Typically, strategic goals start off as high-level initiatives that involve revenue-based targets. Revenue targets are followed up with operational efficiency goals (or ratios) that keep expenses in line and improve profit margins. These goals and ratios serve as the ultimate yardstick in measuring top-end strategic performance. There may also be competitive goals that utilize different measures such as market share, product perception, etc. Companies believe they can achieve these results based on internal and external competitive factors. It is important to note that the internal and external factors typically drive the timing and define the tactical activities that will be employed to achieve results.
For example, a change in government regulation may present a significant opportunity for the company that is first to capitalize on the change. An example of an internal factor may be outstanding customer service that can serve as a market differentiator to attract and retain customers.
These competitive factors and performance measures drive the definition of the tactical operations (or plan) needed to achieve strategic goals. Tactical operations are ultimately boiled down to human activities and assigned to managers and their employees. Human activities impact revenue, profit, and quality. Even quality activities ultimately impact revenue and profit.
Example, an insurance company may excel at gathering high quality claims data that results in lower claim expenses and legal costs.
Human activities are incorporated into an individual’s performance plan. Before defining the human activities though, the goals, competitive factors, and tactical operations need to be gathered into a data repository. Once gathered, they will be used to gain and communicate corporate alignment.
Depending on your role in the organization, you may be called upon to help define and capture the financial performance ratios. You may also be responsible for gathering and storing external factors such as survey results, industry statistics, etc.
If all goes well, the corporation captures the revenue and performance goals and defines how performance is to be measured. This is also communicated across the enterprise (gaining alignment). The performance goals and target financial ratios can be stored in the corporation’s data repository. The measuring and communicating of progress will be accomplished using a company’s reporting toolset. The company has to decide the best frequency to communicate actual performance compared to stated goals. This frequency can be daily, weekly, monthly, or quarterly with the emphasis on providing continual feedback. Reporting on performance results is the first, and most basic, step in the adoption of BI practices. Performance reporting answers the question “What happened?” (Davenport & Harris, 2007). It is very important but only the first step.
- Davenport, T. H., & Harris, J. G. (2007). Competing on Analytics The New Science of Winning. In T. H. Davenport, & J. G.
- Harris, Competing on Analytics The New Science of Winning (p. 8). Boston: Harvard Business School Press.