Information Management - Linio White Paper Part 2 'Nice-to-Know vs. Need-to-Know' - en

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White Paper ´Nice to Know vs. Need to Know’ – Part 2 Linio – New Interim Solutions ©

Information Management:

Lessons Learned, calculation examples, and pitfalls

Management Decision Making

'Nice to Know' vs. 'Need to Know'

White Paper – Part 2

(2012)

www.linio.nl

Published by Linio – New Interim Solutions ©

Author: Peter Reij

Jupiterhof 7

3951 EA Maarn

Netherlands

T. +31 6 4285 4983

http://www.linio.nl/

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I. Executive Summary

Linio White Paper – 'Nice to Know' vs. 'Need to Know' – Part 2

Management receives often insufficient qualitative information to take appropriate decisions,

and works with limited, incomplete management information. Regardless the sector or industry,

independent of software, analysis tools and technical systems. In practice, the issue applies for

start-ups as well as for the more 'mature' companies.

The solution consists of an effective approach with the following six steps:

1. Determine which control parameters are valid (KPI's and KRI's).

2. Analysis and evaluation of necessary data, and set definitions.

3. Establish and improve data quality, plus revise data processes.

4. Form a Reporting Council (or reporting team), and securing this methodology.

5. Set-up and control the reporting process, followed by development of effective reports.

6. Internal communication to management and stakeholders.

This approach works and results in additional revenue, reduced costs, lower working capital and

improved EBITDA! References from various companies illustrate the results in practical manner.

Two examples show the use of a mathematical model with realistic figures. The financial effects

are presented for a company with € 100,- million and one with € 10,- million turnover.

Lessons Learned from the practice of information management are discussed in this White

Paper. Next to specific examples, attention is paid to potential pitfalls and risks, and to

recommendations to avoid these.

This is the second part of a series of White Papers (in Dutch and English) about

Management Decision Making and Information Management, published by Linio.

Part 1 was created in 2011 and deals with the problem of information management

and management decisions, plus a wise approach to handle this. Part 3 is in preparation

and discusses the arrangements of a 'Reporting Council' and Best Practices for

organisations dealing with Management Decision Making.

About Linio – New Interim Solutions ©

Linio is an independent company, focused on Information Management, and aiming at improved

Management Decision Making and Business Intelligence. A broad international experience helps Linio

to look at these subjects in a practical manner. Without a preference for software applications, technical

analysis tools or other 'tricks': the (commercial) success of the company and the functioning of the

management are paramount. Facilitation of the correct 'tools' for managers, to take better decisions,

and make the company controls its activities more effectively. That's what Linio stands for!

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II. Solve management problems

Introduction

The first Linio White Paper clearly presented the problem of information management and Management Decision Making: managers receives insufficient qualitative information for making adequate decisions: they work with limited and incomplete management information. Regardless of sector or industry the company operates in, and independent of the software, analysis tools and technical systems for Business Intelligence.

One misconception is that BI purely is an issue to be handled by the IT department. Partly inspired by initial and often substantial investments for technical components: design, construction and equipping of a warehouse with specific links to sources needed to bring data together. Once the technical equipment is delivered, it remains the property of ICT, but 'business' does not have – access to – the required management information.

In practice these problems apply for start-ups and the more 'mature' companies (profit, non-profit or not-for-profit). Experience shows, also in the practice of Linio, that there are essentially six steps to improve fundamentally the management information system (MIS) and thus the Business Decision Making for managers. The goal is to facilitate proper ‘tools’ to ensure adequate decisions, and so to operate the company or business in an effective way. In other words:

‘Have the right information available throughout the

organisation, for the right staff, at the right moment, in the

correct format, to manage the company in the preferred direction.’

It concerns the following six steps:

1. Determine which parameters apply for 'business' funds (KPI's and KRI's): a. Define relevant control parameters for the company. b. Create awareness about the importance of "Nice-to-Know vs. Need-to-Know '. c. Coordinate with senior management what business drivers are valid. d. Define the business case, preparing a plan of approach, and agree about the

expectations. Assign responsibility and authority.

