One of the most significant challenges business leaders face in deploying business intelligence and management reporting systems has little to do with the technology. Rather, it is the common business language – the terms, metrics, and definitions that must be made pervasive throughout an organization to realize the full value of an enterprise information system. Without a common business language across business units and functions, valuable time is wasted and decisions are impaired due to unclear metrics and delays in report analysis.
We know that report preparation and analysis is a time-consuming business activity and that getting accurate information is not always easy. Analysts and managers sift through large amounts of financial, operational and sales data looking for trends and statistics, and then spend significant amounts of time reconciling the numbers in meetings with executives and business leaders across functions. Often the discussions reveal the use of the same language for different metrics – even words such as “customer,” “employee,” overhead,” and “revenue” can mean different things to different departments – and that leads to time wasted on clarifying and reconciling the metrics and associated data. The result of this confusion over business terms is increased costs and delayed and/or impaired decision making. Establishing a common business language across business functions avoids confusion by enabling transparency, accountability, concurrence, and collaboration.
Figure 1
The Need for a Common Business LanguageInformation needs challenge most organizations. The onslaught of cheap processing power and data storage has enabled a significant increase in the information available or stored within an organization. Unfortunately, in many cases that information cannot be called business intelligence (or knowledge) even when accessed because there is no clear understanding of the meaning of the information. Companies launch expensive and resource-intensive projects to catalog, organize, classify, and present information that will be useful to management for making decisions but these projects often miss their mark because of a lack of common business language across business functions. Time-consuming and sometimes painful manual processes are put in place to reconcile the information and make it meaningful and accurate for decision makers on a regular basis. But what is the cost of adjusting to changing conditions through such manual efforts? And how quickly could your organization respond to unanticipated new changes? Would it require a “painful, stop-everything project” to clarify the metrics and identify how the metrics are being used in your company and by whom? If so, this decreased agility is adding costs to your organization and resulting in missed opportunities to profit.
A common business language enables companies to drive to consistent and well-understood metrics across the organization, reducing the time and budget required to analyze information and turn it into intelligence.
The Challenges of Not Having a Common Business LanguageExample 1: What is an “employee”? Companies are challenged to determine and understand key descriptors within the business.
At one company, there was considerable confusion as to the meaning of “employee” and this confusion persisted year after year. Traditionally the company reviewed employee counts on a regular basis and made annual hiring practice decisions. Typically, the CFO called the VP of HR and requested the current headcount of the corporation.
The VP of HR then requested this number from his staff. He also called the controller to get the same information. Two days later conflicting reports were returned to the VP. Each report had a different total because it used a different meaning of the word “employee” (see Figure 2). The VP of HR sifted through the different reports and made his own assumptions to arrive at a reasonable number, calling the controller and several others into a meeting to help. In the end, the process slid from one based on facts and numbers to one based on an approximate estimate. The result was a barrier to presenting accurate and consistent information.
The VP of HR and the controller met with the CFO to provide a working number and to explain why it was only an approximate estimate. After an hour or so, it became clear to the CFO that he was not going to get an exact number, just as he had not the year before, and he can no longer delay his decision regarding hiring. He decided to err on the side of caution, assumed the highest number, and placed a hiring freeze on the organization.
Placing a freeze on hiring when a company is understaffed is always risky to the revenue-generating capacity of an organization, to building a world-class staff, and to maintaining morale. Lack of a standard definition of “employee” not only cost this company money in terms of staff time involved in reconciling the numbers (approximately $6000) but also potentially cost money in lost opportunity. The CFO knew time had been wasted in obtaining the numbers. He was also aware these discussions were far too frequent, not just about the term “employee” but a half dozen other terms as well. Each time, he would exhort his executive peers to find an owner for each metric and clean up the mess, but without a standardized process for moving to a common business language, the company continued to revisit the problem quarter after quarter, year after year. Moreover, the analysts who supported the management team were given numerous additional and costly tasks related to justifying and documenting the assumptions for each term or metric that produced a barrier to action.
Example 2: What is a “product shipment forecast”? Companies are challenged to understand derived metric definitions.
