IT tips for tailoring KPIs to your business

Following the practices of Fortune 1000 companies, more and more midsize organisations are using sophisticated software programs to monitor their key performance indicators (KPIs), the financial and other measures used to track business performance. But there is a new twist.

In Summary:

Where the big companies once spent considerable labor and money for customized systems that gave a global view of their business, the newer systems offer both the big picture as well as more focused snapshots of different aspects of the business.

The trend is toward role-based KPIs, which measure business performance by department, such as sales, customer service, accounting and operations. Role-based KPIs help managers across the organisation determine if they are keeping pace with business goals and industry benchmarks.

“We are going one step further by personalizing KPIs,” says Daniel Schwartz, founder and CEO of NexVue Analytics, a Stamford, Connecticut, consulting and project management Microsoft Gold Partner. NexVue Analytics developed Business Information Optimization (BIO), a licensed Microsoft product that hit the market in mid-2006.

Schwartz recalls one customer, a global management consulting firm, which wanted to analyze data from 300 separate projects. Older KPI systems would gather the information from the different projects and lump it together to create a general view of business for the top financial officer. The BIO system, on the other hand, collects details such as accounts payable, accounts receivables, expenses and man-hours about specific projects that are scattered among the company’s various databases. The data is combined and delivered to the managers, who can then gauge whether their project is meeting the company’s goals, and, if necessary, make adjustments in staff and hours.

Role-based KPIs also can provide deeper sales analysis. Traditionally, KPI tools could show overall sales numbers. Now, the newer systems can segment the data by region, country, city, and even customer.

“It is no longer a matter of giving the same KPIs to everyone,” says Eric de Jager, director of Microsoft Dynamics SL. (For more information on Microsoft products supporting KPIs, see Microsoft Business Intelligence solutions.)

Such systems not only provide more specific information, but can also analyze the data more quickly, says Ted Corbett, senior manager for business intelligence practices at Hitachi Consulting in London. “In the past when an organisation closed its books for the month, it might take three to four weeks to collect the data and write the reports for the different levels of the business,” he says. “With the new tools you can reduce that process from weeks to days. Some retail businesses have tools that can track sales from hour to hour.”

The latest tools make KPI data collection and analysis much easier

Role-based KPI systems start with your company’s various databases. De Jager explains the new technology by drawing a conceptual picture of a system with a database equal to hundreds of spreadsheets. The columns have various types of business information—orders, inventory, services time, expense data, and so on. The rows of these spreadsheets represent thousands or even hundreds of thousands of transactions within these different categories.

Analysis engines then scoop up the data, combine it and present it in easy-to-read graphics or other formats. Most large software companies now offer analytical engines that are compatible with their enterprise resource planning (ERP) and other business systems. Instead of the arduous task of manually sifting through the data, these tools do the job automatically.

“Companies might have one system to handle all financial data,” Corbett says. “They can then add an analytical module to sit on top of the main system that works like a spider web to capture the necessary data to analyze.

“With the older systems it was a lot of grunt work collecting the data,” he adds. “Now you can spend more time thinking about what the data means.”

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Before you get started, clean your data

The success of these role-based KPI systems is, of course, predicated on the accuracy of the data. That is where the process of implementing such systems can become complex.

“There are tremendous amounts of data within any company, some of it conflicting,” says Gavin Boyd, the Johannesburg-based head of the Balanced Scorecard Collaborative African Unit. The collaborative, a Palladium Company, has advised some 2,500 companies worldwide on implementing business information systems and technology.

Boyd uses the example of a water utility client. At the utility, each department had different ways of measuring such common values as billing, cost centers and customer service. Standardizing information into a common format will help companies better integrate and analyze the data.

That standardization process usually requires some deft mediation between departments. To do that, Corbett says companies must assign a strong executive sponsor to keep the inevitable internal conflicts to a minimum. Bringing in an outside facilitator may also help break deadlocks. “An outsider can help depersonalize conflict between different groups, help each understand their position and take conflicts to the executive sponsor for resolution,” he says.

As the IT manager, your job is to help managers from different groups understand the advantage of integrating performance data—which can mean better targeted KPIs for everyone.

“An effective KPI tool has to help you plan, identify, decide and act,” de Jager says. “That means it needs to focus on the people who use it, identify the metrics each of them use and help them understand the data. What is critical is that we build a tool that does all this for the nontechnical user.”

Fred Bayles is a Boston-based freelance writer. He is a former national correspondent for The Associated Press and USA TODAY.

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