- Email: [email protected]
The theory and practical use of executive information systems
~~fef~~fio~~/ Joufnaf of /flfof~at;off
~a~age~enf
(1990), 70 (96-l 04)
The Theory and Practical Use of Executive Information Systems D. PREEDY
Over the past six years. executive information systems (EIS) have grown into a major component of the management information infrastructure within many major corporations. This paper examines what executive users typically require from an EIS, and presents the key elements of the architecture needed to deliver that functionality. It describes the growing dichotomy of EIS work into ‘datadriven’ applications where the object is to provide easy access to greater detail about the organization, and ‘information-driven’ uses where graphic design and modelling techniques offer a richer insight into the key performance indicators. Finally the paper describes some of the lessons learnt in achieving effective EIS implementation and outlines how an EIS project can be justified in terms of identifiable benefits.
Since 1976 David Preedy has been working design and development of systems to improve the effectiveness of information presented at board level in major organizations. Following several years as a consultant for imperial Group, he joined Metaoraxis in 1984. In this role he has been responsible for the development of RESOLVE, the first commercially available executive information system and winner of the 1989 British Design Award. He has a particular interest in the impact of design and ergonomics on improving the effectiveness of management information, both in terms of graphical presentation and of the impact and use of information on groups and meetings.
onthe
introduction III 1985, two products were launched that defined the market for executive information systems (MS). Since then about 20 other EIS products have been announced and an EIS front-end has become an almost obligatorv feature of most decision sunnort svstems. This article takes a critical look at current deielopments in executive information systems (ETS) and attempts to distinguish the underlying user objectives from the marketing hyperbole surrounding the technical capabilities of such systems.
What is an EIS? With the growing number of EIS products, there is increasing confusion as to what the term really means. Some suppliers use the label merely to describe any user-friendly interface for any ‘knowledge worker’ using an underlying database or modelling system; some regard it as a part of the broader area of office automation. However, there is genera1 agreement on the key characteristics of a true EIS: 1.
2.
3.
4.
96
An executive information system is used personally by the most senior managers of an organization, normally the executive directors in a company. It is used as a general tool, rather than to support one specific function; this means that it will be expected to cover several functions and to pick up data from several different sources often on different computers. It is used by executives whose main role is in managing other subordinate managers, rather than acting directly in an operational capacity themselves. Its main use is informative, offering insight into corporate data, rather than administrative; it is essentially an information system, not merely an aspect of office automation.
0268-407
2190102 0096-09
0
1990 Butt~~o~h-Heinem~nn
Ltd
In summary, the users of an EIS are ~redominantl~~ concerned with the general management of the organization and use it to communicate across functional, departmental and hierarchic barriers, rather than simply as a specialist tool.
User requiremenis Given such a broad definition of an EIS, there is a wide range of possible types of information that could be provided. One useful classification of these disparate data sources is to look at the following distinctions: I. 2. 3.
Internal data vs. externaf. Historic performance vs. forecasts of future activity” Financial measures vs. physical indicators such as production volumes. Numeric data vs. text commentary.
4.
These four criteria provide a framework of 16 possible combinations (see Figure I), al1 of which provide relevant information at board levet. Some EIS products can handle all these different types of data, albeit with differing degrees of difficulty, but there is a clear concentration on the well-organized, routine data coming from the regular management accounts, This has focused the role of an EIS almost entirefy as a tool for the monthly control process. Indeed most of the theoretical discussion about EIS has described three facilities - ‘drill-down’, exception reporting and trend analysis - and, of these three, the first two are dedicated solely to this monthly control task and even trend analysis is normally perceived as part of this task. The consuttancy approach developed at Metapraxis has enabled us to
INTERNAL P&St
Numeric
EXTERNAL
I
Flhlre
Management
Budgets and
Accounting
Forecasts
FINANCIAL Text
Numeric
Performance
PHYSICAL Text
Figure 1.
Performance
Illustrative types of executive information
Trade Media
@j Metapraxis, 1989 97
Executive
information
systems
spend more time working with the executive users and through this to build up a much broader understanding of additional management activities where the EIS approach can be brought to bear. These tasks include: 1. 1
L.
3. 4. 5. 6. 7. 8.
