheduled deliveries.
(Of course, results must be analyzed across time for a proper trend analysis.)
Addressing profitability from the perspective of the operating metrics, Figure C, focuses on controllable events. Leadership can begin the trade-off discussions to achieve the capacity utilization targets. The trade-offs address tactical and immediate needs versus strategic and long-term goals. Possible trade-off actions are:
- What are our core markets and customers?
- How and should the logistics company scale operations?
- Are there process inefficiencies that impede the best use of physical assets and human capital?
- What equipment or technology assets are required to grow operations efficiently?
- How should the employee base be shaped to support growth? What skills are needed and how to fill the gaps?
Specifically, each of the operating activities — represented by fishbone causes (Figure B) and measures (Figure C), can be analyzed for contribution towards capacity utilization. The dashboard’s operational metrics are a framework to drive accountability and clarity. As table-stakes, leadership sets the direction, where are we going. Metrics tied to job function answers, “How we will get there”. The focus is on the employee and performance they can control.
Stepping back — the firm can and should measure overall progress. Yes, misfortune and windfall events will occur. However, knowing where you are going as a team drives clarity. The dashboard’s operational metrics ground decision making in reality. Employees can rally around what worked, what did not work and what can be improved. The emotional aspect of uncertainty can be minimized, and the emotional aspect of ownership is emphasized.
Back to the guiding principle, make the “message important and relevant”, the dashboard should include financial results and operational metrics. Financial results provide context to understand the firm’s health and room for investment. Operational measures represent the business activities that result in financial outcomes. The dashboard’s value proposition is employee collaboration and common understanding of the priorities that move the organization towards success.
References
Having Trouble with Your Strategy? Then Map It, HBR, by Robert S. Kaplan and David P. Norton, September 01, 2000, https://hbr.org/2000/09/having-trouble-with-your-strategy-then-map-it
Harel, Ziv et al. “How to Diagnose Solutions to a Quality of Care Problem.” Clinical journal of the American Society of Nephrology : CJASN vol. 11,5 (2016): 901–7. doi:10.2215/CJN.11481015