2. Analyse, review and modify the necessary data (including data audit): a. Conduct a data audit or quick scan. b. Determine then availability of relevant data. c. Set procedures for evaluation and improvement of data quality and data enrichment.

3. Fix / improve processes:

a. Optimise data processes: recommendations to improve data quality and data processes, and securing data quality.

b. List Management: querying and selection work in database environments (such as marketing and supply chain). Tune where these activities are performed and by who.

c. Related activities (by others): advice and design of ETL, DWH, data marts, including architecture.

4. Organisation: a. Compile a ‘Reporting Grid’ to structure all current reports. b. Organise a reporting team or Reporting Council, also called Business Intelligence

Competence Center (this subject will be discussed in more detail in the third Linio White Paper about information management).

c. Monitor processes, roles and responsibilities. d. Project management of all activities within these six steps. e. Outsourcing or insourcing: this is a possible alternative in case of limited internal

expertise or resources.

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5. Arrange and management the reporting process, including the set up of effective reporting: a. Define (+ maintain!) parameters, relevant data and information throughout the company. b. Design, develope and deploy reports and (marketing) management dashboards:

prototyping, development and production. c. Determine who builds, modifies, and uses reports. d. Set house rules for customising standard reports (KRI and KPIs, dashboards, scorecards),

and for creating new reports. e. Decide about authorisation and access rules to data. f. Agree on naming conventions, categories, and such. g. Assure the solutions are stored within the company: arrange release management. h. Management the distribution of reports, and maintain an official mailing list.

6. Internal communication about Information Management:

a. Obtain 'user acceptance' in the entire organisation. b. Create awareness of changes: what reports are used now, are there any restrictions,

which topics can be improved, and what changes can be expected in the new situation. c. Manage the internal changes: seek help from 'internal ambassadors', arrange for joint

presentations by senior management and super-users, to communicate improvements and benefits of the changes at operational level.

Lessons Learned: practical experiences summarised

In practice, about 60% of business intelligence and information management projects fail or partially fail. Cause: improper planning, data quality problems, poor project management, missed deadlines, and unclear requirements (i.e. business requirements). The following lessons can be learned.

Lessons Learned – 1: Focus on Business Value

The first step (of the above-mentioned six) is the basis of successful improving information management. It is an absolute condition for completing the remaining five steps - in appropriate order – to achieve the right results.

• Senior management should have a full understanding of relevant control parameters of the company; involvement of these managers in information management is a must!

• Clear communication is needed about the 'Source of Truth; agrement about what data sources are used, and which definitions of data and information apply. There is only one truth for the entire company.

• It is necessary to involve expertise within the company (subject matter experts) the complete process of information management and BI.

• Use a complete, realistic and clear plan (plan of approach). • Communicate clearly about progress and successes of the project around information

management: improved profitability, reduced costs, increased customer satisfaction and achieving competitive advantage.

Example Trading Company ABC began its information management approach by determining the most critical key performance indicators, including sales, revenue, hours, contract value and stock levels. Working groups were formed per KPI, to describe the details of each KRI according to a standard format. And so the responsibility for this KRI was set. Then the necessary dashboard was built, using actual data from the ERP system. Working with this approach, the Reporting Council monitored the overall progress, plus the definitions and quality. The council played a central role for any changes to reports (that 'the business' deemed necessary).

One of the company stakeholders indicates that not everything can be remedied in advance. "It has been an iterative process for us and gradual changes are still needed. Original definitions might be revised, resulting in additional work. Actually, it is unavoidable in projects like this and the Reporting Council takes a very practical stance. We are really wiser with advancing insight.”

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One warning is often heard, also at this company: use a limited number of parameters, not a dozen. "We can try to automate everything, but we need to draw a line somewhere. Think about it in advance, what you really care about. And decide about what you do and don’t want to take your reports." Another tip: "Focus on one KPI at a time, and not at all KPIs at once, otherwise, the focus will be lost. By tackling it one by one, you treat the matter in a proper way, and you can finalise a KPI accurately before you go to the next on. Ultimately, this offers you the best and fastest results."