Routine management reporting. Year-end preview. Control and review of major projects. Budget preparation and review. Strategic planning. Executive committee and board meetings. Acquisition and competitor analysis. Review of economic outlook.
Each of these tasks requires specific tools and forms of presentation in order to ensure that they are carried out most effectively. For instance, the routine management reporting task may require the automatic generation of standard sequences of images followed by unsupervised production of paper-copy cofour reports for distribution; an alternative approach might involve links into desktop publishing software to provide a fully integrated report including text, charts and tables. A second conclusion from this work has been that the dominant role of an EIS should be in supporting group decision-making. The reason for this is straightforward: the key EIS users are rarely directly responsible for the operational decisions that need to be taken; these are delegated to subordinates, and it is precisely this role of delegation and involvement of the subordinate managers that an effective EIS should address. The importance of group involvement has many implications for the design of an EIS. Firstly, it highlights the importance of being able to deliver the full functionality of the system in the boardroom to support the board and key executive committee meetings. Secondly, it suggests that even in an executive’s office the system should be designed to support small meetings; this implies not just the use of a large monitor, but argues strongly against the use of touch-screens which are generally unsuitable for group use. Finally group use of the system necessitates a very close link between exploratory use with live access to an underlying database and a presentation style of use looking at prerecorded images.
EIS architecture Figure 2 summarizes the key components essential to an effective EJS. Different approaches to EIS may concentrate on different aspects of this structure and some may omit certain elements altogether. At the heart of the system is a corporate model, which holds the key attributes of the user organization, such as its consolidation hierarchy, details of the key performance indicators, knowledge of its reporting cycle, and so on. This is linked to a dedicated database which contains the stable core of underfying data. The nature of this link is critical and is the key distinguishing feature between an EIS and a simple graphics front-end to a database. An effective EIS incorporates a knowledge base which holds the rules and conventions determining the best treatment of different types of information. Some refer to the appropriate handling of data. such as why balance sheet items cannot be cumulated and how to derive year to
98
D. PREEDY
System
manager
I
Maintenance tools
\
Analytic processor
Transfer protocols
/
External
Figure 2.
EIS architecture
systems
0
Metapraxis,
1990
figures for statistics such as margins. Others incorporate best practice for presentation, reflecting the design skills of the system developers; they may dictate how scaling should be performed on charts, how colour consistency is maintained and how (or whether!) negative values should be displayed on pie-charts. This knowledge base determines how effectively the information will be presented and removes the need for the executive to define precisely how information should be displayed. Around the core of the system are four functional components:
date
1. 2. 3. 4.
A set of tools for maintenance. An analytic processor. Electronic transfer protocols. The user interface.
The maintenance tools provide the mechanism for the system manager to change the corporate model, to define the rules for automatic processes and to specify the views that different users will be given of the entire system. The power of this editor depends on how closely defined the system components are. An EIS package, such as RESOLVE, provides a close linkage so that the system can automatically adapt itself to the corporate changes; this means that the introduction, for example, of a new subsidiary can be carried out in a matter of minutes. With an EIS toolkit such a close linkage is impossible and the user organization normally needs to keep a technical team on hand to make the required changes to menus. The analytic processor carries out various operations on the database,
99
Executive information
systems
such as consolidation, derivation of performance indicators, forecasting and statistical routines for detection of exceptions. Some EIS software products separate this role entirely and leave it to an underlying modelling system; this approach may work well for many of the arithmetic functions but does prevent the development of a comprehensive framework for exception reporting. Another role of the processor may be the preparation of predetermined standard chart sequences, known as reports or ‘briefing books’ which are updated when the underlying data have been changed, The electronic interface is an essential requirement of the EIS. Typically the system will be designed to be fed from a variety of specialist systems that meet the needs of the reporting functions finance, marketing, production, personnel, and so on. There are also likely to be external sources including market research audits, newswire databases, real-time databases, and CD-ROM libraries. Many of the recently launched EIS products are restricted to a single host database - normally offered by the same vendor-with resultant restrictions on the scope of the data that can be incorporated. The final component of the overall EIS - the user interface - serves two distinct functions. One part is concerned with providing a userfriendly control procedure enabling easy navigation around the system. The second role is the output from the EIS, which must be the key part of the system bringing direct benefit to the user organization. All too many EIS applications have failed to deliver the full benefits because insufficient attention has been paid to good design of the output. The clearest symptom of this failure is an imbalance between the effort spent on the two parts of the overall user interface.
