“Knowledge is power” – ever since this became a favourite IT sales cliché in the 1980s, enterprises have been gathering and archiving megabytes, gigabytes and now terabytes of digital data. Contemplating such mountains of data can leave one feeling pretty powerless. For knowledge is only power if you know how to use it. In other words: “analytics”.
Accenture and MIT recently went one step further and analysed business analytics. They found a strong correlation between a commitment to analytics and high performance. In fact high performers allocate more of their technology investment to analytics, and are almost four times as likely to receive a significant ROI in return.
They found that twice as many high over low-performing companies use analytics to spot growth opportunities. Twice as many high performers monitor decisions and correct their course on the fly, and three times as many high performers than low performers use analytics to empower decision-making throughout their organisation.
Clearly these high performers are doing something right, so what are the measures we should be looking at? Once you have formulated a clear aim, the first important distinction to note is the difference between “lag” and “lead” measures.
" Lag measures are like the score on a football scoreboard they only tell you how well you have already done"
It turns out that this relationship between lead and lag is key to driving a high-performance organisation. The challenge is that lead measures are far more difficult to monitor. Rather than just getting the bad news at the end of the week, I now have data that can help me predict, make choices and take immediate steps – literally - towards achieving my goal.
Are you doing the same in your business?
According to Accenture, the difference between high-performing and low-performing organisations lies in the ability to capture, collect and integrate both internal and external data. But still the focus tends to be on lag, rather than lead.
Take revenue: it is perhaps the single biggest indicator of success in our business. It would be a big mistake not to take note of the quarterly results – but revenue is a lag measure. These lag measures were previously buried in Enterprise Resource Planning (ERP) data banks, but today’s reporting systems bring this data to our screens – plus a host of different lag measures like cost of goods sold, gross margins, net profit et cetera. Lag measures have become really accessible.
In my business, an example lead measure would be to know the number of people who see our software. Nobody's going to buy it without seeing it, and it’s a good predictor of sales.
Lag measures are like the score on a football scoreboard – they only tell you how well you have already done. We need to give businesses a way of understanding what is needed in order to win. That's what lead measures do, and that's ultimately what drives high performance. Systems that provide a window into your business, and tell you if you are winning or losing, and at the same time, summarising the lead drivers, will help you win. Our systems deliver what is needed to respond and correct your course. You are now driving with your eyes on the road ahead – not just on the rear-view mirror.
Another part of the high-performance magic is competition. Competition drives performance, and behavioural changes.
So here's my quick summary of how to drive better performance:
Focus on lead not lag measures.
Keep score – it is really important to learn the connection between lead and lag and understand that correlation.
Make it competitive – e.g. between different sales teams or different production teams. People will respond if they can see clearly whether they're winning or losing and also see all the contributory factors.
So these three points are what is needed to drive better performance – these are the drivers. But what are the brakes, the hidden taxes holding you back? I estimate that 90 percent of business performance is lost to hidden taxes.
The total cost of your ERP system is just the tip of the iceberg, below the water line there are other hidden taxes that can be analysed into four categories.
The first is the Productivity Tax. You incur this tax when you and all your colleagues have to dump data into Excel, because the system providing the data is not flexible enough to do what you want with it. In Excel you can manipulate the data easily, but it takes time and effort collating and integrating data from multiple data systems, to make it all add up.
Next is the Tech Tax caused by all the data warehouses, data cubes, and other silos that are not linked to your ERP and other critical systems. A lot of time is spent extracting and transforming to fit other systems and it takes effort to keep these systems in sync. The business is frustrated with IT because they just want answers and IT is frustrated because they want to get on with their core projects.
Then we have the Confidence Tax: what price do you put on having accurate data that your decision makers can trust to make decisions on? With more and more systems and more and more internal and external data sources it becomes increasingly difficult to ensure accuracy.
Finally the Responsiveness Tax: what price do you put on staff morale, the late nights spent battling all this inefficiency and the resulting cost of lost opportunities?
If we can reduce these taxes we gain true competitive advantage. According to PwC’s Global Finance Benchmark Study 2015, the average planning cycle for the annual budget is four months.
That means a third of a year lag. The number of businesses that actually believe in their own forecasts, is only 45 per cent, according to the 2013 survey. On numbers like that, the Confidence Tax is pretty high.
Lifting those taxes
So how do we reduce or eliminate these taxes? It takes an integrated approach, putting Enterprise Resource Planning (ERP) right back at the heart of the business. The ERP system is the central nervous system of all enterprise information, in connecting all those other critical business systems.
As well as being truly integrated, our system actually understands these underlying systems well enough to feed back and solve the original problems that existed in these inflexible business systems, reducing those taxes.
If this sounds too good to be true, consider how many business problems turn out to have a relatively simple solution – with the benefit of hindsight. In the past, using offline batch reporting, meant you waited 24 hours for certain reports, but modern systems linked with the ERP system get them in real time. Effectively upgrading hindsight to the point where it becomes insight – a sure step towards cutting missed opportunity costs.
I chose the title “in pursuit of high performance” because it puts the emphasis on the ongoing nature of striving to get to this state. But it is achievable. The first step is becoming awareness of the hidden taxes holding back your business. The next step is finding a solution that fix these issues at their core.