Knowledge is power only if you know how to use it
October 19, 2015: “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 power only if you know how to use it – and that first requires us to mine those mountains, locating the seams of relevant data and extracting the knowledge that really matters. In other words: “analytics”.
Accenture and MIT recently went one step further and decided to analyse business analytics – do they just make people feel powerful, or do they truly help a business to succeed? 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-performing companies than low performing companies use analytics to spot growth opportunities. Twice as many high performers monitor decisions and correct their course on the fly – they are agile and responsive. 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, and it involves mining the mountains of available data, extracting what is relevant and knowing how to use it. So what are the measures we should be looking at? Once you have formulated a clear aim, the first important distinction is the difference between “lag” and “lead” measures.
Here is a personal example. My aim is to lose weight, so once a week I step on the scale and get a measure of my progress. This is what is called a lag measure – it tells me if I am winning or losing, but it does not tell me how to get there. It is an easy and obvious measure, but it can be pretty disheartening: “what was I doing wrong last week?” A lead measure would be much more useful: a measure that tells you the number of calories in the food on your plate, or how many calories you are currently burning. Know that, and you can rethink, and take corrective action.
It turns out that this relationship between lead and lag measure is key to driving a high-performance organisation. But the challenge is that lead measures are far more difficult to monitor. Compared to simply stepping on a scale, the calories you eat and the calories you burn are really difficult to measure – and that becomes the single biggest barrier to achieving your goal.
But the right technology can help; if you have an Apple Watch, Fitbit or equivalent, it will measure your heart rate and how many steps you are taking – these are lead measures of the amount of calories I am burning. 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 we doing the same in our 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. Instead of just revenue, you can now tap revenue by product line, by business unit, by region, by salesperson or by market. Lag measures have become really accessible – like being able to step on the scales at any time, not just at the weekend – but they are still not lead.
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. So, how do I measure it? First, I need to ask the entire sales organisation to log all the people they demo to and capture that in our CRM system. Then we need Google Analytics to show how many visit our website and view a demonstration there. Then we use a marketing automation system to assess the success of our campaigns – who has joined our webinars et cetera… It adds up to a lot of hard work to answer a simple question. Gathering lead data is not easy.
Lag measures are like the score on a football scoreboard – they only tell you how well you have already done. We need to give business 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. But there might be a very large number of lead measures, while just keeping score is beautifully simple – so neither do we want to clutter the scoreboard with too much data. Systems that provide a window into your business that tell whether you are winning or losing, and at the same time summarise the lead drivers to help you to win – such 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. Back to the Fitbit example: when you sign up for these fitness-tracking apps, there is a strong social element. You are invited to share your results, and the idea is that this competitive exposure really does increase incentive. Competition drives performance, but it also drives behavioural change. Take planning: if you can start to do this on a continuous basis, high performers really succeed, because it gives them new insights and they’re reacting quickly to change.
So here’s my quick summary of how to drive better performance:
1. Focus on lead measures, more than lag.
2. But do also keep score – because it is really important to learn the connection between lead and lag and see that correlation.
3. Then make it competitive – eg: between different sales teams or different production teams. People will respond if it’s done in the right way so people can see clearly whether they’re winning or losing and also see the contributory factors to winning or losing.
So those three points are what is needed to drive better performance – those are the drivers. But what are the brakes, the hidden taxes holding you back? I estimate that 90 per cent of business performance is lost to hidden taxes.
Think about the total cost of your ERP system: the cost in software, in implementation, in support and maintenance and all of those upgrades. It adds up to a lot and yet, it is just the tip of the iceberg. Below the water line there are other hidden taxes that can be analysed into three categories.
The first is the Productivity Tax. You incur this tax when you have to dump data into Excel. You 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 effort, especially when you are collating data from multiple data systems. It takes time to integrate it, reconcile it and make it all add up. So think about the number of people in your business doing that on a daily basis because the systems that you invested in do not meet their requirements.
Next is the Tech Tax: 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 comes 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.
Leading businesses today increasingly use systems that report in real time, but how many of them still convert data into spreadsheets? According to a study done by the University of Hawaii, 88 per cent of those spreadsheets contain errors. And the 2013 PWC survey says that 64 per cent of time is spent gathering data, and only 36 per cent on analysing it.
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. It connects all those other critical business systems such as Customer Relationship Management (CRM).
But, instead of treating ERP like a well where we fill our buckets with data from time to time, we put that data on tap. So we integrate reporting, analytics, and planning directly to the ERP without breaking that link. As well as being truly integrated, the system I promote actually understands these underlying systems well enough to feed back and solve the original problems that existed in these inflexible business systems. If we achieve that as a strategy, I believe we can eliminate most of these 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. Take reporting: in the past, using offline batch reporting, you might wait 24 hours for certain reports, but modern systems linked with the ERP system get them in real time. Effectively this means upgrading hindsight to the point where it becomes insight – a sure step towards cutting missed opportunity costs.
In terms of what was said earlier: insight contributes lead data as well as lag data. But the point is that with insight, and keeping a strategic focus on the lead it provides, you then can have foresight. You get more foresight by committing to that strategy of focusing on lead measures while keeping an eye on lag measures. And foresight becomes one hundred per cent lead.
Some companies are already making this transition: not just the transition from data to information, but actually getting insight from that information. The massive global facilities management company, ISS, was drowning in a tide of spreadsheet data and mounting errors resulting – until they changed to fully integrated budgeting, reporting and planning solution. What previously took a lot of people 10 days can now be delivered at the touch of a button. In their words: “This has transformed the business.” Another high performer, Zuffa, transformed the fringe sport of mixed martial arts into a major global sports league in one decade – and they too have kicked the spreadsheet fixation and found a more integrated solution.
I chose the title “in pursuit of high performance” because it puts the emphasis on the ongoing nature of striving to get there. There is always room for improvement. So let’s be realistic, and end with this great quote from one of the world’s great high performers, the basketball player Michael Jordan: “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the winning shot and missed. I’ve failed over and over again in my life. And that is why I succeeded.”
Paul Yarwood is CEO of the Hubble brand at Insightsoftware.com