Data interpretation
-the
two approaches
Underlying the different approaches to EIS design are two schools of thought regarding how best to approach the interpretation of management information in a modern enterprise. The ‘computer-driven’ approach starts from the premise that technologicaf advances will provide ever easier access to ever larger volumes of data. This approach addresses every problem by fooking for an explanation at a lower level of detail in the corporate database. Consider the following example as it could apply to the head office of a retail chain: budget. so the first task is to identify the region worst affected; then to find the worst area within that region, then the worst outlet in that region, then the worst Sales are below
product category within that outlet, and so on. Eventually the limit of the database is reached - perhaps relating to an individual pack-size, sold through a particular cash-desk on one day and subject to some special promotional offer. The company then has identified one specific problem area.
This approach 1.
100
has several
major
flaws, notably
the following:
Almost certainly it will not have found the largest problem; that could well lie in an outlet whose overall sales are above budget. In fact mathematical programmers have long known that this approach to searching is fairly ineffective. It is the equivalent of rolling a
D. PREEDY
2.
3. 4.
marble down from the top of Mount Everest; it will go downhill, but it won’t end up at the bottom of the Mariana trench. By concentrating on ever-smaller detail, the chances of being misled by a statistical aberration become ever higher simply because the numbers are small; if a store sells only one unit of a product per week, it is bound to be below budget most days! The analysis has concentrated entirely on the numbers and has ignored any qualitative input. The information gained is too detailed to be actionable at head office level; whilst a certain amount of exception reporting can act to keep people on their toes, there is no direct channel of command down to such a low level of detail.
The alternative ‘modelling’ approach is best described as the informed use of appropriate data. It typically involves more considered use of less detailed data combined with qualitative information and the use of relevant models to try to isolate significant patterns in the organization’s performance. In tackling the retailer’s problem faced above, this approach probably would continue to look for the worst area, but then might see if the current problem was a one-off event or whether this area had been persistently performing badly. If the under-performance was persistent, then various statistical models or external factors could be examined to see why the problems might have arisen; the folIowing are possible causes: 1. 2.
3. 4.
Environmental: perhaps the area has been particularly affected by an economic downturn. Competitive: a key competitor may be opening new stores locally or targetting the area for a regional launch or a new promotional activity. Marketing: the company itself may have contributed by reducing the 1eveIs or quality of advertising and promotional activity. Illusory: the under-performance may be simply because the target was based on more optimistic forecasts that were not achievable.
Depending on the conclusions of this analysis the executive will want to discuss with the appropriate line managers how they are planning to tackle the problems, ensuring that they become committed to implementing the agreed solution. Ultimately the executive must be able to assess whether the problem is due to the man or the market, and one of the key outputs from effective use of an EIS is that the executives can assess which of their subordinates are the star performers. The benefits of this approach are that the analysis leads to explanations and hence solutions, rather than simply identifying problems; it encourages delegation and discussion leading to commitment at all levels; and it enables the senior executives to understand the problems faced down the line and to assess the effectiveness of the individual managers responsible to them.
