Setting the Standard

Susan Andre Survival Strategy Column

Technology can play a major role in setting up performance measurement standards and customer management systems.

Much has been said and written about corporate governance and the various studies, findings, reports and examples of poor corporate governance and although indirectly related, a secondary aspect – the scorecard kept by an organisation's customers.

Imperative

"Corporate governance is increasingly important as part of the strategic management process."

But can technology, and more specifically business intelligence, play a meaningful role in these areas of business and customer management?

Let's look at the customer scorecard first. Organisations currently measure and control the financial aspects of their business fairly effectively. There is a massive amount of focus on this area, while other key drivers are at best neglected or completely ignored.

These areas include customers, risk, human resources, processes and other control aspects.

There are, however, some organisations that have realised that in order to sustain business growth, a fair amount of integration is required. The integration should include their traditional financial measures and controls combined with measures and controls around customers and staff.

For example, performance measures must be set up to monitor and capture information from different perspectives, and not just the financial angle. Owners, shareholders and business executive need to focus on the business from a multi-dimensional point of view. Areas that should be targeted include monitoring, measuring and collecting information about customers, business processes, financial and innovation-related activities.

Technology tools

It doesn't stop there though. Technology tools should be put in place to provide for the means to analyse and interpret data collected. This will allow for an insight into how each measure impacts on the other measures and controls. It forces management to focus on some really important 'not-financial-only' factors, which impact directly and indirectly on profitability.

The key is to gather information based on measures as defined by the customers. This approach has a number of benefits. The customer and the organisation's management should identify and define the measures. These could include quality, cost, time and service.

Why not get the customer to help define the important factors they would use to score the organisation by? You will probably be pleasantly surprised. It is not always based on price. Other measures such as lead time, quality, on-time delivery and the like are often heavily weighted by customers.

In line with measures from a customer perspective, we need to measure processes, actions and decisions to meet the customers' requirements. Issues to be considered include time to market, quality and process yield. It could be broken down by department, business unit and even per individual. This will provide a more exact, fine-grained control measure.

But what about looking at measures from an innovation perspective? An organisations' competitive position is constantly changing. Employees and management should continuously learn and innovate to improve any aspect of their business. These measures should be monitored against customers' changing behavioural patterns.

Bottom line

The more traditional financial measures such as growth and profitability should be set and monitored by the shareholders. Measuring the bottom line financial impact/improvement. Comparing these measures and balancing the perspectives can prevent improvements made in one area at the cost of the other. Defined targets can drive the organisation to achieve high results in performance improvement.

In terms of corporate governance there are a myriad of issues at stake. Development and implementation of corporate strategies has long been understood to be the responsibility of business executives. Corporate governance is increasingly important as part of the strategic management process. King two is set to make this business imperative even more specific and transparent.

Different types of strategic control mechanisms can be utilised. The aim of strategic control is to drive the organisation in a specified/planned direction, based on the strategic plan as set out by the chief operating officer and the management team.

They bear the ultimate responsibility for the performance of their company. And, in the case of the banks, and the proposed legislation, in terms of section 60, they bear a certain responsibility and liability to depositors too.

While this requires a broad range of managerial qualities and tasks to be performed, the primary task is to establish and maintain the corporate purpose. Linking it to the fundamental goal of any business: to maximise shareholder value.

Corporate governance is a relationship among stakeholders that is used to determine and control strategic direction and performance of an organisation. It is concerned with identifying ways to ensure that strategic decisions are made effectively. It can be thought of as the means to establish order between parties whose interest may be in conflict.

Common wisdom

The primary objective of corporate governance is to ensure that top-level management interests are aligned with those of the shareholders. At another level it also provides oversight in areas where owners, shareholders and management interests may conflict. Effective governance ensures that the interests of all stakeholders are served. It causes the establishment and consistent use of ethical behaviour as the firm formulates and implements its strategies.

It is common wisdom that in modern organisations there is often separation of ownership and managerial control, with large-block shareholders demanding that their organisations adopt corporate governance mechanisms to control management's decisions. At the core of the corporate governance issue is information, and the ability to find the relevant information timeously and produce it in an understandable and auditable format.

By formulating and implementing a sound information management strategy, underpinned by a business intelligence solution, the executive team can take advantage of strategic and tactical information.

An example would be the monitoring and measurement of incentive compensation for key staff. The data and information would reflect and provide indicators of any irregularities. Questions such as whether the directors are paying themselves too much; or did they make a strategic decision based on transparent information; or was the business direction adopted for pure self enrichment, are soon answered.

If the CEO and the management team understand the scope of their resources, and the organisational mechanisms, they will be in a position to release and realise the value within the business.

The value is realised partly through the information supply chain, via customer, business process, innovation, and HR related measures.

Added to which the team are guided and more importantly monitored through the measures defined and collected by the corporate governance policy.

The team will then be in position to develop strategies and tactics that will truly build a unique corporate advantage, and result directly in an improved bottom line.