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By Michael Coveney, Head of Research at FP&A Trends Group
Consider a golfer about to play the final hole of the championship round. As she lines up her drive, she takes into account the route she must take to the flag. It’s going to take several shots using different clubs over different types of terrain.
She studies the wind and what she can hit, and then with experience on her side, she swings the club, and—whack! The ball sails through the air on its way to the target.
But is it a good shot? A sudden gust of wind could send the ball off course; a bad bounce could send it into a bunker; a distraction or a misreading of yardage could cause it to fall short. Or despite these things, she might just get lucky, and the ball lands perfectly aligned for the next shot.
“Good shots” can’t necessarily be judged by their outcome. Too many other uncontrollable influences could conspire to alter a good shot into a bad one. But that doesn’t necessarily mean that the original shot wasn’t good.
The same is true for business. There may be many routes to the flag, with each shot defined as a strategic action that will take you closer to the goal. Not every decision will work out as planned – but that doesn’t necessarily mean they were wrong. It could be that external events, perhaps unseen, prevented the action from delivering the desired result.
To get back to the topic of this blog, “intelligent drivers” are measurable business activities that directly link strategy to the organisation’s short- and long-term goals.
Most organisations conduct key business processes relevant to:
The output of each process can be measured by one or more quantifiable goals that management considers to be essential to achieving long-term objectives.
Each process can be represented by a chain of activities that are under the control of management. These are activities that directly impact organisational objectives. For example, sales may result from marketing programs that generate web leads, which are followed up by sales teams and are then converted into contracts. Similarly, products are the result of materials procurement, fabrication, warehouse storage, and customer delivery.
Each activity can be monitored by a measure of work done that produces an output, which feeds into the next activity. They are in effect “drivers” that link to produce an effect on corporate objectives. It is this chain of relationships that can be used to build intelligent driver-based models.
Business process goals and operational activities do not always line up with the organisational structure. Some have a one-to-one relationship (for example, marketing), but others may go across multiple departments (for example, sales or corporate governance). Defining intelligent drivers may well lead to rethinking the way budgets are set and departmental performance monitored.
It is unrealistic to link every activity. In some cases, you may only be able to present the work that has been done with no obvious mathematical link to the outcome or the performance measure it supports. However, there is still value in presenting a goal and the supporting work being done along with its cost, so at least management can make an informed judgment as to whether they are linked.
With any relationship, you should note that:
Consequently, relationships should, where possible, be validated against both past behaviours and assessed as to their accuracy in predicting the future. Finally, you will not get this linkage or the measures right the first time around, or even the second time. The point is to keep iteratively refining the measures by challenging management beliefs about organisational drivers, risk, value, and reward, and how your organisation can better leverage them to drive success.
As an interesting exercise, write down the activities currently being performed within your company and try linking them to stated corporate objectives. You will likely find that some objectives have many activities, others will have few or none, and one or two activities will be left unconnected.
The article was first published in the D!gitalist Magazine
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