Performance Management Links Strategy And Operations
Tools go beyond BI to give decision makers at all levels the data they need to make the right business decisions.
Companies can't report their way to great results--though you wouldn't know it from their accumulation of underused reports and dashboards. Companies that get this critical point are moving away from IT-centric business intelligence programs and toward results-focused performance management.
True, BI does more than just generate reports. But add in query and analysis tools, and sophisticated predictive and statistical analytics, and those tools and technologies are overwhelmingly under IT's control. In contrast, performance management, or PM, is defined by business needs, providing decision makers with the data they need to make the right moves, ones that fit with company strategy.
Most often, companies incorporate performance management into their budgeting and financial processes, in what's called corporate or financial PM. The next step is operational PM, where they apply BI to practical, day-to-day decisions--in the supply chain, sales, customer service, and other areas.
That's what's happening at United Agri Products, a unit of $5 billion-a-year chemical and fertilizer supplier Agrium, which started doing operational PM projects last year using Cognos' BI platform. "After years of IT preaching the value of BI to business, we reached a point of maturity where the roles started to reverse, and the business started coming to us with ideas," says David Wheat, UAP's director of decision-support systems.
UAP's director of operations brought one such project to IT. The CEO had asked him to cut end-of-year inventory by $25 million, a difficult task for an agricultural company given ever-changing weather conditions, crop disease, and insect infestations, all happening across a variety of regions.
The operations director sketched out exactly what he wanted on a whiteboard, Wheat says. Then he said, "If I can know at any point in time what I have in inventory and can forecast what the consumption will be through the end of the season, I'll know what dollar amount I'll have left and I can go after the high-dollar overages."
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With that context, Wheat laid out a model for a PM system: what data he needed and when he had to have it in order to make decisions. And his model came complete with a financial target.
UAP lacked a sales forecasting application, so Wheat's team developed one by integrating relevant information--current inventory levels, open purchase orders, prior-year purchase histories, and predicted overages or shortages--into a single report. Launched in March, the app includes a daily alert that notifies managers in four regions whenever a purchase order has the potential to create excess season-ending inventory.
"All that data presented in one place, with exceptions highlighted in color, made problems jump right to the top for the director and his regional managers," Wheat says. That information led managers to investigate open, unconfirmed purchase orders to see if they're justified. The result: "Within two weeks, UAP had canceled $2 million worth of POs for products that weren't needed."
InformationWeek Tech Digest, Nov. 10, 2014Just 30% of respondents to our new survey say their companies are very or extremely effective at identifying critical data and analyzing it to make decisions, down from 42% in 2013. What gives?