Lessons Learned – 2: data quality is crucial for reliable information

The quality of business data is one of the most basic elements of reliable management information. Recent Dutch research on data quality shows that around 35% of business decision makers distrust the data in their existing information systems and data warehouse! So it necessary to analyse and assess data and data source. At the start of a BI-improvement project, but also periodically. There are examples of companies using random checks every week to monitor data quality in a structured way. A well-known method to perform this is a quick scan or audit data, and includes a technical and functional verification:

a. Verify if data is relevant and has appropriate credentials of sources and tables (including checks of formats and domains).

b. Determine whether data is consistent and complete, and what is incomplete (such as ‘fillrate’ of fields, minimum / maximum values and duplication).

c. Assess reliability, validity, and accessibility. d. Analyse whether data meets the 'business rules'. e. Verification of data processes and data management: for example the way

customers or users enter data, and the method of data migration from different source files.

A data audit should clearify what changes and improvements are needed. It can lead to a specific approach to improving data quality and data enrichment.

Lessons Learned – 3: BI issues… ICT- of business-problems?

Management reporting should be initiated by 'the business', and not solely by the possibilities that (IT-) systems offer. We must be aware that the solution must not be sought in the BI system itself; so not in the software, data warehouse or other technical components. The improvements are at the crossroads between ICT and the business. It is essential that senior management knows about the definitions and content of ‘customised reports’: it is indeed responsible for decisions taken at lower levels in the organisation. Involvement by the top level with the right management information shows the commitment an organisation should have. Example The Executive Board (CEO) of an international media company (specialty publications) asks the CFO to make KPIs available for a broad group of managers. Existing control parameters with sales numbers are not satisfactory, the overall quality of reports is limited, and 'the business' need to gain more insight about the real performance. How to deal with this? Who are involved and how quickly can this be resolved? Who monitors the new KPIs and reports that will be available? Management, as it seems, has no clear understanding of the right approach, and can not (yet) specify the required controls. In discussing a plan-of-actions there must be clarity about the transition from data-to- information-to knowledge-to-decisions. The famous adage ‘Nice-to-Know vs.. Need-to-Know' is back on the agenda. In addition to this commitment 'from above' the entire user organization plays important role in alterations of the information management. Communication to all users is essential for successful deployment and acceptance: this calls for clarity about the expectations, the usefulness of changes, and what this means for the individual employee. In short, the basis of successful change management.

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It is crucial to have a clear picture about the control parameters: for example we can looks at sales by product group, net margin per publication, cost prices, and cost allocations. This is the starting point of the 'business navigation project’, as approved by the Board. The Reporting Council receives the official assignment from senior management, and informs the CFO preferably weekly and management on a biweekly basis, during the first four months.

Case studies and a mathematical model

Experience indicates that the approach mentioned above can fundamentally improve the Business Decision Making for managers, regardless of the software, analysis tools and technical systems. This applies to various industries and sectors, for Business Intelligence and Marketing Intelligence as well as for Customer Intelligence. In different situations this can result in financial benefits and savings: the following examples indicate what they are.

Actual examples from practice

Industry: Insurance Improved quality of customer data result in remarkable fewer errors and duplication during customer contact. The reduction of customer irritation is remarkable: after about 7 months, the churn of current customers has moved down from 11% to 9%. More than € 36,000, - has been saved on corrections of customer data. Time duration for this change process: 7 months.

Industry: Lotteries Quality of data on birthdates and email addresses of relations is quite poor, in approximately 35-40% the birthdates are unknown, and in 60-65% of cases almost certainly incorrect (these relationships have very often 1 January as their birthday!). This means that direct marketing, focusing on retention, is a lot harder and more expensive. With a strategy of Customer Intimacy is it quite difficult for example to send relationships / customers congratulations for their birthday. Furthermore, some customers can only be approached by letter and that is relatively expensive. The modern approach by e-mail costs significantly less money. Time for change process: not applicable.

