By Paul J. Rauseo
Executive SummaryThey may not be a mouthful, but "business intelligence," "data warehousing" and "key performance indicators" are the seven most powerful words in small business today. An integrated system of these three ideas can redefine “business as usual” into a strategy of future growth and success.
In today’s uncertain economy, every business owner is looking for ways to improve operations. Many want to position themselves better for future growth. Others want new ideas simply to survive this economic downturn. Three key elements, stated in seven words, will help businesses perform better now and continuously improve going forward.
Adopting a now mentality and urgency created by this thinking will separate the victims from victors, as the business side of the business has been redefined in the wake of The Great Recession. No longer is it “business as usual” because business owners cannot wait for things to return to an era gone by.
Business intelligence, data warehousing and key performance indicators are the three ideas summarized in seven words that are the keys to improved performance, and perhaps even survival, for small and midsize business owners now. These ideas are used successfully by Fortune 1000 and Forbes 400 companies. While it may sound complicated, it’s really not. Clients who own independent businesses should adopt these ideas immediately so they stay ahead of the economy and the competition. Today’s business owners need more profits now, more sales now and more efficient ways of operating now in order to leverage the hidden opportunities that exist in this new era of commerce.
While the term “business intelligence” may sound like cloak-and-dagger activities to some, it really isn’t about spying on your competition. It’s all about truly knowing and understanding your own business, your customers or clients and their interests.
Technology provides various ways that owners can gather information. Computerized cash registers provide data on what is purchased when. Computer programs help businesses categorize financial records. Credit card receipts help pinpoint customers. Simply asking customers or clients for their own opinions and interests shouldn’t be forgotten as another means to gather business intelligence.
However, the business owner must first have the discipline to review this information. And second, the owner must be committed to taking action based on the information that has been gathered. In today’s world, the old catch phrase “business as usual” is the call of a dying business.
There are varying degrees of business intelligence based on the sophistication of the organization. Every going concern in an effort to move from customer satisfaction to customer loyalty will need business intelligence. In the world of consumerism, our customers have many options available to them in an instant. When redefining your business, owners are encouraged to adopt methods and procedures that build relationships that translate to customer loyalty, which translates to repeat and referral business.
For example, on a recent visit to a big box office supplier, a consumer was greeted by a clerk who introduced herself and offered help for his computer repair. When the consumer was greeted at the repair desk, the clerk asked for his telephone number, and up came all the business intelligence that the clerk needed to begin the process of resolving the issue. The business intelligence provided the clerk with such details as the date the computer was purchased, the warranty details, the client’s history of repair needs and suggested services that the customer might need, such as updates or upgrades. The clerk was able to resolve the issue in less than 24 hours. The interesting thing to note here was that three days later a postcard arrived with a preventive maintenance program for computer users in the household.
This is a great example of up-selling by leveraging customer loyalty developed by a digital form of business intelligence. How comprehensive is your business intelligence system? The first steps might be offering an incentive to your customers for their e-mail addresses or cell phone numbers for a text blast. This can be further refined by developing an enterprise system as your budget allows. A good business intelligence system can be as simple as utilizing the customer relationship management (CRM) features available in many software packages.
Business intelligence is the lifeblood of a thriving small business enterprise. It allows its management to aggregate and translate data into meaningful information for making decisions and planning. A common misnomer is that business intelligence relates only to customers. In fact, it transcends this one use and must be used to gather information on prospects, sales, pipelines, vendors, employees, customers and competitors in order to provide the basis for a predictable planned profit model.
“Data warehousing” is a fancy, computer-oriented M.B.A. term for something that smart owners have done for years – remembering past experience to improve current and future performance. For a retailer, it can be as basic as using information about what sold well last summer to plan on what to purchase and sell for the upcoming summer season.
This data usually is stored in industry specific software separate from the accounting software. Moreover, human resource management systems are yet another business intelligence necessity and are often a third data warehouse. For a small to midsize business owner who must wear multiple hats, the data warehouse is often incomplete and in some cases nonexistent. The result is a lack of business intelligence. Decisions often are made on gut feel. This is one of the major contributing factors to business failure. The optimal business intelligence model would integrate the CRM, accounting and human resources talent management into one database/data warehouse. The minimal might be an off-the-shelf small business accounting software package, outsourced payroll service and human resource manual tracking system.
Data warehousing is a natural next step after starting to use business intelligence. Once you have the data, store it so it can be used to plan and compare against future work. All too often, we see owners of smaller, independent businesses who are so focused on the day-to-day issues of running their business that they forget to plan. In the management consulting industry this is called working in the business instead of working on the business. These people are in the unfortunate situation of literally not seeing the forest, known as the big picture, because of all the trees. Everyday minor problems keep getting in their way.
Owners afflicted with this malady are easy to diagnose. They typically make themselves responsible for everything at the business. They don’t delegate; they make every decision. And worst of all is the fact that this attitude breeds a feeling that every issue has the same priority, which simply is not true.
Not everything has the same importance. While the famous saying “the buck stops here” may identify the owner, it doesn’t mean the owner has to do everything. These folks need to take a step back. They must accept the discipline to plan and to take time to look strategically at their business. If they don’t do it, they’ll never rise above the continuing stream of everyday issues that every business contends with.
Successful business owners are ones who have developed methods of handling or delegating the everyday issues. Doing so allows them to ensure that the business continues on track to its long-range, strategic goal.
