ROI analysis, cost of ownership, leading-edge firms, standards, best practices these are a few of the common terms used to understand the growing realization in industry today that organizations must find a way to get real business results from their investments in technology or face dire consequences. Most companies are considering the use of best practices in their ongoing business environments as the link to drive this return.
To fully understand what this means and the effect this has on an organization, it is important to first define what is meant by a best practice because a number of definitions exist today. Research firm Gartner, Inc. considers the term to mean expertise or lessons learned and captured from a successful experience. This assumption drives the definition that a best practice communicates insight on the application of a process or the performance of a task. A best practice improves the outcome, diminishes the risk, increases the reliability or improves the understanding of the process or task. The American Management Association defines best practices as "systematic processes the marriage of applied behavior and knowledge that have been demonstrated and validated to yield a competitive advantage for organizations that employ them."
However, not all practices used by organizations are considered best practices. For a practice to be considered a "best practice," it must be replicable, transferable and adaptable across industries. Best practices require continual improvement and are, therefore, constantly changing and revised or updated. Is a best practice synonymous with a well-managed organization? Yes, if it accomplishes the following: drives efficiency and value; leverages proven technology; enhances quality, cost and speed; and ensures effective control. Additionally, it must work within the organization to promote these accomplishments. A simple example is the Six Sigma quality approach used by some large-scale organizations such as GE and Motorola to ensure quality and efficiency. A best practice is a process or practice that merges efficiency, quality, cost and control to enhance the overall value and capabilities of a business process. The best practices can, therefore, be leveraged to add overall value to a business process, methodology or overall implementation approach.
A best practice can also be derived from a sampling of how companies behave against a specified benchmark. For example, Hackett Best Practices, a division of Answerthink, Inc., conducts industry benchmarks across various staff functions within the organization including finance, IT, HR, supply chain and call centers. The benchmark results are then maintained in a database for comparison against new benchmarks and can be used to define what a best practice is because the function or capability has been proven across many organizations.
A best practice can be associated with the implementation of a data warehouse environment and an enterprise resource planning (ERP) application. However, to truly get the overall return on value for the implementation of a best practice, the ERP application and the data warehouse should be linked. Hackett Best Practices data has shown that a standard ERP application, when implemented, achieves only 25 to 40 percent of its real value.
If implementing an ERP application, there should be inherent value in this implementation. Why, then, aren't companies experiencing a higher benefit? Take a close look at the real value. Does the ERP application provide the user with a method of looking across the business entities to determine impacts on related events? What caused revenue to drop? Was it the price of goods and services? The ERP system only provides transactional reporting to the user. It does not provide a mechanism for relating what occurs in other systems to financial or other metrics maintained in the system.
According to Hackett, when management wants instant information about business performance where a data warehouse or data mart is not present, it has been demonstrated that the user spends more than 50 percent of his/her time in the collection of this data. If more than 50 percent of an individual's time is spent on collecting the data, less than 50 percent is spent on the actual analysis. This is the average across most companies. However, Hackett data shows that for world-class companies, these numbers are considerably lower. Less than 15 percent of the time is spent collecting the data while greater than 85 percent of the time is spent on the analysis. The best practice indicates that the use of a data warehouse to collect data results enables more detailed analysis. The ability to define and develop trends and relationships through the data could lead to additional business opportunities and potential revenue.
If all of this is true, why don't companies invest more in the use and adaptation of best practices? It is probably because they do not understand the real opportunity for savings. In the previous example, if a company invested in the collection of data, it would see a minimum difference of 20 percent in the time spent using a warehouse versus not using it. If it costs the company X dollars to collect and report on this data, is it not the case that by implementing the best practice, the company could save 20 percent of X dollars in true costs? One would need to see what the real costs were in the implementation and maintenance of the warehouse or data mart against the savings and calculate the return on investment. At least doing this type of financial justification seems valid in a time where costs are continually being monitored and companies are looking for ways to save costs in a tough economic climate.
The need to adapt to this type of best practice is also exemplified through the introduction of analytical engines or frameworks from some of the many business intelligence vendors. SAP has Business Warehouse, PeopleSoft has EPM, Oracle has Oracle Financial Analyzer and now has built analytical functionality into the warehouse. Each of these has a real cost associated with it as related to the implementation of the package, but it is beneficial to view these costs against the savings and other future benefits which may exist. Just putting a business intelligence vehicle in place does not guarantee that true savings will be realized. As with any system, it must be implemented in an efficient manner and capture the metrics that have been proven to demonstrate value to the organization.
Other areas for best practice improvements and savings can be found across the enterprise in how functions and processes are implemented. For example, just implementing a process that is termed a best practice will not guarantee a savings or improvement in efficiency. The implementation must be aligned correctly to a specified capability. For example, implementing an online credit application system as part of the credit and collection process may be considered a best practice. How it is implemented and integrated into the overall solution will be the driving factor that ensures value resulting from the implementation of this best practice. Just implementing a proven best practice does not ensure value; it is the method and approach to the implementation that provides the value.
A focus on best practices and the implementation of best practices in business processes and applications is beginning to take shape in today's business world. How companies adapt to this view and leverage these best practices will determine the value that is actually obtained in today's ever-competitive and challenging economic environment.
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