Industry: Banking The working group Customer Intelligence (Marketing Department) wants to determine which tactical decisions are required to successfully retain specific customer groups: on average 12% per year appears to leave for the competition. It is unclear what the effectiveness is of current marketing spending. After determining, defining and capturing four specific marketing control parameters, monthly reports displays these values and can be used effectively:

• Percentage of marketing budget spent on customer retention. • Monthly revenue per new customer (the term 'new customer' is now clearly and

unambiguously defined). • Turnover ratio online-sales/sales through customer service. • Actual marketing expenses compared to budget.

Improved quality of customer data results in fewer errors and duplication occurs during customer contact: after 7 months the customer churn is reduced from 12% to 10%. The realized savings on the total marketing budget is about € 70.000,-. Duration of project: 8 months.

Industry: Telecom Sales management, customer service department and business management using in total about 281 reports: 29 of these appear to be duplicates, 47 no longer apply, 135 are obsolete and 7 undefined. Only 60 % of the remaining 63 required reports are properly documented. A rationalisation of reports then takes place, matching the CRM data model, information

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requirements, and control parameters: it concerns some 10,000 customers in the B2B market. Coordination with user groups follows; the reporting structure and definitions are now stored. And the new reports are built into the new CRM system. It results in significant cost savings (estimated between € 65.000, - and € 85.000, - per year) for IT, partly by eliminating unnecessary maintenance and production of reports. There is an improved efficiency and more transparency for users and business analysts. It all creates the basis for fast and efficient adaptation of existing reports and create new reports. Time for change process: 5 months.

Industry: Telecom Improving management reporting include a thorough transformation of data processes, in addition to uniform definitions and reports. This is urgently needed because many reports are very labor intensive, cause a huge workload and contain no essential information for the various managers. A careful analysis of business requirements brings clarity, also on the correct definitions and data quality. Multiple redundant Excel reports are eliminated. A roadmap helps to solve problems around the required data sources and to build improved reporting, which are now automatically available. This approach results in a saving of at least 3 FTEs per year. Duration of project: 8 months.

Industry: Chemical Industry – EMEA headquarters The marketing team needs to rationalise the Product Line to reduce stock levels and inventory cost (= lower working capital). A cross-functional team of product managers, IT, Supply Chain, and an Analyst, takes the initiative. Data analysis and calculations with the GMROI method prove to be an effective approach. Transparent financial data and this calculation model result in € 7 million reduction of working capital in the 1st year, by cutting inventory volumes and lower stock value. Duration of implementation: 3 months.

Industry: Media / Publishing Customer contact information can not be determined on a regular basis, it is only available at a general level, while products (= subscriptions) are correctly distributed to the customers. Subscription prices are often unknown and agreements for electronic products (exact titles, users, etc.) are not fully recorded. Vital customer insights is lacking and so reports give a false picture. Result: management has an incomplete view of revenues and cost, and can not make correct decisions based on this incomplete information.

Another observation is that in some fields in the Data Warehouse changes will be overwritten and the history is not well preserved. Striking is an arbitrary decision in the past with rather big consequences. The date of a merger (10 years ago!) now clearly reflects in the Data Warehouse: a large part of the subscriptions have a start date which is the same as the merger date. Apparently at that moment the start date of those subscriptions was not known, so this mandatory field was entered with the date of merger of the databases. Time for corrective action: 10 months.

Calculation model: financial benefits and savings

Linio has composed a calculation model, using these practices and experiences with information management. This is a tool to get an understanding of the financial impact around improving information management. It makes clear that this approach (with the above six steps) works and results in additional revenue, reducing costs, reducing working capital and improving EBITDA!