Implementing
an EIS
The last few years have seen a growing number of successful EIS applications together with a disturbingly high failure rate. This has enabled several conclusions to be drawn about how best to tackle an executive information project. 101
The single most important success criterion is the active involvement from the outset of a supportive user at board level. This enables the initial discussion about the objectives of the project to be addressed to the business needs rather than to the technical opportunities. Very often the underlying objectives may be hidden beneath the surface and may relate to changes in the management style and corporate culture. For instance one successful EIS project set out to enable faster reporting to the centre from its widespread subsidiaries; it achieved this successfully, but more importantly acted as the catalyst for an educative exercise helping the subsidiary managers to find out for themselves the critical factors in running their businesses successfully. A second essential stage is to undertake a study of the key performance indicators for the organization and to relate development of the EIS to these factors. This exercise will be evotutionary and the EIS has to be designed to adapt to the changing needs of the organization and to its growing experience of using the EXS itself. Thirdly, it is impartant to identify the key management activities that the EIS witl address and to design the EIS around these activities. It is foolish, for instance, to commit to software with limited paper-copy facilities if the monthly reporting process is one of the key activities under consideration. Finally a project plan needs to be drawn up which enables a new break-through to be demonstrated every six weeks or so (in order to maintain the impetus and enrhusiasm for the project) and yet which moves steadily through the prototype phase into the full imp1ement~tion and then can be handed on to the main user department for on-going maintenance; In particular the plan should concentrate initially on the areas where benefits will be obtained most rapidly and the project team should be prepared to stop expanding the system when clear benefits are no longer realizable. Notably the choices of hardware and software for the project are not critical decisions and have a greater bearing on the cost of the project than on the likely benefits that will accrue. Frequently the costs of this type of project are under-estimated, largely because the on-going maintenance and support costs turn out higher than expected. This is especialIy true when a toolkit approach is taken, requiring an internal team to program the system and to handle changes; the evolutionary nature of a successful EIS means that this team is called on frequently for high-priority work to take account of the impacts of corporate re-structuring. Figure 3 indicates typical areas of cost involved in an executive information project, including these hidden on-going costs.
Justifying the EIS Recent surveys have indicated the high costs that can be incurred in a comprehensive executive information project. US and UK figures suggest that the typical project costs can amount to f250k-H@k, although few projects start off with such high expectations. Given the likelihood of costs on this scale, the project team and the executive sponsor should make a realistic assessment of the areas where benefits are most likely to accrue. Inevitably many of the benefits of an EIS are intangible and relate to improved corporate communications, more effective delegation and 102
D. Initial Hardware -central -per
On-going
costs
I
1
t
1
i
J
PREEDY
costs
user
-communications
Software -original -upgrades -maintenance
People
external
-consultancy -design -implementation
I
-support
People
-
internal
-Information -programming -maintenance of
new
facilities
and
support
and
support
software
-maintenance of
providers
hardware
-recruitment -IrainIng
Figure 3.
Framework
for costing
an EIS project
shorter, more focused meetings. However, hard bottom-line savings, and this section some Metapraxis clients.
0
Metapraxis,
1990
there are also many cases of describes the experience of
Improved decisions A large American food manufacturer used RESOLVE’s exception reports to find a region where its marketing budget had been held despite falling sales. It turned out that discounting levels were being maintained despite lower sales volumes, and a discussion with the brand manager led to an agreed cut of $4m in the promotional support. Remarkably this came within six weeks of starting the EIS project. A key feature of this example is that the cut was agreed, and this emphasizes how the EIS worked to support the corporate culture and avoided undermining the local responsibility. Problem detection A UK conglomerate found that EIS techniques enabled it to detect major problems in a division about three months earlier than by conventional means; typically this could reduce losses by about flm. Better budgeting A UK food manufacturer
managed
to increase
the starting
point
for
103
Executive
information
systems
discussion on the annual budget review, by using straightforward previewing techniques to provide an alternative forecast for the end of the current year. By demonstrating the credibility of an alternative forecast that generated f24m more profit, the company changed the outlook and expectations of all participants in the budget review and led to a tougher, yet still realistic, budget. Strategic
review
Use of an EIS at key executive committee meetings enabled a major UK conglomerate to revitalize its strategic planning process. Largely as a result of the graphic presentation, the group identified that a major SBU (strategic business unit) was being given conflicting objectives of maintaining market leadership in a growing market, while being called on to generate cash. This conflict was resolved and the SBU was given the cash needed to maintain its promotional platform. Production of reports A US industrial group found that use of standard monthly report packs freed up its days in each reporting cycle so that they research work in time for the monthly board two days freed up were in the critical review results were being prepared.
the EIS to generate the financial analysts for two could undertake the key meeting. Interestingly, the period whilst the monthly
These examples illustrate how an EIS can be used to make money. Such successes do not come about by chance; they arise from a carefully designed project plan put together by the internal staff, who know and understand the business, together with external consultants, who bring the experience of how the EIS techniques can best be put to use.
