Frank Buytendijk Blog

I have been writing about the ROI of BI before, and it seems to be an ongoing question. Not surprising, and it should be. We should never stop asking about the return on investment, and start taking things for granted. Recently I had a discussion about the return on investment on data warehousing, and I wanted to share three approaches with you.

Approach #1: So what’s the ROI on the local area network?
I have been using this question for years, and no one has ever claimed to know. Wait, once a person raised his hand, but he misunderstood the question. Basically, there is no ROI on a LAN. Yet, I don’t know of a single company who got rid of their LAN. It’s needed to support all the other applications, that each may have their own ROI. The LAN is a cost of doing business. So what is the difference between an integrated communications infrastructure (LAN) and an integration data infrastructure (DW). I don’t think there is a difference. From this point of view, it is useless to try and determine the ROI of the DW. Just focus on the ROI (cost savings, new opportunities).

There may not be many larger enterprises who do not have a data warehouse. Most have gone through multiple generations. Right now, architects are wondering what the impact of SOA on data warehouses could be, and if that should lead to a next generation of the data warehouse. In this discussion, I think the focus should be on what new possibilities this generates for sharing the information with more people, particularly external stakeholders, or feeding back the information to transactional systems to create smarter business processes. There are plenty of solid business cases to be made for both approaches. And the DW is simply the way of architecting it, not a goal with an ROI by itself.

Approach #2: Information Capital
Perhaps a bit more conceptual way of determining the return on investment, is making use of a strategy map, a technique developed as part of the balanced scorecard. The balanced scorecard has four perspectives on performance: financial, customer, process and growth/learning. The growth/learning perspective consists of three topics: human capital, organization capital and information capital. A strategy map describes how the information capital supports critical business processes and customer interaction, and how that leads to financial results. The ROI of the DW simply would be offsetting the cost of building it against the benefits identified in the strategy map. The difference between the strategy map approach and approach #1 is that the strategy map is more generic of nature, it doesn’t focus on just a few business initiatives.

Approach #3: What’s the cost of not doing it?
This may actually be the most straightforward way of doing it. Each data mart or each application may have its own neat ROI. But lots of different applications and data marts managing their own data, meta data and master data will lead to very high integration costs, usually destroying the locally optimized returns of each separate initiative. The research I did at Gartner in this area suggested a break-even point of somewhere between 4 and 8. This means that if you have more than 4-8 different data marts or business initiatives requiring integrated data, it is simply cheaper to set up a data warehouse infrastructure to support all of them.

What approaches have you come across? Let me know!

I recently did a short Q&A, I thought let me share this with you on the blog. I realize I haven't been blogging a lot lately. Busy, busy, busy! But I promise, quite a bit will come over the coming weeks and months...

In your book, Performance Leadership, you propose a different view on performance management. Can you tell us more about this?

Performance is all about motivation, dedication, teamwork, matters of the heart. Management is more associated with plans, control, and accountability, matters of the mind. All we focus on in performance management are the matters of the mind. Performance management is a contradiction in terms. “Performance Leadership” is based on lessons in per­sonal development, people should develop on four dimensions. The physical dimension is needed to stay healthy and have energy for the other dimensions. The mental dimension helps us get ahead: Where are we now, where do we want to be, how do we get there? The social/emotional dimension helps us to develop ourselves as balanced people, being an asset to our environment. The spiritual dimension, lastly, helps us to think about what we stand for. These same dimensions can be applied to organiza­tions. The physical dimension compares to efficient day-to-day operations, to allow management to focus on improvement and innovation. The mental dimension dovetails with strategy, again asking: Where are you now, where do you want to be, how will you get there? For the social dimension, we need to examine where busi­ness performance really comes from. How do we make sure that the value we add is not subtracted from somewhere else? Do we really add value or do we see business as a zero-sum game. Perhaps the most concrete of is the spiritual dimension, if we translate that to organizational values. Every organization has core values, attracts certain people, and has a certain culture, that create the actual drive of the organization. Performance Leadership describes how to address all four dimensions.

One of the calls to action in your book to encourage Finance & IT leaders to look beyond reporting and decision support to drive business performance within the organization. Can you explain what that means?

Traditionally, an organi­zation is defined as a group of people with a common goal. But if you take a stakeholder view, they actually have very different goals. Customers want a good product for a reasonable price. Shareholders want maximum return. Employees need to pay the mortgage. I define an organization as a unique collaboration of stakeholders who, through that organization, reach goals and objectives that none of them could have reached by them­selves. Eighty percent of decisions impacting your bottom line is taken outside the walls of the organization, in the wider performance network. Performance management is first and foremost about understanding the contributions of all stakeholders, and how to manage them. The business from the customers, skills and services from suppliers and partners. Regulators offer fair competition, shareholders offer capital, society supplies a business infrastructure. And you can only count on contributions if you also consider stakeholder requirements. This leads to entirely different performance management implementations, less aimed at internal control and more on stakeholder interaction. Now more than ever, we need to stick together, loners won’t survive.