The first edition of the Linio White Papers on Management Decision Making, talked about the real benefits of this approach. Namely:

Financial Benefits – Quick Wins and tangible results Accuracy and functionality of the Management Information System Competitive Advantage

The following examples show detailed calculations for each of these categories. Figures are used about the number of users, time savings per month and various hourly rates (depending on the role and activities of employees) come into focus.

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The calculation model shows two examples with realistic, conservative figures: for a company with € 100,- million and one with € 10, - million turnover.

Explanation:

o These figures are assumptions: conservative, realistic and neutral calculated in Euro. o Estimates for companies with existing data and BI systems, and with an existing information

infrastructure. o * = estimated annual additional income, savings and costs. o OPEX related without additional CAPEX. There is no extra spending on top of existing

BI- ICT investments. Assumption: these examples will have no effect on CAPEX. o Situation applies for the 1st year. In following years more favorable financial results

are possible, depending on the operating conditions.

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o Calculations on an annual basis, based on 11 months (taking into account holidays, absence, special leave).

o The calculations in these examples are indicative, and may vary by sector or industry.

Pitfalls

Besides the positive picture that emerges from these Lessons Learned and the examples, there are also pitfalls to be mentioned. It is necessary to discuss them, simply as a warning, and – more important – pay extra attention to avoiding these pitfalls.

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Pitfall – 1 Inadequate attention to strategic barriers around BI and information management

Each company, each enterprise, business unit and even a department has different characteristics, methods and challenges when it comes to information management. However, there are three general strategic obstacles to remember. For each of these a recommendation is to be given:

1. The objectives and the strategic importance of the Business Intelligence and BI analytics are ìnsufficiently clear. Recommendation: Senior management sets the route, monitors the communication about the improvement programme, and guides the plan of approach for information management. The Reporting Council gets the assigned tasks and is responsible to execute these steps. This was already discussed above in the comments on the first step of the six-step plan.

2. Terminology is unclear and definitions are confusing. Definitions of control parameters and data are incomplete, making it difficult to determine the strategic value of BI and information management. Much time is often spend on preparation and the implementation of a BI application. Still much remains unclear on the user side (for end-users, supervisors and managers). Recommendation: An important task for the Reporting Council is to manage the definitions of all data and control parameters, and align this clearly with the various departments like finance, management, IT, supply chain, users, and ‘the business'.

3. Business critical processes, information management and technology are not or not fully coordinated. Recommendation: Make a plan of approach for a clear distinction between strategic, tactical and operational aspects; it is a task for the Reporting Council to clearly identify and monitor this.

Strategic choices: the assessment by senior management of control parameters for the company. With the urgent need to make management information meet today's requirements and to compare operating results with these parameters. Tactical considerations: the design, development and administration of reports. This includes the internal processes, the definitions of the parameters and the role of employees in the required management information. Data quality is discussed and rules for improving (and secure) data quality and data processes. Operational performance: the actual production and distribution of reports, dashboards, and previously mentioned KPI's and KRI’s. This includes release management and use of reports, scorecards and dashboards.

Pitfall – 2

Insufficient involvement of management in organisational change

1. Insufficient support by Executives and Senior Management of the company. Recommendation: at least one person from senior management (executive level) should become actively involved with the full range of improvements for management information. This is a must! In all communications to the parties involved she / he should make it clear what the interests are for the company: it is an essential part of the internal communication, to create support, make clear what the sense of urgency is, and get 'user acceptance' in the entire organisation.

2. Lack of cooperation between departments such as finance, ICT and 'business' to accept, activate and maintain the BI applications. Recommendation: The plan of approach should clearly state who are involved in agreements about data processes and information flows. Workshops with business units,

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departments, workgroups and ICT can help to make this clear. It assigns tasks and responsibilities to departments, functions and individuals. Also rules about data access, administration, authorisations and data ownership are made here.

3. Unclear expectations of end users and middle management: support of BI use lies with the so-called power users instead of the end users. Recommendation: The Reporting Council is responsible for all communication regarding management information. It is clear who builds reports and dashboards, who distributes them, and who uses them. This also applies for handling of changes in reports and dashboards: there should be agreement between users and the Council about processes of prototyping, approval and release management.

