Technology has accelerated the pace of business by automating manual processes. This has dramatically shortened the length of time tasks used to take as well as facilitated communication and commerce. Society has come to expect instantaneous results. Waiting is considered a burden and in certain cases, no longer acceptable. Management must steer their organizations through a course of business issues that are both external and internal in nature. The ability of management to navigate a challenging course is dependent on the information that they have before them and their decision-making process.
Individuals managing a business are continuously faced with issues that directly impact their organization. These business issues can be grouped into one of two categories: external factors or internal performance. External factors include changes in customer behavior, economic, political or environmental events or activities. For example, the September 11th terrorist attacks on the United States immediately changed air travel regulations by the Department of Transportation in reaction to the heinous events. The airlines reduced their number of daily flights in order to comply with the new air travel security regulations. Coupled with the public’s new fear of flying and the reduction of airline travel schedules, the airline and hospitality industries were faced with an immediate reduction of business and revenue. Other industries were impacted as the trickle-down effect began to happen. Managing an organization during the months subsequent to September 11th has been extremely challenging.
If external factors are not enough, managers must also address internal performance in order for the organization to remain competitive and viable. Internal performance issues impact financial, operational and business functions. For example, price wars in the personal computer industry have tested the financial strength and operational efficiencies of Dell, Compaq, Gateway, IBM, Toshiba, HP and others. The ability to respond to these events requires relevant information being available and quick decision making.
Key Performance Indicators
Relevant information can be presented in different forms. Key performance indicators (KPIs) are significant predefined measures that provide individuals with the information they need to assess previous actions. KPIs define target performance and provide individuals with the ability to assess past performance. For example, if the goal is to improve customer satisfaction, then several KPIs can help to monitor that goal. Customer satisfaction KPIs could include order cancelation, late shipment, incomplete order shipment, returns and customer attrition. Looking at the order cancelations KPI in greater detail, the purpose of this KPI is to monitor the number and value of items that have been canceled during the sales process. This KPI should address several questions such as when do most cancelations occur during the sales process? What is the lost revenue due to cancelations? Why are these transactions being canceled? How do the current cancellations compare to target performance and to historical trend?
The following is an example of order cancelations for a fictitious company for the current period. In this example, there are four stages to the sales process. The process begins by a sales representative issuing a quote to a potential customer. If the customer approves the quote, the sales transaction moves to the order approval stage for consideration of extension of credit to the customer and then to the shipment stage where the product is sent to the customer. Once the product has been shipped, an invoice is created and sent to the customer for payment. Order cancelations are monitored to assess performance at each stage of the sales process.
For the current full month, order cancellations were:
- 626 orders valued at $5,173,434 at the quote stage,
- 17 orders valued at $109,869 at the order approval stage,
- 16 orders valued at $139,417 at the shipment stage, and
- 31 orders valued at $212,075 at the invoice stage.
The order cancelations KPI and metrics help to assess performance and trends. While KPIs present individuals with meaningful information for decision-making purposes, there are several factors that one must consider which are:
Defining the indicators of performance. KPIs can be difficult to define because the definition requires knowing what performance to measure and how to measure it. In addition, consensus from the individuals who are being evaluated based upon the KPI is critical. Without a commonly accepted definition of a KPI, no one will support or use it.
Obtaining the necessary data. Once the KPI had been defined, the necessary data needs to be obtained. Depending on the complexity and number of the operational systems of the organization, this task can become quite daunting. Ideally, the information that is needed is already stored within a data warehouse.
Calculating the values according to the KPI definition. Applying the business rule or calculation to a set of data in order to derive a KPI requires a clear understanding of its definition by the individual who is responsible for this task. Incorrect calculations are primarily caused by a lack of understanding.
Performing timely updates. Keeping the KPIs updated on a periodic or on an as-needed basis can be very time-consuming if the process is manually performed. However, there are several software products such as analytic applications that facilitate the definition, extraction of data, calculation and update of KPIs and other important metrics. With KPIs, individuals can assess performance and make informed business decisions.
The ability to present an image that is about the information being analyzed and meaningful to the viewer is visualization. Data, by itself, can be overwhelming and difficult to analyze. Through visualization, graphical representations of data can highlight important aspects within the data and assist the viewer in focusing on important items within the set of data being analyzed. In certain cases, visualization of information can assist the viewer in being more efficient with his/her analysis.
The following is a graphical representation of a set of data. In this example, total sales generated by sales representative for the year is displayed.
Figure 1: Visualization Example Graphical Representation of Data
The graphical representation of this data enables the viewer of this information to easily spot the top sales representative as well as the performance levels of the other sales representatives and the amount of sales revenue each generated. As Napolean once said, “A picture is worth a thousand words.”
Visualization of Key Performance Indicators
Incorporating visualization with KPIs provides individuals with a powerful tool to manage the activities of their organization. Through visualization of KPIs, individuals can quickly and easily spot events or trends that are of concern and can focus their resources on those activities that require their attention.
The images in Figure 2 are the incorporation of visualization with KPIs. This example is a continuation of the order cancellations example that was discussed in the KPI section.
Figure 2:KPIs Used to Identify Trends that Reflect Customer Satisfaction
Figure 3: Detailed Metrics that Visually Represent Order Cancellation by Sales Process Stage
The graphical representation of KPIs and metrics makes it easier to analyze the information in an efficient manner. There are several products categories that support visualization of KPIs. These product categories have their advantages and disadvantages where are highlighted in the table below:
|Spreadsheet software|| || |
Business Intelligence software
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|Analytic Applications|| || |
In order to effectively make informed business decisions, individuals must have access to relevant information. KPIs and metrics aid individuals with assessing performance, identifying activities or events that are of concern and focusing resources on those activities that require attention. Visualization of KPIs and metrics efficiently describes what is happening and effectively highlights important activities or events. While KPIs and metrics can be manually calculated, technology facilitates the usage of this information by providing individuals with relevant and timely information so that they can make informed and ideally better decisions. In this rapidly changing and competitive business environment, management needs all the relevant information that they can get to steer the best course for their organization.
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