Abstract

Today’s communication and information devices now give us the ability to connect instantly to our ERP and CRM business management systems. Anything we can do in the office we can do anywhere else using any web enabled phone, pad or home computer. Instant connectivity. That’s what we need or at least that’s what everyone seems to be saying. There’s another term for this: micromanagement. Maybe we are trying to do too much? Business conditions do not change on an hourly basis nor does any business need to be adjusted instantly. That’s just an indication that our business plans and actions are not organized for success.

Is Micromanagement Necessary?

The latest TV ads for 4G phones seem to be trying to convince us that getting calls, e-mails and other communications 30 seconds sooner is absolutely necessary. I would expand that question much further. Is it really necessary that we stay in touch constantly (or instantly) with our co-workers and business management system? The necessity for instant reaction to changing business conditions is a sign of weakness, not strength. If we have to micromanage our business, all we have done is make ourselves indispensable and that’s a very poor business habit.

Notice that I have not said anything about instant connectivity to prospects and clients. That’s a slightly different situation, but still with some similarities. We do want our prospects and clients to be able to connect with us quickly. We want to be able to show them by our actions that serving customers is job one. This doesn’t mean that we have to call them back in 30 seconds or less, but it does mean that we will connect with them within a reasonable length of time. That’s the key. Our reaction needs to be reasonable and our customers’ expectations need to be reasonable. Connectivity though is very important. We need to be able to access information that is important to our customers and in many cases this means having a reliable connectivity link.

Instant Connectivity is Disruptive to Business Excellence

Unless there is some form of unforeseen catastrophe, any business should be able to operate smoothly with little or no adjustments on a daily, weekly or even a monthly basis. Rather than having to react instantly to issues, the business should be structured so that serious issues are avoided or at least reduced. That’s why we need to practice what I call Business Excellence.

Excellent companies start with excellent owners and senior executives who create a people oriented management philosophy. They in turn recruit excellent line managers and supervisors. That’s the basic foundation, but it’s the regular people, the staff and line employees who will really make a difference. Regular everyday employees will make or break your organization. I know that seems contrary to the popular notion that excellence lies in technology and the management of the firm, but maybe I like to take a contrary viewpoint sometimes just to make a point. In this case I am speaking from the heart. Business Excellence is all about people. Business Excellence starts with the assumption that all people have the capacity to contribute to the success of the organization. Give people the tools they need to do their jobs well. Give them the encouragement to do their best. Give them a physical environment that supports efficiency. Give them a psychological environment which supports effectiveness. Give of yourself to each person in your organization and you stand a very good chance of becoming successful.

Having created an effective employee oriented structure, business managers need to then create an effective reporting system. Effective business decisions drive business profitability. These decisions need to be rooted in facts that can be brought to light instantaneously. People do not have the time to guess. They need to know where to place their attention. They also need to know whether the decisions they make are having the desired effect. If there is too much data, the underlying issues may remain clouded. If there is no way to compare actual results against targets, how can you ever know if you are where you want to be or need to be? Finally, people need to identify those Profit Drivers that have the most significant impact on their organization or on their specific area of responsibility. Adopt a proactive system that helps you track not just where you have been or where you are today, but where you could be tomorrow.

Having created a basic reporting system that gives people the information they need to make sound business decisions, you now need to give people snapshots that give them the ability to identify where their attention needs to be devoted. Truly effective business metrics give you a basis for comparison that either tells you where you are going and whether you are above or below expectations. 

I cringe every time I see bar charts and pie charts as representative of what information users can extract from an ERP system and display on their “dashboard”.  While these charts certainly look pleasant (particularly when displayed in color), in the end they are nothing more than status reports and as such do not (or should not) drive business decision making.  Why? Bar charts and pie charts do not (and never will) lead to any form of decision or action.  A pie chart that displays the percentage of revenue generated by a firm’s top ten customers tells you nothing.  There is no basis for comparison to tell whether this is good or bad.  It looks pretty, but it leads to nothing.

Now we finally reach the point where people can truly react to changing business conditions, but do so within a controlled environment that allows people to be proactive rather than reactive. Having to stay in constant contact with the business management system or co-workers is a reactive business methodology. The options listed above proactive. If you identify key business drivers and create an operational plan that maximizes the potential for these key business drivers, you don’t have to spend all of your time micromanaging your business. Now you can take this time and apply it to business process improvement, thus reducing the need to micromanage.

Most ERP systems can identify exceptions that should be brought to the attention of named users.  That’s what alert systems are all about.  If a tracked metric is above or below a specified target value, an alert is either posted on a user’s home page or sent to the user’s e-mail address.  Unfortunately that’s about as far as most systems have developed the concept in spite of the fact that Exception Management as a business methodology has been around for almost 30 years.  The user is notified, but all of their activities after that are for the most part manual exercises.