In today’s market, companies must do whatever they can to increase efficiency and maintain profitability. How does Enterprise Performance Management technology help?

Three imperatives for surviving and even thriving in today’s market. First, you need to enforce transparency, immediately. If you don’t have access to the right data about the market and your organization, you’re flying blind. The basis of performance management is a solid business intelligence foundation. Second, adopt rolling forecasts next to or instead of a traditional budget. Sticking to the plan is useless, you need to stick to reality, that is changing every day. Lastly, use performance management to (re)build trust in your organization and in your market. Say what you do, and do what you say. Share critical information with all your stakeholders, through supplier scorecards, customer service levels, sustainability reporting or do like New York City, posting all performance indicators on your web site.

If you are a regular reader of the blog, you know we’ve been putting in quite a bit of effort and research to define a concept called management excellence.

Organizations have spent the last 10-15 years on achieving a level of operational excellence, focusing on cost, quality and speed. As this has become the new norm, competitive advantage must come from elsewhere. The three key competitive factors today are being smart, agile, and aligned. The business processes alone don’t make the difference anymore, it’s the management processes that do. Hence the idea of extending operational excellence to management excellence. We also created a comprehensive management process framework, called strategy-to-success.

We put it to the test, and created the EPM Index. Analyst firm Quocirca conducted 800 interviews all across Europe and North-America to assess the current state of EPM. To which extent do organizations master their management processes?

Well then, on a scale of 0 to 10, the respondents attained an overall score of 5.13. The results of the study indicate a generally modest level of achievement, with much work remaining to be done in developing an accurate and up-to-the-minute enterprise-wide picture of current performance.

I thought I’d share some interesting observations from the study:
• While organizations are moderately well-placed for each area (with the exception of stakeholder engagement) fewer than a quarter (22%) feel that an integrated approach to the processes is necessary and more than a quarter (27%) think that each process can be regarded in isolation.
• Of the six areas researched, the stakeholder environment scores were the lowest. This indicates that the involvement of stakeholders in the performance of the organisation is not being optimized. A high number of “don’t know” responses in this section indicates that many organizations may not even consider the needs of the stakeholders in their planning processes
• There is a high inverse correlation between a country’s Index score and its regulatory environment: on the whole, the higher the Index, the lighter the regulatory touch. The public sector and healthcare sectors, as the most highly regulated verticals, have the lowest overall EPM Index scores.
• Most organisations are slow to respond to changes in market and business environments with just 13% of respondents believing themselves to be well placed in this regard.
• Use of Business Intelligence (BI) has a significant bearing on EPM achievement. Respondents who see BI as being an "important" or "major" tool for their organization have index scores of 5.3, whereas those who see it as being an expensive means of visualizing data scored 5, and those who see it as a tool for historical reporting only scored 4.9.

There will be a comprehensive press release with more information, and there will be more information on EPMtv, including a self-assessment test.

We’ll be repeating the survey a few times in the future to see how things are progressing...

“EPMtv will competely change the way how you look at managing your business.” That’s quite a statement, but exactly what EPMtv is promising. Check out www.epmtv.eu and get registered.

I am very excited to be part of EPMtv. There’s lots of video material, thought leadership that can be downloaded in the resource center, all the material for the EPM index, and much more.

I could go on and on and tell about all the stuff that is on there, but probably better to take a look yourself, and discover how EPM and Aston Martin relate. Something like “EPM makes you vrrrrooooommm towards management excellence” ;-)

frank

Over the last few months I have been blogging a few times about my book, called Performance Leadership, published by McGraw-Hill.

Gary Simon, the managing editor of FSN, will be doing an interview with me about the book on April the 15th, during a live webcast.

Space is limited, so they say, so reserve a seat here.

Here’s some text from the invitation that tells what the webcast will be about:

Traditional performance management is grounded in measurement, operational excellence and analysis. It is a well understood model that has served business particularly well for the last two decades, but how well does it fit the complexities of the networked economy? According to leading thinkers such as Frank Buytendijk, businesses need to take far more account of behavioural aspects of management if they are to succeed in fostering relationships that contribute to success.

His recently released book, “Performance Leadership”, published by McGraw Hill is a thought provoking and thoroughly researched treatise on the topic which challenges conventional wisdom around strategy development and performance management while providing exciting new ways of harnessing organisational effectiveness.

According to Buytendijk, present day approaches to performance management are too mechanistic. “We try to command and control; we impose rules and regulations. We align people with a common goal; we provide targets that we expect them to meet, instead of allowing them to be inventive and resourceful. As it is with managing a machine we set up systems of control, when in reality we should set up a system of encouragement, improvement and innovation,” he says. “Hierarchical management structures works best in environments with low ambition and low uncertainty, but most of us are facing anything but certainty,” he adds.