Conclusions With ever more suppliers jumping onto the EIS bandwagon, the real issues relating the relevance of the approach to the users’ business needs are being swamped by the pressures to include the latest technical capability. The key benefits could be (and in some instances were) obtained five or more years ago, and yet many companies are investing large sums and achieving no visible advantage. In fact the large technically-driven projects which they undertake may in many cases put back the time when they will be able to address the real needs of the executive directors for effective assistance from computers.
104
~a~age~enf
(1990), 70 (96-l 04)
The Theory and Practical Use of Executive Information Systems D. PREEDY
Over the past six years. executive information systems (EIS) have grown into a major component of the management information infrastructure within many major corporations. This paper examines what executive users typically require from an EIS, and presents the key elements of the architecture needed to deliver that functionality. It describes the growing dichotomy of EIS work into ‘datadriven’ applications where the object is to provide easy access to greater detail about the organization, and ‘information-driven’ uses where graphic design and modelling techniques offer a richer insight into the key performance indicators. Finally the paper describes some of the lessons learnt in achieving effective EIS implementation and outlines how an EIS project can be justified in terms of identifiable benefits.
Since 1976 David Preedy has been working design and development of systems to improve the effectiveness of information presented at board level in major organizations. Following several years as a consultant for imperial Group, he joined Metaoraxis in 1984. In this role he has been responsible for the development of RESOLVE, the first commercially available executive information system and winner of the 1989 British Design Award. He has a particular interest in the impact of design and ergonomics on improving the effectiveness of management information, both in terms of graphical presentation and of the impact and use of information on groups and meetings.
onthe
introduction III 1985, two products were launched that defined the market for executive information systems (MS). Since then about 20 other EIS products have been announced and an EIS front-end has become an almost obligatorv feature of most decision sunnort svstems. This article takes a critical look at current deielopments in executive information systems (ETS) and attempts to distinguish the underlying user objectives from the marketing hyperbole surrounding the technical capabilities of such systems.
What is an EIS? With the growing number of EIS products, there is increasing confusion as to what the term really means. Some suppliers use the label merely to describe any user-friendly interface for any ‘knowledge worker’ using an underlying database or modelling system; some regard it as a part of the broader area of office automation. However, there is genera1 agreement on the key characteristics of a true EIS: 1.
2.
3.
4.
96
An executive information system is used personally by the most senior managers of an organization, normally the executive directors in a company. It is used as a general tool, rather than to support one specific function; this means that it will be expected to cover several functions and to pick up data from several different sources often on different computers. It is used by executives whose main role is in managing other subordinate managers, rather than acting directly in an operational capacity themselves. Its main use is informative, offering insight into corporate data, rather than administrative; it is essentially an information system, not merely an aspect of office automation.
0268-407
2190102 0096-09
0
1990 Butt~~o~h-Heinem~nn
Ltd
In summary, the users of an EIS are ~redominantl~~ concerned with the general management of the organization and use it to communicate across functional, departmental and hierarchic barriers, rather than simply as a specialist tool.
User requiremenis Given such a broad definition of an EIS, there is a wide range of possible types of information that could be provided. One useful classification of these disparate data sources is to look at the following distinctions: I. 2. 3.
Internal data vs. externaf. Historic performance vs. forecasts of future activity” Financial measures vs. physical indicators such as production volumes. Numeric data vs. text commentary.
4.
These four criteria provide a framework of 16 possible combinations (see Figure I), al1 of which provide relevant information at board levet. Some EIS products can handle all these different types of data, albeit with differing degrees of difficulty, but there is a clear concentration on the well-organized, routine data coming from the regular management accounts, This has focused the role of an EIS almost entirefy as a tool for the monthly control process. Indeed most of the theoretical discussion about EIS has described three facilities - ‘drill-down’, exception reporting and trend analysis - and, of these three, the first two are dedicated solely to this monthly control task and even trend analysis is normally perceived as part of this task. The consuttancy approach developed at Metapraxis has enabled us to
INTERNAL P&St
Numeric
EXTERNAL
I
Flhlre
Management
Budgets and
Accounting
Forecasts
FINANCIAL Text
Numeric
Performance
PHYSICAL Text
Figure 1.
Performance
Illustrative types of executive information
Trade Media
@j Metapraxis, 1989 97
Executive
information
systems
spend more time working with the executive users and through this to build up a much broader understanding of additional management activities where the EIS approach can be brought to bear. These tasks include: 1. 1
L.
