May 17, 2004
Metrics help, but you can't improve performance unless you know why.
Business intelligence can go awry. Fair Isaac's director of product marketing for Analytic Software Tools, James Taylor, told me a story about a customer that used a Fair Isaac solution almost too successfully. As part of an analytic CRM project, the company sought to identify unprofitable customers that weren't worth keeping. It identified those customers, but decided to keep a lot of them anyway. Turns out that Wall Street analysts use customer turnover as a key metric, and dropping too many customers no matter what the benefit to the bottom line would likely lead to a decrease in market capitalization and lack of confidence in the company.
This story illustrates a few important points. First, metrics are sometimes misguided. Second, coordinating balanced goals with actions can prevent businesses from making critical errors. Wayne Eckerson of The Data Warehousing Institute points out that this coordination is essential to the definition and success of performance management. In a March report about a best-practices study for BPM (in this case, BPM standing for "business performance management"), Eckerson wrote that much confusion prevails over what performance management is. "Budgeting, scorecarding, and business intelligence [often each individually termed "BPM,"] are all components of BPM. You can't do BPM without them. But they aren't what BPM is about. BPM is much broader and bigger than any of these individual components... It is a series of processes and applications designed to optimize the execution of business strategy." Defining a process that coordinates knowledge and actions so they work effectively toward larger corporate goals can have powerful effects. Whether defined or not, processes exist in all areas of all companies — but without guidance, processes can quickly go astray. James Cates, CIO of Brocade, said in an unprinted part of our interview featured on this issue's back page: "Arguing against process is like arguing against air. It's there by default. It's just a matter of whether it's random or not, documented or not, leveraged or not, efficient or not — but everybody has process." Although process is most often thought of as applying to administration, logistics, and other operational areas, process is just as much a part of management, analysis, and other higher-level functions. Eckerson further wrote in his report, "Most people think [BPM] is simply about improving performance in general, but it's not. BPM is about improving performance in the right direction. BPM helps organizations focus on the few things that really drive business value instead of many things that generate activity but don't contribute to the organization's long-term health." Unfortunately, Wall Street still demands some types of performance that detract from companies' long-term health, but the business should take control where it can.
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