At one company a process had been put in place to forecast product shipments for the entire enterprise on a monthly basis. Originally there had been some confusion resulting from the meaning of terms such as “fiscal month” and “product,” which led to inaccurate projections provided as a percent of totals over a fiscal month in the enterprise roll-up (see Figure 3).
The resulting confusion necessitated a project to document the differences and educate management regarding the various nuances in the corporate forecast. Hours were spent discussing the merits of each forecast number and why certain business units demanded an exception. Eventually, an agreement was reached as to the corporate forecast solution and the language confusion was resolved at a cost of approximately $33,000 in labor, not including C-level managers.
But the story does not end there. Although over the subsequent years the metrics and their definitions seemed to work fine, even if the process was inefficient, when another system came on line and the company wanted to produce a corporate forecast within the new system, the company found itself in a bind. The original corporate analysts involved in the earlier solution had moved on to other roles, as had most of the other key players, including the executives. The original discovery and assessment work had been articulated in a word processing document and stored on a hard drive, but no one could find it. Regional business units had also diverged again in some of their metrics. This required the current analyst team to redo the research and discovery work. In the end, the decisions made by the executive team were the same as earlier. Unfortunately the cost of not having the key terms documented and published was an additional $30,000, nearly the same cost as what it took for the original team to define the metrics.
The Value of a Common Business LanguageCostly challenges like those just cited result from the fact that the terms and metrics you use to evaluate and monitor your business have company-specific meanings, division-specific interpretations, country-level nuances, and department-driven variations. Larger companies with diverse business functions are more likely to suffer costly errors in operational monitoring and decision making as a result of variation in the meanings of terms and metrics. These challenges can be solved by the creation and implementation of a common business language, enabling everyone in an organization, across divisions and departments, to understand explicitly what “employee,” fiscal month,” or “net sales” means. But the value of a common business language is not limited to clear meaning of company metrics. Standardizing your business language also enables transparency, accountability, and concurrence. And the process of establishing a common business language helps promote best-practices in collaboration and fact-based decision making.
Transparency: Transparency is enabled when the terms and metrics used by management to evaluate and monitor their company are clearly defined and published. When a common business language is in place and made visible, each component of the company can understand its contribution to your business objectives and work toward the same defined goals. This means you gain not only improved management reporting but also improved individual and department performance plans, ensuring that the value of your metrics is realized by tying those metrics to strategic and tactical value-creating activities.
Accountability: Accountability in an information-driven business demands that employees know, understand, and agree to the metrics that management is using to evaluate and monitor the business. In order to monitor the business successfully, management must ensure that managers and employees understand how to gather and report their metrics accurately. In addition, accountability requires knowing who or what group is responsible for a particular metric. Sustainable accountability requires a well-defined governance process for handling changes to the key metrics, their definition, and their ownership. A common business language with agreed-upon definitions is an often overlooked step in the design and delivery of accountability systems, such as performance management and business intelligence dashboards. The gap in understanding and meaning in these solutions greatly reduces their business value.
Concurrence: Concurrence is defined as agreement among multiple parties and groups. Concurrence in the area of management reporting is critical to informed decision-making. As companies grow to encompass multiple countries and multiple markets, they must drive concurrence among their various organizational groups about what metrics should be used to evaluate and monitor operations. Rarely does a single authority have the ability (authority, knowledge, and competence) to dictate to the entire organization the meaning of all the requisite business terms and metrics; concurrence is usually essential. Although achieving concurrence on business terms and their meaning can be difficult, agile companies understand that concurrence regarding the elements of reporting is an ongoing process and a “gold standard” for fact-based decision-making best practices.
Collaboration: With the pace of change in today’s business world, discussions that enable managers to continually adjust their tactics to meet their goals, thus driving business performance, are keys to success. But to be effective in the agile sharing of intelligence and knowledge, such discussions require a common business language. Although this requirement for a common business language is perhaps obvious, what might not be so obvious is that the very process of developing a common business language is an opportunity for knowledge-sharing and increasing business understanding. Discussions that focus on developing a common business language, especially if aided by the use of “a collaborative platform,” not only result in a framework that promotes transparency, accountability, and concurrence but also result in a team that has learned how to collaborate.