3. 4. 5. 6. 7. 8.
Routine management reporting. Year-end preview. Control and review of major projects. Budget preparation and review. Strategic planning. Executive committee and board meetings. Acquisition and competitor analysis. Review of economic outlook.
Each of these tasks requires specific tools and forms of presentation in order to ensure that they are carried out most effectively. For instance, the routine management reporting task may require the automatic generation of standard sequences of images followed by unsupervised production of paper-copy cofour reports for distribution; an alternative approach might involve links into desktop publishing software to provide a fully integrated report including text, charts and tables. A second conclusion from this work has been that the dominant role of an EIS should be in supporting group decision-making. The reason for this is straightforward: the key EIS users are rarely directly responsible for the operational decisions that need to be taken; these are delegated to subordinates, and it is precisely this role of delegation and involvement of the subordinate managers that an effective EIS should address. The importance of group involvement has many implications for the design of an EIS. Firstly, it highlights the importance of being able to deliver the full functionality of the system in the boardroom to support the board and key executive committee meetings. Secondly, it suggests that even in an executive’s office the system should be designed to support small meetings; this implies not just the use of a large monitor, but argues strongly against the use of touch-screens which are generally unsuitable for group use. Finally group use of the system necessitates a very close link between exploratory use with live access to an underlying database and a presentation style of use looking at prerecorded images.
EIS architecture Figure 2 summarizes the key components essential to an effective EJS. Different approaches to EIS may concentrate on different aspects of this structure and some may omit certain elements altogether. At the heart of the system is a corporate model, which holds the key attributes of the user organization, such as its consolidation hierarchy, details of the key performance indicators, knowledge of its reporting cycle, and so on. This is linked to a dedicated database which contains the stable core of underfying data. The nature of this link is critical and is the key distinguishing feature between an EIS and a simple graphics front-end to a database. An effective EIS incorporates a knowledge base which holds the rules and conventions determining the best treatment of different types of information. Some refer to the appropriate handling of data. such as why balance sheet items cannot be cumulated and how to derive year to
98
D. PREEDY
System
manager
I
Maintenance tools
\
Analytic processor
Transfer protocols
/
External
Figure 2.
EIS architecture
systems
0
Metapraxis,
1990
figures for statistics such as margins. Others incorporate best practice for presentation, reflecting the design skills of the system developers; they may dictate how scaling should be performed on charts, how colour consistency is maintained and how (or whether!) negative values should be displayed on pie-charts. This knowledge base determines how effectively the information will be presented and removes the need for the executive to define precisely how information should be displayed. Around the core of the system are four functional components:
date
1. 2. 3. 4.
A set of tools for maintenance. An analytic processor. Electronic transfer protocols. The user interface.
The maintenance tools provide the mechanism for the system manager to change the corporate model, to define the rules for automatic processes and to specify the views that different users will be given of the entire system. The power of this editor depends on how closely defined the system components are. An EIS package, such as RESOLVE, provides a close linkage so that the system can automatically adapt itself to the corporate changes; this means that the introduction, for example, of a new subsidiary can be carried out in a matter of minutes. With an EIS toolkit such a close linkage is impossible and the user organization normally needs to keep a technical team on hand to make the required changes to menus. The analytic processor carries out various operations on the database,
99
Executive information
systems
such as consolidation, derivation of performance indicators, forecasting and statistical routines for detection of exceptions. Some EIS software products separate this role entirely and leave it to an underlying modelling system; this approach may work well for many of the arithmetic functions but does prevent the development of a comprehensive framework for exception reporting. Another role of the processor may be the preparation of predetermined standard chart sequences, known as reports or ‘briefing books’ which are updated when the underlying data have been changed, The electronic interface is an essential requirement of the EIS. Typically the system will be designed to be fed from a variety of specialist systems that meet the needs of the reporting functions finance, marketing, production, personnel, and so on. There are also likely to be external sources including market research audits, newswire databases, real-time databases, and CD-ROM libraries. Many of the recently launched EIS products are restricted to a single host database - normally offered by the same vendor-with resultant restrictions on the scope of the data that can be incorporated. The final component of the overall EIS - the user interface - serves two distinct functions. One part is concerned with providing a userfriendly control procedure enabling easy navigation around the system. The second role is the output from the EIS, which must be the key part of the system bringing direct benefit to the user organization. All too many EIS applications have failed to deliver the full benefits because insufficient attention has been paid to good design of the output. The clearest symptom of this failure is an imbalance between the effort spent on the two parts of the overall user interface.