4. Training needs, plus the responsibilities of power users and end users, are insufficiently clear in the BI Business Case and Project Plan. Recommendation: user acceptance of changes in management reports obviously requires adequate training and sufficient aftercare. The implementation process is preferably short (eg within a few months). The responsibility for this lies with the Reporting Council.

5. Insufficient attention to change management: before, during, and after implementation. Recommendation: Change Management is an essential part of successful improving management information: user acceptance depends strongly on the 'change culture' that exists within a company. Success and use of new, customised management reports can not be enforced. So the adage applies here: ‘You can bring a horse to water, you can’t make it drink...’.

Pitfall – 3

Total Cost of Ownership

In discussions, publications and many practical cases, the investments and returns of Business Intelligence projects are an important issue. However, frequently with disappointing conclusions! Often it looks only at the purchase price of a BI tool and hardly takes into account the TCO (Total Cost of Owenership) of the BI and information management 'solution' for the entire company. These costs are not clear and often not fully budgeted: this can lead to failure of a BI project. In many cases there is a big difference between the ambitions of the IT department and the expectations of the 'business': the first group is looking for a tool, the latter for a solution. Furthermore, it is not counted in an unambiguous way what the Return on Investment (ROI) is for a complete and operational management information system. Calculations focus primarily on acquisition, development costs, customisation, and implementation of software. But items as resolving the complexities surrounding data quality, architecture and data cleaning cost money too. Just like the creation of interfaces to source systems and different business applications. And what about training, change management, and the support for end users. In short, additional subjects under responsibility of the Reporting Council. These topics will be discussed in White Paper - Part 3.

An important theme often neglected is the operational reliability and performance of 'the BI system': it can happen that in a relatively inexpensive BI package the duration of so-called ETL processes is long, resulting in limited functionality for the users. In such cases uncertainty remains about the added value of this BI solution for the entire organisation.

Important: additional investment in advanced, analytical tools (so-called predictive analytics) can not always outweigh the limited gain that can be achieve from this. In other words, the real benefits of scenario planning and forecasting, such as additional revenue, higher profitability, lower cost ..., can be interesting, but should be proportionate to the real investments in systems and organisation that bring real advantages of decisions it might generate.

Conclusions: [ A ] Provide clear definitions, impact, and expectations of a BI project. Make this part of the business case and create a clear understanding about the scope, timeframe, budget, number of users, number of stakeholders of management information, relevant costs, revenues, cost-of-ownership, and ROI. The above six steps can be a guideline to specify these items.

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[ B ] Evaluation and comparison of calculation examples is a complex matter. Situations can vary by company, MIS, and are usually industry specific. As indicated, relevant costs are to be taken into account, in addition to the BI-investments. It doesn´t make the preparation and evaluation of a Business Case any easier, but helps to increase the financial transparency.

Linio would like to play a role in improving Information Management

This White Paper is based on extensive experience with information management at several companies, both B2B and B2C. Linio wants to share this knowledge with others, to raise awareness of the concept of 'Nice to Know vs. Need to Know', and to help with the right approach.

About Linio – New Interim Solutions ©

Linio is an independent company, focused on Information Management, and aiming at improved Management Decision Making. A broad international experience helps Linio to look at these subjects

in a practical manner. Without a preference for software applications, technical analysis tools or other 'tricks': the (commercial) success of the company and the functioning of the management

are paramount. Whether it be for Business Intelligence, Marketing Intelligence, or Customer Intelligence.

Linio looks at the business objectives first: the technical solution is a tool to achieve these goals. Facilitation of correct 'tools' for managers, to take better decisions, and make the company (profit,

non-profit or not-for-profit) controls its activities more effectively. That's what Linio stands for!

For more information, contact Peter Reij: +31 (0)6 4285 4983 (email to [email protected])

www.linio.nl

mailto:[email protected]

http://www.linio.nl/