Business managers want to focus on meaningful decisions, so they value and need real-time information on key performance indicators (KPIs). The three-step process proposed in this article: create a value model; deeply integrate KPIs; real-time value optimization, which will provide companies with solutions for creating real-time value optimization and help companies achieve high-level benefits.
There is a large amount of data in the performance indicators and management dashboards of enterprises, and these complex data are not very helpful in how to optimize the performance of the organization. Many enterprises are troubled by this.
Managers want to focus on meaningful decisions and actions. Therefore, what they really need is real-time information that only displays key performance indicators (KPIs) that drive value growth and are controllable. However, so far, achieving “real-time” value optimization has been a slow and expensive process, and most projects that summarize KPIs are far from achieving the expected results even if they can be completed.
There are often only a few indicators among all the information that have a significant impact on future cash flow. However, as long as these key performance indicators are identified, the connections between them are understood, and relevant management insights are derived, impactful results can be produced. As long as it is implemented properly, dynamic performance management can help companies increase profits by up to 30%.
In addition to bringing huge profit growth, real-time value optimization can also bring more far-reaching benefits, including:
Greatly enhance the understanding and cooperation between the main leaders of the company
Align real-time management information with long-term budget and planning direction
Instantly quantify investment decisions and accelerate the evaluation of alternatives
Directly link incentive and reward mechanisms with real-time KPI dynamics
Real-time value optimization can also promote a comprehensive update of corporate strategy, organizational structure, and culture.
This article will use a three-step process to help companies quickly achieve high-level benefits through transformation: 1. Create a value model; 2. In-depth integration of KPIs; 3. Real-time value optimization (Figure 1).
Three steps for real-time value optimization
With the development of data analysis tools and technologies, the speed of acquiring, storing and displaying KPI data has accelerated, while the difficulty and cost have been reduced. It is also possible to connect to multiple data sets (regardless of the format), use machine learning, simplify the data collection process, and scale analysis.
The development of these tools and technologies has further expanded the impact of real-time KPI reports, enabling them to generate deeper and more effective insights. Increased speed and flexibility and reduced costs have also allowed the management team to transform concepts into concrete solutions in just a few weeks instead of years.
Step 1: Create a value model
The three key elements of creating a value model include: defining a set of operating indicators that can reflect the way the company operates and can be controlled internally; linking these indicators under the framework of the future cash flow model; and then determining which indicators are really important. Improve the model to focus on these KPIs more effectively.
The process of determining important indicators itself requires insight. By linking these indicators with future cash flows, the value model will be further calibrated, iterated and refined, and the reliability of these indicators will also be enhanced. The process of further refinement to a few key KPIs may also bring unexpected value, such as discovering new important indicators, and including these newly discovered indicators may create greater value.
Creating a value model is the beginning of dynamic performance management. In order to further improve the model, companies must use real real-time data to further filter out the most critical KPIs.
Step 2: In-depth integration of KPIs
To obtain or create the data required for each KPI (data should have a corresponding level of granularity and depth), companies must use business and analytical expertise to find data, or develop new processes to generate data from scratch. This also requires data engineering capabilities to establish associations with all relevant data sets in the original systems and applications of each business. The following are some potential sources of data (Figure 2).
With the advancement of analytical tools and cloud computing technology, it has become easier to collect new data and utilize previously untapped sources of information. Machine learning algorithms have been developed to recognize rules about specific business performance indicators that humans cannot perceive. Such real-time data collection and analysis capabilities can bring competitive advantages. Related technologies continue to develop at a high speed, so it is important for companies to fully understand the available opportunities and use the right tools to optimize the business benefits of their data.
Step 3: Real-time value optimization
The core of real-time value optimization is to create an upgraded version of the value model. That is to use all the data collected and created in step two to form a calculation engine, and pass the operational KPI layer by layer to the communication equipment of enterprise users through the dashboard. The dashboard and its KPIs can meet the specific needs of different types of users.
Once such a system is formed, companies can optimize performance. By concentrating the focus of management discussions on the KPIs in the dashboard and monitoring the impact of actions taken on each KPI, companies can start a positive feedback loop. This system can continuously improve itself and further generate a series of assistance. beneficial. Based on this information, companies can better integrate budgets and long-term scenario planning, incentives for management and suppliers and customers, as well as key decisions on investment and other strategic initiatives.
With the development and application of cloud technology, such solutions are no longer restricted by traditional IT systems, can directly achieve standardization, and the deployment process will also be accelerated.
Suppliers of this type of solution play a vital role in this process. Without the above-mentioned data and analysis tools, it is difficult for companies to overcome difficulties related to complexity, connectivity, and flexibility. Realize a set of real-time analysis solutions with reasonable cost and time under direct control.
Even if some KPIs have been identified and the connections between them have been modeled, enterprises still face some major obstacles and delays when creating real-time value optimization solutions: usually there are many data sources; required The data may be difficult to obtain, and the quality is not high enough; IT resources are often transferred to other projects; enterprises may be distracted by urgent but less important issues.
In addition, many companies do not have the ability to develop reports for multiple structured and unstructured data sets, or do not have the time and resources to visualize data. Finally, companies usually tend to separate digitalization, data capabilities and business capabilities, but in fact these two capabilities should work closely together to design better business solutions.
Companies should make more efforts to overcome these challenges. The investment and commitment of the top executives will be the key to success.
Transformation is imminent
Real-time value optimization cannot be achieved overnight, but the continuous advancement of data analysis and cloud technology means that new solutions can be developed, tested, and deployed more quickly, which usually only takes a few weeks. This method can help manage the most complex data sets, is cost-effective and safe, and can also be deployed on a large scale within the enterprise.
This agile and iterative process can help companies achieve differentiation, improve operational efficiency, cut costs, and increase sales and profits. We have seen that many companies have achieved relevant changes and created value through this process. There are many specific ways, including price optimization and realization, reduction of procurement costs, reduction of operating and management costs, and through maintaining uniformity from different business units Sales and customer spending information to negotiate more favorable business conditions, etc.
If the company’s management team has a clear schedule for performance improvement, and has the vision and motivation to use new analysis tools and technologies, real-time value optimization will definitely bring them huge business opportunities and sustained competitive advantages.