Data interpretation
-the
two approaches
Underlying the different approaches to EIS design are two schools of thought regarding how best to approach the interpretation of management information in a modern enterprise. The ‘computer-driven’ approach starts from the premise that technologicaf advances will provide ever easier access to ever larger volumes of data. This approach addresses every problem by fooking for an explanation at a lower level of detail in the corporate database. Consider the following example as it could apply to the head office of a retail chain: budget. so the first task is to identify the region worst affected; then to find the worst area within that region, then the worst outlet in that region, then the worst Sales are below
product category within that outlet, and so on. Eventually the limit of the database is reached - perhaps relating to an individual pack-size, sold through a particular cash-desk on one day and subject to some special promotional offer. The company then has identified one specific problem area.
This approach 1.
100
has several
major
flaws, notably
the following:
Almost certainly it will not have found the largest problem; that could well lie in an outlet whose overall sales are above budget. In fact mathematical programmers have long known that this approach to searching is fairly ineffective. It is the equivalent of rolling a
D. PREEDY
2.
3. 4.
marble down from the top of Mount Everest; it will go downhill, but it won’t end up at the bottom of the Mariana trench. By concentrating on ever-smaller detail, the chances of being misled by a statistical aberration become ever higher simply because the numbers are small; if a store sells only one unit of a product per week, it is bound to be below budget most days! The analysis has concentrated entirely on the numbers and has ignored any qualitative input. The information gained is too detailed to be actionable at head office level; whilst a certain amount of exception reporting can act to keep people on their toes, there is no direct channel of command down to such a low level of detail.
The alternative ‘modelling’ approach is best described as the informed use of appropriate data. It typically involves more considered use of less detailed data combined with qualitative information and the use of relevant models to try to isolate significant patterns in the organization’s performance. In tackling the retailer’s problem faced above, this approach probably would continue to look for the worst area, but then might see if the current problem was a one-off event or whether this area had been persistently performing badly. If the under-performance was persistent, then various statistical models or external factors could be examined to see why the problems might have arisen; the folIowing are possible causes: 1. 2.
3. 4.
Environmental: perhaps the area has been particularly affected by an economic downturn. Competitive: a key competitor may be opening new stores locally or targetting the area for a regional launch or a new promotional activity. Marketing: the company itself may have contributed by reducing the 1eveIs or quality of advertising and promotional activity. Illusory: the under-performance may be simply because the target was based on more optimistic forecasts that were not achievable.
Depending on the conclusions of this analysis the executive will want to discuss with the appropriate line managers how they are planning to tackle the problems, ensuring that they become committed to implementing the agreed solution. Ultimately the executive must be able to assess whether the problem is due to the man or the market, and one of the key outputs from effective use of an EIS is that the executives can assess which of their subordinates are the star performers. The benefits of this approach are that the analysis leads to explanations and hence solutions, rather than simply identifying problems; it encourages delegation and discussion leading to commitment at all levels; and it enables the senior executives to understand the problems faced down the line and to assess the effectiveness of the individual managers responsible to them.