A fully proactive Exception Management system is not a Workflow Manager nor is it just a series of e-mails relating to a specific topic.  It is in fact a framework by which sound business decisions can be made.  While the ERP system would be the primary vehicle by which exceptions are identified (operating the same way present alert systems do), users would also have the ability to open their own exception topics. Once open, multiple users could be given access to the exception file.

Let the Business Run Without You

If someone needs to be in touch constantly and react instantly to what’s happening within their business unit, something’s wrong. There is no person within any organization who is that important. In fact the business should be structured so that it can run without the constant manipulation of any one person. Create an organization that gives people the atmosphere and the tools that foster success. Identify the profit drivers that need to be monitored and optimized. Give people the ability to communicate with each other and jointly address key issues. Structure your business for long term success and you won’t have to worry about staying connected 24/7.

Business Reporting has always been one of the many soapboxes I love to jump on (http://www.accountinglibrary.com/blog/category/business-intelligence/, http://www.accountinglibrary.com/blog/category/business-alerts/, http://www.accountinglibrary.com/blog/category/exception-management/). While there is no doubt that sound business decisions are based primarily on the person making the decision, these decisions need to be based on sound information. Seat-of-the-pants decisions might work for small firms where the experience of the decision maker is the key element, but there is just too much information spread over too many decision makers for this practice to work in larger firms. In this case accurate and timely information must serve as the foundation upon which sound decisions can be based.

Why do you need this information?

Accounting and ERP systems can store and regurgitate just about anything you want. Actually it’s possible that for every transaction posted there can be 20, 30 or 40 fields that will allow you to slice and dice data any number of ways. The fact that you can carry reporting (intelligence?) to this level of detail doesn’t necessarily mean you should do it.

Start by asking yourself why you need the information. If it doesn’t lead to a decision, then you don’t need it.

In what format should this information be presented?

With the exception of audit trail reports, rows and columns are out. In no case can they lead to a decision.

Pie charts and bar chart are out as well. They, like row/column reports, are no more than a snapshot of a specific condition at a specific instant in time. People should never make snap decisions and that’s all this information can support.

Having said this, there is one use to which some specific data can be applied. Exception Management or Business Alerts are usually triggered by a specific value, but only if that condition falls outside an expected range. As an example, if a customer’s account exceeds its credit limit or a specific invoice becomes “x” days overdue, that condition should be brought to the attention of a named individual. Business Alerts handle the notification process while Exception Management gives users the ability to deal with an alert in a contact manager like application.

If rows and columns, bar charts and pie graphs are not acceptable, what’s left? Line charts are the only form of reporting that actually lets users develop a sense of the history and future of business conditions that can then give people the total picture. It really doesn’t matter where a company is today, nor does it matter where a company has been. All of that has already happened and cannot therefore be changed. What can be changed is the future and that’s where people need to concentrate their thoughts.

Think of a line chart as a beginning, a middle and an end. Historic values form the anchor upon which the line chart is constructed. The last current piece of data (the most recent value) is the jumping off point and the extension of the line formed gives us an idea as to where our future “might” be.

Once we see the total picture, we can determine if it’s heading in the right direction. Well, that’s part of the analysis, but not everything. The extended line chart gives us a hint of our future, but we still haven’t figured out if that’s where we want to be. You need a second line chart that acts as our target. Now we can see in an instant our past, one possible future and our target.

There are still two adjustments we might need to make. If the volatility of the data is significant, we may have to utilize some form of smoothing to make the data more understandable. Second, data does not follow a straight line path. Sometimes it’s increasing/decreasing over time. If that’s the case we may need to utilize some form of analysis that let’s us see these trends.

Now we can “see” the data and make a decision. If the trend seems to be within the acceptable range or budget we created, then no decision is required. If the trend seems to be heading in a negative direction, then we know we need to take action. No data analysis will ever tell us what to do, but this approach will help us determine if we need to do something and most importantly if the decisions we have taken seem to be having a positive affect.

What information needs to be extracted and displayed?

While it’s certainly easy to create graphs once the data values have been identified, the hard part is determining what you need to track. Remember, you can create any number of fields than can be used to feed your data analysis engine. Picking the right fields is the tricky part.

Think of an Income Statement. It’s got lots of data that could be graphed. Now think of virtually every accounting and ERP system’s ability to support drill down. If you can drill down from a data value to underlying information, then the information is of no use to you because it is being influenced by other data. Since you cannot track everything, you need to identify those basic factors that have the most influence on your business. Identify your Profit Drivers.

