Strategic Business Intelligence

Originally published 2 June 2010

In day-to-day life, it’s all too easy to start tackling a problem, without thinking about why you’re doing it and whether it is worthwhile. Sometimes you need to stop, take stock and understand exactly what you are trying to achieve.

Within any organisation, the same principles apply. An organisation with a poorly defined strategy, objectives and direction will not be looked on favourably by external stakeholders (e.g., shareholders). Stakeholders will want to see the direction of a business and be able to track its progress towards meeting its objectives.

While this all sounds obvious, it’s surprisingly common to find organisations that don’t take this approach with business intelligence (BI). It is not uncommon to see BI projects that are data-driven, exposing the information that is easily available, not necessarily the information that is useful or required. Operational data is typically low level, historical data, whereas strategically you are more likely to be interested in high level indicators of where you are going. To identify the strategic performance information and ensure that your organisation is heading in the right direction, you have to go right to the top.

Mission

All organisations have a mission, be it formally recorded in a mission statement, or simply something that’s understood within the business. The mission answers the questions of what do we do, why do we do it and where do we want to be. It is important to clearly define this first.

Critical Success Factors

Critical success factors are the fundamental criteria used to determine whether a company will succeed in what it is trying to achieve. Failure to meet these will mean failure to satisfactorily implement the strategy, a deviation from the mission. They should be small in number and should provide a high level description of what the organisation must achieve. For example, a critical success factor for a manufacturing company may be to produce high quality products.

Objectives

The objectives should break critical success factors into specific, quantifiable objectives against which progress can be measured. Extending the manufacturing company example, an objective may be a 50% reduction in defective product returns over a two-year period.
Objectives need to be well defined. A simple way of checking this is to ensure that every objective is SMART:

Specific – it must be clearly defined and unambiguous
Measurable – it must be possible to track progress against the objective
Achievable – it must be possible to meet the objective
Relevant – it must be appropriate (i.e. relate to the critical success factors)
Time-bound – there must be a clear definition of when the objective should be achieved

As you define your objectives, you may find that some do not initially meet these criteria. In these cases, try to restate them so that they do. For example, if one of your objectives is to motivate staff, you may feel that the motivation is not measurable. To correct this, it could be restated as a reduction in staff turnover. Where an objective is truly non-measurable, it should still be recorded as an aspiration. 

Key Performance Indicators

The key performance indicators (KPIs) define the way the objective will be measured; they help you to understand how likely you are to achieve the objective within the defined time frame. Continuing the quality example, a KPI could be the number of defective products returned.
Each objective should have one (or possibly more) KPIs. However, it’s best to keep to a small number. These are your key measures of performance after all. If you find that you are defining hundreds of them, try to identify some sense of hierarchy. Some measures are not “key,” they may be simple performance indicators that contribute to the key performance measures.

The KPIs should define exactly what you need to measure, irrespective of whether the currently available data will support it. This ensures that they measure progress towards the objective (and hence the critical success factor), not just the information that is conveniently available. The desired outcomes should drive the collection of the data, rather than the data drive the definition of the KPIs.

By following this process you should have a set of KPIs that measure progress towards what your organisation is trying to achieve. However, they don’t tell you what is good performance.

Targets

The targets are the time-bound and achievable parts of the objective. They give a realistic definition of where you want to be at some time in the future. Continuing the quality example, the target may be a 30% per year reduction in the number of defective items returned. The target defines “good performance.”

However, they need to be carefully defined. People will focus on trying to achieve the targets, especially if rewards are tied to achieving them. By drawing attention in one direction you are likely to direct it away from somewhere else.

With measures and targets aligned to the business strategy, you will have defined the content of a simple balanced scorecard (for more in depth approaches to producing a balanced scorecard, see The Balanced Scorecard by Kaplan and Norton).

Behaviour

Targets drive behaviour. Reward-linked targets strongly drive behaviour. The reward provides the incentive for people to try to hit the target. The greater the reward, the more people will focus on achieving the targets. However, this may be at the expense of other things. The recent banking crisis has focussed a lot of attention around how banks have measured their performance and whether targets and rewards (i.e., bonuses) have focussed excessively around short-term profits over long-term stability. In this case the reward-linked targets may have helped to undermine one of the critical success factors of many of the major banks.

An essential component of target definition is giving consideration to what the anticipated behavioural outcome of that target will be. How will people try to achieve the target? What are the possible negative consequences of defining that target?

Even with the best of intentions, unanticipated consequences may arise. Countless examples litter the news sites, but a simple search on “targets” on the BBC website highlights the following article: http://news.bbc.co.uk/1/hi/health/8580761.stm. The article discusses the behavioural outcomes of the government target to treat people visiting accident and emergency units within 4 hours and mentions the controversy regarding this KPI: “The NHS target in England to deal with patients in A&E within four hours has been highly controversial. Critics say it forces clinical staff to put deadlines before quality of care.”

The article concludes: “Despite his concerns over the four-hour standard, Dr John Heyworth from the College of Emergency Medicine said he had nothing against targets in principle. But he said he wanted a more sophisticated measure that accounts for quality of care, as well as speed." In this example, “quality of care” was highlighted as a negative consequence. Similarly, other negative consequences may arise, such as patients being admitted to hospital instead of remaining in A&E, leading to inefficiency. The relationship between objectives needs to be fully considered to ensure a balanced behavioural outcome. 

Re-Evaluate

Even after considering the anticipated positive and negative outcomes of your targets, unintended consequences may still arise. The objectives, KPIs and targets should be regularly reassessed in light of the observed behavioural outcomes.

Since the strategy of an organisation may change over time, the objectives will need to be regularly revised to ensure that they remain relevant to the strategy.

The bottom-up definition of KPIs is a common occurrence. While development of operational reporting systems will typically come before the development of a strategic business intelligence system, they should not determine the strategic reporting objectives. Don’t let the tail wag the dog.

Ensure your KPIs and targets drive behaviour in the right direction by having a clear hierarchy between the mission, the critical success factors, the objectives, the KPIs and the targets. This will ensure that behaviour drives the success of the organisation.

  • James AdmanJames Adman
    James Adman is an Information Management Consultant at IPL, a leading UK IT services company specialising in the delivery of intelligent business solutions. He has over 10 years of experience in helping a wide range of high profile clients exploit the full potential of their information.

    James has significant information management expertise gained across a variety of sectors, including manufacturing, finance, government, transport, emergency services and petrochemical.  James has a number of ongoing engagements in business intelligence including system procurement, specification and design.  He can be reached at james.adman@ipl.com.


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