Implementing
an EIS
The last few years have seen a growing number of successful EIS applications together with a disturbingly high failure rate. This has enabled several conclusions to be drawn about how best to tackle an executive information project. 101
The single most important success criterion is the active involvement from the outset of a supportive user at board level. This enables the initial discussion about the objectives of the project to be addressed to the business needs rather than to the technical opportunities. Very often the underlying objectives may be hidden beneath the surface and may relate to changes in the management style and corporate culture. For instance one successful EIS project set out to enable faster reporting to the centre from its widespread subsidiaries; it achieved this successfully, but more importantly acted as the catalyst for an educative exercise helping the subsidiary managers to find out for themselves the critical factors in running their businesses successfully. A second essential stage is to undertake a study of the key performance indicators for the organization and to relate development of the EIS to these factors. This exercise will be evotutionary and the EIS has to be designed to adapt to the changing needs of the organization and to its growing experience of using the EXS itself. Thirdly, it is impartant to identify the key management activities that the EIS witl address and to design the EIS around these activities. It is foolish, for instance, to commit to software with limited paper-copy facilities if the monthly reporting process is one of the key activities under consideration. Finally a project plan needs to be drawn up which enables a new break-through to be demonstrated every six weeks or so (in order to maintain the impetus and enrhusiasm for the project) and yet which moves steadily through the prototype phase into the full imp1ement~tion and then can be handed on to the main user department for on-going maintenance; In particular the plan should concentrate initially on the areas where benefits will be obtained most rapidly and the project team should be prepared to stop expanding the system when clear benefits are no longer realizable. Notably the choices of hardware and software for the project are not critical decisions and have a greater bearing on the cost of the project than on the likely benefits that will accrue. Frequently the costs of this type of project are under-estimated, largely because the on-going maintenance and support costs turn out higher than expected. This is especialIy true when a toolkit approach is taken, requiring an internal team to program the system and to handle changes; the evolutionary nature of a successful EIS means that this team is called on frequently for high-priority work to take account of the impacts of corporate re-structuring. Figure 3 indicates typical areas of cost involved in an executive information project, including these hidden on-going costs.
Justifying the EIS Recent surveys have indicated the high costs that can be incurred in a comprehensive executive information project. US and UK figures suggest that the typical project costs can amount to f250k-H@k, although few projects start off with such high expectations. Given the likelihood of costs on this scale, the project team and the executive sponsor should make a realistic assessment of the areas where benefits are most likely to accrue. Inevitably many of the benefits of an EIS are intangible and relate to improved corporate communications, more effective delegation and 102
D. Initial Hardware -central -per
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Figure 3.
Framework
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an EIS project
shorter, more focused meetings. However, hard bottom-line savings, and this section some Metapraxis clients.
0
Metapraxis,
1990
there are also many cases of describes the experience of
Improved decisions A large American food manufacturer used RESOLVE’s exception reports to find a region where its marketing budget had been held despite falling sales. It turned out that discounting levels were being maintained despite lower sales volumes, and a discussion with the brand manager led to an agreed cut of $4m in the promotional support. Remarkably this came within six weeks of starting the EIS project. A key feature of this example is that the cut was agreed, and this emphasizes how the EIS worked to support the corporate culture and avoided undermining the local responsibility. Problem detection A UK conglomerate found that EIS techniques enabled it to detect major problems in a division about three months earlier than by conventional means; typically this could reduce losses by about flm. Better budgeting A UK food manufacturer
managed
to increase
the starting
point
for
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Executive
information
systems
discussion on the annual budget review, by using straightforward previewing techniques to provide an alternative forecast for the end of the current year. By demonstrating the credibility of an alternative forecast that generated f24m more profit, the company changed the outlook and expectations of all participants in the budget review and led to a tougher, yet still realistic, budget. Strategic
review
Use of an EIS at key executive committee meetings enabled a major UK conglomerate to revitalize its strategic planning process. Largely as a result of the graphic presentation, the group identified that a major SBU (strategic business unit) was being given conflicting objectives of maintaining market leadership in a growing market, while being called on to generate cash. This conflict was resolved and the SBU was given the cash needed to maintain its promotional platform. Production of reports A US industrial group found that use of standard monthly report packs freed up its days in each reporting cycle so that they research work in time for the monthly board two days freed up were in the critical review results were being prepared.
the EIS to generate the financial analysts for two could undertake the key meeting. Interestingly, the period whilst the monthly
These examples illustrate how an EIS can be used to make money. Such successes do not come about by chance; they arise from a carefully designed project plan put together by the internal staff, who know and understand the business, together with external consultants, who bring the experience of how the EIS techniques can best be put to use.
Conclusions With ever more suppliers jumping onto the EIS bandwagon, the real issues relating the relevance of the approach to the users’ business needs are being swamped by the pressures to include the latest technical capability. The key benefits could be (and in some instances were) obtained five or more years ago, and yet many companies are investing large sums and achieving no visible advantage. In fact the large technically-driven projects which they undertake may in many cases put back the time when they will be able to address the real needs of the executive directors for effective assistance from computers.
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