Maybe inventory turns in a distribution environment can be thought of as a Profit Driver. Don’t forget though that it’s not going to be possible to track every single item your carry. Maybe start with inventory turns as a whole, then by product line or possibly region. Where you start is not as important as your ability to quickly see where you may have a problem developing. Then you can drill down to a more detailed analysis.

Summary

Efective business decisions drive business profitability. These decisions need to be rooted in facts that can be brought to light instantaneously. People do not have the time to guess. They need to know where to place their attention. They also need to know whether the decisions they make are having the desired effect. If there is too much data, the issues may remain clouded. If there is no way to compare actual results against targets, how can you ever know if you are where you want to be or need to be. Finally, people need to identify those Profit Drivers that have the most significant impact on their organization or on their specific area of responsibility.

Forget about columns and rows. Forget about bar charts and pie charts. Adopt a proactive system that helps you track not just where you have been or where you are today, but where you could be tomorrow.

Introduction

Most ERP systems can identify exceptions that should be brought to the attention of named users.  That’s what alert systems are all about.  If a tracked metric is above or below a specified target value, an alert is either posted on a user’s home page or sent to the user’s e-mail address.  Unfortunately that’s about as far as most systems have developed the concept in spite of the fact that Exception Management as a business tool has been around for almost 30 years.  The user is notified, but all of their activities after that are for the most part manual exercises.

Start with Proactive Business Metrics

Any Exception Management systems must start with well designed Business Metrics for it is these numerical values that drive the alert system.  If you are going to improve business performance, you must start by identifying the key drivers that influence your bottom line.  These drivers or KPIs (Key Performance Indicators) must be as close as possible to what I might call a “lowest common denominator”.  It makes no sense to track a value that is in fact influenced by even more basic elements.

As we discussed in the article regarding Business Metrics, some KPIs do not lend themselves well to straight line tracking.  Some key drivers might be seasonal or display a curve-like history.  In this case setting a specific alert trigger value for any extended time period may lead to less control, not more.  In addition, the most effective tracking system might not be based on where a KPI is today, but where it might be tomorrow.  In this case the alert needs to be based on a forecast and whether the KPI is beginning to move into a danger area.  Remember, an effective alert system must be proactive, not reactive.

Software Driven Exception Management

A fully proactive Exception Management system is not a Workflow Manager nor is it just a series of e-mails relating to a specific topic.  It is in fact a framework by which sound business decisions can be made.  While the ERP system would be the primary vehicle by which exceptions are identified (operating the same way present alert systems do), users would also have the ability to open their own exception topics.  Once open, multiple users could be given access to the exception file.

Such systems do exist today. Discussion Boards (most widely used in on-line education classes where students are assigned to groups for projects or papers) give people the ability to participate in group projects (or operate individually), track all thoughts and comments regarding an issue, attach documents that further the discussion, and most importantly communicate with any other person participating in the discussion.

The objective of the Exception Management system could be improvement in named metrics (e.g. improve Inventory Turns for a specific product or product line) or controlling specific conditions such as an overdue Purchase Order or Sales Order.  It could also support tasks and projects that are not driven by the Exception Management system. 

One significant benefit may be more productive use of people’s time.  Rather than attending various forms of staff meetings to discuss issues, people are free to participate in the discussion board at their own pace. Rather than listening while one person (only) speaks, people can read recent posts (the person speaking) when it is convenient, consider everyone’s recent posts and then respond in an appropriate and well informed manner. I think that’s a much more effective use of any firm’s most precious resource: people’s time.

Key Elements

Rather than simply notifying users that an exception exists, the Exception Management system creates a hybrid task manager / contact manager that

• identifies the exception and posts it to an Exception Manager applet specific to a named user,
• allows users to recognize/define an exception manually and post it to their Exception Manager, Alternately they could create a task or project that needs to be managed using the same control elements,
• lets users describe the exception in as much detail as required,
• lets users collaborate with other people in the organization by giving them access to the exception file,
• drill down to specific information that relates to the exception,
• save links to reports and metrics that contribute to the discussion regarding the exception,
• record their thought processes,
• record specific steps that have been taken to alleviate the exception,
• record metrics that track their progress toward alleviating the exception,
• share their thoughts and activities with other people in the organization,
• send a notice (but not an e-mail) to one or more people participating in the discussion so they know they should read the most current update and/or perform an act requested by the sender and
• create a next action date that helps them know when they should revisit the exception.

Summary

Exception Management is not just about notification.  It is a system that allows users to address issues and record their thoughts and activities within a software driven framework rather than doing so in a manual environment.  It allows people to work more efficiently, collaborate in a logical manner with other people in their organization, and ultimately make better business decisions.