Following along with the concepts of gathering information for business intelligence and keeping the information handy to refer to for data warehousing, knowing what information is the most important is the logical next step.
The essential actions that really matter and drive the success of your business are your key performance indicators (KPIs). Measuring and tracking these actions – the number of customers served per day, the amount of cash banked per week, the quantity of widgets sold per period – is crucial. Without these metrics, the business owner cannot know how well the business is doing.
In the past, some business owners may have been able to tell by “gut feeling” how the business was doing. Those days are over. Rough measurements might have worked in the past, but today’s business and financing environments change rapidly. Products, prices, promotions and customers seldom remain static. Gut feel simply can’t keep up.
Planning and action must be based on accurate measures of a company’s KPIs. With KPIs, business success is planned. Without KPIs, failure often comes as a tragic surprise.
For example, because customers create all of a company’s revenue, it is critical to measure:
These KPIs noted above would allow you to know how much customers are spending with your company and, more importantly, the average spend per customer, which would allow management to assess the sales force’s ability to drive up the average spend. Remember that financial measures show past performance of a company, while KPIs allow management to drive future financial performance.
The KPIs for measuring customer metrics are contingent on a firm’s ability to monitor and continuously improve its performance driver metrics, which include:
Companies are advised to integrate the seven most powerful words in business as a necessary precursor to achieving a pre-engineered profit. Moreover, this integration must be linked to a well-thought-out, long-term strategic plan. No set of measurement tools will be successful if each is motivated to achieve its goals at the expense of another goal.
The link between the seven most powerful words in small business today and the company’s strategic plan will move the entire organization to attainment of its strategic goals. The implementation will lubricate the piece-parts necessary to monitor the progress toward these goals. Clients light up when they can begin to see how daily performance measures link to bottom line goals. So often, employees can make a difference between profit and loss by the hour in most businesses. This is why it is so important that any performance metric be linked to a relevant financial measure.
Successful implementation of these concepts means making profitability everybody’s job every day by utilizing accurate communication and awareness.
Most companies face the single most formidable challenge of translating a mission into desired outcomes. Additionally, too few measures within the organization can spell disaster. When a company constructs too few measures, it fails to obtain enough information to make proper decisions.
Problematic are organizations that create too many indicators. These firms easily can lose focus and cannot find any linkage between indicators and strategy. Thinking that today’s KPIs will be tomorrow’s KPIs can create havoc as the market shifts, consumer preferences change and the competitive landscape becomes increasingly populated. Let’s face it, nobody wants to be in the third grade forever, and obsolete metrics will prove fruitless.
Lack of ownership’s or management’s commitment to providing the training and follow-up to these time-tested profit initiatives will cause a company to fall short of its profit objectives
Finally, a challenge to profit engineering and the effective implementation of the seven most powerful words in small business today is moving this plan from the high-level goals to a subprocess level where actual improvement activities reside and actual bottom line results can be enjoyed. The entire organization must be involved in the process to eliminate potential difficulties with the implementation.
"Business intelligence," "data warehousing" and "key performance indicators" are seven simple words that when put into action and linked back to a company strategy can mean dramatically improved performance for a business now. By using these concepts, business owners also find their days are less hectic, the business runs better, and they actually have more time for themselves and for their families.
Paul Rauseo is economic thought leader for small business and managing director of the George S. May International Co., a management consulting firm. In his 14 years with the company, Rauseo has served in every position in the consulting department. As managing director, Rauseo is responsible for all client-related operations of the company, including prospect acquisition, sales, analysis, consulting and post-consulting client service. Rauseo sits on the boards of the Chicago Philharmonic Orchestra and the International Chamber Artists.
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A study published recently in Leadership Quarterly concluded that successful business improvement relies more on collective leadership than the mechanics of change.
If senior leaders across the organizational hierarchy deliver a consistent message, the enterprise will benefit from change more quickly and completely, according to study co-author Jennifer Chatman, a professor at the Haas School of Business, University of California, Berkeley.
Most organizations don’t realize their performance outcomes by their expected deadlines, if ever, Chatman said. According to the research, effective change is less about what new technology should be put in place or what procedures should be followed than about how committed leaders across all levels are to the change.
“We concluded that this suggests that CEOs would be wise to spend time ensuring that their leaders down the ranks are fully informed and committed before embarking on major change efforts,” she said.
Researchers studied strategy implementation at Kaiser Permanente, a large healthcare organization with more than 1 million members, 300 physicians and 19 medical centers or clinics. Faced with increased competition, the organization’s new strategy focused on quality and service rather than cost. The plan offered new resources such as a new scheduling system and redesigned call centers.
The next phase aimed to improve the physician-patient relationship and communication. The study used data from both physician and patient satisfaction surveys to measure how well the new strategy improved patient satisfaction, along with measuring how effective leaders were in communicating why patient satisfaction was critical to the organization’s success.
The researchers found that the more effective both the CEO and head of a department are perceived, the more physicians supported the strategy change. The study measured effectiveness by how well the leader articulated a clear strategy, set a vision, provided measurable objectives, rewarded progress in the change effort, dealt with resistance and motivated people to change.
Moreover, the data showed that leaders are more likely to motivate employees to achieve organizational objectives when the employees believe their leaders are united in supporting the strategy. Such support comes by allocating resources, addressing any opposition or resistance, and convincing employees that the new initiative is important and in their best interest.
The paper explains, “When there was disagreement about the strategy or leaders were seen as ineffective, performance was lower.”