Key performance indicators (KPIs) have been at the heart of effective performance management strategies for decades,...
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yet they still cause major challenges in implementing successful business intelligence systems built around BI dashboards. The business intelligence dashboard design process is also fraught with potential missteps that can hurt corporate performance management (CPM) efforts.
“You can go bust while achieving excellent scores on your KPIs if they are the wrong ones,” warned Nigel Pendse, an independent consultant and author of The BI Survey, an annual report based on a worldwide survey of BI and CPM software users.
When designing a BI system and executive dashboards, the KPIs that an organisation decides to use “are often chosen because they are easy to calculate or to understand, rather than because they provide the best insight into the health of the business,” said Pendse. Effectively tracking business performance may require the addition of ‘fuzzier’ data that is not readily available in a company’s in-house applications, he noted.
In addition, although analytic databases are ideal for calculating KPIs and most BI vendors offer dashboard and performance scorecard modules as part of their product offerings, bad business intelligence dashboard designs are common, according to Pendse.
“There is certainly adequate software on the market, but most implementations are poor,” he said. “[BI teams] try to model it too much on car dashboards or aircraft instrument panels, but senior managers don’t run a business by gazing at a sea of dials. People mustn’t drown in data that they either can’t or don’t need to do anything about.”
Keep business intelligence dashboards simple, straightforward
Pendse recommends keeping BI dashboards very simple by succinctly presenting information to users on a single screen, with only exceptions in the data being highlighted. Because so many people are colour blind, he said, different colours should be used for emphasis only. He also advised executive dashboard designers to “ditch speedometer dials in favour of sparklines and bullet charts”.
Dashboards are usually built for specific employees or groups of users so they can see at a glance the data that is most important to them. Typically, users can click on individual items to get more detailed information. At the top level, an executive dashboard ideally provides an instant picture of what is going on in an organisation, the markets in which it competes and the overall business environment.
KPIs are financial or non-financial metrics used to help an organisation define its strategic business goals and then measure how well it’s meeting them. Although KPIs can add context to static financial reports, they are best incorporated into BI systems through dashboards or more structured scorecards, such as ones based on the balanced scorecard model.
Typical KPIs that might be tracked as part of a CPM system include gross profit percentage, return on investment (ROI), labour productivity, resource utilisation, market share, customer satisfaction, manufacturing output and sales orders. For instance, one real-world organisation tracks data on sales trends, such as its Top 10 customers, best-selling products and highest-performing sales staff.
“The best approach to setting KPIs is to start out with a clear understanding of organisational strategy and make sure they link into it,” said Nick Millman, senior director of information management services at Accenture’s UK and Ireland consulting operations.
One way to accomplish that is to build a ‘shareholder value tree’ or a ‘strategy map’ into BI dashboards to track business value enterprise-wide. Doing so “makes sure that the KPIs are linked to the real drivers of value for the organisation,” said Millman. He added that about half of the large organisations that Accenture deals with in the UK have adopted such methods.
‘Hierarchy’: not a bad word with business intelligence dashboards
For more effective performance management, dashboards and KPIs are often designed in a hierarchical way, so that achieving overall business goals depends upon people at various levels of an organisation meeting separate performance goals tracked via different sets of KPIs.
For instance, ROI measurements at the business unit level are typically based on a combination of individual KPIs for the sales, supply chain, administration and finance departments.
Dashboards, scorecards and profitability modelling tools are some of the more advanced aspects of CPM systems. Currently, they’re being used in less than 40% of organisations, said Gartner analyst Neil Chandler. But, he added, the consulting firm foresees a ‘remarkable’ increase in the planned uptake of strategy-management tools such as scorecards and dashboards over the next two years.
A danger, though, is that businesses can become too reliant on business intelligence dashboards and KPIs.
“A lot of organisations try to manage by KPIs and metrics,” said Jonathan Steel, CEO of The Bathwick Group, a UK-based research and consulting firm.
“The bane of most organisations is too many KPIs and often the wrong ones. There are accuracy problems because of poor data quality, and people are not held to account on them. [Companies] fall over at every single stage.”
Closing the loop with a CPM system and business intelligence dashboards
On the other hand, when a CPM system is well designed and properly implemented, with links into a company’s BI applications, a ‘closed loop’ can be created, enabling executives and business analysts to use their dashboards to monitor the impact of strategic decisions on all parts of an organisation.
“You can understand how a certain management decision or action has resulted in a particular outcome or effect on the KPIs and the dashboard,” said Millman. “It allows for organisational learning.”
Many organisations fail to realise that KPIs can also play a very important role as a communications tool by helping to explain corporate strategies and influence work behaviour throughout an organisation. To succeed in that regard, they must be simple and understandable.
The bottom line is that dashboards and KPIs aren’t merely about producing impressive graphics on a computer screen. If designed correctly, they will align individual business units and departments behind an organisation’s overall strategy and give executives the tools they need to effectively manage corporate performance. They will also enable users to look forward and get early warnings of business problems before financial performance can be affected.
And as part of a larger BI system, effective dashboards and KPIs can help improve business decisions, hasten corrective actions and – hopefully – ensure balanced and sustained profitability.
Rod Newing is a freelance writer based in the UK.